LONDON SCHOOL OF COMMERCE BELGRADE

MBA
for
executives

FINANCIAL ANALYSIS AND MANAGEMENT

Darko Jovanović, group 25

May 2015
Contents
Executive summary......................................................................................................5
Brief presentation of potential acquisition targets........................................................6
Booker Group PLC...................................................................................................6
Metro AG – company presentation...........................................................................7
Assessment of the financial results of the acquisition candidates................................8
Booker Group PLC...................................................................................................8
METRO GROUP....................................................................................................10
Proposal for the eventual acquisition......................................................................11
Investment appraisal techniques.................................................................................11
Accounting Rate of Return (ARR).........................................................................12
Payback Period (PP)...............................................................................................12
Time Value of Money.............................................................................................13
Net Present Value (NPV) method...........................................................................13
Internal Rate of Return (IRR).................................................................................14
Profitability Index (PI)............................................................................................15
Recommendation for the use in the retail business investment appraisals.............16
Appendix.....................................................................................................................17
References...................................................................................................................25

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Executive summary
In the first part of this assignment a brief presentation of the business of two possible
acquisition targets (Booker Group and Metro AG) was presented. After that, a deep financial
analysis of those companies was undertaken and the assessment was made where an advice
for the acquisition was prepared. At the end different capital appraisals techniques were
presented and the best suited one was recommended for use for the evaluation of the
investments in distribution warehouses and “cash and carry” stores.

Brief presentation of potential acquisition targets

Carrefour SA are considering possible acquisition of a large European “cash and
carry”/retailing group. They have already identified two possible targets. One is a Metro AG,
a very large wholesale/retail group based in Düsseldorf, Germany and the other is Booker
Group PLC, the UK’s largest food wholesaler. In the following lines a brief summary of their
business would be given.
Booker Group PLC
Booker Group PLC is a leading food wholesaler in the UK. They claim to serve
338.000 catering business and 73.000 retailers in the UK as well as over 10.000 trade
customers in India, 22.000 in total more than the year before (Booker Annual report, 2012). In
the UK, Booker has 172 cash and carry business centers which includes Ritter –Courivaud
and Classic Drinks business acquired in 2010. Booker is represented through its several
brands: Booker Wholesale, its cash and carry business, Booker Direct, delivered wholesales
business, Premier, Booker’s symbol group and Booker India.
Booker Group PLC has a fiscal year end in March, and until the March 2012 it has
recorded pretty good results. Sales rose by 7,3% and operating profit was up for 16% then in
the 2011, (Booker Annual report, 2012). A good portion of the results is owed to driving into
the catering market. Therefore, the company ended a year with net cash of £63,4m.
The food wholesales market is very competitive with a tight margins and the
company must have a strategy to address this issue. However, Booker Group has a strategy
named “Focus, Drive and Broaden” the business. “Booker seek to become the most efficient
operator in the sector”, (Booker Annual report, 2012, p.4). The company has an ongoing
project for improvement of its business efficiency. They “stop, simplify and standardize”
work wherever is possible and invest the savings into customer service. In that way, through
tight cash management a net cash is increased significantly. With driving the business, Booker
addresses continual improvements led by customer requests assessed by customer surveys
regularly done (more than 40.000 customers were surveyed for each year) in order to evaluate
development directions. Based on these improvements Customer Satisfaction was raised
during the year 2012. In the strategy of Booker Group, broadening means introducing new
businesses and/or customer services as was Euro Shopper, launched in 2007, Farm Fresh in
2010, and increase in catering services. Also, Business Centre teams have been trained in
PRIDE (Parking, Reception, Inside, Delivery and Exit) to improve customer experience. All

