Metro AG

XETRA:B4B

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q1 analyst call. [Operator Instructions]And I would now like to turn the conference over to Christian Baier. Please go ahead.

[Christian Baier, Co]

Yes. Good morning, everyone, and welcome to Metro's first quarter conference call. I hope you're all staying safe and well. As always, I need to remind you of the disclaimer and the notes.With me this morning, Rafael Gasset, with whom I will walk you through relevant financial and strategic updates for the quarter. I will start with taking you through the key highlights for the quarter, followed by a financial perspective. Following this, together, we will update you on the progress relating to our key strategic initiatives.So let's start with the Q1 update where we are convinced that we delivered really well for our customers this quarter in a continuously difficult period. All of this was done through the hard work of all of our colleagues, and I would like to say again a huge thank you for all their tremendous work. It really was an outstanding team effort across every part of the business given the highly dynamic situation that we have continued to see in the run-off. Due to the extraordinary efforts of our teams, we provided the safest shopping environment possible while delivering best availability and relevant HoReCa solutions.Our HoReCa and overall NPS score has improved versus previous year. As customers valued the Cash & Carry assortment, the availability and also the shelf prices, this has really helped the NPS. Inside of our stores, they could find needed takeaway solutions, which, for many of them, were the only source of income in this quarter. The efforts that we have put into staying in close contact with our customers over the last year, developing solutions in a rapidly changing environment and also representing interests of the industry, are really paying off.This is particularly visible when we look into our market outperformance. We continue to see market outperformance regardless of the intensity of the lockdowns. We see that the channel flexibility, customer touch points and the assortment breadth create a solid base for us to win market share, also as the industry comes back.And last but not least, Rafa and I will share with you our latest progress on capturing and really seizing opportunities via commercial initiatives and digital tools. But we should also not forget that we have been quite active on the corporate development agenda where we'll touch upon as well.Let's now first begin with the financial update for the quarter where the sales development as for the last year has been driven by the customer mix and governmental restrictions. We had a good performance in [indiscernible] to come in at minus 11.3% in like-for-like and minus 11.2% in total sales growth in local currency.As you can see, like-for-like and total sales growth have mostly converged. The reason for this is that expansion via new store openings has reduced over the years in favor of investments into digital. And this is also why going forward, we will increasingly focus on total sales growth in local currency in our reporting.On the EBITDA side, the adjusted EBITDA in Q1 is below the PY level due to the COVID-related sales decrease. The cost measures that we have initiated have compensated for some of the pressure from the reduced sales volume.In the segment Others, this benefited also from cost savings from the efficiency measures that we have put in place in headquarter already early last year and also from a onetime positive effect from the conclusion of legal proceedings in connection with the sale of Kaufhof in 2015. This quarter, we have also sold the last outstanding property linked to the sale of the Real hypermarket business last year. This resulted in EUR 25 million growth from real estate transactions for the quarter.So let's now zoom into the customer sales development where sales growth varied strongly between the countries, and this remains to be a function of the intensity of the pandemic and the governmental restrictions. So very, obviously, the shorter the lockdown, the less impact to the business. And on the other side, also related to the customer split. So the higher the Trader and SCO sales share, the less vulnerable to the lockdowns impacting HoReca.This also explains to a large degree the stable or accelerating sales development in Russia, Eastern Europe, Germany and even Asia. While on the Western European segment, we suffered from the HoReCa lockdown.For the Trader sales, please keep in mind that the number reflects the total view and not only the Trader countries. So the sales growth in the countries that we call the Trader countries where we really focus on this customer group has shown more than 7% growth in the last quarter, and this includes also a stellar performance in Romania and Russia, where Rafa will discuss a bit later in the call.On the SCO side, we have significantly improved this quarter, once again, coming from customers really rediscovering METRO and the hard lockdowns with retail closures.So how does this quarter compared to Q3 of last year, which had pretty similar intensity of governmental restrictions? If we look at this comparison and hence, broadly compare the first and the second lockdowns, we see that like-for-like sales significantly are less under pressure. This is a result of improved HoReCa sales in absolute and percentage terms. And we continue to experience accelerated performance in SCO and stable development in Trader.This was, on the HoReCa side, especially supported by our insights and the playbook that we have used in the first lockdown. There included is the high product availability in the stores as the starting base, including also the heavy safety measures that we are putting in place. It also includes reduced minimum order sizes in FSD and always the proactive reach-out to our customers, which we have even reinforced in order to really help and support also customers that have previously not been buying with us and really staying in contact with the existing ones.What we see in the numbers for HoReCa