Olaf Koch, Chairman of the Management Board of METRO AG, and Pieter Haas, member of the Management Board, talk about financial year 2015/16, the perspectives and the challenges of the group demerger – and also about what clarity means for them.

Mr Koch, this year has been a special one for METRO GROUP, in which you announced the demerger of the group. Why did you take this step?

Olaf Koch:In the past five years, we’ve achieved a lot and changed many things: we’ve modernised and transformed our business models, significantly sharpened the company’s focus and split certain areas off. Our strategy is to consistently concentrate on what’s most important to us: added value for the customer. Our sales lines have taken great strides forwards in their transformation, and we have come up with many new ideas to make the companies even more attractive to customers. Another positive effect is that we’ve achieved a debt reduction of more than €5 billion during this process. But to continue making progress with our transformation, it’s necessary to concentrate all of our effort on the respective business. In that regard, the planned demerger into two new, high-performing companies is a logical step in our strategy.

What specific opportunities and benefits will this bring for customers and employees?

Pieter Haas: The main thing is that our customers will notice that we’re now able to implement our strategy of being reachable to them with products and services, whenever and wherever, in an even more focused and targeted way. For our employees, the demerger brings a major opportunity and the huge responsibility to even more actively shape the autonomy that has distinguished Media-Saturn for decades. And the more rigorous implementation of our strategy and greater customer satisfaction are also intended to pay off for our shareholders: in higher sales and profits in the medium term.

On 30 March 2016, the stock market responded to the announcement of the planned demerger with a price jump. How do you see the development of the share price throughout the financial year?

Olaf Koch: The spontaneous reaction of the stock market shows more than anything else that the majority of analysts and investors immediately recognised and confirmed the logic of the split. In the discussions over the weeks that followed, we didn’t hear a single contradiction with regard to the wisdom of our plans. Developments over the rest of the year were determined by the fact that the demerger of a group doesn’t just happen overnight, but takes careful preparation. We are aiming to be able to announce the project’s completion in summer 2017. Measured against other transactions, this would be very fast.

How satisfied are you overall with the course of this financial year?

Olaf Koch: We made tangible progress in all of our sales lines: in the implementation of our strategy, in the delivery and multichannel areas and in our commitment to sustainability. The greatest advance in this financial year, however, was the identification of the possibility of dividing METRO GROUP into two powerful companies.

Delivery and online business were major growth drivers again in 2015/16. Are the sales lines on the right track here?

Pieter Haas: We’re on the right track with our online business, but still far from our target. With almost €2 billion in online sales in consumer electronics, we’ve become one of the top companies in Europe in this area, too. We still have some way to go, however, in the ongoing digitisation of our business, in increasing the use of online and mobile channels and in developing new online concepts. But we’re heading in the right direction, and that’s being recognised. We additionally offer our customers an outstanding range of options through the close interaction of our online business with the bricks-and-mortar stores.

Olaf Koch: Our customers, especially those in the Horeca sector, are making increasing use of our delivery services – a trend that isn’t new but rather has been gaining momentum for years. We integrated delivery into our service range at an early stage and can now offer this service at a high level of quality. In part because we’ve developed new competencies with Classic Fine Foods, Rungis Express and, looking to the future, Pro à Pro. In spite of this, the bricks-and-mortar wholesale store will retain its central importance in the future. This is true particularly for customers who regularly have a certain assortment of products delivered, but also like to make their own selections from products in other categories and value being able to come to the store to engage in an exchange with our employees and business partners.

METRO Cash & Carry has completed the first financial year with the New Operating Model and has introduced the new Value Creation Plans in the countries. What role does this play in implementing the strategy?

Olaf Koch: The New Operating Model is the foundation for strengthening our entrepreneurship. That sounds cryptic, but is basically quite simple. The wholesale business is 100 per cent local, so it doesn’t make sense to impose global solutions on a given location. Instead, any concept that’s used must be oriented to the respective market situation. In other words: a food service concept in Spain may be fundamentally different to one in Italy. And you can only work on the concept if the relevant country unit has the necessary flexibility and freedom to act entrepreneurially. And that’s exactly the task we gave the executives in the respective countries when we introduced our New Operating Model in mid-2015. This is an enormously important step in implementing our strategy on the ground.

Media-Saturn is looking to position itself more strongly as a partner, daily companion and navigator for consumers in the digital world …

Pieter Haas: … and in this process, the journey is leading away from purely selling products and towards providing complete solution packages. So, being a partner, navigator and daily companion for our customers means that we assemble custom solutions from our whole range – of products, connectivity, services and content. Offering orientation in an ever more digital world – that’s the direction we’re headed in.

