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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the METRO AG conference call. [Operator Instructions] I would like now to turn the conference over to Olaf Koch, CEO. Please go ahead.
Thank you, everyone, and welcome to our Q3 2018/'19 call which will also cover the reasoned statements which we released earlier this morning. I think Q3, and you will have seen that yesterday evening, shows quite a lot of indicators for our progress of the transformation, but it also is part of the logic, which we will then allude to later on, why we believe that the EUR 16 offer per ordinary share offer made by EPGC substantially undervalues the company. But before we start, please have a look at the disclaimer, as always. And with that, let me hand over to Christian Baier, who will give you more insights into the Q3 results.
Thank you, Olaf, and good morning, everyone. Let us start with the key financials of this quarter. We have achieved a strong like-for-like growth of 3.4% and 3.6% in local currency. Even adjusted for the Easter shift, like-for-like sales grew by more than 2%. Similarly to the previous quarter, almost all regions contributed to this, and growth was driven by both delivery and the stores. EBITDA excluding real estate gains amounted to EUR 316 million in Q3. And in constant currency, EBITDA increased by EUR 13 million or 4% versus previous year. In the 9-month period, EBITDA excluding real estate decreased to EUR 869 million which in constant currency equals to minus EUR 28 million or roughly minus 3%, which is well in line with our guidance for the full year. This quarter, we also closed another real estate transaction, bringing year-to-date earnings contribution from real estate to almost EUR 70 million from a transaction perspective. Moving further down the P&L, we see that depreciation has slightly increased. Net financial results remained largely flat despite an already strong previous year. The tax rate in this quarter stood at 38%, which is in line with our full year expectation of 37% to 39%. As a result, EPS from continuing operations is on the previous year level. The reported EPS increased by EUR 0.07 due to depreciation under IFRS 5 in discontinued operations. Let's now move to the regional performance. Let me first put the strong quarter into perspective. 4 out of 5 regions achieved like-for-like growth above 2%, 3 out of 5 regions achieved constant currency EBITDA growth, and 1 region was roughly flat. In more detail, Germany came in at 3.6% like-for-like growth with support coming from both FSD and store-based business. EBITDA improved by a strong EUR 10 million. Western Europe grew at 2.2% on a like-for-like basis, and EBITDA grew by more -- or by roughly EUR 13 million, which is also positively affected especially by France and the Pro à Pro development. For Russia, the like-for-like continues to be impacted by reduction of bulk sales, and we are running against hard comps from last year's World Cup. Adjusted for the around EUR 10 million onetime gain from CECONOMY in the last year, EBITDA came down by EUR 6 million driven by continuous price investment and the annualization of the first wave of process optimization measures. For Eastern Europe, the 7.1% like-for-like growth was driven by the majority of countries and especially Turkey, Romania and the Ukraine. EBITDA is largely flat at constant currency. In Asia, like-for-like growth was positive across nearly all countries, and EBITDA in Asia also grew nicely in line with sales growth. With this Q3 and the 9M performance, we are well on track for our full year group guidance. With the year-to-date sales growth of 2.4% at constant currency, year-to-date 2.3% like-for-like sales growth and year-to-date EBITDA development at minus 3.1%, we are well in line with our expectations and the group guidance. Given how far we have progressed in the financial year, we also have additional visibility on some of the details. For Russia, we now expect EBITDA to decline by about 15% while we expect compensating effects of a similar absolute magnitude in Western Europe and Asia. For net financial result, we now expect around minus EUR 135 million instead of the previous EUR 150 million negative. This comes on the back of a strong 9M performance. Beyond the EUR 66 million gains from real estate transactions already realized, we also have about EUR 200 million gains where the projects are expected to close in August. As a result, we continue to expect EUR 250 million to EUR 300 million EBITDA contribution from real estate transactions. So to sum it up, Q3 was one of our strongest quarters in long time with like-for-like sales growth of 3.4%. Seasonal shifts contribute to the development, but it's the continuous strengthening of commercial actions and intense customer focus across different channels which resulted in about 5% growth in HoReCa and more than 4% Trader sales like-for-like growth. The long-term repositioning of our Russian operation is going according to plan and even though taking a bit longer than expected. In aggregate, this strong Q3 performance led to a 9-months development very much in line with our expectations for the year. The sale of the hypermarket operation also continues to progress well. Negotiations are at an advanced stage, building on constructive discussions we have hence, extended the exclusivity until mid-September. The terms are unchanged to the expectations in May. That means net proceeds of roughly EUR 500 million expected.Having now described the strong tailwind from Q3, let me hand over to Olaf to explain our view on the EPGC offer.