3
of these efforts and programs are aimed to secure and increase company’s market share and in
the same time to reduce costs.
Economic conditions in Europe were not favorable in 2012. As sovereign crisis in
Europe in general has reduced spending, the effect was mainly in the southern Europe at its
maximum, while the UK was mainly intact (at least until the closing of Booker’s fiscal year).
Also, in general, food market has pretty inelastic demand. In other words, people will spend
similar amounts of money on food even if economy is down, and will not increase its
spending if the economy is growing rapidly. Also, Booker’s operation in India is making
business more robust. Company’s focus on efficiency and customer satisfaction appears to be
the winning one, and financial results proves this at a glance.
Metro AG – company presentation
Metro GROUP, which is based in Düsseldorf is a leading international retail and
wholesale company. It is a fourth-largest retail company in the world with a workforce of
282.984 employees and with total sales in 2012 of €66.739m. Its business comprises of self-
service wholesales trade, hypermarkets, consumer electronic stores, department stores and
online trade (Metro AG Annual report 2012). The company is in the market with its 4 sales
lines:
 METRO Cash & Carry
 Real
 Media-Saturn
 Galeria Kaufhof
 Metro Properties
METRO GROUP conduct its business in 2.243 sites in 32 countries in Europe, Asia
and Africa. Its backbone of business is its cash & carry business which generates 50% of
group’s turnover with €32bn in total sales and EBIT of €947m. Metro operates this business
under the Metro and Makro brands with a focus on its operations in 8 core countries: China,
Germany, France, Italy, Poland, Russia, Spain and Turkey. Sales in those countries generates
two third of company’s cash & carry’s turnover. Real represents a hypermarket branch with
strong focus on German market where is at No.1 position. Real’s business in Eastern Europe
is being divested (the process followed in 2013) to French Auchan retail group. Real has both
stationary and on-line stores and is well known in the market for its good value for money
offer. Media-Saturn is Europe’s No.1 in consumer electronic retailing! Media Markt and
Saturn are sales brands represented in 16 countries. Stationary business is strongly supported
by on-line stores, with one pure online retailer Redcoon which is a part of Media-Saturn.
Galeria Kaufhof is a well-known brand in Europe. It is famous of its high-performance
assortments with international brands and top-quality own brands as well. Metro Properties is
a METRO GROUP’s real estate company. Its service range comprises investing activities,
development, construction and management of retail properties as well as energy management
for all METRO GROUP locations.
“Creating added value for the customer”, has been a focus of METRO GROUP,
(Metro AG, annual report 2012). A fundamentals of Metro’s strategy could be reflected
through its 5 processes: transform, grow, improve, expand and innovate. The company is
trying to transform its processes according to the customer needs, to grow in every segment,
with constant improvement of its performance. Metro sees the potential for the expansion in
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all segments, also by constant innovation by recognizing social and technological trends and
carefully implementing those into the daily business.
Economic environment during the 2012 was tough, as sovereign debt crisis emerged
especially in Southern Europe, thus reduces customer’s purchase power. As the result, some
of Metro’s brands did not performed well during the year 2012. This especially occurs with
the retail part of business where more expensive products were offered, like Real and Galeria
Kaufhof. Moderate sales growth of 1,2% with a price raise during 2012 is in fact a sign of a
stagnating year for METRO GROUP. The company reacted by divesting its non-profitable
operations in the UK (money-losing whosale business), in the Eastern Europe (Real retailing
operator) and in China (discontinuing Media-Markt). In the same time, focus on customer’s
added value, developing more efficient operations and logistics, together on focusing on
operations in 8 core countries, seem to be the way to put Metro back on its growing schedule.
It is important to note that Metro’s operations were more vulnerable to the crisis conditions
due to the market coverage in the highly affected countries (South and Eastern Europe) as
well as the product offering consisted of higher value (consumer electronic, fashion products,
…).

Assessment of the financial results of the acquisition candidates

In the following lines an assessment of the financial situation of both companies
(Booker Group and Metro Group) will be conducted based on data published in annual reports
for the last 4 years. After the comparison a proposal for eventual acquisition will be given to
the management of Carrefour SA.
Booker Group PLC
Booker Group PLC is constantly growing company in regard of its turnover from
2009 until 2012. The revenue grew from £3.179,2m in 2009 up to £3.932,8m in 2012 which
makes a 23,7% growth. Compound average year growth is accordingly 5,4%. A graph which
reflects the status is given as follows:

Figure XX. Booker Group PLC – Revenue in £m

A horizontal analysis was made upon the data from the income statement for the last
4 years in a row and some interesting results could be seen out of it (Appendix I). However,

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Booker Group has made its operations more profitable as its Operating profit (EBIT) was
increased for 55% for 4 years with a revenue growth of 23,7%. Profit after interest and tax has
increased even more for app 91% with a total Earning per share increased for 80% to 4,74
Pence per share. These results confirms the company’s strategy to become the most efficient
operator in industry. Vertical analysis on the other hand shows qualitatively the nature of the
Booker’s business. However, wholesale business is run typically with low margins. However,
gross margin of 3,78% (for 2012) is slightly lower than the industry average of 4,3%
(Bloomberg Business). On the balance sheet, an increase in cash and cash equivalents was
recorded for app 300%. On the other hand is the decrease of interest for loans and borrowings
which suggest that the business is financed with cash instead with short term loans.
Further to horizontal and vertical analysis of financial statements a ratio analysis was
conducted as well. In the first place a profitability ratios were calculated and the results could
be found on the diagram below:

Figure XX. Booker Group PLC – profitability ratios

Although gross margin and operating profits are in a low level increase a very
important profitability ratios show steady growth. However, Return of Assets (ROA), Return
of Equity (ROE) and Return of Capital Employed (ROCE) records higher values then the
industry average. ROA of 9,57% against IS (Industry standard) of 7%, ROE of 20,28%
angainst IS of 19% and ROCE of 19,94% against IS of 16% makes Booker Group a very
attractive for the investors. Those ratio numbers show relatively high level of usage of assets
in order to gain profits. Liquidity ratios show relatively low values, slightly below industry
values. However, Current ratio is at 0,85 and Quick ratio is at 0,30, which suggests a liquidity
issue. As industry standards are 1,0 and 0,4 for Current and Quick ratio respectively, we can
conclude that the low liquidity is inherited in this type of business. On the other hand asset
utilization ratios suggest very rational business model. Average collection period (7,58 days)
and Inventory period (25 days) together (app 33 days) are less than a Payable period (44 days)
which is the reason for smooth running with such a low liquidity ratios. Furthermore, a major
financing asset is cash (Booker Group, annual report 2012), supported by a revolving credit
facility which is fully covered with future cash flows discounted at 10,8% interest rate.
Gearing ratios show relatively low gearing level, both equity and capital gearing ratios are
below 25% (see Appendix I, ratio calculations).

