Metro AG (MTTWF) Q4 2022 Earnings Call Transcript

Metro AG (OTC:MTTWF) Q4 2022 Earnings Conference Call December 15, 2022 4:00 AM ET

Company Participants

Sabrina Ley - Senior Vice President of Investor Relations

Gerd Koslowski - Senior Vice President of Corporate Communications

Steffen Greubel - Chief Executive Officer

Christian Baier - Chief Financial Officer

Conference Call Participants

Sabrina Ley

Ladies and gentlemen, welcome to our Balance Sheet Press Conference of Metro AG [indiscernible]. We would like to welcome journalists and analysts and investors to a joint hybrid event. My name is Sabrina Ley, I am in-charge of Investor Relations, and my name is Gerd Koslowski, and I am in-charge of Corporate Communications of Metro AG, and we will be your host of today's event. You know the agenda, we have Dr. Steffen Greubel, our CEO and Christian Baier, our CFO, present the figures and events of the year 2021, 2022, and they will also give us an outlook on the ongoing financial year. After that, we will be able to answer questions, and the event will be in German, but will be translated simultaneously into English. So you can select the right channel for listening to that. And the documents are also available in both languages.

So questions can be entered into the Q&A and will be answered in the question they are asked. And for those of you who are virtually joining today, we will also be able to look at the website. On the left side, you can see the agenda and below in the download area, you can find the press release and the presentation for today. At the center, there will be the livestream and you can also enlarge the window to full screen mode. And those of you who signed up as participants for the event can also find the text field on the right side for the Q&A.

We will share further information on how to use it throughout or after the presentation. But also during the presentation you can enter questions beforehand. And all those present here in the room will have the opportunity to ask questions live to the Board members. The entire event will also be recorded and will be available on the website later.

And with that, let's get started. Let's begin with the topics of today's press conference. Steffen, you have the floor.

Steffen Greubel

Thank you, Sabrina and Gerd for the introduction. Good morning to all of you here in the room and those taking part on the screens. Welcome to the Balance Sheet Press Conference of Metro AG.

So our financial year will be presented. Let me show you the agenda first. I would like to start sharing something about our strategy. We made a lot of good progress and we are currently also making good progress and we would like to share a few thoughts on that. And this is also shown in our results. The performance is very good of the past financial year. We have record sales results in spite of the very volatile environment. So on the figure side, we are making progress too. And we would also like to talk about our outlook also in the mid-term range. What kind of progress are we making? What can you expect in terms of future growth of Metro?

And before we talk about the figures, let's briefly talk about this. This is a chart those of you who attended the Capital Markets Day will remember. We are in a very large market. €1 trillion is the total market size, and we have a growing market not taking into consideration the COVID pandemic, and we have a very large and structurally growing market for [out-of-form conception]. The structure is very fragmented, so a lot of very small players and very few large ones. There is not a single country where the top three players have more than 30% market share, and we have a one-digit market share and are still top-one or top-two. So a high fragmentation in the markets and this is really calling for consolidation and thus we want to grow and achieve this stronger position.

Now let's look at our business model. We have a wholesale background. That's our origin, our heritage, and as METRO Cash & Carry, we were founded and got known for that. And additionally, we have the FSD, the delivery business for the hospitality market and all this is held together by a digital channel, digital offers. So I went through this very quickly because I just wanted to show you the multi-channel approach. That's the core of our business model. So on the one hand, we have customers coming to the wholesale stores, which we want to implement 100%. We still have some retail elements in that and we want to become even more professional in terms of wholesale here.

And this multi-channel business is something we also want to play, which will be our answer to consolidating the market. And you can also see by way of illustration why we are so convinced of this model. A typical HoReCa customer buys in a store what you can see in the wholesales space on the left. If you convince those customers to also get deliveries, their sales increase in an over proportionate way. So additionally to the wholesale [and the] delivery. And if this customer then also becomes a multi-channel customer, so when they accept digital offers, when they buy from Metro markets, then the digital offers come on top and everything grows. So this is a multi-channel effect that's quite remarkable in a lot of countries. It's an 8x increase in Germany. In other countries, it's even higher sometimes.

So what's so nice about it is that 86% in Germany of our customers are two channel – dual channel customers. And if we transfer them to the multi-channel model, then we make even better business. And we do that with our salesforce. They make this offer to our customers every single day and we convince more and more customers to go from single to dual channel and from dual channel to multi-channel.

Now in a good market with a good market structure and a differentiating business model that no one else can do as good as we can. We set ourselves goals to grow again growth figure that haven't been seen in this company for a long time. We aim for a 3 billion sales for Metro markets. And we will triple our delivery turnover as a big driver and also increase the turnover in our stores of 1.2x at the end of the day. And at the center, you find the digital solution for our customers, which we'd like to spend.

So the past year, I described the market, the business model, the goals, the strategy, and we also need to look at our portfolio. And in the past financial year, we continue to work on that. On the one hand, we acquired AGM, an Austrian player with a large FSD share, mainly delivering to hotels and tourism and that puts us into a market position in Austria at rank one or two. We really made an advance there because of this strategic acquisition. I think different topic, offer of payment POS technology, digital POS solution that we can melt into our DISH product range and gives us more strength. And we have so many users now offering – using this offer in combination with our other digital offerings and ordering systems. So this is not a startup, it's a traditional business, a profitable with a differentiated technology that we will now rollout with our salesforce starting in France and the technology will be presented at the Trade Show beginning of the year.

Günther is another different business, professional kitchen products. They offer the equipment for large kitchens. And if we have that in our portfolio, you really bind customers to your business, and that offers another level of differentiation for our customers. So 150 million and profitable sales on an annual basis, we got into our portfolio. And on the other hand, we also wound down countries that in the strategy for different reasons were to cash [indiscernible] not profitable enough, and that was the case for Japan and Myanmar.

These countries will be wound down by the end of this year. And we also decided to exit METRO and MAKRO in Belgium because we did not see a future for the business in Belgium. We really wanted to focus on those countries where we can make a difference, so we want to concentrate on those and bought the business in Belgium. So this is the portfolio which is much more strategic, profitable and more balanced than in the past year or two years ago.

The past year was marked by volatility, external impacts that we had to overcome, that we needed to handle. Apart from the strategy, the implementation, the transformation, we also need to handle the current situation, COVID taking place for a longer time than expected. In the past year, there were not that many Christmas parties, the event business was canceled, and no Christmas market – we did not have a Christmas market for our employees last year. But now this year, the Christmas parties take place again. We see a very positive momentum in restaurants and HoReCa. So we see a very positive trend in our core market, the gastronomy.

You all will notice when you try to book a table in a restaurant, you will have a hard time, so there is this positive momentum and the pandemic is coming to an end. The help we gave and politicians gave to restaurants was really good. And there was the attack by Russia on Ukraine that affected 10,000 people in our business, a lot in Ukraine. And we really focused on supporting the country. We created a solidarity program within the business and offered support in all different dimensions, financial ones, aid for refugees, for colleagues who had to leave the affected areas in a very unbureaucratic way and in a very generous way.

And we try to upkeep the infrastructure in Ukraine so that we could also look after our employees, and we are still doing that. And just to remind you of the 26 stores we have in Ukraine, 21, 22 are still open, and are probably one of the core food supply infrastructure elements in Ukraine. And we get supplies from neighboring countries, also in terms of goods so that they can be up and running and open. So we had the war in Ukraine, COVID and all that has an impact on the supply chain. And we also see rising inflation and all that impacts our lives. And this is the volatility we had to manage. I think we did that in a very good way.

