Metro AG (MTTWF) Q2 2023 Earnings Call Transcript


Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the analyst and press call Q2 2022/2023 results presentation. [Operator Instructions]

I would now like to turn the conference over to Dr. Steffen Greubel, CEO, Metro AG. Please go ahead.

Steffen Greubel

Yes, good morning. A very warm welcome to our results call. Next to me is, Christian Baier, who is the CFO of Metro. And we will run you through our results of the last quarter. As always, I will go through the key messages, the key progresses that we actually did. And then later on, Christian will talk you through a bit more in detail the financial results.

Later on, we will have opportunity to do Q&A session as announced first in English and then we also have the opportunity for the German-speaking journalists to then switch to German and continue the conversation.

So let’s directly jump into the content with a summary of our sCore progress that we have achieved in the last quarter. So our growth — and it’s good message, our growth momentum continues. In Q2, we were looking at 10% of growth. When you would adjust for portfolio and FX effects, that would even be 13%. We are growing in all of the channels.

Our sort of heritage and most important one, store, they grow, mainly via the introduction or the acceleration of our buy more, pay less strategy. The FSD is accelerating. We just have announced that we bought a FSD specialist in Sweden, Johan I Hallen & Bergfalk. And on the digital side, we are also growing. We are adding new countries for our DISH POS roll-out and we’re adding new subscribers in even a faster pace.

We have, and that’s basically fresh from the press yesterday, closed the Indian sale that will do positive things to our EPS expectation. Christian is going to refer later on to that one. So that’s our summary. Overall, we are looking at a good quarter 2.

So let’s go into the details. And before we do that, let’s look or let’s step maybe back and let’s look at the opportunity that we are having because apparently, there’s a lot of negativism in the world. And we always need to remind ourself that we are in a growing big market. It’s a trillion market in the countries we are operating in, and it’s a growing market. So the opportunity is out there.

The market is characterized by a high degree of fragmentation. We are the biggest wholesale company in our countries in Europe — or in our countries and usually being number one or number two in every single market. Still in no market, the top three players are having more than 30% market share.

So that means our markets are big and they are characterized by a high degree of fragmentation. And of course, we, as being the market leader, are having the right, so to say, to consolidate that market, and that’s where we are working on every day and night.

And the opportunity is out there despite all negativism, our low market share and still being number one indicates that there is great opportunity and it keeps to be great opportunity out there. And our customers are getting more and more optimistic.

If you refer to the German Hospitality Association, DEHOGA, and also out of the press, there are more positive signs coming after the shock of COVID. Our core customer group, the restaurants are looking way more positive now in the future, so also having finally improving sentiment also out there, which is great to fulfill our sCore growth targets.

So how did we progress? How did we do actually in the second quarter? As you can see on the left-hand side, which is showing the growth against the last year, that you’re seeing the 10% that’s just mentioned. And we are — we have overcome the effects of the cyber-attack of the Q1. So that’s one message, right?

This plus 7 was very much infected by cyber-attack, but then we have fulfilled now our plans. We have come back to 2-digit growth. And this growth is on top of significant growth in the previous year, as you can say, where we have all the effects of the gastronomy opening up again. And now, on top of that, we are adding additional significant growth.

And the good news is our customers, they have, so to say, in parenthesis, forgiven us for the shortcomings and for the problems we had during the cyber-attack and now continuing to grow together with us. So that’s good.

And on the adjusted EBITDA, and that’s very much in line with our plan, we are looking at €111 million EBITDA in absolute terms. That’s slightly lower than last year, but there is technical effects coming out of the other income, coming out of the last year, and there is nothing that is against the plan there in this very moment. So we are satisfied with this second quarter.

And it’s not only by chance. It’s also by work. You see the key strategic KPIs of our core strategy, and you see all of them developing in the right direction.

Sales force is very important for us because we are moving towards multi-channel, we are moving towards proactive sales. So we have added almost 500 FTE, net on top of our already growing sales force. Last year, we’ve added 800. And we are very comfortable that we’re going to achieve our 2030 target in doubling the sales force. Strategic customer sales share, you see it’s going up 71% in the first half of the year.