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 Investment ratios are directly related to the attractiveness of the investment in such a
company. General trend among the ratios is positive. Earnings per share, EPS, and Dividends
per share, DPS, were rising from 2009 up to 2012 from 0,026 to 0,047 for EPS and from 0,01
to 0,02 for DPS. At the end of this analysis it is worthy to appoint that Booker Group was able
to increase a net increase in cash and cash equivalents for 3 times from £20,4m in 2009 to
£63,5m in 2012.
All of this said about Booker Group brings to a conclusion that it is a stable, profit
making company, relatively low geared which effectively utilizes its assets in order to
generate profits and to increase its shareholder’s wealth through dividends paid and increased
shares value.
METRO GROUP
At the beginning it is important to mention that for Metro Group, only results for
2011 and 2012 were analyzed due to the change in the accountant policy which could
potentially distort the data. However, the effects of the recent economic condition could be
recognized within this time frame so it is reasonable to believe that the results could be useful.
Metro Group is a very huge company. Its sales in 2011 was €65.926m and in 2012
this number went to €66.739m. This was just a slight increase, but when a food price increase
was taken into account, the sales was just at the same level as a year before. As it was
mentioned before, a sovereign crisis was at its mature phase in the second half of the year and
was taken into account in the reports of Metro Group, but not in same amount in the reports of
Booker Group for 2012 as theirs fiscal year is ending up in March. Nevertheless, the figures
shows some downturn, which is the most important at EBIT value. EBIT was reduced from
€2.113m to €1.391m, significantly, mainly due to the increased selling expenses. This
reduction has affected some of the main profitability ratios, especially Return of Equity
(ROE) which was fallen from 9,8% in 2011 to 0,05% at the end of 2012. The rest of
profitability ratios movements could be obtained from the chart below:

Figure XX. Metro Group – profitability ratios

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 It is noticeable that the Gross margin is significantly larger than at the Booker, but
Operating profit margin seems to be at the same level. However, the operating margin has
fallen from 3,21% to 2,08% which is not a good sign.
Metro’s liquidity seems to be within the same range as Booker’s with Current ratio
of 0,87 and Quick ratio of 0,53. The latest is slightly better than Booker’s probably due to the
bigger inventory held by Booker relatively to the one in Metro. One big difference between
Metro and Booker is in gearing ratios. It appears that Metro is higher geared then Booker.
Equity gearing ratio is at 140,85% while Capital gearing ratio is at 58,48% which is
significantly higher from Booker’s values (21,66% and 17,80% for Equity and Capital
gearing respectively). Companies with high gearing ratios are usually more profitable, but in
the same time more exposed to the financial risk in the situations where revenue is reduced,
(Weetman P., 2011).
Assets utilization ratios show that Metro has pretty efficient operations. Collection
period is shorter than the Booker’s (3,11 to 7,58 days), where Inventory days are 37 against
25. Metro appears to be very efficient in delaying its payments, where payables days are 74
days against to 44 days at Booker. This gives a significant portion of cash in hand of Metro
necessary for its daily operation. Its large Inventory needs funds to be supported so Metro has
been borrowing almost a billion more in 2012 than in 2011. This fact ads to its gearing ratio
and exposes Metro more to the financial risk which is not favorable in the circumstances as in
2012.
In general, the situation for the investors is not positive within Metro in 2012. The
value for Earnings per share has dropped significantly from €1,93 to €0,01. Nevertheless,
Metro has announced that it will pay dividends despite the low results in the same way as
before, related to the EBIT, which is decreased too.
Proposal for the eventual acquisition
The final decision about eventual acquisition is a complex matter. However, overall
strategy of the company should be considered and if that strategy is compatible with the
targeted company then its financial situation should be assessed. Also, Metro and Booker has
been covering different geographical markets, as Metro is active in the Europe’s mainland and
China, with pretty diversified products and services portfolio, Booker is more focused on the
UK’s market with a strong focus on food wholesales business.
Nevertheless, and advice could be given by looking from a financial perspective.
Booker Group appears to be more financially stable with all parameters in the upwards
direction. It is low geared company with very efficient operations and stable growing
earnings. On the other hand Metro is very big company, but apparently vulnerable to the
demanding market conditions. With its size in mind, eventual acquisition of a part of the
company is possible, for example its cash & carry business. The final recommendation
according to the financial status would be for the acquisition of Booker Group PLC.

