A wonderful good morning, ladies and gentlemen. Welcome, and thank you for joining the analyst and press call Q3 2024 results presentation. Throughout today's recorded conference, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. You can ask your question via call or in written form. If you are a journalist and want to ask a question in German, please wait until the end of the call, where we will provide an extra slot for German questions. If you would like to ask a question, please press star and one. For operator assistance, please press star and zero. At this time, it is my pleasure to hand over to Dr. Steffen Greubel, CEO, METRO AG. Please go ahead, sir.
Yeah, thank you very much, and good morning, everyone. Welcome to our Q3 2023-2024 Results Call. I am very happy to present you the most recent business updates, together with our CFO, who is sitting next to me here, Eric Riegger. And as usual, we're gonna start with a strategic update, followed then by Eric, who is gonna present the financials. Like always, there's written and verbal Q&A options, and to just reiterate, we are offering Deutschsprachigen Slot nach dem englischsprachigen für die Journalisten. So then let's directly go into the content I would propose, because we wanna focus now on four topics. First of all, we wanna focus on the Q3 sales and the earnings development, which are very much in line with our guidance.
Second, we wanna do a deeper look into the growth of our different channels and specifically, the food service delivery, the FSD business, as the growth, as the key growth contributor in this very moment. Third, we wanna give an update on our financial KPIs, as well as outline how the sCore strategy drives our productivity, as productivity is the key factor for improving our EBITDA and cash flow. And last but not least, we confirm our financial year guidance and the ambitions. So let's directly go into the content. We start with the operative business results for the Q3. Sales grew portfolio adjusted in local currency by 4%, whereas the previous year, which shows that we are able to continue growth and, despite the decreasing inflation in the late summer, start in some countries.
In the nine-month perspective, we are calling to reach roughly 77%, not 70, 77% growth fully in line with our guidance. The Adjusted EBITDA in Q3 is EUR 327 million, and roughly on previous year level, and in line with our expectations. This includes also negative effects from the expiration of the license fees related to China for the last time. Let's look in our channels and the growth composition. Everybody's aware of our sCore visual with the three channels. We are rolling out a multi-channel strategy, combining store sales, FSD, and digital. So let's look how growth is composed. We see that the stores are growing with 1%. FSD operations is growing 16%, continuing the double-digit growth path since the launch of our sCore strategy.
In digital, on a smaller level, we are growing 43% sales growth of our online play, marketplace, METRO MARKETS. Plus, we won 8,000, 8,000 new subscribers for our digital solutions. So overall, a very healthy growth composition and very much in line with our sCore strategy. And as announced, we wanna do a deep dive now on the important FSD, the food service distribution business. We have mainly, to set a little bit the scene, 3 reasons why FSD matters so much for us. Number one, is a huge market. When you look at the market for HoReCa, in most of the countries or almost in all the countries, it's sitting between 70%-80% of the market share is distribution and delivery.
To address the full market potential, we gotta tackle that channel very much, and that's what we are doing. Number two, profit. We are, in the moment, having a cash profit, which is described as, the profit after all direct associated costs of nearly 7%. So that means as fast as we're growing in FSD, it's better the overall profitability gets, and that's the second reason. The third reason, because we are also adding specialists or have also added specialist FSD pure player to our portfolio. That means also we learn a lot from for the existing operation, the delivery, basically, out of the METRO MAKRO, wholesale environment and mainly the stores.
So that's the reason: huge market, profitable, and we do see a lot of cross-fertilization effects within the company with our FSD specialists, why we are focusing that. To explain a little bit how we would look at the business, we look at it in three pillars. One, starting from the left, is casual dining, and that corresponds very much with the classic owner-driven independent restaurants, which is the key target group for our METRO MAKRO delivery service and our largest customer segment. Basically, characterized by many small to medium-sized businesses and a dedicated assortment need. In many cases, the restaurateurs are typically cash-and-carry customers. Not all of them are delivered by Metro, but everybody is delivered. And to tackle them, we are gonna develop them now to true multi-channel customers.