So we are also here well on track. FSD sales share at 22%. Here, we’re looking at records. Digital sales share is going up. And of course, there is still way to go, especially on digital sales share. But with all the efforts we are doing and the focus we are having, we are progressing in the right direction. And we are very confident that this is helping to achieve our targets in 2030.

Own brand, very, very important in this very moment. You see a 21%. If you look a little bit closer, even Q1 or some intra-year dynamics, you see that the trend is still in our favor, that our own brands are very well accepted. They are generating great value to our customers. So we are well on track to achieve the 35%, maybe even a little bit faster and the trend continues like that.

Depot, so the investments in our network, we see that we are adding new depots and new out-of-stock locations, eight of them, half depots, half out-of-stock locations. So we are investing what we have actually said into the capacity of our network to fulfill then at the end, our FSD and delivery targets.

So we are doing in terms of implementation, exactly what we have planned to do, exactly what we have announced to do in Q2 as well. So let’s look how the growth actually is composed. Let’s look how the individual channels are growing.

To remind everyone, this is our key strategic visual here, the three circles. We want to grow in all of the channels: The store, the FSD, the delivery business and the digital. And the good news is every channel, every activity is contributing. So you see the growth of the store is 7%. The growth of the FSD, I mentioned the sales record was 21%.

Metro Markets, our gastronomy marketplace is growing, also Hospitality Digital. Our DISH solutions for the digitalization of restaurants, they are also growing even higher than they have grown last year.

Why are we doing that, besides adding great value to our customers? Because we know when customers are using more than one channel, we will get an overproportioned high sales. You can imagine a customer use all the three channels is roughly 10x more productive, 10x more sales than if you would only use this one channel and that’s why we are pushing so much.

But we have to have the sales force ready to really sell that to our customers, and we are exactly ramping that sales force up to disseminate the message and the offerings that we do have to our customers. So that’s sort of the background to remind everyone, especially the ones that have not listened to me so often maybe in the past.

So let’s go a little bit more in details and run through the different and individual channels. Let’s start with stores. The heritage and the future of this company, we are growing 7% in sales in the stores. It’s mainly driven by our BMPL strategy that we are rolling out. BMPL stands for buy more, pay less.

That is basically the logic, if you are buying a pack, you’re getting a discount. It gives great value to our customers because they have opportunity for products they anyway need to bypass basically the inflation. And for us, it’s great opportunity because at the end, when we are selling more boxes, we can put more boxes on pellets. We will have higher rotation, and we will add to productivity. On the same hand, we kill complexity.

The complexity often is associated to complicated assortment into promotion. And you see that we are also basically in parallel, reducing our promo share while we are implementing the BMPL sale share. We are now looking at 48,000 articles. We are completely in line with our target. And the sales share rose from 17% in the last, to 23% now in the quarter 2, which is actually great.

Every fourth euro, we are looking at in the stores is here coming then indeed already from this BMPL. Good. Let’s go for a bit more pictures and examples. First, you see Romania. They are the front runners.

They’re the front runners in wholesale, transformation in the store and they’re the whole — the front runners in BMPL. They started a couple years back, and they are serving basically as the reference for the rest of the group. You see how it looked before. Displays, promo, like supermarket, right? And now you see how it looks then when you are really a wholesale company.

You see the buy more, pay less fully in action. You see products on pellet. You see simple clear assortment. You see great customer value. And in Romania, we are already looking at 80% of the sales share and the productivity there is great.

The guys are continuing to grow over the last years and the productivity is upon the highest in the entire company. And that’s just one example. That’s the best practice. And we always say we want to make this best practice to common practice. Now how we are doing that you see on the next picture.

Let’s travel to Italy. You see Italy, before and after. We just started actually in Italy and even in a relatively short period of time, we can also duplicate and replicate what we have learned. And Italy is just one example. We’re doing that in all the countries that you are seeing.