Yes. Thank you, Christian. And let me start with the general statement on a VTO in general or a potential take private of a company. I can say that on behalf of my colleagues and the Board that in principle, none of us has anything against a VTO approach. Let me also be very clear in regard of EPGC, we very much welcome EPGC as a new shareholder of the company as much as we can say that all interactions with Daniel Kretínský, who is dominating EPGC, have been positive, amicable and in good style, so therefore, we are also very much positive in regard of the interaction with the new shareholder. But let me also be clear that Management Board and Supervisory Board of METRO AG are convinced that the offer prices for ordinary and preference shares do not reflect METRO's fundamental value based on its growth and profitability potential and therefore substantially undervalue METRO. The assessment is based on the reasons described in more detail in the reasoned statement and on the Management Board's and Supervisory Board's assessment that the offer prices for ordinary shares and preference shares do not reflect METRO's fundamental value based on its growth and profitability potential. This applies even though the Management Board and the Supervisory Board indicate that realizing these potentials involves risks. Accordingly, the Management Board and the Supervisory Board acknowledge that short-term investors may decide to accept the offer although the offer prices are not adequate from the Management Board's and Supervisory Board's point of view. Let me also be clear that the reasoned statement that has been discussed and then approved by the Management Board and Supervisory Board has been approved in a unanimous way by both Boards. It's also worth mentioning that those opinions are backed by inadequacy opinions by Bank of America Merrill Lynch, Goldman Sachs and Rothschild. But let me now come to the logic and the rationale that we see as substance for our belief that the value potential is strong, and that has to do with the strategy transformation that we have been ongoing since 2012. So let's start with the focus on wholesale. So in the upper row, you can see that we have moved from the very diversified conglomerate in 2012 into now an almost purely focused wholesale company. This will happen this calendar year while we will hand over Real into new ownership. By that time, we have then fully focused all of our business entities on wholesale. We've also significantly changed the approach on how we transform and modernize the business. From a high CapEx model opening new stores every year, we have moved into a much more CapEx-efficient store expansion and CapEx-light remodeling. At the same time, we started to transform into a company that offers Food Service Distribution, and we have enhanced our delivery capabilities both in locations but also in regard of process and solutions, investing into software and digital tools. On top of that, we did acquisitions. It's worth mentioning that in the recent past, we acquired 3 specialists in the food service distribution area: Classic Fine Foods, RUNGIS express and Pro à Pro. We never forgot that, at the same time, we also need to make sure that we need to create a very sound balance sheet and, of course, also respect the interest of our shareholders. So when you look at that, we have been able to deleverage the company significantly by roughly EUR 5 billion since 2012, giving us a much stronger balance sheet. And for those who are following us for a while, this also was the precondition actually to conduct the demerger from CECONOMY in 2017. We also continued to respect the interest of shareholders and, therefore, are providing an attractive dividend payout, which totals into EUR 2.2 billion for that period of time. But this is also one of the reasons why we are concerned when we look into the financing structure documented in the VTO of EPGC because it illustrates the significant leverage in the kind of LBO structure that at least raises the concern in regard of strategic flexibility and financial leeway for the company. And it could also create the concern that the company then actually is utilized for that service. Not to forget, the credit rating on such a structure, of course, is not only on a risk but will be significantly worsened. Let me continue on the strategic approach. When we say we want to be a wholesaler, our way of interpreting a wholesale business actually goes way beyond the food and nonfood business. Yes, of course, we want to be a leader in wholesale in food, and we want to be a partner like no other for customers in the HoReCa sector and the Trader sector. We also recognize that those independent entrepreneurs are exposed to significant changes, though megatrends are making an impact to the business on the day-by-day basis as much as technology disruption is changing the way their customers are treating them and are expecting new ways of operating their business. For that reason, our approach goes way beyond products. We not only want to serve those customers through various channels, but we also want to become their partner for solutions, their partner for knowledge and for expertise, and we call that wholesale 360. I will reference to that in a couple of moments when I give you some precise examples. So let's look at the target groups we are serving first. And here, it's worth mentioning that both target groups are significant. Of course, a wholesaler needs to make choices, and in our case, we focus on HoReCa and Trader, but the choices do not limit the potential by no means. The addressable market is significant, and there is resilient growth. You could also say that the consumer trend of out-of-home consumption is very much in favor for both target groups specifically, of course, for HoReCa. And given the fact that in some markets, food consumption out of home already surpassed food consumption at home, this gives us a lot of opportunity for growth in the