We have all the information at hand, and we try then to offer on top, and that's also on top revenue, our FSD assortment and our FSD services. In addition to this own METRO MAKRO delivery service, we have in Portugal a strong HoReCa market, independent restaurant, hotel business, or FSD business that is called Aviludo, which belongs to the METRO family since 2021. And they are supplying more than 13,000 professional customers across the country. Look at the second pillar in the middle, that's very much fine dining. So here we are talking about the Michelin stars and the gourmet restaurants of that world. It's premium assortment and also exclusive brand products. We are basically commanding three core operations. One is Classic Fine Foods, CFF, which is part of the METRO family since 2015.
We're supplying over 12,000 HoReCa customers in the UK, in Asia, and in the United Arab Emirates, with delicacies and also novel food on the highest culinary levels. R Express, formerly known as Rungis Express, headquartered in Meckenheim, Germany, is under the Metro umbrella since 2016, and we are serving all three-star Michelin star restaurants, for instance, in Germany. So very dedicated to the high-level restaurants and hotels in Germany, but also in Austria and in Switzerland. Moreover, our newly acquired Swedish delivery specialist, Johan i Hallen & Bergfalk, supplies more than 4,000 commercial customers across Sweden and Finland with premium meat and seafood food products. So they are true specialists of protein, and the further acquisitions like Fisk Idag , Donier, are fueling JHB further growth in the Nordics.
Number three, and that's on the right-hand side, the so-called organized HoReCa pillar, which covers company canteens, institutional kitchen, social sector, bigger restaurants chain, so organized business. That is characterized by highly standardized pool assortments and high volumes, which we address specifically by our subsidiary, Pro à Pro, in France and in Spain. We acquired Pro à Pro France in 2017. It's the largest, by far largest FSD specialist under the Metro umbrella, and the leading delivery company in France, operating in 22 logistic warehouses, and known for the logistics excellence they are providing to their customers. Pro à Pro Spain is smaller, but very fast-growing in Spain. It's a delivery service of the same brand, which is catering primarily to customers in the organized HoReCa sector. So that's basically our landscape of FSD activities.
Let me now update you, based on that, on our latest initiatives that we have rolled out in that environment. Regarding our network in Q3, we have successfully finished 9 more network transformation projects. This entails 7 store transformations into multi-channel fulfillment centers. So that basically means we are generating out of store delivery capacity out of existing infrastructure. And this was mainly done in France, Spain, Italy, Austria, and in the Segment West, and in Bulgaria and Croatia, in the Segment East. Additionally, we opened 2 new depots in Pakistan and the Kingdom of Saudi Arabia for delivery. Regarding acquisitions, and I already mentioned that in June, our Swedish FSD specialist, JHB, successfully acquired Donier Gastronomie in Finland. They are a recognized premium food supplier with their own meat production capabilities and distinctive meat expertise.
The acquisition of Donier is a classical bolt-on acquisition on smaller scale, with sales of around EUR 16 million in 2023, and that will enable JHB now to competently fulfill the professional need for burgers, minced meat, dry aging, cutting, packaging in Finland. And it will significantly strengthen JHB position in Finland and contribute to the ambition to become the leading fresh meat and fish specialist in the Nordics. Not mentioned on the chart, but also important information for you, because that's also very consistent to our reports before. We also have grown now nine-month accumulated our sales force as key FSD enabler. It's a push model. You need to sell FSD. So we are looking at 700 more FTE in sales force on a nine-month basis in this very financial year.
So we are very much on track in increasing our sales force until 2030, significantly. So let's look to the overall sCore progress on the sCore KPIs that you are used to see in our quarterly and annual reportings. Very consistently, we are on track with all the key strategic KPIs. One by one, that means, and you see here kind of the two-year perspective and also the ambition, 2030. You see very much in line that we have grown the customer, strategic customer sales share, so that's HoReCa and trader customers, from 63 to 75% now on a nine-month basis. And also in the year, in this very financial year, we are able to grow in the last quarter from before 73 to now 75. So that's very good actually.
We're becoming more relevant for professional customers month by month, by month by month, and we are confirming the ambition, 2030. FSD sales share, we have, we have talked about. We are looking now at 25%, so every fourth euro is now done in delivery in Metro. We are aiming for 33%. We feel very comfortable to reach the target. It's the key growth driver, and we are completely on track in the performance on that one. Own brand sales share, a very important differentiator and also margin generator, is at 24% roughly. Also, the intra-year performance is looking very good. So we are continuously growing the own brand share also month by month, and we also confirm our target above 35% for the year 2030.