We added here 1,000 articles and the BMPL share already moved 7 percentage points up to 20%, now in a very short of time. Of course, we’re applying the learnings that we did in Romania to all the other countries now. And it’s not only Italy, it’s Germany, it’s Spain. You go in any random Metro Cash & Carry store, you will see that in local language, [Foreign Language]. So it’s always sort of adapted to local language.

And you will see that everywhere now rolled out towards our wholesale Cash & Carry, which is Romania. Let’s go to the next one. Let’s go FSD. Let’s talk FSD. Let’s talk delivery.

You see sales share record 24%. To remind everyone, majority of the HoReCa market is delivery. That’s our biggest growth in absolute terms opportunity. And we are doing actually good because we are continuously breaking our own set records every single quarter so far. So 21% is the sales going up.

And we trust — we are very proud that we can announce that we acquired the company, Johan I Hallen & Bergfalk, a specialist for HoReCa supplier of meat and fish. So for us, it’s a perfect match to not only generate significant synergies, but also to have such a strong and well-established player in the Nordics now in our network. We can learn a lot from them. We can also bring synergies to the Scandinavian market. And of course, for us, it’s quite a logical white spot that we want to move forward to.

So we are really sort of very happy that Metro went north. It’s closed and it’s already sort of now in the group, which is a good sign. Then let’s talk digital. I will talk about two things, METRO Markets first and DISH later on. METRO Markets, 47% sales.

To remind everybody why are we doing this? We’re establishing the biggest gastronomy marketplace in Europe. And we are already the biggest gastronomy marketplace in Europe so far, and we continue to grow that one. It’s a true marketplace with 800,000 products and 1,600 partners. So it’s not only Metro that you’re selling.

It’s not a fake marketplace. It’s a real marketplace, that’s continuing numbers of partners, products, services to our customers. For us, it is an extended shelf that’s mainly nonfood and it helps a customer whenever they don’t find an article or they want to get it delivered fast without going to a store, METRO Markets is there and can actually deliver and generate that value. And we know if people are shopping at METRO Markets, at the end, they are coming more often to the store. They are buying at the end more tomatoes, bananas, meat and fish.

So that’s the correlation. That’s why we’re also pushing that, we said we want to add two countries per year in the future, we said that in ’21. We added two in ’22. We are adding two in ’23, and we will add two again in ’24. So we are walking the talk.

We are having have here said ratio of 100%. And when we look to the other key DISH or the key digital initiative, DISH, this is the — to remind everyone, this is the digital ecosystem for gastronomy. So all the processes, we aim to digitalize to help digitalizing at the side of our customers. We’re looking at 17,000 new subscribers. Overall, this is more than 0.25 million gastronomic customers that are our customers that are enrolled to DISH.

And we have now even increased the number of new subscribers compared to last year. So the speed of sales, the speed of dissemination is going up. And we have acquired, and you might know that, the leading POS company Eijsink with their technology book and now we are about to actually roll it out. You also can expect one to two, maybe three countries a year. So far, we kicked it off in France.

The entire logic is to really sell it throughout the entire Metro network. So far, it was very much limited to the Netherlands. So we started in France. We launched it now in Germany. We will do it next in Italy.

And you can also here expect two to three countries then in the future coming up. The overall idea besides generating great value, because it’s a great cashier system for our customers is then on the long run that we would like to link the cashier with the ordering system because we know how to decipher a recipe into an article list.

And if you can imagine, or you could imagine at the end, that would be the final state that someone in the future, the cashier is at the end doing the article order at Metro that we did at the end shift. So that would be the overall strategic rationale on top of the generation of value for our customers. So those were the progresses for the individual channel and activities.

And let me then come to the end and finish my presentation. So we are well on track. We also would confirm our updated mid-term sales, EBITDA ambition. We are doing what we have told. We are delivering what we have said.

We are very motivated to continue to invest into growth and transform the company. And having said that, I would like to now hand over to Christian to run us a little bit more in detail through our financials of the first half of the year and the Q2.

Thank you very much.

Christian Baier

Thank you, Steffen, and good morning, everyone.

