DOES GROWTH CREATE VALUE?

MIGROS CASE a

* The history of Migros is derived from the official website of Migros. For detailed information, please visit
https://www.migroskurumsal.com/en/about-us/our-history.
** All stock price data is retrieved from investing.com. For detailed information, please visit
https://tr.investing.com/equities/migros-ticaret.
*** All financial statement data of Migros is retrieved from the Public Disclosure Platform. For detailed
information, please visit https://www.kap.org.tr/en/sirket-bilgileri/ozet/4028e4a141462df2014150162e1c3424.
a
This case study is designed by M. Ertugrul.

Migros is a Turkish retail giant established in 1954 by Istanbul Municipality in response to

growing population of Istanbul and increasing price gap. Migros introduced the indispensable
elements of modern retail including the first hygienic packaging, the first label and shelf-life
application for the first time. In 1975, Koç Group become the major shareholder of Migros. As
of 1989, Migros had more than 30 stores in Istanbul and Izmir.
At the onset of 1990, Migros initiated large stores which were kept until 10 pm. In 1991, by
being listed on Borsa Istanbul, Migros become the first publicly traded retail company. During
1990s, Migros introduced its private label products under its own name and its discount brand
(ŞOK). Furthermore, during that time, it was the first retailer offering shopping by credit cards
and bringing the part-time working concept for the first time in Turkey. In 1996, Migros opened
its first cross-border branch in Baku, Azerbaijan.
During 2000s, Migros had continued growing by opening new branches in different cities. In
2005, by acquiring another retailer, Tansaş, Migros increased its geographical coverage and
customer volume, and reached a significant financial size. In 2008, Migros reached nearly 1,200
stores, and become a global retail giant: Migros was listed in the Global Power of Retail 2009
report prepared by Deloitte.
During the second decade of 2000s, Migros continued to extend its operations by introducing
new physical concept stores (MigrosJet) and launching its online grocery store (MigrosHemen).
In 2015, an internationally experienced Turkish group, Anadolu Endüstri Holding, become the
major shareholder of Migros. After this partnership, Migros accelerated its growth by two major
acquisitions: Migros acquired an online shopping store for natural foods (Tazedirekt) in 2016
and acquired another retailer (Tesco Kipa) in 2017.

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All these activities did not result in good stock performance. Graph 1 indicates that the share
price of Migros fluctuated within a narrow band from February 2014 to February 2017. After
reaching one of its peaks on November 2017, it shrank by more than %60 from that date to May
2019. All in all, from February 2014 to May 2019, the share price of Migros was declined by
nearly 15%. Obviously, all these growth-oriented actions did not create value for the
shareholders of Migros.
Financial position (performance) statement items of Migros over 2014-2018 are summarized
and presented in Table 1 (2). All values are expressed in millions of Turkish Lira.
By performing the vertical analysis, please consider the following issues:
• How does the distribution of total current assets and total non-current assets change over
years?
• How does cash holding and inventory holding behavior change over years?
• Does Migros keep the intangible-dominated structure of non-current assets?
• How does the distribution of total current liabilities, total non-current liabilities and total
equity change over years?
• For current liabilities, how does the financing policy change over years?
• For current liabilities, how does the vendor-payment policy change over years?
• How does the share of total debt in total assets change over years?
• How does gross profit margin change over years?
• How does operating profit margin change over years?
• How does the share of financial expense in revenues change over years?
By performing the ratio analysis, please consider the following issues:
• Which of the following two are very close to each other over years: Current ratio, quick
ratio and cash ratio? What may be the reason and how do you interpret?
• How does debt-to-equity ratio and short-term debt-to-equity change over years?
• Assume all sales and purchases are on credit. Also, assume all purchases are equal to
cost of sales. By considering the components of cash conversion cycle,
o How does inventory holding behavior change over years?
o How does cash collection behavior change over years?
o How does vendor-payment behavior change over years?
• How does asset utilization (efficiency) and equity utilization (efficiency) change over
years?
• Which of the following fluctuates more over years: ROA or ROE? Which component
of DuPont Decomposition causes this fluctuation?
• One of your friends thinks that net income is influenced by non-core business activities
as there are many items below operating income, and s/he suggests using operating
income-to-total assets ratio instead of ROA. Which ratio is more stable over years?

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Independent of industry averages and by considering the aforementioned bullets, please answer
the following questions.
1. What is the major problem of the statement of financial position? Describe two ways to
solve this problem.
2. What majorly erodes operating income? Is it related to one of the solutions you provide
in the first question?
3. Assume the gross (operating) profit margin performance of Migros is better (worse)
than its peers. What do you recommend?
4. How does liquidity coming from core business activities help meeting financial
obligations? Explain.