And then digital, of course, that's on the lower side, but you need to see that we have more than doubled now in two years, our digital sales share. That's not only METRO MARKETS or DISH, that I already have mentioned, but it's also the main driver of that is the digital orders that are coming mainly for FSD, that are no more manually or manipulated, but fully digital. And we are on a very good track to push that. And then, of course, it's a way to go to the 40%, but we are confident to get there. So overall, the sCore KPI is very on track. The METRO giant is moving, we are changing. We are as wholesale as never before.
Talking now on some internal topics that we have actually also done in the last month, and that's the new organization of the board and the leadership structure. To just reflect on that shortly, the key aim was, number one, to be more operative and even closer to the business than before. And number two, to also be slimmer, to be honest, yeah? To be more efficient, to be more kind of close together, and to also set the tone in terms of productivity and efficiency for the entire organization. So that means all of us, and that's myself, that's Christiane Giesen as the new COO and the labor director, that's Guillaume Deruyter as CCMO, and that's Eric Riegger. They all have now new operational tasks to fulfill.
For me, it is I have now also the direct leadership for France, for French business, but also for the others. It all meant that we are getting closer to the business, that we are getting more pragmatic, more wholesale, and at least slimmer and slicker than before. So that's basically the core motivation why we are doing that, and it also gives or sets example, how we think about the organization, the operating model for the entire organization. Let me finish with the confirmation of our ambitions. So that holds true for our sales targets, that holds also true for our EBITDA and free cash flow ambitions, not only for that year, but also for mid and longer term. Having said that, so that's a full confirmation of our sCore ambitions.
I would like to hand over now to Eric for more depth on the financial results. So thank you very much for listening, and Eric, please.
Thank you, Steffen, and, good morning, also from my side. I'm happy to present the financial performance of our third quarter. Let me start with the high level KPIs for Q3 financial performance. First, look at sales. We achieved a 4% growth, portfolio adjusted and at constant currency. This was driven by good progress on strategy execution. We see growth across all our channels. Some countries developed above our plans, while other countries, had a slower start into the summer season. We continued to outgrow inflation by 2%, despite overall lower inflation compared to last year. Adjusted EBITDA is almost on previous year level. We have a negative effect from the expiration of the China license fee. Good news here, it's the last time that we have this effect. Our earnings per share in Q3 are slightly positive.
The previous year, earnings per share was highly impacted by the sale of METRO India and additionally, by the non-cash foreign exchange effects from the Russian ruble. Alone, the earnings per share effect of selling METRO India amounts to EUR 0.27. Without these effects last year, EPS would be around current year level. We also achieved a positive free cash flow of EUR 239 million. This was mainly driven by a positive net working capital. We have improved our stock days versus prior year. Still, this year figures below previous year level. This is due to recovery of a cyber attack in the last year. We continuously monitor and put measures for improving our free cash flow. Our net debt stands at around EUR 3.3 billion. This is a slight increase to previous year, but below previous quarter due to positive free cash flow.
So let's have a look at the details. On the top left, you find the mentioned 4% portfolio adjusted growth at constant currency. The portfolio effect in Q3 is around 1 percentage point. Therefore, we reach around EUR 8 billion sales in the reported view. In Q3, adjusted EBITDA declined by EUR 9 million. An effect from Segment Others that included post-transactions effects from previous year, was partially compensated, particularly by Segment East. Looking at the regions, Q3 sales growth was driven mostly by region East. To be more specific on this one, Germany reached sales of EUR 1.2 billion, with a decrease of 2% versus previous year in a deflationary environment in Germany. HoReCa business was impacted by a delayed season start. Germany is still in the transformation phase, as we mentioned before. Despite that, the adjusted EBITDA has slightly increased by EUR 5 million.