Let me continue with the Q2 financial performance. So generally, and as Steffen has outlined, Q2 is exactly in line with our plan. That means the growth momentum really continues, but we also do see a couple of elements that show how intense the transformation is and that it’s already successfully on the way.

So let’s start with the high-level KPIs, where on the sales side, we have achieved 10% growth, which is partially driven by inflation, but very strongly also by the good progress on our strategy execution.

There is strong growth through all parts of our multichannel model. On the adjusted EBITDA, this developed in general, also in line with expectations, and the top line elements that we are driving forward are also paying off there. However, the slight decline that we see to €111 million in Q2 is mainly driven by the expiry of post transaction effects over the last year and also partially about the expected cost inflation that we also did anticipate.

In the other financial results, this increased to €28 million versus negative €98 million in the prior year, which was due to noncash reversible FX effects, mainly from the Russian currency, and it’s the same effect that we have talked about in Q1. This positive effect also translated into the EPS, which is increasing by €0.49 versus prior year, and is coming out at minus €0.29.

The negative free cash flow of €837 million is mainly due to seasonality. And in addition to that, there is some effects from the intense transformation and our progress in sCore, mainly in the net working capital. The net debt came in at roughly €3.8 billion, which is fairly stable against the prior year.

Let’s then move on and look into some more details, starting with the segments. The overall group performance is really built on those strong regions and segments, especially Germany West and East have performed well. And also the other segment contributed to the growth on the top line perspective. There is no lasting impact from the cyber-attack, and all segments show growth acceleration versus Q1.

The decrease in adjusted EBITDA is mainly driven by the segment Others, where we have the post transaction effects in the prior year. And overall, we are seeing some start of cost inflation impact on energy, but all of that has also been anticipated and therefore, fully in line with our perspectives.

If we go more specifically into the various regions, starting with Germany, reported sales increased by 9%, which is supported by significant growth on the HoReCa side and the reported sales reached €1.1 billion. The adjusted EBITDA decrease of €6 million was caused by the expected cost inflation. In the segment West, reported sales increased also by 9% and reached €2.8 billion.

Especially HoReCa sales developed very well, and it proves that the sCore implementation is paying off already in a strong manner. Almost all countries contributed to this with double-digit growth and especially, again, the strong countries, France, Spain, Portugal and Italy, very much focused on hospitality contributed heavily to sales growth.

Adjusted for the sale of Belgium in the previous year, the segment West grew at about even 17%. Moreover, our FSD companies, Pro à Pro France, Pro à Pro Spain and Aviludo in Portugal also reached double-digit sales growth. The adjusted EBITDA in that segment increased to €59 million and thereby followed the sales growth development.

In Russia, sales in local currency decreased by 14% due to reduced consumer spending and also due to the stock-up purchases that were happening in the prior year. Due to the positive currency development, reported sales are almost stable and reached €0.6 billion. The adjusted EBITDA at constant currency decreased to €20 million.

This is a reduction in currency adjusted terms by about €22 million against the prior year, which again also included those stock-up purchases and the decline being mainly attributable to the tougher macroeconomic environment. In the segment East, sales in local currency increased significantly by 21%, where almost all countries contributed to that sales growth mostly through positive HoReCa development.

Turkey achieved sales growth strongly, supported by inflation. And very remarkably, 7the Ukrainian business performed for the first time after the Russian invasion positively with plus 3% sales growth versus prior year The adjusted EBITDA increased to €50 million and is up by €8 million at constant currency, which is also in line following the sales growth.

In the segment Others, reported sales grew by €26 million to €47 million, and this sales growth is mainly due to the expected growth in our digital business with METRO Markets now being present in the countries that Steffen mentioned before and is strongly expanding as well as the rollout of our POS provider to France and Germany and also our kitchen equipment company, Günther Group, contributing to these sales improvements.

The adjusted EBITDA in the segment Others decreased to minus €10 million due to the expiry of post transaction effects and further investments into digitalization. So how does this performance now translate into our market share development? And you know this chart from prior quarters. We are very confident and proud to see that this is developing in a strong manner, where since COVID Metro’s development continuously remains above the market.