is that buying customers are only slightly below last year. This really shows that we remained the partner of choice also during the crisis. What is significantly under pressure, obviously, is frequency and the average basket as customers adjust their buying behavior as they navigate their business through the crisis. All this has created a relatively better and more resilient performance to what we have experienced in Q3.So now let's have a look at how this compares to overall market data. We have shown this chart already in the full year reporting, and we have now updated it also with the NPD CREST panel that is really a consumer panel that measures out-of-home food and beverage consumption through online surveys.In general, we see that volume decline of the second versus the first lockdown is less severe, which is also backed up by our internal data from the previous slide. Although our outperformance has decreased in percentage terms, we continue to perform better than the market. And we do expect to also get back to the very significant outperformance as and when we emerge from the crisis.So how did we achieve this? I think we need to differentiate 2 different periods. One is during the lockdown and the other one is really during the recovery. So during the lockdown, we kept very regular customer contact, and we are doing this continuously. And also the high product availability is very important there.We've adjusted our assortment to the needs of an overall unpredictable HoReCa business environment, so obviously, somewhat less fresh and ultra fresh to more durable products in order to really cater for the volatility and the more unpredictable sales patterns out of our HoReCa businesses. And then we also continued staying engaged with the governments and the associations, really giving a voice to our customers in key discussions in that regard in order to ensure that their obvious perspectives are being heard.During the recovery, and that's what we have seen over the summer, we continue to have very high product availability and the alternatives, but we have also put in place a dedicated restart support program, such as MAKRO Plus, which we will be discussing later, but also we have focused heavily on the digital tools, enabling really a cost-efficient restaurant business. All of this has helped us to continue to outperform the market.We have experienced that continued outperformance of METRO throughout Q1. And as we -- as has been the case during last summer, we expect that we are very well positioned to continue outperforming the market, especially once the situation does improve, and we can bring not only the flexibility of our model but also our measures of preparation for the renaissance to full fruition.So when we basically look into the overall situation from a regional performance, so let me move into the key details there. If we then look into Germany, the hard lockdown with retail closures starting in December has been supportive of our customers' rediscovering METRO. This is visible in Cash & Carry sales, which improved by 2%, while FSD has been suffering. EBITDA in Germany is at minus EUR 9 million versus the prior year, and this is also largely driven by the [indiscernible] FSD business.In Western Europe, nationwide lockdowns, especially in France, including Pro à Pro, Italy and Spain, and this is all countries really had negative sales development resulting also from these HoReCa lockdowns and the sales development at minus 23.7% and EBITDA down significantly.On Russia, we have continued seeing a strong performance that is also supported by the strong development on the Trader side, including franchise and e-grocery. The impact of the reduction of the out-of-store consumption was overcompensated by a basket increase of our SCO customers.So December has really marked the 12 months in a row with positive sales growth versus PY in Russia, and this shows that we are talking here about a very sustainable turnaround and very sustainable growth trajectory for our Russian business. As we continue to invest into the margin, and this, coupled with COVID safety measures, this resulted in a slightly increasing EBITDA but obviously shows the strong relevance that we're having on the sales side.In Eastern Europe, the sales development in local currency is at minus 3.5%. Governmental restrictions had an impact on all countries, but they were largely compensated by the Trader and SCO business. The EBITDA declined only by EUR 3 million at constant currency, while the margin was really stable year-on-year.Asia -- on the Asian side, the sales declined in half of the countries where especially Classic Fine Food continued to be under pressure. But on the EBITDA side, we had a good compensation also from India.If we then move forward to the overall group perspective, so starting with the bridge from EBITDA to EPS. The EBIT decreased in line with EBITDA, while depreciation remains stable.Net financial result. There, you see that the interest and investment result improved due to lower interest, especially from the finance leases as a function of contracts being prolonged with reduced interest rates and the annuity character of the lease liabilities, so the decrease in interest payments during the duration. The other financial result remained roughly flat in Q1, and this is also a function to the comparison FX rates end of Q4 versus FX rate end of Q1.On the tax expense, and in order to avoid the distortion in the current COVID situation, the reported taxes are calculated based on the expected tax rate for the full year. And this is a number that we have given from a soft guidance perspective, so what you see here is the EUR 56 million, roughly half of the expected tax expense for this year.So eventually, from the EPS perspective, for Q1, we ended up at EUR 0.27, and this is driven by a combination of factors, especially obviously from the reduced sales volume due to COVID, some FX developments and the lower tax rate and real estate gains compensating on the other hand.If we look into the free cash flow, some of the underlying developments from previous quarters obviously continue. And the