Price increases were mostly possible to be passed on. We had a very special situation because the sales price inflation and the cost inflation were very different. So cost did not increase as fast as sales prices and that helped us a little bit, and this year that will change. But we assure that as an internationally active business with a lot of sourcing competences. We were able to handle the supply chain situation well. The goods availability did not deteriorate even though we had to manage with all these unforeseeable events.

Now based on this, let's talk about the second item on our agenda and briefly look at the figures. And the positive news here, we grew 20% in terms of growth of sales. That's a record high for Metro. You have to look back in history for a long time to find similar figures. Because of inflation, we had some support, but you also need to implement these sales prices in the first place. On the volume side, we also had one or two-digit growth already, and that is also a result of our good work of the past year. So the first results are being visible. We have a bit more than €200 million adjusted EBITDA growth. And in spite of all the work on the portfolio and the strategy, we were able to really beat a lot of records in this past financial year, and we are a bit proud of that.

Now if we look at the growth and break it down, it's a healthy growth that takes place in all strategically relevant channels and we can check it. By looking at the stores, we see a transformation store and the sale increases here by 13%. We are growing in FSD. That is the channel we want to expand. 80% of the gastronomy stores in all the countries, between 70% and 80% are using delivery. 20% are pickup of orders in Cash & Carry. And we have just turned it around. We have 80% in picking up and 20% in delivery.

So we need to grow much more in this field and much faster and with a growth of 53% in sales, we were successful with that, and as a record share of the overall sales in the past financial year and hopefully will continue to be the case this year because this is the growth engine we really have focused on. More than €2 trillion is in absolute figures, €2.2 trillion additional in sales.

On the digital side, that's the smallest element, so it needs to grow fastest. That's the METRO marketplace, METRO MARKETS, METRO AT or MAKRO PT with a 110% sales growth develops nicely, so doubling its sales. We are continuing to focus on that and Hospitality Digital is at the center of this framework. The offers for digitization of gastronomy is also developing very nicely. We have 53,000 new paying subscribers, so a very large number of customers, now 270 people in total who are registered. And this is one of the largest digital solution providers for gastronomy in all of Europe, just like METRO MARKETS, which is the largest marketplace for the gastronomy without anybody really noticing and we are a bit proud of that. Yes, we would like to continue to work on that because this is just the beginning and we really have to make more progress. Digital needs to grow fast.

Now let's look at the different channels and go into them so that you can see where we currently working on in terms of implementation within our sCore strategy. Let's begin with the stores. We focus on our strategic customers. The hypermarket and retail elements are the pellets need to go from the source and we need to have a value position for wholesale 100%. So good prices, decreasing prices, when you buy larger quantities. You can see this on the right side. This is the benefit. You have 18.12%. I don't know whether you can see that on the screen.

If a restaurant owner buys larger quantities, so Tier-3, like 4x of the tomato sauce or something like that. Then in the end of the day, inflation can be beaten, 18% price advantage is something that's quite remarkable in the overall price. So this is really a support for restaurant owners and chefs everywhere. So they need the product anyways, so it really goes into the right direction.

We also see that in Romania where we have 18 of 20,000 products in this scheme. We are expanding that to 4,000 different products, some in Germany and from Serbia to Bulgaria, and we have Serbian colleagues here. They are enthusiastic about this pricing approach and we are really focusing on that. That's one of the core elements how we are transforming our business. And we want to be 100% wholesale and the own brands are on the second trolley play an important role and are also achieving record sales figures.

Productivity is the currency how we convert sales into bottom line. So the sales per employee need to increase and productivity can be increased by using pellets, by reducing complexity also in the assortment. And in the end of the day, if we put everything together, all five elements, then we are 100% wholesaler. We're already, yes, not quite. We are on the way there. Are we fast enough? Not yet. We will have to accelerate definitely. And since pictures say more than words, let me show some pictures from the five countries I mentioned to give you an impression of what it looks like in real life.

Delivery, which is, in the end is what we are also focusing on very much in our stores, the space that is available because of the decomplexification, if you can call it at. We are using this free space, so that we can organize delivery from the existing locations and the optimization of the stock and store can help us with that. So let's now talk about FSD. We have invested a lot into our focused value proposition, FSD. We have expanded the salesforce, 850 net were hired. So after employee turnover, we are larger by 850 and we are approaching the 8,000 employees of the salesforce. And it's very difficult in times of these two higher sales representatives. So this is a very remarkable achievement and we are very strong and I'm proud of that.

So these salesforce representatives are very important to us to drive our multi-channel business. And FSD delivery has a higher own brand share, so addressed 100% to professionals own brands become very relevant. So the faster we go in FSD, the faster our own brands will grow as well and we also invested into the structure of delivery. So this out-of-store, what you just saw, we created 16 new areas for that and two additional depots. So dedicated delivery sites as of a certain volume that starts to make sense. We are established and we invested in this field so that this more recent channel in our portfolio can be filled with life.

And here too, it helps us to look behind the scenes to understand the business better, [indiscernible]. He is the Head of our Depot Delivery business for the area of Düsseldorf and he will answer five questions of how delivery business works. Pedro?

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Thank you, Pedro and all the best. I think it shows very clearly what the FSD strategy is. Let's talk about our two digital core approaches. The METRO MARKETS platform, which started in Germany and in four countries and soon to P6, and the idea behind that is to have an extended chill for non-food, so online as a sales channel with a package logistics. So that not only product can be picked up in the store, but many more things can be delivered for people working in the gastronomy, and we did not only work on rolling out that internationally, but also improve the technology behind the system. And it's kind of a startup approach we started in 2020 and have achieved quite a lot, but we can achieve a positive EBITDA by 2026, and the multi-channel approach helps us to also benefit from digital customers joining us via this platform.

On the timeline, you can see the expansion, we have increased the speed, we have added two countries after Germany and Spain went online. We now have 1,400 partners. It's a real marketplace. It's not only us trading, but 1,400 partners with more than 700,000 products and new countries and new geographies are added. It becomes more and more attractive as a marketplace for the gastronomy and we are adding two further countries this year. The Netherlands will join and by the end of the year also, France. And we wish them all the best for the final.

I think we'll leave it at that for METRO MARKETS. You can see there's a lot of dynamics and a lot of commitment to drive this topic ahead. We are talking about a total volume of €120 million roughly. To give you some bearings, the 3 trillion in sales, 170 of that are here of the total volume and also generated by our partners. So this is something we need to keep in mind. The 120 million are the first step towards our goal.

So at the center of our strategy framework, we have the digital solutions for our customers. With DISH, we see a very good dynamic development, and I already mentioned the figures. More than 50,000 new customer, paying subscribers were added and in combination of this new POS system look that is agnostic in a cloud and in the rollout and the connection to the existing tools already in place and the ordering tool. On the side of innovation, we have great opportunities to improve ordering processes, automate them fully, and our existing salesforce can also be used to promote this DISH offer, so that we become one of the leading digitization partners of the gastronomy. And for that we have a small video clip as well. And yes that illustrates well.

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Now after this visual presentation, let's look at figures. On the next page, you see some of our sCore KPIs, which we report on regular basis and we put this together for you as an overview. So we have the big pillars and our multi-channel positioning, sustainability, network optimization, and we've gone forward in all that our own brands with 19%, almost 20% we achieved an all time high, a significant increase year-on-year, and we still continue to work on making sure that our own brands are promoted. And looking over to that side, you see the good selection of goods.