And in Q2, we see an even increase in gap in some of those key markets. This positive trend is driven by Metro’s strong performance on both store and the delivery channels and certainly also supported by our activities on the digital side, which is really complementing our multichannel offering.

The trend is further confirming our effectiveness of our sCore strategy and that this is paying off despite there is a consumer spending that is actually getting much more attractive at the moment from an out-of-home consumption perspective, which remains higher than some of the market participants we’re expecting. And Steffen was already commenting on the positive development in the sentiment that we see in that sector.

If we now go to P&L perspective, and summing up the solid sales momentum that we have seen and the successful implementation of our sCore strategy, we have achieved those 10% sales growth, reaching €6.9 billion sales despite a strong PY development. And all channels have contributed to that.

So the stores have grown by 7%, FSD sales have increased by 21% and Metro Markets by 47%, all strong developments. The sales development is generally also reflected in the earnings. However, adjusted EBITDA is also impacted by the expected cost inflation and the aforementioned post transaction effects that leads to an overall reduction of adjusted EBITDA in line with our expectations.

If we move further down the P&L, we see that the depreciation is significantly below the PY level, which was impacted by something over €100 million on goodwill and asset impairments in the prior year, mostly on Russia and Ukraine.

So therefore, depreciation is normalizing again. The other financial result, as mentioned before, benefited from the noncash reversible FX effects from the Russian currency, again, as the same effect in Q1 that we have seen.

On the taxes side, we continue to calculate basically the taxes across the year and then allocate those to the individual quarters so — and that’s fully in line and therefore, there is a very small tax expense that we are recording in this quarter as we’ve done in Q2 already in the last year.

Generally, the Q2 earnings per share have the lowest weight due to seasonal factors, but still it’s good to see that we adjusted for the noncash FX effect in financial results, EPS would have been around minus €0.35 and therefore, has developed quite well. And on the overall view on the H1, we are at €1.14 in EPS, which also includes the real estate gain from the Campus project.

Let’s then move to the free cash flow perspective, where we’re starting with the operating cash flow, where especially net working capital seasonality has led to a negative operating cash flow of €583 million.

And that net working capital development includes the temporarily higher inventory level, which is our key focus on the availability side in sCore in order to really drive and support the sales momentum, and we are taking that positively and proactively into account. But over time, net working capital will normalize also to historical, very attractive levels, and we are now reigniting the growth momentum by having that strong availability.

On the investment and divestment side, these are all in line with sCore and the improvement in the other result is mainly due to some war-related effects in the prior year. If we summarize then, the free cash flow in Q2 reached minus €837 million and resulted in a net debt development, which is increasing compared to Q1 ’22/’23 but stays below the levels of Q2 ’21/’22, where net debt was at €3.9 billion.

It is important to note that we have limited remaining net financial debt and we have already repaid in March our €500 million bond as we have envisaged not refinancing that bond. There are no further bond maturities in the short term, and we have been happy to see that also S&P has confirmed and recognized our strong financial position, lifting basically the negative outlook, putting us to stable due to the strong sales growth and the positive debt metrics.

Overall, we continue to be well set up to fund the sCore growth strategy and well protected against rising interest rates. So how are we when we look forward now positioned in the outlook? We have guided that we expect 5% to 10% sales growth.

And in the guidance view, we have reached around 11% in H1. We see higher inflation rates, especially in the East segment that has also translated into higher sales growth expectations of this segment. But also on a group level, we expect sales development to be very strong and in the upper half of the outlook range.

The decline in adjusted EBITDA in Q2 also matches our full year expectation, and we see ourselves positioned broadly in the middle of our guidance range. In Q1, we have announced the strategic decision to exit the Indian market and divest Metro India to Reliance Retail Ventures Limited.

As Steffen has mentioned, this transaction has also closed and that happened yesterday. And just to remind you of a couple of facts, what business we have disposed there. The transaction includes the operations of our 31 India Metro stores, representing above €900 million of sales and a low double-digit EBITDA in million euros as well as also the real estate portfolio of six stores that we did have there.