years to come. Not to forget, the wholesale market still is very fragmented in most of the markets METRO is operating in. That gives us the strategic opportunity for consolidation in the years to come following our M&A strategy of the recent years of bolt-on acquisitions. On the right side of the chart, you see that the logic of the business, of course, is significantly different than retail. And that has to do with the fact that, yes, of course, we can weigh bigger baskets. But in making sure that our customers become more and more convinced of our service level and the credibility of METRO in providing them value solutions on an ongoing basis, it creates huge loyalty, i.e., leading to recurring sales in the magnitude of 75% of total turnover. This means that this is based on strong relationships, and that gives us the opportunity for up-selling in the wholesale 360 approach, but it's also a protection against online disruptors. A business like ours we see is much less vulnerable than other businesses. It's all based on decentralization. And decentralization has been the core principle of METRO since 2014 where we started to apply local strategies country-by-country, making local choices and adjusting the business on assortment format and marketing and services for the needs of the local community. This has been strengthened with the operating model in 2015. And today, we can say our aspiration is to be as radically local as possible because we know to be the partner of choice for a restaurateur in Portugal or a trader in Romania means we need to be as Portuguese in METRO Portugal and as Romanian in METRO Romania as we ever could be. This is driven, if you look to the right side, much more through clear customer feedback. We have rolled out NPS now in 25 countries. We are using this in a growing manner. And you can also see that we are observing a nice improvement in Net Promoter Scores. This is the foundation for the growth of the future, and we will continue to track that in a very disciplined manner. Discipline is a good word, and bridging to the middle of the chart which is cost efficiency, we are aware that there is more potential for cost efficiency in essentially all of our entities around the portfolio of METRO. And that is also true for our headquarter. And we have given justice to that whenever we made changes in the structure of the group, i.e., the demerger. And you can see that the number of people, for example, here in the headquarter in Düsseldorf have come down accordingly with the change in structure. With the upcoming change, so to say the last step in dismantling the conglomerate, selling Real, we will, of course, look at that. But we will look at that in a very fair and sensible manner and treating our people in the way they should expect that we would treat them.The profile of our company already has moved significantly to B2B. So if you add the 2, Trader and HoReCa groups, we are already at 66% -- 2/3 of our business is clearly now focused on the 2 future strategic target groups. We have invested significantly to also leverage best practices across the portfolio when it comes to modernizing our business but also driving efficiency. You should expect that the ratio of the 2 will continue to grow, and therefore, our dependency on SCO will decline. Let me be also very clear, SCO is not a target group that we will discriminate. We will continue to serve them, but we'll continue to serve them in a much more cost-efficient manner than ever before, making sure that in every country we are clear on who are the target groups that we need to win the battle for us.On the right side, you see that we are showing good growth now in both groups, in HoReCa and Trader. Christian already mentioned the good growth we had in Q3. And in the 9-month period, you can see that, that is actually in the same magnitude. And you could also see that the dynamics quarter-by-quarter are going into the right direction. Left to that, you can see that the growth rate of wholesale versus retail typically would indicate that, that sector is more favorable. Now let me move into our investment into the future, which actually is part of the reason why we have given you a guidance late 2018 which is a bit inferior EBITDA level because, yes, we need to invest into the future, and yes, we need to accommodate that in the current earning situation.So let me start on the left side with METRO markets, something you might be aware but we didn't talk about that too often. METRO markets is kind of the clone of real.de. real.de is one of the biggest successes in our hypermarket sector. We, meanwhile, have at Real online 12 million SKUs. The business is growing very, very fast. We are surpassing EUR 0.5 billion gross merchandise value this calendar year, and we're doing that in partnership with 6,000 merchants around the world. Now this is the replication of it called METRO Markets. We are opening an online marketplace for HoReCa customers later this summer starting in Germany, where we will give access to our customers for our suppliers from around the world that are specialized in HoReCa. This is not for our future -- distant future, this is around the corner, so stay tuned in the upcoming quarter, we will start to serve our customers with a range like never before, in a magnitude of SKUs like never before in METRO history. In the middle, you see something we have been referencing quite a bit which is our investment into digital tools for our customers. So we started to do this years ago. And in the meantime, we were able to create a tool of -- or a portfolio of tools for our customers, which apparently had become a straight success. Our website build or our online presence platform not only gives you a very efficient way to get yourself into the Internet, but it also is the way to connect into Google My Business, into Facebook and, on the other hand, actually come to much better visibility online with a couple of functionalities that are