Table 1. Selected financial position statement items

2014 2015 2016 2017 2018
Current Assets 1729.23 2035.52 2532.03 3776.28 4474.26
Cash & Cash equivalents 689.07 839.42 1155.94 1617.38 1750.52
Financial investments 0.00 4.09 0.71 10.60 18.45
Trade receivables 47.85 49.85 58.44 96.91 121.11
Inventory 962.89 1104.37 1272.75 1908.25 2249.05
Others 29.43 37.80 44.18 143.14 335.13
Non-current Assets 3864.26 3725.19 3805.38 6526.40 6410.60
Financial investments 1.70 1.70 1.70 1.70 1.70
PPE 1287.30 1308.35 1268.33 3740.29 3863.04
Intangible assets 2500.84 2336.12 2360.03 2413.68 2479.24
Others 74.42 79.04 175.32 370.74 66.62
TOTAL ASSETS 5593.50 5760.72 6337.40 10302.68 10884.86

Current Liabilities 2715.93 2725.67 3320.76 5516.10 6674.92

Short-term bank loans 0.00 0.00 102.01 569.32 522.44
ST portion of LT bank loans 569.96 212.91 238.51 468.72 706.66
Trade Payables 1896.39 2227.80 2663.66 3954.14 4866.75
Others 249.58 284.96 316.58 523.92 579.08
Non-current Liabilities 1958.40 2519.06 2775.49 3259.43 3574.85
Long-term bank loans 1782.83 2380.24 2623.01 2874.44 3341.01
Others 175.57 138.82 152.48 384.99 233.85
Equity 919.17 515.99 241.16 1527.15 635.09
Paid-in capital 178.03 178.03 178.03 178.03 181.05
Net Income 98.51 (370.46) (292.97) 512.71 (835.55)
Others 642.62 708.42 356.09 836.41 1289.59
TOTAL LIABS & EQ 5593.50 5760.72 6337.40 10302.68 10884.86
Source: Annual consolidated financial statements of Migros retrieved from the Public Disclosure Platform.

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 Table 2. Selected financial performance statement items
2014 2015 2016 2017 2018
Revenue 8122.67 9389.83 11059.22 15344.05 18717.36
Cost of sales 5956.38 6864.18 8097.68 11262.08 13468.82
Gross profit 2166.29 2525.65 2961.54 4081.97 5248.54
General administrative expenses 282.44 320.63 348.98 535.23 564.67
Marketing expenses 1555.84 1833.67 2176.05 3018.79 3835.08
R&D expenses 0.00 0.00 0.00 0.00 0.00
Other operating income 60.59 80.91 108.69 157.06 276.00
Other operating expense 153.33 188.63 205.05 382.19 683.69
Operating profit 235.27 263.63 340.16 302.82 441.09
Income from investing activities 1.36 1.33 1.15 1251.93 6.95
Expense from investing activities 3.13 211.46 44.21 159.17 143.78
Operating profit before
233.50 53.49 297.10 1395.58 304.26
financing expenses
Financial income 133.49 46.56 52.32 88.97 58.02
Financial expense 182.99 446.04 576.53 881.85 1409.54
EBT 184.00 -345.99 -227.11 602.70 -1047.27
Tax expense 85.49 24.47 65.81 93.66 -211.83
NI 98.51 -370.46 -292.92 509.04 -835.44
Source: Annual consolidated financial statements of Migros retrieved from the Public Disclosure Platform.

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20

15

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Aug 18, 2014,

Dec 09, 2014,

Nov 12, 2015,

Aug 18, 2016,

Dec 13, 2016,

Nov 15, 2017,

Aug 27, 2018,

Dec 17, 2018,

Oct 22, 2018,

Aug 01, 2019,

Jan 02, 2014,
Feb 26, 2014,
Apr 22, 2014,
Jun 19, 2014,

Oct 14, 2014,

Feb 03, 2015,

Mar 30, 2015,

Sep 15, 2015,

Jan 07, 2016,

Mar 02, 2016,

Sep 21, 2017,

Jan 10, 2018,

Mar 06, 2018,

Feb 11, 2019,

May 27, 2015,

Apr 26, 2016,

Jun 21, 2016,

Oct 19, 2016,

Feb 06, 2017,

Mar 31, 2017,
May 29, 2017,

May 02, 2018,

Jun 27, 2018,

Apr 05, 2019,

Jun 03, 2019,

Oct 01, 2019,

Jul 22, 2015,

Jul 25, 2017,

Graph 1. Share prices between January 2014 and November 2019

Source: investing.com

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