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Investment appraisal techniques
“The profitability of the enterprise is a function of its ability to generate profits or
investments which provide greater returns than the cost of funds”, (LSC, FAM course manual,
2015). Therefore it seems to be essential for the company to valuate in the proper way
different investments proposals. There were many techniques developed for investment
appraisals so far. Some of them are pretty straightforward and based on justification of a
single investment or its payback period and others are more sophisticated and take into
account time value of money and overall value of the investments even after predicted project
(investment) life time. Some of the most used techniques are:
 Accounting Rate of Return (ARR)
 Payback Period
 Net Present Value (NPV)
 Internal Rate of Return (IRR)
 Profitability Index (PI)
Accounting Rate of Return (ARR)
As the name says for itself in this method appraisal is made based on the accounting
data. A definition of the ARR is:
Average Annual Profit
ARR= earn that Profit ¿ × 100 %
Average Investment ¿
The biggest difference between other appraisal methods and ARR is the base for the
calculation. As it is obvious from the equation in ARR, profits are used as the base and not
the cash flow as in other methods. As per definition, average annual profits are calculated as
“average annual cash flow minus annual depreciation” (Weetman P., 2011, p.664). The result
is given in percentages and different projects could be compared upon the return rate.
The advantage of this method is that the success of the project is assessed within the
same accounting frame as the assessment of the company itself (ROCE for example). On the
other hand, one of the most important disadvantage is that this method does not take into
account time value of money. Another potential disadvantage might be that the result is given
in percentages, which can sometimes lead to wrong decision. In example where one project
with ARR of 20% and total project value of 10.000€ is compared to another with ARR of 7%
and total project value of 50.000€, assessment only by means of comparison of ARR would
lead to acceptance of the first project no matter that the net value of the second project is
bigger. Nevertheless, this method could be successfully used to valuate a single project
against accepted company’s standard ARR value (Gowthorpe, C., 2008).
Payback Period (PP)
Another simple method for the investment appraisals is Payback Period calculation
method. “Under the payback method, we compute the time required to recoup the initial
investment”, (Block S. at al. 2009, p. 375). Annual cash flows are calculated against the initial

9
investment and the period for which the investment is annulled represents the payback period.
The following example should show the principle of the method.

Cumulative cash Cumulative cash

Payback Period (PP) Project A Project B
flow Project A flow Project B

Initial investment
Year 0 - 450.000,00 € - 600.000,00 €
Year1 160.000,00 € - 290.000,00 € 245.000,00 € - 355.000,00 €
Year2 160.000,00 € - 130.000,00 € 165.000,00 € - 190.000,00 €
Year3 160.000,00 € 30.000,00 € 175.000,00 € - 15.000,00 €
Year4 100.000,00 € N/A 100.000,00 € 85.000,00 €
Year5 150.000,00 € N/A 280.000,00 € N/A
2 Y 10 M 3Y 2M

Figure XX. Payback period calculation – an example

The example shows two projects with different initial investments and cash flows.
However, the Project A should pay off its initial investment in 2 years and 10 months and
Project B in 3 years and 2 months period. Based on this calculation the company should
accept Project A for the realization.
There are some critics of this method. The most important is that Payback Period
calculation neglects future cash flows after the paying off the initial investment (not included
in the decision making), and therefore this method cannot be used to measure profitability of
the projects (Horn J. & Wachowicz J., 2005). Another, even more important disadvantage is
that this method does not take into account time value of money. Nevertheless, this method is
widely used in practice, especially in small project appraisals when comparison between
similar machines and/or projects has to be made quickly and conveniently especially if the
company (or financing institution) is concerned about risk (Block S. at al., 2009).
Time Value of Money
It was mentioned above in the text that some of the techniques do not and some do
take a time value of money into account. This approach is used to determine the future value
of a certain amount today, as well as to discount future cash flows to their value today. As the
rate for discounting an interest rate is used (or discount rate in opposite way), which is usually
cost of capital for a certain company (Weetman P., 2011). If we write PV for present value
and FV for future value we can write a equation as following:
n
FV =PV ×(1+i )
Where i represents interest rate and n stands for number of years. This equation could
be written in the way to calculate PV if FV is known (for the cash flows in future for
example):
FV
PV = n
(1+i )
This equation will be used in the methods described further in the text.

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 Net Present Value (NPV) method
“The Net Present Value (NPV) method of capital investment appraisal is based on
the view that a project will be regarded as successful if the present value of all expected cash
inflows is greater, or equal to the capital invested at the outset”, (Weetman P., 2011, p.667).
Therefore, based on the principle of time value of money, future cash flows are discounted on
the current date and compared with the initial outlay in order to assess the project. The
formulae for the calculation of NPV is as follows:
CF 1 CF 2 CF n
NPV =−CF 0 + 1
+ 2
+ …+
( 1+i ) (1+i ) (1+i )n
where CF stands for cash flows and the rest of the letters have the same meaning as in the
previous equations. Basic rule is that if the NPV is greater than 0 the project could be
accepted. Also, if multiple projects compete for the funds, the one with the biggest NPV value
should be chosen.
If the example for the Payback Period calculation is used with an interest rate of 9%
the results of the NPV calculation could be found below:

Net Present
Project A Project B
Value (NPV)

Initial investment
Year 0 - 450.000,00 € - 600.000,00 €
Year1 160.000,00 € 245.000,00 €
Year2 160.000,00 € 165.000,00 €
Year3 160.000,00 € 175.000,00 €
Year4 100.000,00 € 100.000,00 €
Year5 150.000,00 € 280.000,00 €
NPV 123.339,38 € 151.603,26 €