unique in that sense like a permanent update on the texts of the website. Meanwhile, we have created 160,000 accounts in a bit more than 1.5 years. It's also worth mentioning that our table reservation tool which we are rolling out is now getting closer to 20,000 users, users meaning B2B places, restaurants that are applying our reservation tool. The menu kit underneath is probably the icebreaker for a restaurateur because this is the one where we can show an owner of a restaurant, a bar or a café or a catering company how does the economic health look like in your business. This is based on data that we have collected on recipes and on formulations, and you can see in the middle the circle with the red, orange and green is kind of the illustration of the health check of the menu of a given customer. This does not have only the potential, this is a proven tool for value creation that is earning our customers significant growth in contribution margin and, therefore, is the bridge for a much stronger relationship because, of course, the customer needs advisory for that. And then on the right side, we also continue to not only invest into hospitality but also into the trader side. Here, we are investing into digital tools for our franchise approach where we meanwhile have 7,100 franchisees, but we're also making sure that the interaction of those customers is as smooth and seamless as possible while we are rolling out the front end for delivery, for the M-Shop, also for traders. Worth mentioning, we rolled it out already for the HoReCa side a bit more than 1 year ago. So let's move to wholesale 360 and what does it actually mean. What it means is that we are aware and we acknowledge that the business of our customers is way more than just the goods part. And of course, the goods will remain our focus and there we need to win the battle against competitors. And we need to show that we have the best assortment, the best ranges, the best solutions and the best quality possible in a given market. On the other hand, it's very important to acknowledge that looking into the P&L and the spend of our customers, that there is other buckets that are relevant. One to mention, of course, staff not only being a cost element of their business which is growing because salaries are growing up but also scarcity of people that are working in that industry becoming a problem. Co-asset means we need to pay attention to this much more, but it doesn't mean that we want to be operating in all of those areas, not at all. Just to be very clear, we are not announcing that we will engage ourselves into the staff industry of HoReCa but, yes, we need to find ways and means that our customers can take advantage of better solutions in the marketplace. And that is what wholesale 360 is all about. It's the broadening of the business from a pure transactional into a full service and solution partner for SMEs.On the right side, you see a couple of examples what we mean with that. And I can also give you some references on how we are actually already implementing that. The digital tools I mentioned before. So on digital tools, you can actually apply the menu kit and directly link it into business advisory. Once we have analyzed the menu, we are also in a position to help a customer to potentially change the process back of house, in the kitchen. How would you do that? Well, you would do that by providing access to new and modern equipment that actually can facilitate such thing. Is that an area that METRO should dominate and have the best know-how, no, but we should team up with the best in a given market. On Monday, we'll release the strategic partnership with PENTAGAST. PENTAGAST is Germany's leading network for kitchen equipment and kitchen service. And the combination of us together, PENTAGAST and METRO, provides a unique value proposition to customers that is not available in Germany by no other. And that also is an indicator on how we want to do that. We want to give access to the best-in-class solutions and, therefore, strengthen relationship. A similar example is on financial services. METRO is not becoming a bank, but METRO will give you access to financing by teaming up with companies like BAWAG in Austria where we introduced a strategic partnership late 2018 already. So stay tuned on that. We think this is a significant step change in the business model and, of course, one that will us access to potentially better growth in the future. Now let me look into the proper development part of our business and give you an update on where we are with Real. As I said, this is the most significant step still to be taken in regard of focusing the company on wholesale. We expect signing in September this year, and we are making good progress with the consortium led by Redos. And it's important to say that the principle of applying this transaction will be there is a continuum, there is a call of Real that's going to continue to exist but on a much healthier P&L base. It's also important that the stores that are taken off the network are handed over to other retailers, and we are in the middle of the process of discussing and negotiating that with them. It's also important that this will come on a continuity for the workforce which is sound and, therefore, is not creating huge severance payments. For Real itself, the continuum means that there is going to be an OpCo. And some of you were very concerned when we mentioned the 24.9% ownership of METRO might actually come alongside more liabilities. Let me be very clear on that. The numbers we have given you in earlier this year in regard of valuation and expected cash-in already respect a cap that we have, of course, included into that agreement for the 24.9% ownership, which is, by the way, limited to 3 years, so there is no additional downside to be expected. There's upside to be expected in regard to financial metrics. If you look into the box on the left underneath, you can see the profile of the company will