Earnings Call: Q3 2021

Jul 29, 2021

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Q3 2020 2021 Results Presentation. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. I would now like to turn the conference over to Doctor. Stefan Greuber, CEO, Metro AG. Please go ahead. Yes. Good morning, everybody, and welcome to Metro's Q3 conference call. I hope everybody is staying safe and well on this Sunny morning here in Dusseldorf. With me sitting next to me is Christian Baier, our CFO and together we walk you through the relevant strategic and financial updates for the quarter. I will start taking you through the highlights of The quarter and obviously also my first impressions at Metro. And then I will hand over to Christian for the financial update. Let's go directly to Yes. Next page. And I would like to give you sort of an impression of my first 100 days. It's actually not 100, 90 days including the weekends and the bank holidays. So I'm not sure how about the official definition of 100 days is, but nevertheless, I would To give you a short update. I spent, I would say, more than 50% of my time in I think that's very important to understand also the business bottom up. And so far I've seen more than 30 stores. I've seen more than or spoken to more than 50 clients in 6 countries and we see that also Tempt Depot. So I really invested a lot of time to get a feeling for Metro. And my observation, the summary for that is that we have Indeed, a very attractive asset base. The workforce has a high degree of motivation, I have to say. The brand is Very good and strong. Everybody knows us in the market. And our product knowledge, especially the sourcing knowledge and the supply chain knowledge, For me is impressive and it's a very solid and fantastic fundament to build our plans for the future We also do have strong values around customer centricity, customer success and then obviously also sustainability At our core, the entire industry is a great industry. It's still a very fragmented market. So the industry, there is still a high potential for consolidation and we all believe that the disruption coming by the COVID is A temporary phenomenon. And as long as we all believe and we are a big believer in that, that social life will also Outside sort of the own apartment or the own house, this is going to be a super Our business model that I've seen so far is a Very good one. It's the combination between stores, the delivery called distribution FSD and The digital services and we did some analysis in the very beginning showing that whenever customers are buying Or coming to different customer contact points that we have a over proportionally high share of wallet And growth. So that's a very good fundament to build on for the future. And of course, since the market shares are still sort of There is a huge potential for us to grow organically in Continuing the investments in growth we already made. We are currently working, as some of you know, on the We are doing that in a very sort of collaborative mode with our Supervisory Board and with our You can expect at the 26th January to get an update with all the necessary details, but It's not going to be a huge surprise, I would say, in terms of strategic levers. There is so many good things that we do have in our hand and it's now A lot about disseminating them, about implementing them, about executing them. So because we do have a lot of Q3 results, it is a good indicator for what we can actually do and what we actually did in terms of And let's just have a closer look at those results, because it's not only and maybe we jump to the next page, It's not only the growth that is coming back, but it's also that the that our sort of customer Performance is also very strong. So let me quickly walk you through that. The sales is growing 12.2%. This In euro, currency adjusted, it would be slightly above 15%. We are looking at €6,200,000,000 in Q3 And our EBITDA is nearly doubling compared to last year to €310,000,000 Apparently, this It's not already accumulated to pre pandemic levels, but it's getting close. In June, the sales or the growth has been even exceeded June 2019 And in EBITDA, we are getting close, I would say. So this is a very solid performance. And it's not only the lifting of restrictions that is making that happen. It's also that That is making that happen. It's also that our business model and the loyalty we had to our Customers even in the times where others were going out of the market is sort of now paying off from my perspective. Never stopped sort of the investments in growth and in the business model during the pandemic and this is now Helping obviously to win market shares. Apparently, on the other hand, everything has a lot to do with Restrictions, especially in the hospitality sector, since we are now witnessing the lifting of restriction in our core Countries, we do see a very solid growth in the hospitality sector, restaurants and so So here we do have an over proportional growth of 57% versus previous year and we perform above For the other segments like trader and SEO, we are Sort of close to previous year levels. Previous year obviously was very much influenced by stock up purchases and other, I would say, one off events. So overall, we can be sort of very satisfied with The performance on all different segments in the Q3. The trend also continues in July And we also see, especially in all of the segments, a very good and solid Performance as of sort of month to date in July. And to Just repeat that. I do think that we have improved our competitive position. Metro is coming out stronger Of this crisis then we went into and we do have all the possibilities in our hands to really outperform the market and I We are already delivering enough proof for this. When we look at the 9 months, the total sales is then minus 3.5, still below last year cumulated and the adjusted EBITDA is €24,000,000 better. We have, as I said, a very positive start With the July figures into Q4 and subsequently we are also have updated our guidance. So