Figure XX. Net Present Value calculation – an example

Interesting to note is that in the NPV value of the Project B is bigger than for the
Project A, no matter that the Payback Period for the Project B is bigger. We can make a
conclusion that after 5 years Project B has bigger value and therefore we could accept it.
The biggest advantage of this method is that it considers timing of the future cash
flows and discounts them to the present as the mean for comparison. Also, the result
represents the overall value of the project or investment discounted on present time and
therefore could be used for comparison of the projects of different scale. Another positive
point is that NPV calculation clearly shows the increase of shareholder’s value of the project
(investment), making it particularly suitable and understandable method for the Investors and
Shareholders.
Internal Rate of Return (IRR)
Internal Rate of Return is another capital investment appraisal method which uses
time value of money. “It is a discount rate which leads to a net present value of zero, where

11
the present value of cash flows exactly equals the cash outflows”, (Weetman P., 2011, p.671).
If presented as formulae, the calculation would look like the following:
CF 1 CF 2 CF n
CF 0 = 1
+ 2
+…+
( 1+irr ) ( 1+irr ) ( 1+irr )n
As the outcome of the calculation and discount rate or irr in the formulae is
calculated. It is straightforward to calculate this rate in modern spreadsheet programs, but if
calculated manually, the best way is to calculate the NPV for a project with two different
discount rates which gives one positive and one negative value. By later interpolation, and
IRR which gives NPV value of zero is calculate.
A decision rule for acceptance of the project is that IRR value is higher or equal to
the cost of capital. If two or more projects compete for the investment than the one with the
biggest IRR value should be accepted. An advantage of this method is that it is easy
understandable to the management as the result is declared in percentage. This is in the same
time a disadvantage as mentioned before for other methods, because this could hide the real
value of the project.
It might be interesting to take a look at the results of IRR calculation for a project
analyzed before:

Internal Rate of
Project A Project B
Return (IRR)

Initial investment
Year 0 - 450.000,00 € - 600.000,00 €
Year1 160.000,00 € 245.000,00 €
Year2 160.000,00 € 165.000,00 €
Year3 160.000,00 € 175.000,00 €
Year4 100.000,00 € 100.000,00 €
Year5 150.000,00 € 280.000,00 €
IRR 20% 18%

Figure XX. Internal Rate of Return calculation – an example

Project A has bigger IRR value then the Project B. The recommendation seems to fit
with the one made in Payback Period calculation where Project A was paid off quicker, but is
converse to the NPV calculation where Projects B brings higher value to the shareholders.
This comparison is aimed to show that sometimes different methods could bring different
recommendations, but the final decision is always on the management with full understanding
of their business position, strategy etc.
Profitability Index (PI)
When companies want to refine its investment appraisal calculations when maybe
NPV and IRR calculations gives different results (like in the example above), then they could
calculate Profitability index for a projects. This should be done by dividing discounted future
cash flows with the initial investment (Block S. at al., 2009).

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 Discounted cash flows
Profitability Index=
Initial investment
In this way, it is possible to compare returns of the projects of different sizes. Let see
the PI calculation for previous example:

Profitability Index
Project A Project B
(PI)

Initial investment
Year 0 - 450.000,00 € - 600.000,00 €
Year1 160.000,00 € 245.000,00 €
Year2 160.000,00 € 165.000,00 €
Year3 160.000,00 € 175.000,00 €
Year4 100.000,00 € 100.000,00 €
Year5 150.000,00 € 280.000,00 €
Discounted cash
flows 573.339,38 € 751.603,26 €
PI 1,27 1,25

Figure XX. Profitability Index calculation – an example

The results show that the Project A has bigger PI then the Project B. As the same
advice could be given by Payback Period and IRR calculations, the company should choose
Project A for its investment!
Recommendation for the use in the retail business investment appraisals
For the investment in a distribution warehouses and “cash and carry” stores the clear
recommendation for the investment appraisal techniques would be the one which takes into
account time value of money. As the investments of these kind are pretty huge and projects
are long lasting, it would be of a great benefit to calculate net present value of the estimated
cash flows during the project life discounted on the present date. As Carrefour is a listed
company, it is for sure that the shareholders are interested about the value of the investments
made, so NPV would be a reasonable recommendation. If there is a discussion about mutually
exclusive projects then IRR or Profitability Index calculations could be used to help in
decision making.