change in regard of the various attributes. On the right side, our progress in China is very encouraging. The team has done a fantastic job, first of all, in running the business. We are continuing to grow nicely in China. We are growing profitably, and this is, of course, very much backed by a very sound brand equity that we have established since 1996. On the other hand, the business is by large an SCO business, and we know what that means for us. It means that we, at some moment in time, need to make choices. And that's exactly what we are assessing right now: how can we take a direction which is more focused on B2B, or in other words, are there potential partnerships or ways to collaborate in the market, and those discussions have progressed nicely. We'll update you later in Q3 on what kind of choice we will have made. It's also clear that the 2 transactions will be beneficial in regard of cash proceeds, which is the information we want to give you on the next chart. We expect proceeds in the magnitude of north of EUR 1 billion. How will we treat such cash-in? Well, first of all, with everything I mentioned before, there is surplus opportunity for growth. There is growth in modernization as much as there is growth on bolt-on M&A acquisitions. And we see this throughout the portfolio. As I repeat myself, in all markets, the structure of the market is very, very fragmented. We will, of course, delever the group. Technically speaking, that's going to be the immediate impact once we have those cash-ins. And we want to make sure that we are not compromising our investment-grade rating at all. We have always honored the interest of our shareholders, and I mentioned that before when I referenced to the dividend payout over the last 8 years. So in a situation like this, of course, we will also reflect the interest of our shareholders. Now having reported on the many areas of our strategic change within METRO, let me now hand over to Christian who's going to give you some more reference points in regard of financial KPIs.
Thank you, Olaf. And I think it's very important to show that we are already having quite significant proof points that the described strategy is working. The progress is particularly visible in wholesale like-for-like growth which has not only been consistently positive but has even gained further momentum with 2.3% in the 9-months period. And if you were to exclude the Russia negative development, you would even see 2.9% like-for-like growth in the first 9 months. This is, to a large extent, driven by HoReCa and Trader. Both customer groups have grown between 3% and 5% for quite a number of years and, therefore, also make up an increasing share of group sales which then translates into higher growth for the group. From a channel perspective, delivery and FSD have also grown at a fast pace and, meanwhile, make up 19% of sales in the 9-months period while Q3 has already been selectively at 20%. We expect continued positive development in both customer groups and also see growth of our delivery, FSD business and, hence, expect group like-for-like growth to accelerate further in the coming years. When we go to the next page, the progress is also visible in other KPIs. We have been able to keep the EBITDA margin broadly stable throughout the transformation although we reinvest quite a bit into the business in terms of both price investments and OpEx for new businesses. CapEx efficiency has also improved quite significantly. Net working capital generation improved markedly especially driven by a better inventory management. Together, this leads to a strong improvement in free cash flow conversion to 71% for continuing operations in '17/'18. This comes from 45% in '14/'15. This free cash flow conversion is further supported by substantial and sustainable cash flow from real estate transactions where we are also on a good track with regards to the cash generation from real estate in '18/'19. Let me now hand back over to Olaf for a summary view.
Thank you, Christian. And let me emphasize that in our Joint Reasoned Statement, the Management Board and the Supervisory Board do not recommend the acceptance of the unsolicited EPGC offer because it does not reflect METRO Group's fundamental value based on its growth and profitability potential. And again, this is supported by opinions of Bank of America Merrill Lynch, Goldman Sachs and Rothschild & Co. Why? Well, the reason is it's a compelling stand-alone business case. We are moving to a fully focused wholesaler, and we are moving fast. We are in a very advanced stage of this transformation. The portfolio soon will be 100% focused on wholesale. Our focus on HoReCa and Trader shows its impact, and that has led to continuous like-for-like growth with rising momentum. Our wholesale 360 approach has the potential for uniqueness and differentiation and, therefore, opens the routes for more growth. We have made measure of progress, as Christian showed to us our midterm ambition, and we are increasing our cash generation as we speak. Therefore, ladies and gentlemen, yes, we have the opinion METRO in itself has a very compelling stand-alone business case. Thank you for your attention, and now we will open for question and answers.
[Operator Instructions] First question is from the line of Cedric Lecasble from MainFirst.
I have a few, if I may. Could you please recap the next steps as this legally -- legal process? It's probably -- probably cements us into document, but as a document, it's quite large, and to be frank, I haven't read all of it yet. That's question number one. Question number two, do you see in your portfolio some areas of optimization, potential M&A, disposal? What would be maybe the main markets outside of Russia where you can maybe dispose businesses or reinforce market share? And the last one is about Russia, which is longer to turn around. What would be the catalyst for you of any progress going forward? What are you expecting in the next few quarters?