The transaction values, Metro India had an EV sales multiple of 0.6x and implies an equity value of approximately €300 million. This considers lease liabilities and other related liabilities of €150 million. We have realized a transaction EBITDA gain of around €150 million and the corresponding EPS gain of approximately €0.3. The proceeds will further reduce our net debt by around €400 million, including €150 million that were already recognized in Q1. The gain will be booked in our Q3 and is also then reflected in our EPS expectations for the year.

That brings us actually to looking into our expectations for the year where we are upgrading a couple of points, but also confirming most of our prior expectations. So first of all, we confirm our expectation on sales growth by further driving market share gains with our sCore execution.

This leads to attractive productivity gains, but is countered by cost inflation and leads to a temporarily declining adjusted EBITDA. The expected €200 million real estate gains have already been fully booked in Q1. And on the D&A and net financial results, without the noncash FX effects and taxes, they are under normal development.

If we look at EPS, we increased our expectation due to the described noncash FX support in the net financial result as well as the benefit from the transaction in India. It’s important to state there is no change to the underlying EPS expectation.

In sum, we now expect an EPS in a range of €1.20 to €1.60. And this is based on the, again, unchanged expectation from operations and the campus transactions Of the €0.40 to €0.80 that we have mentioned in prior quarters. It is also composed of the roughly €0.3 EPS gain from the sale of India and from the about €0.5 EPS support from the FX bookings in the net financial rule. This assumes a fairly unchanged ruble level at the end of this fiscal year compared to the end of March. In the event of material deviations there, a certain noncash volatility remains.

We continue to expect cash investments of above €600 million for the full year, which is fully in line with our expectations and is again supporting the growth momentum in our sCore strategy. We now expect on the net debt side an improvement of around €0.3 billion, and this is taking into account the sale of Metro India and the FSD acquisition of JHB in the Nordics.

From our side, this concludes our presentation today.

And Steffen and I are certainly now very happy to take your questions. Thank you.

Question-and-Answer Session


[Operator Instructions] And our first question is from the line of Volker Bosse from Baader Bank. Please go ahead.

Volker Bosse

Hello, good morning. Thanks for taking my question. Volker Bosse, Baader Bank. Congratulations on the great top line momentum. I would have three questions. First is on your statements regarding the hospitality industry that we get to see a positive sales development. And how do you explain this positive trend, given that consumers should see negative salary effects in real terms given the overall price inflation, which increases the cost of living for all of us across Europe, I would say?

And second question would be on the termination of the AL contract, which had a negative earnings effect. When did the contract run out exactly? And what is the 2-year impact on Metro’s earnings on an EBITDA level, which will occur out of this termination? Last, but not least, the third one is on your partnership with the Czech online pure player, Kosik. I think you also acquired a 25% stake in the company.

I know it’s a tiny business, however. Could you provide more details on the deal? And is your plan to position yourself as a food service provider for more online retailers in more markets? How do you look at this business and this development? And what is the lost contribution on Metro’s P&L out of that equity stake? I think I said the loss-making business, but just by function. Thank you.

Steffen Greubel

Thank you very much. Let me take your sub-question one and three, and Christian is going to answer number two. So let’s start with your question around the overall customer sentiment in the HoReCa business, the overall trend. I would have three comments why I’m still looking relatively optimistic to the future, and maybe different than other wholesale or retail companies are doing.

Number one, the market has a different structure because in most of the countries, the 40% top income households occur for 65% to 80% of the gastronomy market. And since those are more well — more net worth — or higher net worth individuals, they are a bit more protected by those inflation and the necessity to save actually. So they’re still going out. So it’s a different market, number one.

Number two, still, we see that people like to go out and don’t cut so much on their spending and enjoying themselves mainly after COVID, going on vacation and so on and so forth. Even if you look at the vacation numbers, it’s quite still optimistic in the restaurants.