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Appendix
Year 2009 2010 2011 2012
CONSOLIDATED INCOME STATEMENT m£ m£ m£ m£
2009 2010 2011 2012
Revenue 3.179,2 3.386,9 3.595,8 3.932,8
Cost of sales -3.077,0 -3.271,9 -3.466,9 -3.784,1
Gross profit 102,2 115,0 128,9 148,7
Administrative expenses -44,4 -48,4 -52,4 -59,1
Operating profit (EBIT) 57,8 66,6 76,5 89,6
Finance Income 7,3 1,2 4,0 6,3
Finance Expenses -17,9 -10,6 -9,1 -5,1
Net financing income/costs -10,6 -9,4 -5,1 1,2
Profit before Tax 47,2 57,2 71,4 90,8
Tax -8,0 -9,6 -12,3 -15,9
Profit for a period attributable to the owners of the
Company 39,2 47,6 59,1 74,9
Earnings per share (Pence)
Basic 2,63 3,19 3,90 4,83
Diluted 2,63 3,11 3,79 4,74

Horizontal analysis
CONSOLIDATED INCOME STATEMENT
2009 2010 2011 2012
Revenue 100,00% 106,53% 113,10% 123,70%
Cost of sales 100,00% 106,33% 112,67% 122,98%
Gross profit 100,00% 112,52% 126,13% 145,50%
Administrative expenses 100,00% 109,01% 118,02% 133,11%
Operating profit (EBIT) 100,00% 115,22% 132,35% 155,02%
Finance Income 100,00% 16,44% 54,79% 86,30%
Finance Expenses 100,00% 59,22% 50,84% 28,49%
Net financing income/costs 100,00% 88,68% 48,11% -11,32%
Profit before Tax 100,00% 121,19% 151,27% 192,37%
Tax 100,00% 120,00% 153,75% 198,75%
Profit for a period attributable to the owners of the
Company 100,00% 121,43% 150,77% 191,07%
Earnings per share (Pence)
Basic 100,00% 121,29% 148,29% 183,65%
Diluted 100,00% 118,25% 144,11% 180,23%

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 Vertical analysis
CONSOLIDATED INCOME STATEMENT
2009 2010 2011 2012
Revenue 100,00% 100,00% 100,00% 100,00%
Cost of sales -96,79% -96,60% -96,42% -96,22%
Gross profit 3,21% 3,40% 3,58% 3,78%
Administrative expenses -1,40% -1,43% -1,46% -1,50%
Operating profit (EBIT) 1,82% 1,97% 2,13% 2,28%
Finance Income 0,23% 0,04% 0,11% 0,16%
Finance Expenses -0,56% -0,31% -0,25% -0,13%
Net financing income/costs -0,33% -0,28% -0,14% 0,03%
Profit before Tax 1,48% 1,69% 1,99% 2,31%
Tax -0,25% -0,28% -0,34% -0,40%
Profit for a period attributable to the owners of the
Company 1,23% 1,41% 1,64% 1,90%
Earnings per share (Pence)
Basic 0,08% 0,09% 0,11% 0,12%
Diluted 0,08% 0,09% 0,11% 0,12%

CONSOLIDATED BALANCE SHEET

ASSETS

Non-current assets
Property, plant and equipment 58,2 59,5 60,5 71,9
Intangible assets 423,9 423,9 437,3 437,1
Investment in joint venture 0,5
Deffered tax asset 12,3 17,1 13,7 13,3
494,4 500,5 511,5 522,8
Current assets
Inventories 196,8 214,1 220,4 268,5
Trade and other receivables 63,6 72,2 87,1 81,7
Cash and cash equivalents 20,4 43,7 46,2 63,5
280,8 330,0 353,7 413,7
Total assets 775,2 830,5 865,2 936,5

15
LIABILITIES

Current liabilities
Interest bearing loan and borrowings -0,2 -0,3 -0,1
Trade and other payables -364,8 -408,8 -424,2 -471,8
Current Tax -20,5 -18,0 -17,1 -15,2
Other financial liabilities -11,6 -1,6
-397,1 -428,4 -441,6 -487,1
Non-current liabilities
Interest bearing loan and borrowings -45,1 -36,7 -18,8
Other payables -28,2 -28,2 -28,3 -28,2
Retirement benefit liabilities -2,0 -21,8 -8,0 -19,0
Provisions -39,7 -38,2 -34,6 -32,8
-115,0 -124,9 -89,7 -80,0

Total liabilities -512,1 -553,3 -531,3 -567,1

Net assets 263,1 277,2 333,9 369,4

EQUITY

Share capital 14,9 14,9 15,3 15,7

Share premium account 30,8 31,0 45,3 49,1
Merger reserve 260,8 260,8 260,8 260,8
Share option reserve 1,6 3,0 4,1 3,8
Hedge reserve -4,0 -1,2
Retained earnings -41,0 -31,3 8,4 40,0
Total equity attributable to equity holders 263,1 277,2 333,9 369,4
Total staff 8.340 8.741 9.063 9.375

RATIO ANALYSIS

PROFITABILITY RATIOS
2009 2010 2011 2012
Gross margin 3,21% 3,40% 3,58% 3,78%
Operating profit margin 1,82% 1,97% 2,13% 2,28%
ROA (Return on Assets) 7,46% 8,02% 8,84% 9,57%
ROE (Return on Equity) 14,90% 17,17% 17,70% 20,28%
ROCE (Return on Capital Employed) 15,29% 16,56% 18,06% 19,94%