Service and customer-oriented offerings are also central themes at Real …

Olaf Koch: … that will definitely play an even greater role in the future. Real already has a high-performing format today. The customers really appreciate the outstanding array of products offered in our hypermarkets. However, the market and customer behaviour have changed. We know that the food retail business has become more emotionalised. For Real, this means that the format must be made significantly more attractive and, at the same time, the service quality at hypermarkets improved. As part of this realignment, Real has developed a hybrid store concept, which entered an initial testing phase at the end of November at the store in Krefeld, Germany. The aim of this hybrid store concept is to put greater emphasis on merchandise competence in the areas of fresh and ultra-fresh food while maintaining an attractive range of goods for the price-oriented bulk purchaser. With this approach, we’re setting new standards in the food retail sector. Real has defined the strategic framework for the future, which is contributing significantly to improved results.

Driving innovations – this isn’t just a strategic focus for METRO GROUP, but, for both of you, something that’s close to your heart. What conclusions do you take away from financial year 2015/16? Which topics have particular potential?

Pieter Haas: There’s a nice saying: go with the times or time will pass you by. Unfortunately, we went through a phase in which there were relatively few changes – and therefore seemingly little need to deal with innovation. I think both companies have really woken up and become much more active. What I especially like about the Consumer Electronics Company is the fact that our commitment to innovation is not merely a token gesture, but closely linked to the core business. We’ve expressly created the position of Chief Digital Officer, whose task is to deal with forward-looking digital issues and specifically to consider where and how we can integrate innovative approaches in our business – but also how we can bring our employees along on this path. A second example is our Spacelab, the Media-Saturn accelerator. Through this programme, we’re making targeted investments in innovative start-ups in order to offer our customers innovative products, or meaningful services with real added value. These initiatives show that we have much greater openness and readiness in terms of innovation today – and that’s exactly the right attitude.

Olaf Koch: Openness and readiness to make changes are two very important aspects. In 2012, we defined added value for the customer as the core of our entire realignment. And there was no place for taboos. That is, we began to ask ourselves completely new questions, with a view to all areas, from our range of products and services to our sales channels and formats. Innovation starts where we can generate customer value with simple ideas – ideas that were de facto possible before, but simply weren’t a subject of discussion. For example, we have a wholesale store where customers have told us: “We love the store, we love the products, but it’s just too hard to get there because of traffic.” Our team’s answer was simple: “Come by underground, come by scooter – we’ll take care of the rest. We guarantee that the products will be delivered within two hours.” Solutions like that are the innovations that our business needs. Because they focus on one criterion: added value for the customer. And given innovative technologies, the huge increase in the capacity of mobile devices and the rapid decline in solution costs, there are myriad possibilities for increasing added value. Because our target group still often works with analogue solutions. We want to serve as a kind of bridge-builder between innovative ideas and our customers. This role is tailor-made for us in view of our reach and our good customer relations.

The theme of this year’s annual report is clarity. What does clarity mean for you?

Olaf Koch: Clarity is one of the most important factors for success. It must be absolutely clear to our customers what the company stands for, what our performance promise is and how this is rendered. And it’s important for our employees to understand: what is the purpose of our company? What are we working to achieve in the long term and, above all, how? And finally, the business model must be clear to our investors. They must be able to understand: is this company more competitive than others? In other words: is this a good investment?

Pieter Haas: I see the significance of clarity in three areas. First, clarity means concentrating on what’s essential. This means that it’s only possible to achieve truly big goals when you have a clear focus. Second, clarity stands for that which we, the Management Board of METRO AG, are doing right now: through the demerger of METRO GROUP, two companies are being created which are comprehensible and clearly positioned for our customers, the financial world and our employees. And third, to me personally, clarity also means honesty and openness – and those are two characteristics that are absolutely crucial for successful management style.

Since early October, the Wholesale & Food Specialist Company and the Consumer Electronics Company have been working as separate companies. Where will the two companies be one year from now?

Pieter Haas: We can already see that we’re gaining clarity and focus from day to day. Until the division is complete, we will be concentrating on implementing the processes necessary for the formal demerger, and on consistently advancing our strategy. This means we have some important tasks ahead of us in financial year 2016/17, such as optimising our cost structure and our portfolio of brands and formats. In addition, we’re going to shift responsibility even more to the operational business and the country organisations so we can act more flexibly.

Olaf Koch: I don’t have any prophetic powers, but I’m convinced that the focuses of the two companies will sharpen significantly after the final demerger. This is because the Wholesale & Food Specialist Company and the Consumer Electronics Company will then be able to align their agendas exclusively to their own respective needs. Accordingly, we expect to see a significant increase in the speed of implementation. And customers and investors will ultimately notice this. The view of the companies’ efficiency will become much clearer with each passing quarter. Consequently, from the date of the demerger, the many positive developments will intensify.

Mr Koch, Mr Haas, thank you very much for this interview!