You better get a reservation because in this moment, we still see a trend of people going there. There’s more lack of personnel than of customers in this very moment, which is quite different when you look at polls, but that’s what our people said. So those are the main effects, I would say, actually.

And then on Kosik, I think it’s a bit too early to tell, to be honest, right, because we just started that. We are establishing now the operation. So here, I would say it’s all going like planned. But since, as you mentioned, it’s tiny in this very moment, we are still experimenting and trying to scale that actually up. And it’s more in a, I would say, experimental status now in this very beginning.

And it’s too early to say if that is going to be ever going to be strategic, but it’s an option value, and that’s what we are in the moment exploring.

Christian Baier

Volker, then on your question with respect to the Pro’s transaction effects, very specifically on the real situation that runs out in Q3 of this quarter. So there is still some effect in the Q3. For us, it’s more important to basically state the overall perspective on the full year that we would expect from post transactions.

It’s broadly around negative €50 million, which is completely included in our guidance perspective. So this is post transactions from real, post transactions from China and some other positive effects, so roughly €50 million negative in there, fully included in the guidance. And very positively and prominently, we need to say with our sCore progress on the top line on EBITDA development of that, over time, we now start to overcompensate those effects, which is exactly then driving forward sCore.

Volker Bosse

Thank you.


The next question is from the line of Andrew Gwynn from BNP Paribas Exane. Please go ahead.

Andrew Gwynn

Hi. Good morning, team. Two quick questions, if I can. So firstly, just on the guidance, appreciate you’re staying in the middle of the range, but why not narrow the range at this stage? It’s obviously pretty wide by implication, very wide for the second half. And then the second question, obviously, at the lower end of that range, flagging a significant cost inflation being a drag on earnings, yet you’re taking market share. So is there a conscious decision here not to pass through some of that food inflation and some of the sort of operational cost inflation lines to the consumer? Thanks very much.

Christian Baier

Thank you, Andrew, for your view. I think we are strongly progressing basically on top line and on the EBITDA side. We, at the moment, given that there is still some volatility in the market, feel very confident with the range that we have given. We have more specified this now to the upper end of the range with respect to the sales development. And on EBITDA, as mentioned, we see us broadly in the middle of what we do have there in expectations.

Your view on — or your question with respect to cost inflation and also passing this on to our consumers, yes, sCore is a strategy that is very, very much based on volume increases, thereby gross margin increases and also the productivity gains that are coming with it. And as we see in the market development, we are taking market share from competition. And therefore, yes, there is also a conscious decision in there in order to be very price attractive to get our customers into buying higher volumes. This is turning out to be positive already. So we see significant top line development, significant volume increases also in comparable products.

And we do then, over time, see also the increasing stock turn, which is coming through and also the productivity gains. So it is a conscious decision in most parts to drive this forward in the way we do and thereby achieving our guidance in the very solid levels of the corridor.

Andrew Gwynn

That’s very clear. And just on that sort of price investment, if you will. Is that something you would anticipate going forward? I’m thinking about next financial year, sorry.

Christian Baier

Well, we will continue to be extremely price attractive for our customers. And if you look into countries within the portfolio that have driven that strategy already earlier, like our Romanian business, they continue every single year to be one step further in the price attractiveness because this is also building the price perception in customers and then really driving the volumes.

And the positive side, on the other hand, is that the productivity improvements that they continue doing is then continuing to progress. But also price ambition always is certainly in the context of competition. And there, we will make sure to be very attractive to our customers and have a financial profile solid for us.

Andrew Gwynn

Okay, very much, thanks very much. Have a good day.


[Operator Instructions] The next question is from the line of Christian Bruns from Montega AG. Please go ahead.

Christian Bruns

Hello. My question is on the buy more, pay less scheme. Should the scheme replace promotions entirely? Or will you still have promotions also in the years coming forward? And at which — will promotions come down? And which effects do you expect in terms of gross margin from that?

And another question is on food inflation. We see strong food inflation currently. So how do you measure your market share gains in the light of this food inflation? And are there other effects compensating food inflation, so the customers buy more own brands or lower-priced products in your assortment?