16
ASSET UTILIZATION RATIOS
2009 2010 2011 2012
Receivables turnover 49,99 46,91 41,28 48,14
Average collection period (days) 7,30 7,78 8,84 7,58
Inventory turnover 16,15 15,82 16,31 14,65
Inventory period (days) 22,59 23,07 22,37 24,92
Payables turnover 8,71 8,28 8,48 8,34
Payables period (days) 41,88 44,06 43,06 43,79
Fixed assets turnover 6,43 6,77 7,03 7,52
Total assets turnover 4,10 4,08 4,16 4,20
Sales per employee 0,38 0,39 0,40 0,42

GEARING RATIOS
2009 2010 2011 2012
Equity gearing 43,71% 45,06% 26,86% 21,66%
Capital gearing 30,42% 31,06% 21,18% 17,80%

LIQUIDITY RATIOS
2009 2010 2011 2012
Current ratio 0,71 0,77 0,80 0,85
Quick ratio 0,21 0,27 0,30 0,30

INVESTMENT RATIOS
2008 2009 2010 2011 2012
Book value per share 0,17 0,18 0,19 0,22 0,21
Earnings per share (Pence) 0,026 0,031 0,038 0,047
Price/Earnings ratio (PE) 6,84 6,11 5,80 4,43
Dividends per share (DPS) 0,01 0,01 0,01 0,02
Payout ratio (%) 28,5% 29,3% 34,2% 34,2%

17
CONSOLIDATED CASH FLOW STATEMENT

Cash flow from operating activities

Profit before tax 47,2 57,2 71,4 90,8
Depreciation 14,7 14,0 12,6 12,6
Amortisation 0,1 0,2
Net finance income -7,3 -1,2
Net finance expenses 17,9 10,6 5,1 -1,2
Loss on disposals of property, plant and equipment 0,2 0,1 0,1
Equity settled share based payments 1,4 1,4 2,1 2,4
Increase in inventories -12,1 -17,3 -0,3 -48,1
Decrease/(increase) in debtors -9,3 -8,6 -9,5 5,4
Increase in creditors 18,7 44,6 11,8 47,8
Decrease in provisions -5,4 -3,7 -5,6 -3,7
Contribution to pension scheme -11,0 -11,6 -11,0 -8,4
Net cash flow from operating activities 55,0 85,5 76,8 97,8
Interest paid -8,7 -7,4 -5,2 -2,2
Partial settlement of interest SWAPs -7,2
Tax paid -2,4 -8,6 -10,3 -11,2
Cash generated from operating activities 43,9 62,3 61,3 84,4
Cash flows from investing activities
Acquisition of property, plant and equipment -13,9 -15,5 -11,9 -24,1
Acquisition of intangibles -0,5
Investment in joint ventures -0,5
Sale of property, plant and equipment 1,4 0,1 0,1
Net debt arising from acquisition of subsidiary -3,3
Acquisition of trade and assets -3,7
Interest received 0,4
Net cash outflow from investing activities -12,1 -15,4 -19,4 -24,5
Cash flow from financing activities
Payment of finance lease liabilities -0,9 -0,2 -0,1 -0,3
Repayment of borrowings -36,1 -10,0 -20,0 -20,0
Facility arrangments fees -4,0
Proceeds from issue of ordinary shares 0,2 0,2 4,2
Dividends -11,0 -13,6 -19,5 -26,5
Net cash outflow from financing activities -52,0 -23,6 -39,4 -42,6
Net increase in cash and cash equivalents
Cash an cash equivalents at the start of the period 41,0 20,4 43,7 46,2
Cash and cash equivalents at the end of the period 20,4 43,7 46,2 63,5
Bank overdrafts
20,4 43,7 46,2 63,5

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METRO GROUP Annual Report 2012
Income statement for the financial year from 1 January to 31 December 2012

€ million Note no. 2011 2012

1, 2
Net sales 1 65.926 66.739
1, 2
Cost of sales -51.924 -52.798
Gross profit on sales 14.002 13.941
Other operating income 2 1.690 1.702
Selling expenses 3 -11.928 -12.393
General administrative expenses 4 -1.587 -1.664
Other operating expenses 5 -64 -195
Earnings before interest and taxes EBIT 2.113 1.391
Result from associated companies 1 2
Other investment result 6 41 15
Interest inc ome 7 133 123
Interest expenses 7 -713 -685
Other financial result 8 -102 -36
Net financial result -640 -581
Earnings before taxes EBT 1.473 810
Income taxes 10 -732 -709
Profit or loss for the period 741 101
Profit or loss for the period attributable to
non-controlling interests 11 110 98
Profit or loss attributable to shareholders of METRO AG 631 3
Earnings per share in € (basic = diluted) 12 1,93 0,01
Number of employees (workforce by headcount) 280.856 278.811

Balance sheet as of 31 December 2012

Assets

€ million Note no. 31/12/2011 31/12/2012

Non-current assets 18.822 17.287
Goodwill 17, 18 4.045 3.780
Other intangible assets 17, 19 454 407
Tangible assets 17, 20 12.661 11.324
Investment properties 17, 21 209 199
1
Financial investments 17, 22 76 247
2
Investments accounted for using the equity method 17, 22 3 92
1
Other financial and non-financial assets 23 470 500
Deferred tax assets 24 904 738
Current assets 15.165 17.479
Inventories 25 7.608 6.826
Trade receivables 26 551 568
1
Financial investments 119 22
1
Other financial and non-financial assets 23 2.882 2.886
Entitlements to inc ome tax refunds 431 347
Cash and cash equivalents 29 3.355 5.299
Assets held for sale 30 219 1.531
33.987 34.766