This is partly to the low comparison basis in Q3 from previous year, when the transformation actually started in Germany. In the Segment West, reported sales of EUR 3.3 billion, slightly decreased by around 1% than the previous year. Strong sales growth contributed from Spain and, like Steffen mentioned, the FSD companies such as Pro à Pro France, Pro à Pro Spain, JHB could not, but they could not compensate the negative effect of the delayed season start in France. The Adjusted EBITDA at the Segment West remained almost stable and amounted to EUR 191 million. This was driven mostly by the sales development. Additionally, we see a sustainable trend of productivity increases. More to this later. In Russia, sales in local currency increased by 13%, which is above our expectations. Despite high volatility in Russia, we are upgrading our guidance here for the segment.
More on this also later. Adjusted EBITDA in Russia at constant currency increased by EUR 8 million. In the Segment East, sales and local currency increased by 9%. Almost all countries in this segment contributed to the sales growth, especially Romania and Bulgaria, developed very well. The strong sales growth in Turkey was also affected by hyperinflation. The reported growth is around 14%. The difference is caused by the devaluation of the Turkish lira before the closing date in June. The adjusted EBITDA for the Segment East reached EUR 106 million. This is an increase of EUR 10 million with previous year at constant currency, following the positive sales development. In the segment Others, reported sales grew by 30%, so that's mainly METRO MARKETS impact here.
So actually in the Metro markets, especially France, is developing well and could contribute to, contributed to that sales growth. This sales growth was around 12% than the previous year. This sales growth was mainly a result of the investment and rollout of our digital business. Adjusted EBITDA decreased to -EUR 53 million. Please note that the previous year figures included for last time, the mentioned licensee from China. So let me further guide you through our P&L. As mentioned, adjusted EBITDA is almost on previous year level. Also, our margin development than the previous year is nearly stable, including transformation gains of EUR 3 million and EUR 8 million of real estate gains. Reported EBITDA is at EUR 339 million.
The difference than previous year is cost of transformation gains from the sale of METRO India, as mentioned before as well. The depreciation is almost stable. Previous year, net financial results included a positive non-cash currency effect related to the ruble in the last year. Without sale of METRO India effect and non-cash currency effects in previous year, the earnings per share are almost stable and landed EUR 0.04 of earnings per share in Q3. Earnings per share for the first nine months are at -EUR 0.13, are in line with our guidance. Before we move on to the cash flow, I would like to point out how our sCore initiative and the transformation of our stores into multi-channel fulfillment centers are improving the productivity. This is an important element to improve our bottom line.
In Q1, we presented a good example of MAKRO Poland. Their early multi-channel fulfillment center pilot included: efficient, wholesale-oriented space management, full digitalization of the stock management, and optimize more efficient in-store logistics. Today, we present a first overview on the figures on a group level. Total inflation-adjusted productivity increase was above 5%. We measure productivity as a sales divided by full-time employee, and we see even around 6% increase when focused on operational productivity, mostly driven by in-store transformation, like faster and more efficient picking, replenishment process, as well as assortment optimization. This goes along with additional benefits, increased stock availability, and an increased delivery service level. We also optimize our administration productivity by around 2%, which is one of my focus areas.
While increasing our sales force in line with our growth strategy, also, which is important to, and Steffen mentioned, to develop our sales. We will continue to focus on productivity, especially to absorb the rising personnel costs. Moving on to the cash flow now. Generally, we see continuous improvement of stock days almost in all countries. We reach positive net working capital as well as positive free cash flow. Still, previous year was very strong due to the recovery quarter after the cyberattack, and it caused a decrease in delta net working capital and free cash flow than the previous year, as mentioned before. We continue to focus on gaining operational efficiency through the implementation of sCore. The delta in other operating cash flow is due to the adjusted EBITDA offsets from the sales of Metro India in previous year.
Investments and divestments are in line with our sCore execution and are almost stable against previous year. Due to the positive free cash flow, net debt of EUR 3.3 billion decreased through the previous quarter, but is above previous year, as mentioned before. So for the financial year, we reconfirm our guidance of 3%-7% sales growth and Adjusted EBITDA development in the range of EUR -100 million to +EUR 50 million. But due to the persistent high volatility and inflation in Russia, we now have the following guidance for segments. All segments channel contribute to the sales growth. The segment Germany is expected to grow below the guidance range, so there are no changes. Segment West is expected to grow within the guidance range, no changes as well. While the segments East, Russia and others are expected to grow above the guidance range.