mentioned lease developments have shown a slight reduction, also because some of the rental income from Real is now accounted for as an external entity.The net working capital really has been one of the key differentiating factors on the free cash flow to the negative in that quarter. But it is very, very closely linked to the sales development. And most of the changes in the net working capital have been driven by reduced payables that is obviously driven by the order volumes that are being taken into the system in November and December where that has been down due to the expectation of the lower than prior year Christmas businesses. While on the inventory side and accounts receivable side, we have been very stringent and have counterbalanced part of that. But still, there is a significant impact on net working capital.You would need to bear in mind that this current view is really only a snapshot, and there is no structural worsening of our fundamentally good working capital position. The working capital needs are really trailing the sales development. And this is also when we recover in sales that net working capital will come back very positively and very significantly.On the cash investment side, we have done further savings, and the cost consciousness and restrictions on the CapEx side have really shown also to come to fruition without losing sight of the important opportunities that we will invest into.So all in all, the free cash flow in this adjusted definition came in at EUR 63 million as a result of negative net working capital and COVID-19-impacted earnings.From a full cash flow perspective, no massive differences there. Operating cash flow came in at roughly EUR 140 million versus the EUR 450 million in the prior year for all the reasons mentioned above. The investing cash flow from continuing operations was roughly EUR 50 million above PY. That was driven by higher real estate gains. And the financing cash flow changed because we have had also then the borrowings on the CP side in December, which made a strong positive impact on the financing cash flow. So in sum, the net debt came in at EUR 3.8 billion and, therefore, EUR 1.2 billion below the number of the prior year.So that was it on the financials. Let us now share with you our latest strategic update. So COVID, and I think we are all in agreement on this one, has really created an uncharted situation for us and also for the entire sector. However, it has not altered our aim of being a partner like no other and expanding our role from a pure high-quality product supplier to a 360 degrees partner. We will achieve this by being lean and fast in adapting to the changes, and this lean wholesale profile really is a prerequisite for us as this is the only way we can be fast in our response to the changes on the market.It's also about capturing opportunities that we are presented with, and it can be a partnership there with a company like Google or an opportunity to acquire a competitor. And all of this with a view on the long-term perspective as we aim to create lasting value, and therefore, our sustainability focus remains very, very strongly on the radar.So let me focus on what we mean with lean wholesale and, of course, talk a bit more on the recent acquisitions that we have embarked on. Lean wholesale really is a theme that has been very prevalent for all of us over the last years and will remain in focus. As we have carved out Real and China, we have significantly reduced already our headquarter structures last year.And on the IT side, we have faced the necessity to adjust volumes and business needs, and this resulted in us looking also into parts of -- other parts of the business, including especially that piece on the IT side. And therefore, a few weeks ago, we have signed a partnership agreement with Wipro, where we aim to create a really high-performance IT structure with a focus on creating solutions for our customers on the Wholesale 360. In order to up our momentum on the innovation side, we need to have a reliable partner who can support us with the standard processes and basic IT developments. That is exactly what we aim to achieve via partnership with Wipro, where we expect high-quality, more focus and flexibility.In the meantime, we can fully concentrate on innovations and solutions for our customers and the Wholesale 360 with a central IT organization. So this is what we will continue driving forward on the lean wholesale side.The acquisition of Davigel is one step in seizing consolidation opportunities, on the other hand. With this transaction, we have gained access to complementary HoReCa customer groups while strengthening product position.As a bit of a background there on Davigel, this is a business that has roughly 4,000 FSD customers and is especially prevalent in the Canary and Balearic Islands, where they are really catering to independent restaurants but also to hotel chains.The transaction is quite interesting for us as it also provides access to the elaborate and further product of Davigel and Sysco, which helped us really having access to these frozen and ready-to-eat assortments that we, prior to that, did not have access to.Last, not least, is an acquisition of 25% of a French fish processing company that's called Filpromer. And there, we have already been collaborating with them for many, many years, and this really gives us the opportunity here to provide our HoReCa customers with more relevant ultra fresh assortment and, therefore, broadening and deepening the product availability and great quality there of METRO France.So to sum it up, on the partnership with Wipro, this really helps us being leaner in our wholesale profile, while really Filpromer and Davigel improve our assortment proposition and grow our number of customers. This gives you really a sense that we are proactively shaping our structural corporate development agenda. And also and especially during this volatile time, this is very critical for us. It's equally critical for us to really drive forward our organic transformation to capture key opportunities.Rafa will share with you our approach and progress in that field.