Availability 95% is stayed on the same level at least, but our objective is 98% and until 2030 if possible earlier. We work on making sure that the supply chains and all the processes are set up properly. We cannot be satisfied with 95% of course, but you also have to keep in mind the circumstances in the entire world. Keeping this in mind, we can be satisfied and our NPS values have also gone up year-on-year.

FSD, I already said that 21%, it’s also all time high, share 2.2 million additional turnover and 21% share in that is a very, very good development. So we will achieve our goal till 2030 and headed for the right direction. The same for digital turnover share. For the first time 9%, it might sound a little low, and that is definitely the highest challenge because we want to achieve 40% digital till 2030. But when you compare this to the whole turnover in the entire group, then we are looking at 3 billion digital turnover, which is our sales, which is really a clear growth year-on-year.

Network optimization, I said that before, we created additional out-of-stores depots and warehouse space. We still continue in that direction in order to make sure that we can tap it to the potential for FSD and salesforce. Additional, we hired additional staff who wanted to double our salesforce to have 6,500, but now we already hired 850 this year or in the past year. And this is exactly how we are trying to faster our multi-channel position. Sustainability, 37% less CO2 going to become climate neutral till 2040 and this is our commitment and we are very optimistic that we will achieve this and I think in the past business years, we've made just step forward. And more than 80% strategic customer share, HoReCa and Traders.

So now let us look a little bit into our expectations into the future and I would like to start with the following overview. Of course, we see macroeconomic developments, which are still very high energy prices and all the crisis in the world of course had an impact at the sweet spot that a special situation last year cannot be expected for this year at one-on-one. So supply and chain issues. All these things just haven't disappeared. We learned how to tackle those things, but we will still definitely also have to make sure that we reflect this in our daily business.

And unfortunately, cyber techs, is a new topic. It's something new on the agenda which has had major impact on our operations, but also on the financials. And those are things that we have to deal with as well and I think we'll come to talk about that later on. But we made major steps forwards. It's a topic that we really have to concentrate on in which institute a negative impact on our figures. However, we still concentrate on the sCore strategy and its implementation. We've had so much positive momentum from last year. We are so optimistic that the strategy is right for us so that the answer to any kind of external impacts, external factors, bad news, et cetera.

We are able to overcome these crisis and at the same time, we will be able to implement or want to implement the sCore strategy even faster to be able to cater to all this. Of course, we still have to concentrate on making sure to gain additional market share. There is a lot of movement in the market, beat inflation, energy prices, et cetera. Competition is neutral, everybody's impacted by that and we learned well how to deal with it so that we will have a possibility to gain additional market share and tap into the potential of the consolidation of the market.

If we now look at the facts and figures, this year we will achieve growth. We believe 5% to 10% would be our guidance for this year. We will be able to achieve productivity increases so that overall the turnover growth will however not suffice to make sure that we can compensate all the cost increases. We believe our EBITDA will be between 75 million and 225 million less – weaker because of the effects that I just explained like the cyberattack and the inflation induced another increases, which will be different from last year were we increased our guidance – exceeded our guidance even by €200 million.

Now some positive news, however, let us come to – we will go back to positive EPS and be able to also distribute dividends, again. We have made major progress in the fiscal year and we also gave you perspective for the medium and long-term when we had the Capital Markets Day. And we would like to update this in particular also for the medium run. And you see our very good sales momentum from last year and currently, we can expect 5% to 10% growth rate and EBITDA to 5% to 7%. So we even exceed the conservative assumptions of last year from last report also because of the successes we've had. So we may say very optimistically that we are very – that our growth rate is actually realistic. But still we have to invest into our business model, FSD, digital, all that costs money and therefore the free cash flow that we will generate from the growth will be reinvested into our business.

The long-term goals 2030 will remain the same. More than €40 billion and turnover more than €2 billion EBITDA and more than €0.6 billion in free cash flow, still there, still our goal. And so we will be looking into these new, say, we would believe and we are convinced that we will be able to achieve these goals and go forward in that direction. And a lot of these external influences will hopefully sometime in the future be overcome. So that will give us some imputes too.

I would like to thank you for listening and for your attention, and I hope I've been able to give you some insight into where we are today in our transformation process and what we've already achieved.

Having said this, I would like to hand over to my CFO, Christian Baier, who will give us some more effects and figures. Thank you very much.

Christian Baier

Thank you very much Steffen, and also good morning from my side to everybody here in the room today and those of you who joined us remotely. I first of all would like to guide you through the financials, but also talk about the main drivers, which gave us this momentum that Steffen has already explained.

Looking at last year, we may say that we've had a guidance of approximately 3% to 7% sales growth and then EBITDA more or less comparable to the previous year’s level. Now with different upgrades and better than expected business development, we were able to increase our guidance twice in the course of the year so that at the end of the year, we will achieve more than 20% growth in turnover and also additional EBITDA. We achieve this in particular because of a very strong volume-based development. We have a very high one-digit increase, which is a historical development that we haven't seen for many, many years, mainly driven by sCore.

Now, as Steffen have already said, the mid-term ambitions till 2025 will be raised to 5% to 10% growth rate driven by inflation, but also owing to our good implementation of sCore.

Now looking at EBITDA, €1.4 billion last year, we are almost on the pre-COVID level, so that we've made major steps for what also compared on our mid-term ambition and guidance, and therefore, we also see a growth of approximately 5% to 7% growth of EBITDA adjusted more than we had expected. However, performance is also driven by individual segments in the way that we go forward in that field.

In particular, the field East and West, where we have our most important HoReCa countries, grew this and is a very important driver for the performance. Let us start with Germany, 6% increase in sales plus €18 million EBITDA, so a very good performance. So this is mainly owing to the fact that Pedro mentioned before a better operative implementation in the field of FSD and also a good cost discipline. On the sales side, also a very, very positive HoReCa development.

Looking at the fourth quarter, we may say there is a slight reduction in EBITDA and we are already measuring the pace of our transformation program, increasing it, and also performing some reorganization which will have an impact on the fourth quarter. Looking at the segment West, we see a great growth rate of 28% and the EBITDA increase of €182 billion, also mainly driven by France, Spain and Italy, the most important players in these particular segments.

In the fourth quarter, in particular, in Italy and France, with our proactive approach, we've been able to accelerate on the transformation speed. So some restructuring measures are helping us to reduce the costs and we still will end up at the upper part of our guidance and so that we may say that we achieved very positive result in that regard.

Looking at Russia, we see an 8% growth and a slight increase of EBITDA. Across all the customer groups, we've seen a very satisfactory development. However, we have to say that due to the Russian war in Ukraine and the sanctions going along with this, we see a weakening of the consumer confidence and the volumes which are reducing in the current business year.

Now, segment East, a lot of countries in Eastern Europe, like Turkey, Ukraine is developing very well with only minus 10% of sales, which is a good development there. We see a very, very positive sales increase, but also a very good development in the filed of EBITDA.

Now, in the segment Others, there are a lot of things that Steffen already mentioned, like the digital METRO MARKETS, but also icings and HD Digital and there we see a duplication of our business model under Others. Now when we look at the EBITDAs, we may say that they go down by €58 million, mainly due to the fact that here in the UK, 10 years after our sale of the business there, we were able to buy back pension liabilities and see a very good chance in the market and also on the real estate side – and for real estate, we see that there will – we carried out already some reorganization measures.