Yes. Thank you for your questions. In regard of the next steps, according to the documentation of EPGC, their offer right now has a date until August 7. And this is how it would go right now. By the time -- if it's not prolonged, we will see documentation on the acceptance rate. I dare to say it's not going to be the same day or the day thereafter. Typically, that takes 3 days or even a day or 2 more, so we'd see. So most logically, then a few days later, we will know how the situation will look like. In regard of the portfolio, it's a very valid question, and we have addressed that in the past. When we cannot achieve a leading position in a given market on either HoReCa or Trader, we have a portfolio discussion within METRO. And this is an ongoing task within corporate development. And we have candidates that are, I think, known in the market that are under review right now. And that means we are looking, of course, into the situation right now in Belgium and Netherlands, and we'll have a close look. When we come to the conclusion that what I mentioned before, being a leader, means being position 1 to 3, and a market is not feasible, then typically we make a change also in regard of portfolio. The good news, on the other hand, is in the large majority of our portfolio, we are already in healthy conditions, and we need to make sure that actually the level of healthiness continues to improve. So this is our priority #1. Since that's not possible, then we are reviewing it. On Russia, let me give a bit more color. We continue to see volume growth underneath. So we have been able to turn from a negative volume of the business into positive territory but yet on lower prices, therefore, leading to this decline on like-for-like. We are seeing that our attractiveness for Traders specifically with the franchise model Fasol also continues to grow and that existing customers are actually coming more often and baskets are growing. On the HoReCa side, Martin Schumacher, the CEO, has initiated a whole range of activities to make sure that we will also create the dynamics in there. If you ask me is there a catalyst moment which we would expect me from the outside right now in regard of consumer confidence and disposable income, I will say no. We need to work on a self-help to recovery, and we are not expecting any external tailwind.
The next question is from the line of Andrew Gwynn from Exane BNP Paribas.
The first one, I guess, is an obvious question, which is what do you think a fair value for METRO is per share. The second one, really thinking about the performance, I mean obviously, we've seen some of the inflation in quite a few of your markets, so in Asia and also in Eastern Europe. So if you were to strip that out, to what extent were you seeing volume growth in those markets? And then last one, on the China disposal process, it feels like -- maybe I'm wrong, but maybe the timetable slipped slightly. Just wondering if you can give us a bit of an update there. Do you think it's probable that you will sell the market?
Yes. Let me start with China. We are actually fully in line with the timetable that we have given ourselves to address the situation in China through the course of the calendar year and come to choices in Q3 of calendar year, Q4 in our financial year, so no deviation from our schedule that we had in mind. In regard of the fair value, I'm sure you will understand that this is not a negotiation around here on fair value of the company, so therefore, the only thing we are disclosing is our view in the reasoned statement that we say that EUR 16 is substantially undervaluing the company. And on the inflation and volume, I would hand over to Christian.
Yes. Well, I think the markets that were mentioned, also Turkey especially, I think, yes, we do see significant inflation, and that's also the one country where there is significantly more inflation than in the prior years. However, from a group perspective, the incremental inflation that we do see across the portfolio is quite small, therefore, the improvement that we have on the like-for-like side are strong from an underlying perspective. And when we specifically talk about Turkey with very significant inflation, there is definitely a point of volume growth also in the operations of the Turkish business.
The next question is from the line of Bruno Monteyne with Bernstein.
Three questions from me. On Russia, you seem confident in the BMPL program and the volume growth. Now when I look at the like-for-like and the margin developing, it keeps getting weaker, and I think the like-for-like in last quarter is quite disappointing. So what is driving the Russian business down so much if the BMPL program is doing well? And would you say it's still on track in Russia versus your initial plan? So that's the first question on Russia. The second question, as I understand, that you're pushing back on valuation because also I guess your duty to shareholders is to get the best value possible for METRO. Now you're also running a risk in not protecting your shareholders because this bid, if I understand correctly, has been made as a share price as good as [ what the ] EP Global would have paid to CECONOMY and the Haniel family. If this business doesn't get accepted, you have the risk that you can come back at a later point with a lower valuation. So are you not risking to lose the protection of your current shareholders receiving as much in as CECONOMY and Haniel have received? And how do you take that into account when taking your position? The third question is you do to talk about long-term investors staying -- should stay with the company. Now obviously, Haniel is a very long-term investor and is deciding to sell out. If you look at the last 3, 5 or a long period of time, METRO has not been a really good investment. When you talk about long term, how many years do you think shareholders should be willing to stay in to see the value realization of the plan that you just described during the current presentation?