[Rafael Gasset, Co]

Thank you, Christian, and good morning, everyone. I would like to reiterate the 3 key pillars on how we have been navigating through the pandemic and how we do see opportunities ahead of us.The first pillar is protect. As the COVID-19 crisis continues, we are maintaining a very high level of awareness of the health situation in all our countries and central offices. Safety of our teams, our customers and our suppliers is essential for us. We have put in place an interior arsenal of health and safety measures since the start of the crisis. This quarter, we have had all the stores opened, and in some countries, we have extended our offer to end consumers.The second block is preserve. Keeping all 3 customers in mind, we have asked ourselves, what kind of solutions and expertise we can provide to help our customers in their business resilience? Among many things, for HoReca, we have extended our credit lines, we have downsizing the packaging of fresh products to make them more accessible in times of reduced demand, and we have temporarily eliminated the requirements of minimum order quantity in our delivery services. We have also strengthened our credit business by creating more convenience and ready-to-eat assortment for our franchisees and strengthened digital tools as an ordering tool and shop [indiscernible].For SCO, so we were able to keep a high level of availability of products on the shelf and to offer them a focus of HoReCa assortment, especially important as they were forced to stay at home.The third pillar is an important one, it's grow, the last part of our COVID-19 response plan. And it's aimed at bringing a faster and stronger business out of opportunities that will arise from the crisis. These opportunities were sometimes coming from digital partnerships like the one with Google, which has been talked about during the full year results, or acceleration of partnerships with B2C delivery players to participate in rising e-grocery demand.Within the grow pillar, during Q1, our teams have been intensively working for new opportunities. In this changing competitive environment, we have been reorganizing our sales force and customer managers and focusing them in specific territories according to the opportunities offered by the changes on the governmental restrictions in opening of HoReCa outlets and redefining our commercial activities in order to better match customer demands in the different territories.The opportunities in the markets we operate in are highly fragmented. This is why here, there is no one size fits all. We're also seizing the opportunities transitioning into a digital world. Already 50% of all our orders are online. Needless to say that as the number continued to grow, digital helped us to reduce complexity and to drive efficiency. But of course, these digital solutions are not only to save costs for us but also to improve customer satisfaction. Our NPS, or Net Promoter Score, improved by 6 points in HoReCa and 4 points in Trader during Q1.As METRO, we are doing more than anyone in the foodservice distribution and the wholesale industry to ensure the customer -- or the success of our customers. We outperformed the market because our customers have a reliable partner to help them in their day-to-day operations and a partner who prepares them for the restart. That is hopefully very soon ahead of time.Let me give 2 examples from countries on what we are doing to support our customers. In Germany, despite the lockdown, we have been able to gain more than 17,000 new HoReCa customers across both channels since June. We have achieved this by recruiting customer contact through the hard lockdown. As restrictions has started to lift, it has put us in a preferential position. We provide them a set of initiatives such as special FSD deals and discounts. We adjusted the bonus targets, and we also worked with advanced payment terms.Similarly, what has been done in Germany, MAKRO Spain has started a MAKRO Plus program. In this program, we provide our targeted customers with a series of benefits, including pricing -- individual pricing, service level commitment, credit and digital services as a part of a mutual commitment. We identify those customers based on their potential and their ability to grow our share of work with them. Hence, we developed from B and C customers into an A customer that is -- that are the most recurring customer for METRO.We are asking for a commitment on achievable volumes. We don't ask for any prepayments. And instead, we equipped our sales force with a dashboard to track the fulfillment and to be quick in reacting to any change. This is the way that we were able to lock customers in for recurring sales. Since we started this program, we have more than 9,000 customers enrolled in the program with an incremental sales of EUR 20 million.If we move into the Trader-focused country. As some of you may know, I'm still responsible for the convenience cluster, and these 2 countries are especially close to my heart. We have 9 countries where we have Trader franchise. It will be fair to say that Romania is a best-in-class for us, setting the blueprint on the franchise business for the group. We have 1,400 franchise partners in the moment that we talk today. I'm proud to be called the largest and fastest-growing convenience chain in Romania.Today, I want to especially draw your attention to the growth of our partners once they join La Doi Pasi. The sales of the already mature franchisees working under La Doi Pasi system for more than 3 years continued to grow by 15% as we keep improving our services and solutions, thereby making this more resilient