Now when we compare our strong financial performance in the market, you can see that in the main HoReCa countries which are listed here, we see that the market is recovering only very slowly coming to a pre-COVID HoReCa level, the green line. But we as Metro have been above the level of 2019. So that really makes us very optimistic that our own performance is very good, but at the same time that we are also doing very well compared to our competitors.

Now on the Capital Market Day in January this year, we promised that we will also intensively look at the operative drivers of our business and report on those on a regular basis. Now look, when we look at the slide, you can see the strategic customer sales share and our own brand sales share are very important factors. Both topics are on an all time record high 71% with HoReCa and Trader customers.

We are very well positioned to achieve our over 80% of our sales with strategic customers till 2030, and our own brand shares also very high, which with more than 35%. It's not only important for us in the terms of profitability and sales, but also that we can achieve a very high level of loyalty with our customers and our own brands. We also invest in our multi-channel business, Steffen Greubel already reported on the network side. And this is also now having positive impact on our sales share in FSD. And this is exactly where we want to achieve one-third of our sales in the long-haul.

Now, the digital share of our sales is we've been measuring this since last year, but we see a very strong development coming up to 9%. There is still a lot to do in that field, but with the elements of our strategic process with M chart tool that [Pedro Markman] also explained on the marketplace side and in the field of HD, we are very optimistic to be definitely on the right track.

Now let us come from the strategic and KPIs rather let us look at the P&L, and look at the development down to EBITDA. Last year, we had 12%, a very good growth rate in particular, keeping in mind that we had an extremely strong previous year. So that the growth was rather, but with the more than 20% growth rate, which we mentioned earlier on, we are doing well and we've seen this in all the channels. The markets have gone up by 13%. FSD has gone up by more than 50%, so that we see a duplication for METRO MARKETS.

In EBITDA, we also see such a positive development and have a very stable margin. I would like to allude – draw your attention to the fact that Q4 with €100 million less EBITDA year-on-year was mainly driven by these proactive measures to foster sCore in France, in Italy and in Spain and the real estate subsidiary we have been able to implement reorganization measures, which will help us to become leaner for the future and be able to act more swiftly.

Apart from the pension impairments, the pension buyback in the UK was made, so that Q4 I think is well explained and we are very optimistic on the basis of this performance. There are two things, however, that I should mention. We show transformation costs for the sale of a Belgian business. Just for you as a reminder, the transformation things that we are doing in Germany and Belgium are not separately reported on because it's just part of the ongoing business there.

But when we have big portfolio measures like the sale in Belgium, then this will be still shown and reported separately. In Q4, we were also able to generate additional revenues from the real estate business, in particular the sale of Japanese real estate business that we have been able to close of the past one and a half years.

Now looking at the P&L from the top to the bottom down to EBITDA, we see that one-off effects of the war had detrimental effects, first of all, impairments of our business in Ukraine and Russia and on the other hand side also significant negative results in other sales, which are only based on inter-company liabilities. And depending on the exchange rate developments, those are fully reversible. Now tax revenues and expenses, well, it was in the framework of our expectations. In some countries, like for example in France or other countries, we significantly generate more gains and therefore also have to pay additional taxes for distribution of dividends.

In total, now we however, come to a negative result per share EPS of minus €0.92, the extraordinary effects because of the war in particular can be adjusted. And if we do this, which we're not doing here, a positive EPS would've been achieved. And this is exactly the goal that we have for the next business year because for the next business year, we say that we will not propose any dividend, but we expect a positive result per share in the current business here and also looking forward.

And we are making major steps forward in our strategy, but we still have to continue in that on fostering our strategy and also making growth investments. And here you can see an overview of the growth investments in January and this something that we already presented in January. We concentrate on technology, our network and sustainability. These are the three pillars for growth investments. More than €100 million were invested in the field of technology to developed digital solutions like M-Shop, FSD platform, and on the other hand side also METRO MARKETS and Hospitality Digital to be able to develop these further.

For the field of network, we expect to spend more than €200 million capital expenditures per year. Here you see €50 million for that year. And well is that in the framework of our expectations? Well, we expected further increases and it's still in line with our individual planning as per country. We see massive productivity improvements and capacity enhancement in the existing environment, but we also see that in this business year and the years to come, significant CapEx will have to be carried out in the framework of these €200 million, so that we are going forward.

Well, sustainability, the third pillar, here we may say that a sustainable management and also the financial attractiveness of our investments, like for instance, into energy saving measures play in there. With the increased investment last year, we've been able to generate a positive cash flow still at approximately €200 million last year. The OCF, operative cash flow, is also reflected in the capital flow, it went down by €200 million, which has mainly to do with reductions in net working capital and higher tax payments compared to previous years, but that's only due to some time lapses, time effects.

When you look at net working capital, you will see that two effects are important. First of all, our increase of inventories to make sure that we can have a very high availability at all times. And secondly, also inflationary influences on the stock keeping that we have the stock has a higher value, same for receivables in FSD where we've been able to grow substantially.

At the Capital Day, we said that this definition of free cash flow is very comprehensive. So at the end of the day, one-on-one, translatable so to speak, into the net debt and where you see €3.5 million net debt which was now reduced by free cash flow, now we had €3.3 million of which the major part is rent, cash values and a very, very positive situation. We are at a net debt level above EBITDA 2.3x, so that's the multiplier. And we started to see at the beginning of the year. Now there is our portfolio of loans €500 million for dues soon and from the current perspective, we believe that we will not have to refinance it, but we will be able to use our cash flow and our balance sheet amount to cover this.

Apart from that, we also have access to a facility of €1.5 billion on the credit side and so we feel that we are very good – we are well positioned financially. Now this is very important to make sure that we can also work on our priorities, our capital allocation in that sense and to make sure that we can reinvest our revenues into growth because we are deeply convinced that our sCore growth initiatives will pay out, which is also reflected in the growth of past business year.

And secondly, we also would like to make sure that we reduce our debt, but not only just reduce net debt, but also increase our EBITDA growth in particular to make sure that our target ratio is net debt EBITDA is improved. And also the return cash to the shareholders is very important for us for the close business year and we will not distribute a dividend, but for the next business year, we definitely expect a very positive EPS and that's also a positive dividend that we will be able then to propose.

Now, let us look at next year. In the framework of our medium term forecast, our guidance as Steffen Greubel already said, we will be able to grow by 5% to 10%. This is our expectation very consistently so, and we do expect also a reduction of inflation, which is still very high in the moment, but over about which will come down in the course of the year. Adjusted EBITDA, well last business year we had more than 200 more last year than expected than we had in the guidance and we believe that parts of that will decline by €75 million to €200 million that is what we expect. Because on the one inside with sCore, we've generated growth and we will also see an increase in productivity and on the other side, high cost inflation is to be expected in particular for energy, HR and also the effects from the cyberattack.

Well, basically we may say that we can look optimistically into the future and expect a positive EPS, which results mainly from the overview you see here. So we will reduce – we will see productivity increases, market share increases, and a very high cost efficiency, which will support our positive EBITDA. And in October this year, we carried out a major real estate transaction and close this year [indiscernible] which will bring us €200 million EBITDA as well – gains as well developing the development of our current business here. And that is also very important for us looking into the future. With a normalization of the net financial result and taxes and depreciations, we expect result per share EPS between €0.40 and €0.80 for next year. Cash investments, we had €500 million last year, we expect to come to more than – increase €600 million and expect to have a stable free cash flow also and thus also a stable net debt.