we're now looking at €50,000,000 to €175,000,000 So we do see a significant upgrading our performance and that was just the consequence of it, especially in combination with the good July we are looking at. The ranges are still broad because apparently there is always some Going on with Delta variants and here and there you see other restrictions coming up. We are not 100% sure how market and how consumers And how customers are reacting to that. So that's the reason why we have actually or why we are still operating with sort of broad To just underline a little bit my observations around the business model, let me walk through Details and anecdotes that I've seen in my visits and that are sort of giving you Some insights on how we are working and what we are sort of pushing forward in the future. So what you do see here is depots. Depots is apparently important for our FSD For our foodservice distribution business and I was in Rome a couple of weeks ago and we just opened the one you In the lower end of the picture, because it's a Rome is a €1,500,000,000 market and obviously we try to Gain market shares there as well. The overall multichannel game is full in swing. That means that we have Plus getting delivered and I guess this trend continues more and more and that's also the reason why we upgrade Our growth investments in the FSD and then obviously depots are part of that. We are currently looking on the FSD on the distribution side, on the delivery side to 70% growth to 17% growth compared to pre pandemic sales compared to last year and the pre pandemic Sales share is sitting or the sales share is sitting at pre pandemic levels of roughly 17%. So we recuperated that Very nicely and of course now it became really a growth driver. And I was speaking about Italy in Italy with The investments here, but also with the existing depot that we do have in Milano, which was one of our first depots in the world. The The cash and carry growth is still there. Again, I repeat myself, when customers are going to a store and the customers Getting delivered and when customers are using digital offers from us, the sales share, the share of wallet, the potential exhaustion is over Proportionally and that's the reason why we're going to upgrade on the FSD and on the digital and of course on store operations we are already I have to say very good. So in combination This is going to deliver and this is just one example how this is developing now. And Of course, and I don't want to spoil too much about our strategy. This is going to be a core for the future. And Depending on the market, 60%, 70%, 80% of the market is in the FSD. So we are actually ready to conquer that market. So let's go to the next one, which is login. Login and these are pictures from Spain, It's a other word for creating partnerships. I think partnerships is a nicer word actually. We are in And between sort of all the people in our organization and the customer. So the beauty of it is obviously that Based on this personal relation, we can create a partnership that is also a contractual partnership. So loyalty Programs sort of metro prime logic would play a or is playing an important role and we are double down. We are sort of Investing in that relation more and more. There are loyalty programs called, for instance, Metro Plus. In other countries, they are called Metro Pro that are helping to grow Existing customers that in the moment have relatively low share of wallets. We are targeting with this in the moment rather customers that we would consider as This may be discounts. It differs country by country. So we are really investing in these partnerships to bind the customer to us to make So services and things like that into that relation. And then obviously, we will going to sell that to our customers. One example from Spain is very interesting and also very convincing. 40% of the Horica sales of Macro Spain are already coming out And they doubled since October 2020. So you see the relevance of that for our business, but also for our customers, which is More important, customers like actually to get a full service package and then they will also buy more And they also enjoyed in the FSD compared with the store sales very much. So Partnerships are an important part of our work as of today, helping grow helping the growth and are going to be An important pillar for the strategy of tomorrow. Another similar thing and I was Mentioning that is our digital solution. They also do drive loyalty very much. I just want to give Two examples. 1 is the mCompanion app and the other one is, I would say, the DISH ecosystem that we have developed. On the Companion app, which is an app with a lot of different functions, we have 450,000 roughly downloads As of today, and the it's a big driver of loyalty, we are seeing the customers Are growing plus 80% versus previous year and it's already a penetration of 10% of the buying customers. So that's good. It also gives you some opportunities to digitize our processes. I just would like to mention the checkout Process, so there is the possibility to get a digital invoice. So there is no more printout, which is saving paper time, Money and it's not waiting time for customer. So that's something we are really Pushing forward. It's again adding to the logic to bring customers closer to Metro to make their life Easier, so that's a classical win win situation. And maybe the second one I would like to mention that is going a little bit in a different direction It's what we call the sort of DISH family or the DISH offerings. There is different bundles. There is a reservation Bundle with our dish reservation tools, 11,000,000 guests have been seated and 3,000,000 reservations are made, Customers and when you talk to them, you really feel that they are looking for possibilities to help them digitizing their own And obviously here the crisis or the COVID crisis has put some speed and pressure On that right, because they obviously have to have a solution for reservation for the digital menu and so on and so forth. I