Okay. Let me start with Russia first. The progress that I referred to on volume is quite visible now through a number of quarters. On the other hand, it's fair to say that market circumstances, as I mentioned, are still challenging and providing quite some headwind. And at the same time, legislation is one of the reason why we have disembarked from some of the volume sales. But on the other hand, it's also a conscious management choice on HVS, high-volume sales, and tobacco that have been reduced in the recent quarter. So when we talk about the potential in Russia, and actually, that is a bit of a bridge as well to the second question what you have, is we see that the market fundamentals are attractive. We see a very sizable audience in independent Trader and a growing audience in independent HoReCa for the foreseeable future in bigger cities, for example, like Saint Petersburg, Moscow and Sochi. And on the other hand, we also see that the market circumstances in regard of competition are favorable for METRO. So what we need to do is we need to do the same as we did in many other countries before when we strengthened our B2B profile and then achieved a superior growth. There's no reason why we shouldn't be able to see that in Russia. But yes, it's true that we need to sort out some of the legacy, and HVS, tobacco sales are part of that. And the implementation of buy more pay less is showing its impact. And it's great to see that now Martin, as CEO of the country, together with Adrian, who's the Commercial Officer, have a very strong track record of implementing BMPL in other places including Romania. Now when you look into our reasoned statement, of course, we have gone through a very thorough assessment, both Boards, and we were supported by the banks I mentioned before. And looking into all current indicators, it gives you a clear visibility of progress over the course of the recent past. And if you extrapolate that into the future, you can see the value coming through in financial metrics but also in regard of the profile of the company turning from a conglomerate which was seen as a retail company from the market into a purely focused wholesale company and the financial metrics, as I mentioned before, also going in that direction that should lead to a re-rating. Let me remind everyone that we also added into the reasoned statement that for those who might be more cautious in regard of short-term risk and the fact that each transformation, no matter where it happens and which industry, might be exposed to short-term volatility, might take advantage of that offer. And we have explicitly mentioned that also in our reasoned statement, and I want to reemphasize on that one. On the long-term investors, our view is simple. Those who take knowledge and acknowledge the progress made and are willing to take a longer view, and the longer view typically is between a midterm, 2-, 3-year period of time into a longer view many investors are holding, they can see the value potential. In regard of Haniel, I'm not willing actually to comment on their choices and how they came to it, other than saying Haniel was for many, many years a very sound shareholder of the company. It was one of the founding shareholders. And METRO has, I think, not only the obligation but, I think, the intention to say thank you for many, many good years. The fact that they have made their choices in the recent past has happened under the management of the Haniel Group, you need to ask them and not us.
The next question is from the line of Fabienne Caron with Kepler Cheuvreux.
Three questions from my side: 1 on Q3 and 2 on the fairness opinion. First one, on Q3 and Russia, Olaf, if I can come back, it may be my mistake, but it's the first time I'm hearing about the tobacco sales. And you've given us the interesting number of minus 2% like-for-like ex tobacco sales in Q3, so I was wondering if there was something in Q3 last year regarding tobacco sales that I am not aware of. And if you take a step back on Russia, the way I understand is that it's at the end not progressing as fast as you were hoping because of the headwind from the market. Is it the main factors maybe that you could not control? And a follow-up on that would be why suddenly Western Europe and Asia would be stronger to offset Russia this year. It would be the first question. The second one, I understand you do a DCF, and I know it's -- you're not in a position to give us what would be the fair value of METRO, but could you help us a bit telling us what kind of criteria you've taken in your DCF in term of margin development, of long-term growth? And finally, the last one, why do you believe or why is the market, from your point of view, undervaluing METRO in term of share price?