Russia was previously expected on around previous year level. Adjusted EBITDA development per segment as following, with a change only by Russia segment. Segment others, strongly declined due to the post-transaction effect. Segment Germany, moderate decline. Segment Russia, slightly increase. Previously, we said moderate, moderate decline. Segment West and East, grow moderately. Also, all other financial KPIs develop in line with guidance, normalization and depreciation and amortization, taxes and financial results. Slightly negative free cash flow, which is around previous year level, and an increase in our net debt under consideration of prolongation of leases in following months. So this concludes our presentation today, and now we are happy to answer your questions.
Ladies and gentlemen, we will now begin our question and answer session. Please note that you can submit your question in English, either via call or in writing via the webcast link. In the question and answer session, we will first handle questions via call, followed by the question via webcast. At the end, we'll provide a German slot additionally. If you would like to ask a question, please press star and one. If you wish to remove yourself from the question queue, please press star and two. Anyone who has a question may press star and one at this time. One moment for the first question, please. I repeat again, from the call, if you would like to ask a question, please press star and one. We have a question from Christian Bruns, from Montega AG. Please go ahead with your question.
Yes. Hello, Steffen. Hello, Eric. Christian from Montega. Thank you for taking my questions. I had some technical problems. I would like to highlight some aspects. First, thank you for giving us a more detailed insight into your FSD operations and how you see the three pillars of it. And maybe you could also give us a hint on which of these channels, fine dining or casual or organized HoReCa, you think you should grow, maybe also via M&A. This would be of interest for me. And the other thing I'm interested in is the productivity gains, which Eric highlighted, I think for the first time.
It was new for me, and I think it's a very important step here to increase productivity, to also, in financial terms, cross the gap to your financial ambitions. On the other, and the last thing then, gross margin. That was also, I think, a good thing, that gross margin in Q3 increased. And this is something I also observe. But if you see the gap between your free cash flow in the current year, which is negative, and the free cash flow of EUR 600 million, which is your target, that it's more, I think it's more about productivity gains, or is it also about gross margin increase? Where would you see the bigger chunk coming from? So thank you.
Sorry for the question, for a lot of questions.
No, Christian, very clear, and thank you very much for the questions. Let me ask the first one and give then Eric the opportunity to ask the two, the second and the third one, which is very much related to productivity, gross margin, so I think Eric is the proper one to answer. So when you ask me, in FSD, which of the three segments or customer groups we plan to grow, so the short answer is all of them. Yeah? The, yeah. But in a very different, in a very different way. When we look at the more casual dining, that is a classical Metro MAKRO topic, because it's targeting independent restaurants, and here the main logic is to grow organically via out-of-store capability.
So that means really to make more or less our existing assortments available for FSD, to invest in sales force, to sell it, and to invest in infrastructure, which is mainly a repurposing in MCFC logic of stores to deliver it. So that's number one, and it's by far the biggest one, that's purely organically. For two and three, so for fine dining and the organized one, we are looking rather, I mean, of course, we are growing the operations per se, organically. So that's number one. And number two, here, we are also looking on opportunistic M&A, I would say. I would not say it's a big focus, but here and there, we can always find good targets that we can bolt onto our existing operations. So 80% is organic and maybe 20% is M&A.
Okay, thanks.
Coming to your second question, what are we working on, and how do we close the gaps to 2030, EUR 600 million? So, a couple of things to mention there. We want to continue our course with our sCore strategy. That's our main ambition, and this is what we continue to do. On the other hand, we want to improve our bottom line, so to improve our cost basis. And so we have a couple of measurements. One, I mentioned before, was the productivity gains. That's an important task. It's part of the sCore strategy as well, having simpler assortment, relevant assortment, selling off pallets to improve the productivity there. Also, our admin productivity, so have our back-office departments more optimized over all countries. So we are currently harmonizing IT processes.
As you heard, I'm responsible for IT as well, so we are optimizing our financial processes, bundling them. So that's kind of really important to improve our productivity. On the other hand, we also look at our other costs, so we have to work on our cost structure to improve our overall goal there. But we are confident to reach the EUR 600 million+ goal for the free cash flow there in 2020, 2030.