think the investments that have been made even prior to that are now paying off big time and you see it in the numbers. Same thing for the DISH order, It's a tool where customers can or restaurants can go to the market and get possibilities to deliver directly to In the moment for our sales force, for our people in the stores to offer those tools to our Time is a very crucial resource in the moment in the gastronomy. So everything where we can Sort of be helpful for our customers to save time for them is going to be valued very much. And so you see 2 tools that are helping Their business and helping saving time for them and this is obviously also then adding to our multi channel And in the last 3 months that has been already paying off and you see the numbers there quite impressive. That all lifting the restrictions and all the activities we are doing is then leading to a from our Against the market, it's MPD group data. So we see almost in every market a A solid outperformance of the average. This has to do from our perspective also a bit with market A lot of the smaller, maybe regional players cannot offer the entire Store delivery and digital sort of bandwidth, which is now helping us and which is also helping to consolidate the market and you see it here in the figures and it's also paying off that also during the crisis didn't structurally reduce our sales and market capacity. And obviously, this is now paying off. And we also didn't Stock level so much so that our availability is in the moment there and we are also now Customers coming to Metro is a 2 years high in the moment. So this is showing that The offer is very attractive also for new customers. And that also and I mentioned that in the very Beginning is based on a fundament of sustainability. We, as the first German wholesaler, committed to climate neutrality by 2,040. We will invest €1,500,000,000 mainly in our stores around cooling and insulation And Energy and Heating, which is making the best majority of all of our emissions. So we will we are committed to That is displayed right now. That's just an example. I think more and more everything we are doing is based on a solid Sustainability of our on our solid sustainability values that will also actually help to be relevant for our And which might also be something that is a competitive advantage looking forward. So we are fully committed to those sustainability Targets for the future. So overall, very good Q3 business It's continued to running well. The model, the business model is very solid. The asset base is a fantastic one. So we will now focus in upgrading that more and more. We continue To work on the strategy and then obviously we're going to share the details with you then on the 26th January. And having said that, I would like to hand To Christian Beyer for some more details in the financial update. Thank you very much. Yes. Thank you, Stefan, and good morning, everyone. As you have heard already, the lifting of restrictions led to a surge in Statement, which is proving the agility of our business model. So let me give you some highlights here of the quarter. Sales have grown by 15%, while delivery sales have even grown by 70% and reached almost the pre pandemic sales share level of 17%. Adjusted EBITDA has grown strongly to EUR 310,000,000 albeit from a low pre Y basis. On EPS, with a EUR 0.56 growth leading to €0.17 EPS this quarter. And the free cash flow has improved by almost €600,000,000 year on This all adds up to a strong performance in the 9 month period, which is now standing at minus 3.5 percent on the sales side and EBITDA €24,000,000 above PY at constant currency. EPS for the 9 months is at €0.09 We have therefore raised our outlook for this year to reflect the better than expected Horikar business, which continues also during July to date. Let's now look a bit in more detail into the Q3 data. The strong sales growth of 15% was partially driven by the relaxation of governmental restrictions, which has been positive for all However, we are convinced that the activation of our existing customers and the acquisition of new customers through the restart has really paid off for us gaining market share. And therefore, we are convinced that the homework we have done during the pandemic is really bearing fruit. Sales have therefore reached €6,200,000,000 however, still below the pre pandemic level. This was achieved despite a negative calendar of roughly 1 percentage point due to earlier Easter. The reported sales grew at 12% and this was driven by Somewhat negative currency developments mainly in Russia, Turkey and the Ukraine. On the EBITDA side, the adjusted EBITDA almost doubled and reached €310,000,000 at constant currency. The June EBITDA, just for your information, was roughly on the level of fiscal 2018 2019, so the real pre pandemic comparison. EBITDA was Further supported by a real estate transaction where in Portugal we have executed on a sale leaseback over store and the headquarter in Let me now zoom into the drivers for this development on the following pages. Before we look at the numbers, let Let me remind you of the explanations for the spread in performance across the regions. The 3 customer groups are impacted differently, whereby this Quarter, Horika has shown strong recovery following the relaxation of restrictions and our lock in initiatives. On the other side, Trader and SCO showed slightly weaker performance against a very strong comparison base in the previous year quarter. These customer groups are then represented to a different extent across our regions, whereby Russia has the smallest and Western Europe, the largest Lastly, the relaxation of restrictions has been highly heterogeneous across The countries where, for example, in Italy, the lift of the restrictions already started from the 26th April with outdoor gastronomy Now let's look into the regional performance starting with Germany, where sales declined by 3%. Through the gradual reopening of the This was also supported by the previously described MetroPlus program on the