Now I'm happy to come back to what Steffen Greubel said and summarize as follows. In 2021/2022, we had a very strong year, also achieving our sCore goals more on the field of EBITDA and sales. And we are going forward positively in the field of operations and our medium term ambition and goal is we will also achieve oriented to volume growth in order to make sure that we can also achieve productivity gains for the current business year 2022/2023. We expect these 5% to 10% growth focusing at the same time also on making sure that for the years to come we can invest into growth right now, so that we can make sure that our medium-term planning can be achieved. And therefore, we would also like to make sure that we strengthen the situation in the coming business year to be able to also distribute the dividend next year.

So that's it for us at the moment and we are happy to answer your questions be it here or be it virtually, so to speak.

Question-and-Answer Session

A - Sabrina Ley

Thank you very much, Steffen and Christian. Ladies and gentlemen, you now have the opportunity to ask questions to the management board. We have hybrid setup, so we will mix questions from the audience and from online, and my colleague and myself will read them out. So we have clearly more listeners online, so we'll have a share of three-thirds and – two-thirds from there. So please introduce yourself when you ask a question so that people on screen can also understand that and restrict yourself to two or three questions each please. And you can also use the text box on the website, which we will then read out.

And with that, we can start with the Q&A. And Ms. Becca, I think, you're here with us in Düsseldorf, you would like to ask the first question.

Unidentified Analyst

Good morning. I have actually several questions, and it is Becca [indiscernible]. If I understood you correctly, with the de-leveraging, you would like to increase the rate 2.5x, 2.3x in comparison, don't you think in this market environment that's a bit high. Also, with regard to the increased interest rates, you want to invest €600 million this year. Could you tell us where there is a shift because that's more than in the previous year, and where do you want to invest most? And with the cyberattack, I'd like to know that seemed to have a massive impact on the balance sheet. Can you roughly tell us how much that would be?

Christian Baier

Well, yes, I'd be happy to answer the questions with deleveraging. In the past financial year, we made a lot of progress more than expected, so we had 3x the net debt-to-EBITDA and reduced that. So this is a value we only wanted to achieve in the long-term or expected in the long-term. So we think we're very well positioned here and we absolutely think that in the current situation we possibly can also slightly increase that again, which still is massively better than our expectations at the beginning of this year.

Now, if you look at the total debt structure of the company, we had a really financial debt with commercial papers and bonds and some cash that is much less good situation than now and we have very limited impact by inflation on that now.

On the cash side, we spent €400 million last year and expect about €600 million to be invested this year. And the main shift is, with regard to the network, which I explained before, we only spent €50 million last year and expect up to €200 million in investment in these net working capabilities because we think we should really expand our capabilities here because we come to the limits of our productivity and we need to build more infrastructure, which is very consistent with our planning within sCore.

On the cyber side, it is very important to us to always be able to open all our services and stores at all times and we already were able to clean up the situation. That's the most important factor for us. And a lot of manual work is done here and there were increases in efficiency due to that. If we very roughly estimate what we're talking about, it's a low three-digit million amount in terms of sales that was caused by the attack and follow-up events. And on the EBITDA side that's included also in the guidance there would be roughly a low two-digit million amount.

Sabrina Ley

We then continue with a question from online. This question comes from [indiscernible]. And he is commenting and asking S&P has assigned a negative outlook to your credit rating in June. Are you confident that the rating will remain in the investment grade space and are you taking any specific measures to ensure it remains at its current or higher level? And in that context, are you planning to refinance the upcoming bond maturity in March 2023?

Christian Baier

Okay. Yes. Thank you. Let's switch to English. Thanks for your question from the perspective of S&P. For us, it's very important that not only in the last year, but also in the year where we are in. The credit metrics are very consistent with the investment grade rating and that's also what S&P has raised in their report the last time, when they published it. The last time when they published and gave that negative outlook, it was closely linked to the situation in Russia and therefore also related to all other companies that do operate in Russia in that setup.

We are confident that with the performance that we are doing and from the metrics perspective, we are doing everything in order to be in that bucket on investment grade and feel very confident with the current setup that we have from a balance sheet perspective. In terms of the bond that's upcoming earlier next year, we at the moment do not expect to refinance it because we have a very strong position on the balance sheet. In case there would be opportunities, we will certainly be flexible also to do that, but doesn't seem required at this very moment.

Gerd Koslowski

Yes. Then we have another question here from our online tool. It's from Stephen from the European Supermarket Magazine. You plan to achieve more than €3 billion in sales from METRO MARKETS by 2030 and more than 4000% increase on this year, €69 million. To achieve this, what are your short, medium and long-term goals for this business? Do you anticipate that METRO MARKETS will cannibalize other parts of the business?

Steffen Greubel

Yes. Let me take that one. Thank you very much Stephen for the question. So number one, let's get clear on the numbers. When we compare the – or when we see the €3 billion as the objective, we need to compare this as marketplace volume and the corresponding value to the €69 million that we would see in the P&L is €130 million. So €130 million corresponds to the €3 billion, so that's number one.

And number two, we are confident with our growth, speed and also with adding additional countries, now also big countries like France to this initiative that we are going to achieve that number. And in terms of cannibalization, it's exactly the opposite. There is a multi-channel effect we see when Metro online customers are also coming to a store for instance, or a store customers are purchasing online or FSD customer are shopping online, all the combination, it is always fertilizing all the channels. So that's the multi-channel effect. So it's not a cannibalization, it's exactly the opposite. It's instead of cannibalization, it's fertilization. I guess that's very important to know and that's why we are also pushing so much the implementation of the digital channels because we see that effect very clear.

Sabrina Ley

Thank you very much. We then continue with another question online. This one comes from [Xavier] from Bank of America. Actually three questions. The first one is, can you provide us with the big blocks of OpEx inflation? The second one is just to better understand the EBITDA guidance. Second one is property gains and transformation cost for next year, how much do you expect? And then number three is, net debt trajectory and expectations for next year?

Christian Baier

Yes, very happy to do so. I think from that OpEx perspective, you should think about two main buckets. One is on the energy cost side and one is on the personal expense side. On the tax side, we are talking on both roughly a €100 million plus minus depending on how the situation will pan out, both key elements that really drive for us continuously working on energy savings, continuously working on productivity improvements in order to basically counter that also in the longer term perspective. The cyber effect I've mentioned, and then obviously we see certain elements, also in the segment Other, where we have talked about in the past where now transaction effects from the past are running out and the next year is the one where basically there is still a little bit of a negative effect in the segment Others and I think that's when you put those four elements together, you come to the topic that is weighing overall on the profitability. On the other hand, sCore itself is improving and pushing forward from the sales growth perspective, also the EBITDA base.

With respect to property gains, I just read property gains and transformation costs in 2023, property gains with now at a €200 million that we have generated, we will probably see slightly more than this, but it will be a number that is just hoovering around the €200 million plus a tiny little bit. From that perspective, we have done our major transaction and have concluded it already in this year.

With respect to the transformation costs, as mentioned before, all the operational transformations that we are doing, like mentioned before in Italy or in France, this is what we account for in our guidance. So that's included there only in case there would be major portfolio transactions that would then be included from a transformation cost perspective.

Your third question on net debt trajectory expectations for 2023, this basically comes together with our definition of the free cash flow in a comprehensive manner. We see that broadly neutral to slightly negative, so therefore, we should expect, also the net debt development broadly neutral stable on that end.

