Company Valuation Under IFRS : Interpreting and Forecasting ...

Chapter Seven – An introduction to consolidation
Exhibit 7.15: Metro valuation with synergies
15. Metro synergies (€ million)
Year 2004 2005 2006 2007 2008 Terminus
Restructuring costs (1,049)
Stand-alone revenues 54,900 56,378 58,060 59,990 62,221
Percentage uplift from merger 0.0% 1.0% 1.0% 1.0% 1.0%
Additional revenues 0 564 581 600 622
Gross margin 22.7% 22.7% 22.7% 22.6% 22.5%
Synergy benefit from revenue 0 128 132 136 140
General administrative expenses (1,049) (1,068) (1,087) (1,106) (1,126)
Percentage reduction from merger 0.0% 50.0% 50.0% 50.0% 50.0%
Synergy benefit from cost reduction 0 534 543 553 563
Pre-tax synergies (1,049) 662 675 689 703
Tax rate 35.0% 35.0% 35.0% 35.0% 35.0%
Net of tax synergies (682) 430 439 448 457
16. Metro target valuation (€ million)
Year 2004 2005 2006 2007 2008 Terminus
WACC 6.1%
Incremental ROCE 9.0%
Long term growth 2.0%
NOPAT 953 1,005 1,064 1,133 1,213 1,237
Net synergy benefits (682) 430 439 448 457
NOPAT including synergies 271 1,435 1,503 1,581 1,670 1,703
Depreciation & amortisation 1,521 1,551 1,587 1,628 1,674
Capital expenditure (1,500) (1,600) (1,700) (1,800) (1,900)
Change in working capital 63 99 115 135 160
Free cash flow 356 1,485 1,506 1,544 1,604 1,325
Opening capital employed 11,140 11,055 11,006 11,003 11,040 11,107
Earnings growth (67.7%) 429.5% 4.7% 5.1% 5.6% 2.0%
Return on opening capital employed 2.4% 13.0% 13.7% 14.4% 15.1% 9.0%
Cost of capital 6.05% 6.05% 6.05% 6.05% 6.05% 6.05%
Investment spread (3.6%) 6.9% 7.6% 8.3% 9.1% 2.9%
Economic profit (403) 766 837 915 1,002 1,031
DCF valuation
+ PV 5 year cash flow 5,334 18.0%
+ PV terminal value 24,355 82.0%
= Enterprise value 29,688 100.0%
+Financial assets 238
-Minority interests (188)
-Pension provisions (1,012)
- Net debt (6,209)
= Equity value 22,517
Value per share 68.90
Economic profit valuation
+ Opening balance sheet (excl. financial assets) 11,140 37.5%
+ PV 5 year economic profit 2,472 8.3%
+ PV terminal value (ex incremental investment) 12,691 42.7%
+ PV terminal value (incremental investments) 3,385 11.4%
= Enterprise value 29,688 100.0%
+Financial assets 238
-Minority interests (188)
-Pension provisions (1,012)
- Net debt (6,209)
= Equity value 22,517
Value per share 68.90
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