in their operations. We put a lot of emphasis on expansion but also modernization and rebranding and the online digital development, for example, delivery applications, home delivery, click and collect and so on. All this adds value for the partners and allow them to grow their business, too.The second country I would like to talk about today is Russia. As some of you may remember, in the transformation plan to a true wholesaler, METRO Russia, we have promised to work with suppliers to reduce the cost of goods sold in order to finance the price repositioning. The transformation took us a couple of years, but I'm proud to say that we have achieved it. And on top, we have reorganized the logistics by simplifying the good flow, which, of course, supports our high level of margin. However, this is something that we have been promising in the past and we delivered on.A big opportunity that we see ahead of us is digital traders, or B2B2C, as we call also internally, which is another pillar of the transformation of METRO Russia. Customers can access the industry offer of 40,000 SKU via partners' websites and applications, but also they can use METRO interfaces, too. Customers place the orders via the website or the application of METRO, Sbermarket, iGoods, Zakaz, Yandex, world of partners.We normally apply the shelf price on the first tier for this assortment, while the second and the third tiers are predominantly used for the Traders and the HoReCa customers. The logistic or transportation, together with the picking, is done by our partners. The overall business model is highly contributing to the profitability of METRO Russia. For Q1, this channel represents already 7% of our sales, while in January, we see this number even reaching almost 10%.Today, I would like also to share with you some of the strategic elements of Wholesale 360 or the financial services that we are using to support our customers. The tool is called METRO Risk Check. It's a tool for credit checking, limit calculation and credit granting. It has been rolled out over the last 8 years and is powered by data on historic shopping behavior from a very large customer base.This tool also significantly decreased workflow for us. The tool can be easily customized and can take into consideration any country norms. With the pandemic, we have been looking deeper into what kind of opportunistic solutions we can offer to save work our customers. We have started granting credits to support the customers in navigating through the pandemic.Let me mention one country as an example, in this case, is Italy. As a part of our Italian plan for seizing opportunities, we are offering credits to 10,000 customers with no interest. And on top of, we have agreed a special paid terms with 6,000 customers. The aim of the program is to help with dedicated prepayment plans. In Italy, our default rates remains, nonetheless, very low. Such service is, of course, very much welcomed by the customers, and we continue to roll out this solution across METRO countries.Let me also talk about sustainability. In METRO, we also -- we always aim to be a partner like no other to HoReCa and Trader customers. The same is not only applying to being a partner for goods and services but also being a partner in making a positive change. METRO Sustainable is the framework behind our actions towards making our customers more sustainable. It means placing METRO at the core of transforming and driving responsible and sustainable business. This applies not only to our business but, more important, along the supply chain and with our customers.There are 3 topics I would like to share with you today. First one is about climate action program. For the first time, METRO has advanced into the A-list of CDP, or Carbon Disclosure Project. We performed very well when it comes to cutting emissions, mitigating climate risk and developing the low-carbon economy. For the more -- sorry, METRO has been also rated for B in water security and forests, palm oil and paper and wood and C for cattle.We are pleased to see that our commitments are recognized. We hope that we can motivate also our partners to follow in our efforts.The second is about driving change. METRO works together intensively with suppliers in order to identify risks and opportunities in the critical topics of climate change, water security and forests by CDP supply chain. METRO engaged with 170 suppliers in order to get better insights into the environmental impact in the supply chain and also how to improve water and cargo footprint together with its most and more relevant supplier. Partnership in our value chain is a key driver of METRO's engagement to transform critical industries. This helps us to reach the targets for our commitments, for example, in soya, palm, meat and wood as well as its size-based target.And the third topic is about community involvement. Since 2016, METRO and the United Nations' World Food Programme are in global partnership fighting against hunger and food waste together. This partnership is an important element of our corporate citizenship strategy. Together with the World Food Programme, METRO has launched a donation platform in order to allow every employee of METRO to support the World Food Programme and to stop hunger. With the donation, we are helping to build a world with 0 hunger.[indiscernible] helped us saving lives during emergencies or provide nutritious meals for children in school. But this is about more than giving a meal, it's about working together with the World Food Programme in order to bring a positive change.With this, I would like to say thank you to you and hand over to Christian.