Gerd Koslowski

Any questions from the room? [Indiscernible].

Unidentified Analyst

I mainly have questions on the portfolio management. On the one hand you withdrew from Belgium and currently, we hear about possible withdrawal from India. What's the current status of negotiations and another risk factor seen for the business as the business in Russia? Could you go into more detail why you're staying there in spite of the very risky situation and what would it cost to withdraw from the Russian market?

Steffen Greubel

So let me start with the portfolio question. We always said that we have a close look at the portfolio and we're very active in the past financial year and on the portfolio in this regard. We are very advanced in the process of regarding India and are at a certain maturity level in the process. It's too early to share any information, but we've discussed it greatly. And looking at Russia, there are two dimensions. If we look at the daily business, there are difficulties, you might have seen that also in the past financial year. At the end of the day, there are challenges on the demand side that were noticeable. And this is also reflected in our portfolio and it is still a large and profitable business for us. And we've reported in a very consistent way also, but our rational why we stay in Russia and the Ukraine obviously, and it's a very lengthy answer. I could give you about 20 minutes explaining it, but let me give it to you in a very short headline way.

So on the one hand, it has a certain meaning to us as a company. He said it has a certain importance. We have a responsibility for 10,000 employees who've been working for us. We have more than a 1 million customers, so we feel a certain level of responsibility for us as a company. And if we decided to give up this business, we would leave them behind. And the question is often whether it's still okay to be present there, but we're in the food business, that's a very specific topic, particularly in Russia. And we're sure that as soon as we communicate that we would give up the Russian business, in fact, the ownership would be taken over by someone in Russia. And behind this business, we represent values, we own all the locations and we think it would be more –better to pay taxes and not giving the business away.

So we concentrated very much as I said on supporting Ukraine, but it's a multi-variable business. We have a look at the situation every single week whether it's justified to stay in that market, we don't take it easily, but we decided to consistently look at it and to stay in Russia so far. So currently, we don't have any changes in our opinion on that.

Gerd Koslowski

Question by [indiscernible]. Would you like to use the microphone, please?

Unidentified Analyst

Hello. Thank you very much. [Indiscernible] I found a few items in the report on Russia and the repercussions. Do you also know what kind of share Russia has on the cash flow?

Steffen Greubel

Yes. There are several elements here and the EBITDA of Russia has a relevant share for us as a group and as the investments are listed in there, it is more or less comparable with the cash flow from Russia and as in many other parts of the business in our group, it's a very profitable business.

Sabrina Ley

Then we continue with a question from [Alex Xie] from JPMorgan. Many thanks for the presentation. Appreciate the post pandemic demand for eating out yet with cost of living crisis, I would expect HoReCa players to avoid stocking up high volumes in advance given the low visibility. How to square this up with your strategy to drive volumes with wholesale discounts? Shouldn't it be difficult these days? Thank you.

Steffen Greubel

Yes. Thank you very much Alex Xie for the question. So let's talk a little bit about the market and why we also think that our market, the market of out-of-form consumption might be a little bit different than what you would compare to a retailer to the grocery retail market. The structure of the market is that roughly 40% of the households of every economy we are in are usually accounting for 65% to 80% of the market size. So that means our – the guests of our customers, so to say, are sort of not completely representing the average of a population and thus the markets of out-of-form consumption are a bit more protected about the implications of higher inflation, rising energy costs and so on.

So that's going to be a – that's a very particular topic that is out there and in the moment, we are seeing that the necessity to compensate all the negative effects coming still from the COVID that people like to go out, they like to go on vacation, they like to be out there, they like to enjoy a social life outside home that this is overcompensating the necessity to maybe save money because of higher inflation or costs and given the particularity of the market of our customer structure or the guest structure in gastronomy, I guess here, that gives us a little bit more on better and a more optimistic outlook looking forward.

When we talk BMPL, it's indeed a possibility for our customers to fight the inflation. So indeed 18%, this is something where really gastronomy [indiscernible] could sort of compensate that. And for us, it's not only the pricing and the value we are generating for the customer, it's also productivity. Because when things are really turning quickly, we'll be able to put them on a pallet. If things are on a pallet, it's easier to handle them. If it's on a one touch pallet, that's how we call it. So it comes from the truck and it goes basically on the shop floor, then it's even more productive. And that's the entire logic of the wholesale transformation, therefore, BMPL is not only grade value for the customer, but it's also grade value for us in terms of productivity.

And by the way, because you are asking about the volumes and the discounts at the end, this third tier, this is roughly sitting then if you would compare on discount levels, right? This is roughly sitting. This is most probably most – for some of the articles, the best price really in the market. And we see that this is also attractive for a lot of customer groups. Not only the ones we are targeting, mainly the strategic customers HoReCa and Traders, but also smaller companies, it's attractive for them and they are really stocking up to enjoy the additional discount.

Gerd Koslowski

Yes. Our next question here also from online, and that goes exactly in the same direction from Stephen again, European Supermarket Magazine. The HoReCa channel has seen phenomenal growth this year due to the reopening after the pandemic, but the cost of living crisis is leading customers to cut spendings in this segment. Are you seeing signs of this in your operations? How are you insulating your business against this?

Steffen Greubel

I mean, thank you Stephen. I could now replicate what I've said and I would be exactly consistent. So we are in a particular situation in that market. Maybe a little anecdote on top of that because that's usually, I mean, people will ask on the street, what do you say first? And then you always say 50% say, yes, they are saving on going out. They also did that during the financial crisis with Lehman. Yes, during the financial crisis, 2008 or something like that. And then they also did and asked after the crisis. So they asked also, what do you save? Or where do you save? People answered 50% in going out and in going to restaurants and so on and so forth. Then they asked after and only 3% answered, yes, we did that really. So the answering of appall and the reality in behavior might be also somehow different. So I think that's just the anecdote that would compliment that I think that our market is protected a bit better from all those inflation effects.

Sabrina Ley

Thank you. We now go back to EBITDA guidance for next year, and the question comes from Anna from BNP Paribas and she's asking, you've guided EBITDA down by €75 million to €225 million for next year. You know that inflation and the cyberattack are the main drivers of this, but are there any other factors we should be aware of thinking about?

Steffen Greubel

Let me just maybe reiterate the point made before, it's that inflation on energy side, on the tax side. It’s the cyber effect that we are seeing. And it's also the perspective in the other segment where basically now we have talked to you about a couple of topics that we are preponing from reorganization in Germany, France, Italy, for example. There is now an effect which will not come back next year, but there are topics that are basically fading out from former transactions and therefore in the Other segment, you should think about a net of roughly €50 million as a negative effect from this. So this is the composition of the topics that are somewhat headwind, and the remaining piece is then coming from EBITDA growth that is intrinsic in the sCore execution.

Gerd Koslowski

Yes. Thank you.

Unidentified Analyst

Ms. Becca speaking, you said you want to gain market share in order to make sure that the inflation effect can be compensated. Can you tell us where this gain in market share should come from? Do you think that certain competitors will leave? Or would you want to do this by buying other companies?

Steffen Greubel

Thank you, Ms. Becca. At the end of our day, our strategy is organic basing on selective inorganic growth. We are always open when it comes to inorganic growth, but in general, we have an organic growth, right because the market is extremely fragmented. And if we want to gain market share, others will lose market share. I think that's the background of the question, right? We believe that in particular, the smaller, less organized, non-digital players in the market, which don't have the right processes, et cetera, will be affected more because a restaurant owner, for example, are encountering major problems. They are having a very high demand, but a lack of personnel. And many restaurants were used for example, to have 20 suppliers. They just cannot afford it any longer in their purchasing processes. So we believe that consolidation will take place.