Okay. Let me start with Russia. And on tobacco, you're right, Fabienne, it's the first time that we're mentioning it, but it also has to do with legislation change in the recent past. The IR team is more than happy to give you more background on that if you want to follow up on the subject. In regard of the velocity of the change, we are never satisfied, honestly, nowhere. And in Russia, we made a couple of adjustments to actually accelerate the implementation of some of the strategic levers which we have at hand, so we are still absolutely confident about the progress made and the direction of travel and the potential in the market. But yes, it's true, we will not see a change of conditions in a favorable way, and that will lead to a significant catalytical change by external influences. On the impact of Europe and Asia, I would say, well, it is on a continuity that we have seen that all the regions have shown strong results and a good development. I will have Christian comment on that after I close my comments on the other 2 questions which you had. And there, of course, I will not now share the full range of KPIs that are necessary for modeling. Also here, I think the IR team will be happy to, in general, give you some more guidance in reading through some of the KPIs. But one, if you look into the pages that Christian was referencing to, I think it was Page 17, 18 with some of those KPIs, and you see the trend, there is, I think, a good argument that this is now a continued development, and the anticipation that this can be led into the future is not an unfair one. So -- but here, please also follow up with the IR team. When you refer to the value view of the market on the sales side, then I dare to say I would reference to 2 major aspects. And one is Russia, which you had as your first question, and [ they are ] not only the situation but also the situation of last year when we had to adjust our guidance only a few weeks after having you guys in Moscow for our capital market event, which was very bad. This was not only bad in regard of news flow, but it was also not helping to have trust in the financial communication of the company. We are about to re-establish that, we believe, Christian and myself, that, that was not helpful at all. And therefore, Russia has overweighed the view on METRO and overshadowed the progress made in so many other parts of the company for a large period of time in the very recent times. The other one certainly is Real. And when we say we are a wholesale company, we are truly of the belief that our profile already shows a lot of those proving arguments. But then we still have a EUR 7 billion retail business in the portfolio with 34,000 people and 280 stores. And everyone who looks into that from the outside in the past has had lots of problems in imagining how will you separate yourself from that and what is the penalty if you do that. Until very recent, I think most people would have expected this is a significant cash-out if it happens. Now we have given the indication that this will be magnitude of EUR 500 million cash-in and no strings attached in the current assessment of the situation. Once that is done, I think then the last question marks whether we actually can accomplish this last step of the transformation from a very diversified conglomerate into pure focus of wholesale will have disappeared. But we need to deliver, and we know that we need to deliver, but those are the 2 overweighing arguments that we see. Now let me pass to Christian on Western Europe and Asia, your second question.
Fabienne, just to support what Olaf has said on this question before, certainly for Western Europe, where we have mentioned today France and the Pro à Pro business in France, there is outperformance that we see; and also in Asia, where we have mentioned the strong performance not only in China but also specifically in China. So that is a strong continuation of what we have seen over the last quarters, and we will just be able to overcompensate or compensate the slight reductions that we see in Russia. And I think that's quite a normal situation that then there are regions that actually perform better, and that is the balance that we can provide on this one.
Okay. Is there any specific -- are there any specific reasons why France is better and Pro à Pro in Asia? Or it's just, as you said, continuation?
Well, the reasons are, as described today from an operational and strategic perspective, the positioning of exactly those entities and the countries and the strength of the management teams in executing on their strategy, so I think very strong operational reasons that also show for continuity on the top and the bottom line.
[Operator Instructions] There's a follow-up question from Andrew Gwynn with Exane BNP Paribas.
Sorry, me again. I'm surprised there are so few questions. But just on the EBITDA multiples in the document, we obviously can't quite work out the [ EV/EBITDA view ]. But are you using a number which includes property profit on the EV/EBITDA multiple?
On the number in the document, yes, that is included.
Okay. Seems fair enough. And obviously in the presentation, you say that the income you think coming from these real estate transactions is sustainable. Obviously, during the period just finished, you had a sale-leaseback going into the future. Things get more complicated on the IFRS 16 but, obviously, the limited number of those sorts of transactions that the business can digest just given the financial burden it was on, so effectively, are we presuming that there's a lot more development property activity that could happen within the group?
Well, the focus on the real estate transaction side especially down the road will be on project development, so fully right on this very topic. And there is significant flow of sustainable real estate transactions in this case, and that proper magnitude of the size has been also factored into the valuation. I think it's also fair to say that the number in this year that is expected is a bit of an outlier to the positive.
Okay. And obviously going forward, I mean it seems, because I didn't see anything in the document, in terms of the value of this sort of underappreciated property presumably would be quite an important element of why you think the shares were undervalued. So how much do you think this sort of undervalued property is worth, the sort of development property that's set out there waiting for these sorts of transactions?
Well, we are not commenting on the specific assumptions that are underlying the opinions from the Management and the Supervisory Board as well as from the banking side. Nevertheless, the bulk of the value that we do see is certainly coming from the operational perspective, and real estate is an important element but more supporting rather than a main stage for this.
There are no further question at this time. I would like to hand over back to Olaf Koch, CEO, for closing comments.
Well, ladies and gentlemen, thank you for having joined our conference call. Should you have any follow-up questions, please reach out to our Investor Relations team. Thank you, and have a great day.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.