[Christian Baier, Co]

Yes. Thank you, Rafa. And to update today's -- to summarize really today's call, let me put a couple of perspectives on it.Q1 has really been a good quarter given the unprecedented situation that we have observed and improved performance of our HoReCa customers and continuously growing Trader and SCO sales. This quarter, we have moved one step further in achieving a leaner wholesale structure, and we have embarked on bolt-on acquisitions that are strengthening our operations in Spain and in France.Looking ahead, we know that H1 will not be easy, but we are convinced that as restrictions will restart to relax, we will once again outperform the market in the recovery phase. We are convinced of all of this because our teams are going out of their way to ensure the success of our customers.Given the latest news regarding governmental restrictions, we now assume that it will last partially until the end of Q2 of this year. Following this, we expect a fast and substantial recovery of the hospitality and tourism industry. With that, we confirm the guidance and once again reiterate our positive long-term view on the sector.This concludes our perspective on today's call, and we are now very happy to take your questions.

[Operator]

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

[Volker Bosse, Co]

It's obvious challenging times, so in that regard, do you already see competitors struggling? Or do you already see crazy promotional activities, which means price pressure for your business?And the second question would be regarding your customers. Do you already see HoReCa customers are dropping out, means they have to give up their business, so fewer number of customers as a consequence out of that?And the second -- the third question would be regarding the situation in Asia. We saw the negative like-for-like momentum, and you mentioned Classic Fine Food as the reason. But what is the background? Is it less business travel, which, of course, affects the business of the restaurants? Or are restaurants closed in Asia? So give us a bit of background here sitting in Europe and not to be too close to the situation in Asia.