Okay, so, if I get it right, it will be more about productivity gains than growth margin increase?
Yeah. So just to comment on the gross margin. So actually, EBITDA margin is slightly down from 4.3% to 4.1%, because our EBITDA is kind of stable compared to last year, but the sales increased, so that's the percentage decrease. On the overall margin, so on our income margin, we are working on different areas. So we are kind of improving them by focusing on cost and sourcing, private own-brand items. So this is kind of what we're working on, optimizing our net working capital by getting the right inventory right. So we are currently working on these areas and improving our margin for this as well.
Okay. Thanks.
The next question comes from Ulrike Dauer. Please go ahead with your question.
Yeah, good morning. Thanks for taking my question. Can you hear me?
Yes.
Wonderful. You had a very small net profit in the third quarter, which brings it to two quarter net profits out of three quarters. Your EPS guidance for the full year is unchanged around EPS breakeven. What do you expect for the final quarter, and what does that mean for possible resumption for dividend payout from today's perspective? Would you reiterate that what you've said all along, dividend payout unlikely this year? Or how, how would you phrase that now? Thank you.
Just to. Yeah, thank you for the question. So, the fourth quarter is one of our strongest quarters, so July, August, really important for us. So, of course, we want to see a positive development there. We set in our guidance, and we keep that with the earnings per share. We are around zero, so that's kind of where we want to end up by having a positive fourth quarter, and we will comply to our dividend policy.
Which means?
Yeah, there's no dividend for if the earnings per share is zero or negative.
Sorry, can you—this year, this year or next? Can you repeat that? Thank you.
So we are currently, after nine months, negative in our earnings per share. We expect that we will come around zero. Around zero means negative or slightly positive, but so we are currently following our dividend policy, and so this would be that we don't pay our dividend if it's negative.
Thank you.
Ladies and gentlemen, for any further questions from the call, please press star and one. Questions from the webcast, please write your question on the link.
We do have a follow-up question from Mr. Bruns. Mr. Bruns, please go ahead.
Yes, hi, Christian Bruns again. I might take the opportunity if there are no others, so I use my chance. I would like to have another question on Germany, because, I mean, it's still a lagging performance here and I think now for years and years, and this is also very difficult for your tax situation, of course, you know that. And given this long period of underperformance, I question sometimes whether it's the right thing to not close any of the stores in Germany, because, I mean, there must be some which are really negative. Is there any idea on this?
Yes. Thank you very much for the, for the question. So, our operating results of every store is positive in Germany, so there is no store that is contributing a negative contribution margin, in Germany. Number two, I think our network is a good one, but, I agree with you that we need to optimize, especially the business model, alongside the sCore strategy going forward. So that means very much streamlining of assortment, also taking out of assortment. That's particularly true in Germany and especially in the non-food section. So we are massively, in the moment, taking out assortment and also improving productivity here, and this is in full swing in terms of transformation.
I would say that in this very moment, we are in Germany, progressing as we never have progressed before in the journey towards a wholesale, a true wholesale business model. FSD is growing double digit. We are more relevant for our customers. In digital, it's growing, and in the store, productivity is also moving up. But it's a marathon, yeah, and it's not a sprint, because this is a big organization and we need to move a lot of people here, yeah, in terms of mindset and strategic orientation. And that's basically the thing, that it takes a while. I cannot comment so much what happened 10 years ago, but I know exactly where we need to head for, and I'm sure we're gonna make it, a profitable business.
But you cannot expect that we will do it in a month. It's rather a game of years, yeah? But we continue to do what's right for the company, Mr. Bruns.
Yeah. Thanks. That's good to hear, Steffen. Okay.
Ladies and gentlemen, we will now give the journalists the additional opportunity to ask their questions in German, and therefore, I will switch to German language.
I like the answer.
There are no further questions at the moment, and I will hand back to Dr. Steffen Greubel for closing comments.
I'm hearing an echo now. Okay. So thank you very much for listening. Sorry for the technical problems. And yeah, my key message is, "Go out eating," like always. So thank you very much for the attention, and see you soon.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.