partnerships with our and also other commercial actions. The EBITDA in turn remained flat this quarter. In Western Europe, we have seen the strongest increase with sales increases of 34%. The quarter certainly benefited from restarting, while last year was significantly impacted by government restrictions. Spain and Pro Pro recorded the largest sales increases with growth rates of more than 50%. Italy, Portugal and France also benefited from double digit sales growth. As a result, we have been able to improve our EBITDA by EUR 116,000,000 When we look at Russia, sales were roughly flat in local currency and Horika sales largely compensated for the decline in sales to trader and SEO customers in light of an extraordinary comparison base. EBITDA was almost flat at €3,000,000 below previous year. Looking at Eastern Europe, Sales in local currency increased strongly by 13% and this was also driven by the Horikar recovery in the sales On the EBITDA line, our €19,000,000 increase was mostly driven by the sales growth And that's particularly visible in Romania and in Bulgaria. Lastly, when we look at Asia, the sales development was at roughly plus 11% and all countries contributed to that. Especially Classic Fine Foods benefited from the recovery in the hospitality sector, while in the end for Asia, EBITDA remained flat. If we now look back to the group view and starting with a bridge from reported EBITDA to EPS, D and A was Flat year on year. The interest and investment result improved due to lower interest from finance leases. Looking at the tax expense and that's also no change to the 2 previous quarters to avoid distortion in the current COVID-nineteen The Q3 tax expense is hence not comparable to the Q3 expense last year. In total, this brings us to an EPS for Q3 that has grown by €0.56 to €0.17 And that's obviously driven by the strong sales and resulting EBITDA growth and the remaining parts of the P and L. If we now move to the cash flow perspective, we see a growth of almost €600,000,000 in the free cash flow as the business The growth is not only driven by the EBITDA development, but also by a significantly positive net working capital contribution. Net working capital always follows the sales trajectory as we have discussed also on prior calls, and there is a very agile and Swift recovery in net working capital as sales do return. And especially as the Horicon volumes have returned, especially in Western Europe, again, we On the cash investment perspective, we were roughly on the PY level and therefore in turn the free cash flow in this adjusted definition almost €600,000,000 The net debt significantly decreased versus last year to €3,800,000,000 again mainly driven by In summary, and as you have seen, we have seen a very strong Q3 And in June, we have exceeded the pre pandemic sales levels and continued to develop very positively in July. This development led us to upgrade our financial guidance despite the continued COVID volatility. Now we do expect sales in local currency and like for like to be in the range of minus 0.5% to minus 3.5% and the adjusted EBITDA We expect in that composition of the guidance sales growth in Russia, Eastern Europe and Asia. And on the earnings side, we expect a relatively heterogeneous development. In Western Europe, we expect the largest impact on sales and earnings coming from government restrictions. With regards to the further P and L expectations, we confirm our previous comments. Against that background, let us now summarize this quarter in the four points shown on this chart. We have achieved A strong Q3 performance with 15% sales growth. Adjusted EBITDA almost doubled to €310,000,000 We have observed a very swift recovery of all financial metrics as a result of our business resilience and proximity to our customers. We continued to outperform the market, which is a larger achievement this quarter as volumes returned and competitors opened up again. Horicon sales thereby increased by almost This is the result of our dedicated operational measures. Our partnerships that aim to lock in sales via customized Our multichannel business model and of course the digital tools that save time and money for our customers, hence Yes. Thank you very much, Christian. So based on the strong operational and financial development in the 1st 9 And obviously, our continuously strong performance in July, we have actually raised the guidance, as you said, to reflect Better than expected performance. The past weeks give us high confidence for what's ahead of us. In the Metro, we have incredibly attractive That's right. As I already said in the very beginning, we are playing in a great industry that is growing and still highly fragmented. We We will explain in more detail what this means to us and to our Capital Markets in our Capital Markets Day on the The first question comes from the line of Hakka Bossert with Baader Bank. Please go ahead. Hello. Good morning, Sacha Bosels, Baaderberg. Thanks for taking my questions. Thanks for all the provided details so far. And welcome, Mr. Groible, And all the best for the new position. Thanks for sharing also your first impressions. And this What leads me to my first question, when you said Metro is in a great shape. However, to be honest, What are the key challenges which you have observed, which you want to attack first? Where do you see, So to say, urgent need of action, so within the 1st 100 days. First question. The second question would be On the competitive situation, it's good that you win new customers. But How does the number of clients develop? I mean, I think there are also the clients who gave up. So Do you see a shrinking market due to the that clients left the market? So how many percentage or whatever you can say about clients who left the market during the crisis would be helpful? And the last one would be on Fazole. You did not mention Fazole in the past, it was also kind of growth driver with Growing number of participants in that program. So an update here on Fozole and how Fozole is progressing in this environment