[Christian Baier, Co]

Great. Thank you, Volker, for your questions. So I will take the view on the competitive landscape and on HoReca, and I'll hand over then to Rafa on the price initiatives, maybe also of competition and then on the Asia side.With respect to the situation of competition, what we do see certainly is that we, as METRO, if we concentrate on us, post a very strong financial position, so that enables us to be very supportive of our customers also with respect to credit terms and other things without compromising in any way also from a risk perspective at our end. But this is something that also benefits us, and that has already, after the first lockdown, benefited us because we were supporting customers. And as Rafa mentioned before, we have been able to really capture back these elements on credit giving. So I think that's all there.And we do see very closely through our sales force that remains very, very close to our customers that we can gain and make a significant difference there as competition is not that prevalent in these days. So we are convinced about that situation.With respect to the position of our HoReCa customers, we see that this group is continuously very, very entrepreneurial with respect to running their businesses. They have been very, very nimble also to adjusting to take away and delivery solutions, and that is keeping many of them in an appropriately leveled situation.Obviously, the lockdowns are posing a significant strain on them. But with many governmental programs that though sometimes being slow in being rolled out, there is a good support also for that industry. However, we do expect, yes, there will be certain companies and certain restaurants going out of business in a way, but we have also experienced in the past that this industry is very nimble and then rejuvenating, reopening, and therefore, the overall trend that we are convinced of the out-of-home eating will be supportive also in the mid- to long term as the restrictions are lifted.

[Rafael Gasset, Co]

Yes. Thank you, Christian. Regarding, let's say, price and crazy promotions, I have to say that we don't observe this in the market today. This is something that we are keeping an eye, obviously, very much locally side-by-side, region-by-region and country-by-country. This may appear then when the #restartGastro will initiate, but we are observing -- not observing any crazy promotions at the moment that we are speaking today.In regarding the question to Asia, I have to say that it is quite diverse because we were talking about the Classic Fine Foods. So for Japan or Myanmar in which the business is very much focused on Horeca business, obviously, here, the restrictions has been impacting heavily on the business there, especially on CFF in Hong Kong, that is one of the most important countries for us. We see also how these restrictions are releasing little by little, and we see how the business is coming back.Different situation is on countries as Pakistan and India in which once the first wave, it was passed, we have not seen a second wave on these countries. We see how the business is coming back and mainly focused on the Trader business that is the most important in those markets.

[Operator]

[Operator Instructions] And the next question is from the line of Andrew Gwynn of Exane BNP Paribas.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Just coming through -- [indiscernible] for the last question actually, but thinking more about the wholesale space. So to what extent have you seen significant capacity exits? To what extent some of your wholesale competitors temporarily closed down? I'm just wondering if that's been a significant factor.Also, I just wanted to clarify, when you talk about Q2, so the end of lockdown coming in Q2, you mean calendar Q1, so probably another couple of months. And then kind of connected to that, but presume through January, the trends you've seen have been relatively similar to the ones we saw during what was calendar Q4.

[Christian Baier, Co]

Yes, happy to take this. Maybe just quickly on Q2. Absolutely, that is the quarter that is ending end of March. And then from April onwards is the Q3. We do expect -- and that's what we have seen, for example, in Germany, here, lockdown until early March with some wiggle room on potential further extensions. But overall, we do see that Q3 will be significantly alleviated also, although weather usually is not a good argument, but weather does play a role as we have seen also during the spring and summer season when businesses were coming back heavily despite some restrictions on the capacity side.The current development is very consistent with what we have seen very recently. So from that perspective, no changes. HoReCa still under pressure, but very, very strongly and nicely balanced. From the Trader perspective, that is quite sustainable, and the same story holds true on the SCO side where we have recaptured significant and important customers.On your point with respect to wholesale, is there any capacity going out of the system? We definitely see that in a certain temporary manner, especially for the players that are predominantly or only focused on FSD. There is basically reduced availability, reduced capability to deliver that we do see. And therefore, I think we base it on our very flexible model between Cash & Carry and FSD in order to be there on the side of our customers during this period.But for us, it's very, very important to then also focus on our preparedness to also the situation coming back in the FSD market, which is a key focus of us at this very stage because that will also, for us, be a key structural growth driver once we have come through the pandemic here.

[Operator]

As there are no more questions at this time, I hand back to Christian Baier for closing comments.

[Christian Baier, Co]

Okay. Well, thank you very much, everybody, for your continued interest. We hope you're all staying safe, and do take care, until next time. Bye-bye.

[Operator]

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