First of all, we as a big company will be able to offer multi-channel solutions and the HoReCa customer will have a major advantage because it'll simplify their purchasing processes. We saw that in the video we had before. In the second step, they will hopefully be able to fully automate the processes and therefore we believe that the smaller competitors will more or less disappear.

Sabrina Ley

And we continue with the question from online, Anna from BNP. On the mid-term guidance raise, it has increased to capture higher inflation, yet higher inflation is also one of the reasons for the EBITDA for this year. So short-term, this seems to conflict with the mid-term ambition and the raise. Will there have to be some heavy lifting done in the years to come specifically 2023, 2024 and 2024, 2025 to reach this guidance?

Christian Baier

Yes. Thank you, Anna for that question. And as Steffen has said before, sCore for us is the answer to exactly those challenges from an inflation point of view. So we are working hard on the productivity improvements in order to ensure that we are actually also increasing our EBITDA and that's why we have upped our guidance in order to take into account some inflation effect there in order to make this also an attractive development. We are very confident in getting there. Just to remind all of us, this is a four-year period that we started in January of this year for the years 2021 to 2025, and we are very confident in order to really achieve that growth from that perspective.

Yes, there is heavy lifting with respect to productivity improvements, but there is also big conviction on this, but also on the sales perspective where Steffen has mentioned how strong we do still continue to see through tough microeconomic environment, also the hospitality industry and therefore, we are confident to also be getting on to that level of the upped medium term guidance.

Gerd Koslowski

Next question from [Stephan Schuler, WAZ], which has already been answered. I hope Mr. Schuler, you do not mind. It was also about the business in Russia. There is another question coming from Stephen from the European Supermarket Magazine on the cyberattack?

Unidentified Analyst

The cyberattack made during October, and what investment as the company made to protect itself from future cyberattacks?

Steffen Greubel

Yes. I can certainly take those questions. Stephen, I think was answered in a different language before with respect to investments into cybersecurity. We have continuously invested over the last decades in order to be well protected on that very setup. And that has enabled us in the past also to fend off successfully and very regularly attacks, which is unfortunately the reality in the current world. Now with that unfortunately successful cyberattack that we have seen, we certainly do further upgrade and harden our systems from all perspectives with respect to not only training, but also security measures that we do very heavily in order to basically fend off these effects that I've quantified before from a sales impact perspective at a low triple-digit sales impact €1 million in this very quarter and from an EBITDA perspective with a mid-to-high double-digit million EBITDA negative effect.

Unidentified Analyst

[Indiscernible] How was the start into the business year 2022, 2023? Can you say something about the development Q1 sales and our cyber will be reflected in Q1 and whether there are any one of any extraordinary effects you expect like real estate income, et cetera? I think the second part of the question was already answered, but maybe the first part?

Christian Baier

Yes, I'm happy to answer that question. The two elements, impact of the cyberattack on sales and profit. I think we talked about that. The one of the extraordinary, in fact we already talked about the transformation costs are included in our guidance. So we do not expect any major changes. It's in the guidance if there are major portfolio changes, which will have to be reported on as transformation cost. And on the real estate income side, we have these €200 million that we expect and maybe a little bit will come on top, but that's more or less the value we expect. But Steffen, maybe you would also love to talk about the start into the business year 2022, 2023.

Steffen Greubel

Yes. You have to make a distinction between the weeks so to speak and the difference that were – the weeks that were impacted by the cyberattack and those which were not. If you added all up in the first two months, we went forward, well we had a growth rate, which is still not on the level we want to achieve. The 3 million digit amount was also there, but what we see in the weeks where we can – were able to work in quiet so to speak. We had this two-digit growth. If you added all up bottom line, I think we may say that we are at a very reasonable one-digit growth right now and we want to make sure that we can also compensate the effects looking into the future.

Gerd Koslowski

Again, question here. Are there any questions here from the audience? Otherwise, we will continue with our online question. Matthias Inverardi of Reuters asking, when mutual in view of the arising energy prices get any state subsidies to limit the costs and will this also have an impact on your ability to pay distributive dividends?

Steffen Greubel

Thank you very much Mr. Inverardi for your question. The guidance and also our expectations down to the EPS include the expectations we see in the market, energy costs, personnel costs, and any other topics. And in that framework, we expect a positive EPS, as we already mentioned before between €0.40 and €0.80. Regarding the subsidies for energy prices, we believe – and we are very active in Europe here, but the market is also very heterogeneous.

We see different, a very landscape, very different conditions. We of course try to hedge ourselves in the particular countries. If there's a situation where the company of our size can benefit from subsidies in the various countries where we are active, then we will definitely do so and our look into that in an adequate manner. At the moment, we plan it in a way that our €100 million, incremental energy costs, which we mentioned earlier on will be covered by our guidance in any case in the various countries.

Sabrina Ley

Thank you very much. Then there is another question for [indiscernible]. May coming back to – for clarification, what's the sales process in India? What does it look like? What is your expectation for India?

Steffen Greubel

I can only repeat myself. We are very deep in the process in India. That's all I can say. And if we have a better answer for you, we'll do so.

Sabrina Ley

Then we continue with a question from, I hope I pronounce this correctly, [indiscernible] from Credit Suisse. What are you trying to do differently from your competitors going into 2023?

Steffen Greubel

I mean, I think, let me take that one and thank you for the question. I mean, I cannot completely touch what we are doing differently because I do not know in a such a fragmented market with thousand of competitors what every single company is doing exactly. But I can just say that we are focusing very much on the strength of the execution of our store strategy because this strategy is very unique. We have the stores, we have the FSD, we have the digital. When you combine that, that is per se differentiating because no other competitor has it. And I've shown you the potentials and the possibilities we can do with the implementation of the strategy. And as Christian said, our answer to any shortcomings, to anything that is happening out there in terms of negative news, in terms of externalities, is always to be faster in the execution of the multi-channel strategy. And that's what we're going to do faster. We're going to be tough on implementation and fast.

Sabrina Ley

Thank you. Then we continue with another question or set of questions from Xavier from Bank of America. The first one is about the development in Germany where we commented that sales performance is driven by Rungis Express and HoReCa. Can we get some more color and what does it mean for the performance of Traders and SCO? So the other customer groups respectively. The second one is can you give details about Q4 EBITDA margin declines in the respective main blocks? And then number three is the gross margin development, H1 versus H2. It increased initially in H1 and then it came down in H2. And how does this match the expectations for the next year?

Steffen Greubel

Yes. Thank you very much Xavier for the questions. Let me take the first one and then let me hand over to Christian to take the two subsequent ones. So number one, indeed it's true. In the section Germany, we are enjoying a very good HoReCa growth. It's almost 50% compared to the last year. So that's very strong. And on the same hand, the SCO business, so this is small companies also a lot of complementary consumption is losing. You can say it's roughly 14% and the Trader business that's especially driven by tobacco is also declining by 8% roughly, yes.