Steffen Greubel

Thank you very much, Christian. Let me take the first part of your question regarding our BMPL rollout strategy and if it’s going to replace existing promo. The answer is yes, but not fully. That’s the short answer because we will still need — also hospitality is reacting here and there to promo. When we think mainly about fresh and ultra-fresh products, promos still play a role here, especially because there is a big seasonality in there.

And when we talk about the classical dry and nonfood assortment, we try to move down promo to the utmost extent and maybe only have it on a seasonal view. But for the classical key articles, we try to replace promo per se by buy more, pay less over time, and it requires some time.

Christian Baier

And Christian, with respect to your questions on food inflation. Food inflation is still reasonably high, but it’s coming down over the last couple of months. So we see that developing. I think from a market perspective, obviously, that is competition neutral in the end. And referring to that page that we’ve shown earlier with respect to our market outperformance, the market overall in those four markets that we have shown is broadly back in nominal terms to the levels of pre-COVID. And for Metro, we are in nominal terms, as shown on those charts, significantly ahead of that. So it’s really apples-to-apples comparison that we are gaining market share in that perspective.

With your view or question on what are consumers doing with those elements of inflation. Yes, we see, and Steffen has elaborated on that, that we are strongly progressing on our own brand, which has always been attractive. But now there is an additional argument being added by inflation for our customers really going stronger on that, and it creates a great loyalty also down the road when inflation is coming down. So they realized that our own brand products are really very, very solid for their professional requirements.

And then another perspective certainly is, yes, there is, next to own brand, there are elements of customers basically replacing potentially the one or the other more expensive products, like on meat going from beef to pork to chicken in a certain way. But also, we are driving certainly with buy more, pay less pricing. We are driving more volume and with slightly lower prices at least from an inflation-adjusted perspective. So there is some movements in there, but it’s also proactively driven by our sCore strategy and our volume drive that we are on.

Christian Bruns

Okay. Thank you.


[Operator Instructions]

Unidentified Company Representative

So we have two English questions in the webcast from journalists. The first is from Stephen Wynne-Jones from European Supermarket Magazine. The question is growth is up in Ukraine in the quarter. Is this sales growth from a reduced network? Last year, you indicated that some Ukraine sites had been lost due to the war. Have those sites been regained? What are your expectations for the rest of the year in Ukraine? Christian, would you take this?

Christian Baier

Yes, happy to take. So in Q2, we have grown sales by 3%. Overall, there are two stores that are closed. At the end of last year’s Q2, five stores were closed. But given that we all remember the unfortunate development in that Q2, there certainly were in the last year two full months of full operation and one month of those five stores basically being there.

It’s all very remarkable to see the team in Ukraine performing and also continuously reopen stores and the volumes as well as the top line and EBITDA development is a very strong one. So we are confident that this, bar any external effect, is continuing in a strong and positive manner.

Unidentified Company Representative

Okay. There is a second question from Ulrich Odawa from Dow Jones Newswire. Is your country portfolio now where you want it to be after the sale of Metro India? Or are further market exits or entries in the pipeline? Steffen?

Steffen Greubel

Thank you very much, Mrs. Odawa. I would say, the country exits, this plan is now done, right? We are not planning any more country exits. And also for any other sort of more M&A related things, we are constantly observing the market.

And of course, and this is also a general remark, we are always reviewing our portfolio to see if we are positioned right. But so far, there are no concrete plans in any direction. We are, in the moment, very happy with the portfolio.


[Operator Instructions] Is there anyone who would like to ask a question in German? And we have a question from [indiscernible]. Please go ahead.

Unidentified Analyst

[Foreign Language]

Steffen Greubel

[Foreign Language]


There are no further questions at this time, and I hand back to Dr. Steffen Greubel for closing comments.

Steffen Greubel

We are in English now, I don’t know exactly. I will say in two languages. So thank you very much for participating. I hope I see you and hear you again next time. [Foreign Language]


Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you very much for joining, and have a pleasant day. Goodbye.