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Liabilities

€ million Note no. 31/12/2011 31/12/2012

Equity 31 6.437 6.101
Share capital 835 835
Capital reserve 2.544 2.544
Reserves retained from earnings 2.985 2.645
Non-controlling interests 73 77
Non-current liabilities 8.085 8.593
Provisions for pensions and similar c ommitments 32 1.028 1.047
1
Other provisions 33 463 424
2
Borrowings 34, 36 5.835 6.736
1, 2
Other financial and non-financial liabilities 34, 37 602 227
Deferred tax liabilities 24 157 159
Current liabilities 19.465 20.072
1
Trade liabilities 34, 35 14.214 13.513
1
Provisions 33 546 644
2
Borrowings 34, 36 1.606 1.814
1, 2
Other financial and non-financial liabilities 34, 37 2.705 2.910
Income tax liabilities 34 394 291
Liabilities related to assets held for sale 30 0 900
33.987 34.766

Cash flow statement for the financial year from 1 January to 31 December 2012

€ million 2011 2012

EBIT 2.113 1.391
Depreciation/amortisation/Impairment losses/reversal of
2
impairment losses of assets excl. financial investments 1.316 1.623
3
Change in provisions for pensions and other provisions -24 144
3
Change in net working c apital -174 80
Income taxes paid -632 -627
Reclassification of gains (-) / losses (+) from the disposal
of fixed assets -197 -232
3
Other -310 -39
Cash flow from operating activities 2.092 2.340
4
Corporate acquisitions -106 4
3
Investments in tangible assets (exc l. finance leases) -1.360 -1.304
Other investments -172 -143
Divestments 2 14
Disposal of fixed assets 367 571
Gains (+) / losses (-) from the disposal of fixed assets 197 232
Cash flow from investing activities -1.072 -626
Profit distribution
to METRO AG shareholders -442 -442
to other shareholders -158 -97
5
Raising of borrowings 8.155 8.899
5
Redemption of borrowings -9.403 -7.534
Interest paid -683 -650
Interest received 120 147
Profit and loss transfers and other financ ing ac tivities -30 -44
Cash flow from financing activities -2.441 279
Total cash flows -1.421 1.993
Exchange rate effects on cash and cash equivalents -23 17
Total change in cash and cash equivalents -1.444 2.010
Total cash and c ash equivalents on 1 January 4.799 3.355
Total cash and c ash equivalents on 31 Dec ember 3.355 5.365
less cash and cash equivalents held for sale on 31 December 0 -66
Cash and cash equivalents held for sale on 31 December 3.355 5.299

20
RATIO ANALYSIS

PROFITABILITY RATIOS
2011 2012
Gross margin 21,24% 20,89%
Operating profit margin 3,21% 2,08%
ROA (Return on Assets) 6,22% 4,00%
ROE (Return on Equity) 9,80% 0,05%
ROCE (Return on Capital Employed) 14,55% 9,47%

ASSET UTILIZATION RATIOS

2011 2012
Receivables turnover 119,65 117,50
Average collection period (days) 3,05 3,11
Inventory turnover 8,67 9,78
Inventory period (days) 42,12 37,33
Payables turnover 4,64 4,94
Payables period (days) 78,70 73,90
Fixed assets turnover 3,50 3,86
Total assets turnover 1,94 1,92
Sales per employee 0,23 0,24

GEARING RATIOS
2011 2012
Equity gearing 125,60% 140,85%
Capital gearing 55,67% 58,48%

LIQUIDITY RATIOS
2011 2012
Current ratio 0,78 0,87
Quick ratio 0,39 0,53

INVESTMENT RATIOS
2011 2012
Book value per share 2,56 2,56
Earnings per share 1,93 0,01
Price/Earnings ratio (PE) 1,33 256,00

21
References

1. Weetman P. (2011) Financial and Management Accounting: an introduction, Pearson

Education Limited
2. Block S. at al. (2009) Foundations of Financial Management, McGraw-Hill
International Edition
3. Horn J. & Wachowicz J. (2005) Fundamentals of Financial Management, Pearson
Education, Inc.
4. Kothari J. & Barone E. (2006), Financial Accounting: An International Approach,
Pearson Education Limited
5. Gowthorpe C. (2008), Management Accounting, Cengage Learning EMEA
6. LSC, Financial Management, course manual, 2015
7. LSC, Professor’s lecture slides, 2015
8. http://financials.morningstar.com/ratios/r.html?t=bok&region=gbr [Accessed: 3.6.2015]
9. http://www.bloomberg.com/research/stocks/financials/ratios.asp?ticker=BOK:LN
[Accessed: 3.6.2015]
10. http://financials.morningstar.com/ratios/r.html?t=bok&region=gbr,[Accessed: 3.6.2015]

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