Let me compliment that because that's the customer view. I always would have also a wholesale versus retail view in that one. And what we are seeing in also other countries than in Germany when we are having our stores a 100% wholesale like we do have in Romania with 18,000 articles on BMPL and a lot of pellet presentation, it's also attractive for every individual customer segment. That means that also SCOs and that means that also Traders are then growing because of that value proposition. So it's very important to look at wholesale versus retail and then we are confident that this is very valuable and very well sort of perceived by all the customer groups for the entire company. SCO was still on a slight growth different than we do in Germany.

Christian Baier

Yes. Thank you, Steffen. Let me take – the point on the Q4 EBITDA margin, I interpret this as related to the entire group and not only to Germany. There we are talking basically the five elements that I've mentioned before, all of them individually roughly in the low double-digit million amounts. So we have basically sped up the reorganization in our organizations in Germany, in France and in Italy, there is, for example, an early retirement program that is being done just to give you a touch and feel for what we are doing there. And also we are doing broadly the same on the real estate entity Metro properties.

So these are four elements then, and then there is the fifth element that we mentioned before, we have basically now had the exclusion of the UK pensions from our balance sheet. We basically did funding out by out there in order to drive this any risk in the future out of the balance sheet and there are costs related to that. So from that perspective you talk about that broadly €100 million on an absolute margin or EBITDA perspective that we have seen in Q4. And I think otherwise you would've seen pretty much consistent development on the margin from that perspective in Q4.

But that also translates to your third question with respect to the gross margin, there is certain elements on the percentage gross margin that over time with the implementation of this sCore strategy that we will forego and we are foregoing this in a proactive conscious manner because we are absolutely convinced that it's the right thing with buy more pay less in other wholesale products, that we are actually able to drive down the percentage margin. But in order to have the best gross margin in absolute terms and the best EBITDA in absolute terms, this is appropriate. So we are improving gross margin in absolute terms, but over time with buy more pay less, for example, we are reducing the percentage and together with that there is productivity improvements below gross margins and then the whole equation works out with EBITDA and also cash flow improving over time.

Sabrina Ley

Yes. I look around the hall [indiscernible] if you have any questions please ask them or we'll continue with questions. We have a question from Fabienne or again, a set of questions that just jumped from my screen. Okay, sorry. I think we need to switch to a different questions because we just went through a challenge here.

Christian Baier

I think, Sabrina, I think we can probably take the first elements.

Sabrina Ley

Okay, sorry, just jump from my screen. I think it was a question on a free cash flow expectation, volume expectation for next year?

Christian Baier

So let's take this and maybe then we find the latter parts later on in the conversation. So free cash flow perspective in that new comprehensive setup, we expect a roughly stable to slightly negative free cash flow then also translating in the same way to the net debt side of things. And then you ask for reminding, with respect to volume, price effect in the 20% growth that we have seen in the last fiscal year, it's broadly 50/50. So we are talking about a very, very high single-digit volume increase, nine plus percent and probably in inflation that is in there between 10% and 11%. So this makes up the consistency of that. And if we then find in a few seconds later on the last part of your question, we will also address it.

Sabrina Ley

Then we continue with another question from Alex Xie from JPMorgan on the mid-term guidance, especially on the raise of the guidance. Is it fair to say that the upgrade is mostly driven by an already stronger than expected FY2022 while outlook for the outer year has broadly unchanged fundamentally? Thank you.

Steffen Greubel

So I mean that's exactly true. That's exactly true. We have made a great start in the last year. So we were already having overachieving the elements that were planned for in the last year and thus actually we also upgraded consequently the mid-term guidance and we do expect that the inflation will come back, I would say to rather normal levels in the mid-term. And as a result, we still have the same expectations on the fundamental trends of the market for the coming years. However, when you combine those two effects, we still expect a higher absolute base to the additional inflation that we are having.

Gerd Koslowski

We have a question here.

Unidentified Analyst

Mr. Greubel I would like to know what you view of the composition of the Board is with [indiscernible], you won a team member and Metro in the past also paid highs I think, when they left the company. Are you now quite confident that the team will stay the same for the near future?

Steffen Greubel

Yes.

Sabrina Ley

That is very precise answer. Okay. Then we're happy to continue with another question from [Fabienne from Kepler]. On sCore, is it fair to say that the stronger FSD share negatively impacts working capital due to longer payment terms as well as EBIT margin?

Christian Baier

Yes. Thanks for getting back to that second part of the question, Fabienne. With respect to that perspective. So FSD is the key driver also from a growth perspective, let alone the other two elements on digital and the store obviously, but that will drive our growth significantly forward. With respect to the working capital at this very stage, it might look like it, because obviously, we are having customer receivables that we are increasing, there are these longer payment terms from our customers. I think over time what we will be seeing when we are building also Depot, so we are concentrating inventory in one place, over time there should be different levels of inventory. So that will also slightly come down. And also at this moment, we are heavily investing in inventory in order to be available for our customers and that's I think very important. So overall, yes, partially networking capital property slightly worse over time, but massively over and outweighed by the strong growth that we are seeing there.

With respect to the EBIT margin, also there over time we would not expect this to have any relevant dilutive effect at this very moment. Yes, when we compare it to the group margin of 4.7% EBITDA, there is a certain drag from an FSD perspective, but we are making giant steps in developing the profitability, even forward on the FSD side and therefore in the medium term and especially in the longer term, we do see if executed well all business models, especially between store and FSD, broadly on the same level on profitability.

Sabrina Ley

Thank you. And then we continue with a question from Anna from BNP on the cyberattack. And specifically if our ability to take orders in Q1 has been impacted given that this is our most important quarter?

Christian Baier

Yes. Thank you, Anna. And as mentioned before, we have continuously stayed online in the stores, in the delivery M-Shop has always been fully up. So there has been an impact because it was cumbersome in many places like execution of certain orders, but we have always been online for our customers to fulfill their needs. Although it required a significant efforts from all our teams and the great thank you for their intensity being applied on the IT side and also on the operational side. The team is doing a tremendous job in this very Christmas season.

Sabrina Ley

Thank you. We are now getting to the end of our Q&A session. We have three or four questions here in the system that I will not repeat because I believe they have been answered. If the people who asked the question disagree are very welcome to call Gerd or me, respectively. And the one that we are adding now is from Thomas from the Tech Bank. Can you provide details on the profitability of private label products versus branded products? And can you comment on the price increases of private label versus branded products and if that had any effects on demand?

Christian Baier

Yes. So the profitability of private label products is at least at the same level given the same quality or even a bit better than the branded products. And of course, I mean the inflation of raw materials that is hitting the production of the own brands as well as the brands. So that's obviously the case. Helpful is that we understand because we are also developing a lot of the own brands with our chefs for the needs of the professional customer. What is the exact composition and the recipes and we can also influence to compensate here and there the effects coming from the inflation, which also gives us a better possibility to then also negotiate with the branded products because we know exactly what is inside.

So I think overall it always makes sense to push the own brand products for the described reasons, but you can assume the profitability relatively is a bit higher, but the volume obviously is a bit lower because the price positioning is also under the A brand so that the customers are really ensuring a value out of that. And it's an additional measure to compensate for the higher inflation. And of course, the high inflation also drives the own brand performance. We don't only see that in wholesale, we also see that in retail by the way.

Steffen Greubel

Well this takes us to the end of the Balance Sheet Press Conference for the past financial year. We would like to thank you most cordially for going with us through this very heterogeneous year. We are still there for you. You can contact us Investor Relations as well as the press center. And on behalf of all of us here on stage, we wish you a Merry Christmas, Happy New Year. We will meet you there and are looking forward to a very close and intense collaboration with you. All the best and Merry Christmas.