would be helpful. Thank you very much. So thank you very much for the questions. Let Let me start with the first one. So what kind of key challenges are in the moment in the business and ahead of us? And I think I would Answer in three dimensions. Number 1, after the dismantling of the organization to really focus on wholesale, we have still the topic that We then with the core we are having at Metro need to truly then become a wholesaler, let's say it like that. So that means that in our offer, In our go to market, in our entire logic how to approach customers, we need to focus more and more to So we here and there have let me, for instance, give you the example This starts with format. This is in the offering. So there is some transformation still ahead now to become really a wholesaler everywhere. I think that's one answer. The second one is obviously that we need to upgrade in our sales capacity and capabilities. That's It's very important because a lot of the things we are mentioning here, we need to sell proactively. So people will not come, we need to go. So that's going to transform the business in a push model and obviously this is a transformation of the company and therefore a challenge, but I'm sure we are equipped well for that. And then number 3, and this is, I would say, competition neutral. We need to upgrade our availability in the moment. We are Still, I would say, ahead of competition, but we are not happy with that. So in the moment, the availability of products, because all the supply chains are sort of No more in order because of all this pandemic crisis. We need to sort of double down to get today the availability in order and we are doing good progress on Clients, your second question, so who is really going out of the market? I have to say from my travels and from the ride alongs I did with sales reps, they are all telling me that they have never so many new The thing is, as long as the location is not closing, there's a lot of well organized restaurateurs out They are desperately waiting to get those locations for the ones that are not so organized. So overall, I think the people are going out Business are the ones that are not that organized. Since we do have low market shares, especially in the delivery, this is So I think it's rather a chance than a threat in the moment for us. And on Fasol, and we do have Which is a franchise concept in Russia, as you mentioned, right? We do have 2,000 stores now out in the market. It's still growing. It's 120 more versus previous year. It's a concept that is very much similar to the one we do have in Romania, We also look at 1500 roundabout stores in a very similar format. Let me The logic of this is also to lock in professional customers. So it's nothing else than what we're also doing On the restaurateur side, on the Horika side, it's just in a contractual agreement to bind a professional customer. So that's the same thing. So we are fully committed to the Fasold 1 and we will also upgrade that concept and we are right now evaluating how we can grow that not only in Russia, also in other markets. Okay, great. Thank you very much and all the best. Thank you. Thank you. The next question comes from the line of Xavier Lemeni with Bank of America. Please go ahead. Yes. Good morning, gentlemen. Thank you for taking my question. 1, if I may actually. So we've seen the strong improvement in Q3 with your like for like. Also, we can say Western Europe Doing very well, Eastern Europe to Russia and Germany being potentially a bit soft. But what are you expecting going Forward in terms of reopening, so do you think that you can be back to 2019 level As soon as 2022 or do you think that it will be a slightly longer process on recovery for all your clients actually to be back to full speed? Just to get a sense of how you expect the recovery going forward linked to the reopening? Yes. Well, I think Xavier, thank you for your question. And I think the key point is at this very stage, we have been speaking about June and we are also speaking about the current performance in July. We do see that even with the current level of the performance, We are above the 2019 levels. So that gives us the confidence that on the one hand, what Stephan just described, our customers And while the overall Horikai industry is not really back to 2019 levels, we have been able basically to extend our market share to the In a way, with respect to your question going forward, this certainly very, very strongly relates to the situation around the overall COVID pandemic where the volatility will be an element that we cannot judge entirely. We will need to see to over time coming back not only to the small community elements in restaurants, but also to the bigger celebrations and also the festivals and other topics where we certainly also do have a share in. So we are confident that from our strength, We have all what it takes to capture not only a lifting market, but also stronger market share and the remaining part of it Unfortunately, then is the exogenous factor of the volatility on the pandemic where we have seen that our customers are But then restrictions and the health situation also needs to be in place and that's basically the decisive factor between 2022 or any period thereafter. Okay. Thank you. As there are no more questions at this time, I hand back to Doctor. Stefan Groiber for closing comments. Yes. Thank you very much for your questions and for the attention. So yes, we will be happy actually to hopefully share then also similar or even better results When we speak next time, until then, I wish you all a good and obviously also Healthy summer and a good vacation for those of you who haven't been, go out eating. So that's the best thing you can actually do for us and which we will also do a lot, right, because for a lot of us, the So I'm looking forward actually to meet you, to see you. And then later, we see each other than on our Capital Markets Day on 26th January. Thank you very much. Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone.