© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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 Q3 2019-2020 results presentation. [Operator Instructions] I would now like to turn the conference over to Olaf Koch, CEO. Please go ahead.
Yes. Thank you, and good morning, everyone, and thank you for joining in our Q3 results call. As always, please take kindly note of the disclaimer and notes. And then, let me get started, talk about a quarter, which I think was without any precedence. This is not unique to METRO. This is true for everyone right now throughout the world. And we shared with you our belief and our conviction that we need to follow a 3-pillar strategy: protect, preserve and grow. And protect was of highest priority, as we wanted to make sure that everyone at METRO understands that we will take care about them, making sure that it's a safe place to work. And now for our partners and our customers, it is also the place that they would prefer to go. As a result, we've seen a huge level of engagement within our teams and a great number of initiatives created by them. Therefore, I think this was the foundation of everything we did throughout the month, April, May and June.Preserving the business and making sure that we are not running short of products available that we are continuing our operations with a calm hand is something you will see throughout the presentation, which was another precondition to make sure that we can perform better than the market. And this, in combination with a very strong proximity to our customers, has turned out into the conviction, yes, we can grow above what's occurring in the sector. And there's certainly an advantage that we can now amplify, and that is that, yes, we have a diversified customer base, but also, our operations are very flexible.So if you look into our general approach, and we have declared that the success of our customers is our business, we aspire to live up to that promise as much as we could throughout the quarter 3. And we did not shy away on making sure that the service levels that we have in our stores and in our FSD are always on the highest possible. The combination of running stores and a delivery component has also turned out to be much more flexible, as we have seen that a delivery function, of course, also is depending on the volumes that are allocated there. In terms of very volatile volumes, this operation is under heavy pressure, whereas a store operation is not only very flexible, but it's actually also attractive in regard of price and on curation that you can apply to the customer when she or he comes by. Trader customers in the recent month have been not only resilient. We have seen an accelerated growth, and our partnership with independent traders throughout the portfolio. But I will emphasize Russia have seen a surge, have seen a very strong development, very much supported as well by our Trader franchise and by e-commerce.SCOs, for us, are not the strategic target group. However, we, of course, welcome every SCO buying at METRO as we did in the past. And as we could offer a shopping experience that was very safe, on the other hand, we could give access to products at very high quality. We have seen a strong customer reactivation, helping us to cushion some of the setback that we've seen specifically in the early days of the COVID-19 crisis. As a result, our sales development has gradually improved. You see on the bottom of the chart, we came to a 75% level in April, followed by roughly 80% in May and already 95% in June. Sales in July turned to positive with 1.5% like-for-like, and I can share with you, August continues the trend on improvement.Now let me come to a one chart. It's going to be the last time I will mention the transition from a diversified conglomerate into a fully focused wholesaler. This is now completed, and the completion has a couple of benefits. Not only that we now can focus on 100% on wholesale, and there's no distraction left and right, but also our financial metrics are improving significantly, like the EBITDA margin on a comparable basis, if you would exclude Real, goes up on 0.6%. Our free cash flow is basically released by a EUR 250 million cash loss on an annual basis that we were experiencing with Real before.Secondly, the 2 transactions, METRO China majority sale to Wumei and the sale of Real to SCP, have allowed on a EUR 1.9 billion cash proceeds, which significantly will strengthen -- have strengthened our balance sheet and give us firepower now in a consolidated market to become an active player in making sure that METRO can grow organically but also through M&A.Our partnership in China with Wumei, and just to remind you, we still own 20%, is picking up very smoothly, very nicely. So the last couple of months, we have seen a very good collaboration, very inspiring and seeing lots of additional potential. We are committed to support that partnership. But at the same time, just be also reminded that the 20% that we own can be disposed at any given moment in time if we wanted to crystallize that value.Now going to the result of the quarter. I think we can show you that we have done well on operations, and that is the key. There is no escape from performing well in your core business operations. Secondly, the 2 transactions have helped us, of course, to strengthen our financial foundation, but they also have had a huge impact bottom line. That's why the Q3 reported on an earnings per share basis reached EUR 1.41.With that said, I now would hand over to Christian to elaborate on the financials.
Yes. Thank you, Olaf, and good morning, everyone. Before commenting on the financials of this very special quarter, I have to say that they are a result of the exceptional commitment of our teams during this pandemic. They really went the extra mile for our customers and for their fellow colleagues, and that certainly holds true for everybody in the field but also in the central and headquarter functions of our organization.Let's now talk about our Q3 performance, which is almost exclusively focusing on the continuing operations. Our performance in Q3 has been a result of portfolio diversification and also of operational flexibility.From the customer group perspective, the Trader and SCO customers have performed very well, also balancing comparably well the very significant HoReCa decline which was resulting from the lockdowns.From a channel perspective, Olaf commented that while FSD was under pressure, Cash & Carry has been the very, very important format, not only for traders and SCOs but also for the HoReCa players and our customers in order to ramp up their business post the heavy lockdowns.On the EBITDA and EPS from continuing operations, we have seen a decrease that was in line with the sales development, and that is despite the strong cost measures that we were implementing in order to soften that impact.The reported EPS and net debt reduction was extremely strong, and that was driven by the sale of China and Real but also by the resilience of the business model despite the market impact of COVID-19. And we basically reduced net debt by EUR 1.8 billion and achieved Q3 reported EPS of EUR 1.41.This is the overall picture for the quarter. However, to fully grasp our Q3 performance, we need to look at a monthly or later on, even at a weekly development.Q3 was really structured into 3 stages that almost coincidented really with the month's development. In April, we were at roughly 75% of the sales level of the prior year, and that was then consistent with a broad spread of COVID-19 and the heavy lockdowns around the governmental restrictions. There, the portfolio diversification was a very positive thing despite the massive drop in the HoReCa sales that we experienced during April. And we were implementing very early on countermeasures in order to balance that out that have proven to be successful throughout May and June, while Trader and SCO throughout the whole months have been quite supportive.May, with an 80% level of sales compared to prior year, has shown initial easing of the governmental restrictions, and hospitality customers were slightly coming back, while SCOs and traders continued to be faring very well. That performance and turnaround was even improved in June, where we got to roughly 95% of the prior year sales level, with hospitality customers coming back more significantly. As you can see, having a diversified customer profile and omni-channel model helped us adapt to each moment of the crisis.The strong recovery that we have executed on in Q3 can even be better grasped when we look at the weekly development on the next page. There, you can see at the top end that, obviously, April and around the Easter weeks that has been the most severe impact, where roughly EUR 150 million of sales were lost on a weekly basis compared to prior year. And ever since, we have seen a very gradual significant improvement of that development towards even a breakeven or slightly positive development in July of this year.As you can see on the bottom, this has really been driven, from a recovery perspective, by the HoReCa customers that went into very, very solid development as they came out of the lockdown, and we have proven that the Cash & Carry model in times of required flexibility with respect to customer demand, weather development or other topics is a channel that is extremely important for these customers, which brought them now in July to only small single-digit negative percentages.If we now look at the total sales to EBITDA development. We see that the Q3 sales like-for-like were at minus 17.5%, but as mentioned before, with a very strong recovery in May and June. From a reported growth perspective, this quarter has seen some adverse currency movements, and that is especially in the Turkish lira.When we look at the profitability, adjusted EBITDA in Q3 is below previous year level due to the COVID-related sales decrease. In that profitability, it's important to note that the segment Others has shown some initial cost savings from the efficiency measures that we had implemented during this fiscal year in the headquarter and also is supported by the license fee and other topics paid by Wumei for the use of the brand, where the overall net effect that will be paid over the next 3 years will have a roughly low double-digit annual benefit in the segment Others.The continuous trend improvement throughout Q3 can be seen by our statements of April, having been at roughly minus EUR 100 million EBITDA versus prior year. May already went out with minus EUR 60 million only, and June has shown a significant improvement to minus EUR 26 million, also showing that gradual development and transformation even inter-quarter.As we now move to the regional view, let me first share a schematic overview of the moving pieces behind the sales development for the quarter. From a regional perspective, growth varied strongly across the portfolio, as local measures and health conditions were not uniform. The key factors that contributed to that were the customer split and certainly also, the intensity of the lockdown.On the customer split, the simple rule is the higher the Trader and SCO sales share, the less vulnerable that specific region was and is to the COVID impact. Obviously, the lockdown, its duration and the intensity of the measures from a governmental perspective also have a significant impact on the overall financial performance then of that specific region.On top of that, it's very important to note that our proactive, basically, contribution and measures that Olaf will elaborate later on in more detail have had a significant impact on us steering our own fortune during that specific crisis. As a result of that, Russia performed best in Q3 and shows further acceleration in Q4 so far.Eastern Europe and Germany were, in Q3, in negative territory but have shown a strong mitigation and further improvements that really show in July that we are back in positive territory so far. On Western Europe and Asia that had been heavily impacted by the COVID situation, we have also seen a good bounce back towards the end of the quarter 3. On the next page, we show you how these sales patterns translate into the regional profitability. Germany has proven to be more resilient, not only from a sales perspective, but also on the EBITDA side due to its store-based business and the significant share of SCO customers. HoReCa customers and also the delivery channel with Rungis Express have certainly been under pressure, while METRO Germany was faring better than Rungis, but also both of them with good recovery towards the end of the quarter. EBITDA overall in Germany came out at minus EUR 9 million compared to prior year.When we now move to Western Europe, which certainly is the region that has been most severely affected by the heavy lockdowns and also our strong focus on the hospitality industry, especially when we talk about France, Italy and Spain, most of the countries there have had significant negative sales development during the quarter, which also then resulted in margin pressure. But again, also as in the other regions, a good recovering during the quarter.When we look at the overall EBITDA reduction for the group, that is certainly predominantly driven by that Western European region. Nevertheless, if you think of in April, where the loss compared to prior year in that region was still above EUR 90 million in that month, the month of June is already back to only minus EUR 13 million and shows you the strong and speedy recovery that we are putting in place in Western Europe.Russia has shown another strong quarter, and the recovery really is due to a combination of the repositioning measures that were initiated a while ago and are now really taking a hallmark in the operational performance but also by additional purchases in the context of the COVID-19 pandemic. We continue to invest into the margin, and this, coupled with COVID safety measures and some sunk costs for the canceled METRO expo resulted in EBITDA almost flat in comparison to the prior year.Eastern Europe came in also with a negative sales development, with the governmental restrictions having a significant impact on the operations and also consumer demand, but they were partially compensated really from the Trader and SCO businesses that tend to be strong in those Eastern European countries. EBITDA overall declined by EUR 17 million in Eastern Europe, and that is basically also resulting from the sales perspective despite also cost measures putting against it.Asia, which certainly has been the segment that has been hit the earliest with COVID-19 breaking out in Asia, CFF is one of those when we talk about Macau, Hong Kong or other heavily impacted places. But also India and Japan have and are still continuing to see heavy impacts from the COVID-19 situation. So that also, overall EBITDA is reduced in that region.If we now go into the group view again for EBITDA to EPS. You see that EBIT has basically been impacted pretty much in line with the development that we have seen on the EBITDA side.On the net financial result, there are basically 2 parts of it. One is the interest in investment result that has shown another good improvement compared to prior year, and that is driven by the lower financing costs that we have been able to capture. The other part in the net financial result is the other financial result, which in Q3 has been positively impacted by some of the FX movements. That is basically a comparable effect to what we have seen in Q2, just with a different sign on top of that.The tax expense might look somewhat counterintuitive in this quarter, where basically there is a negative EBT, but still a tax expense that is above prior year. I think it's important to say that this is basically, in Q3, catching up for the total tax expense that we are expecting for this year. And later on in the outlook section, you see that we are roughly calibrating that to EUR 130 million of this year, and the expense that is in, in this quarter basically provides that catch-up in order to have accounted for 3/4 of our yearly expected tax rate this year.Eventually, the EPS decreased to minus EUR 0.38, which is, in the end, a result of all topics mentioned above, especially the operating deleverage but also lower real estate gains compared to the prior year and some FX volatility. When we talk about the reported EPS, we have seen a very strong increase, which is driven by the 2 strategic transactions that we closed in this very eventful quarter.The transaction result from China came in very positively, and as mentioned before, we continue to hold 20% stake in that business, which should provide for some good upside potential. The transaction result from Real is negative on the P&L but a very positive cash exit on a loss-making business, whereby the result mostly includes some impairment losses on the disposed group. But overall, the transaction result of both elements, and you will see later on, on the net debt, is an extremely positive impact, especially during a COVID situation that provides great stability to our financial position. You should expect in the coming Q4 another roughly EUR 0.15 to come from remaining property closings in the Real transaction that will just be executed in Q4.So overall, the EPS reported came in at EUR 1.41, which is a massive increase compared to '18-'19 and really driven by the resilience of the business model, but then very strongly driven by the successful execution of these 2 transformational transactions.When we now turn to the cash flow in continuing operations, we can see that lower EBITDA and some COVID headwind in net working capital drive down the cash flow. However, we have also partially counterbalanced that with lower investments in that very quarter.So despite the challenging circumstances, we were able to reduce our net debt very significantly by EUR 1.8 billion to EUR 4.4 billion compared to last year. This is heavily driven by the EUR 1.9 billion net proceeds from China and Real, but also by the resilience of our business model.Against that backdrop of our strong financial position, let me hand over to Olaf for some more strategic comments.
Yes. Thank you, Christian. And let me kick it off with a review of what we showed you actually 1 year ago, which is our expansion into the combination of a strong core business on store operations, FSD, plus an extension in services, we called it Wholesale 360. One might say, well, in times of crisis, isn't time to reconsider whether this makes sense. And we say, yes, it's time to reconsider and then to double down on it because it makes perfect sense to address more demands our customers have, specifically in times that are so volatile. And let me go through the 2 groups, HoReCa and Trader, to show you what that exactly means.So on the HoReCa side, also here to remind you how big the market is, addressable market as much as the number of SMEs that we are serving there are highly attractive. One might say, well, but the headwinds would lead to distortion and disruption in the market. Well, we can share with you that most any survey we have seen throughout the crisis and the lockdown reveals that consumers were looking for dining out and enjoying food out of home. We have also seen that after the lockdown restrictions have been released gradually that there was a quite swift return to many places, not to all places to be clear. So that we see that the out-of-home consumption trend is intact, and it will grow, and certainly, it will grow even potentially faster once the vaccine will be there.The market itself, of course, still is impacted, and therefore, we cannot expect that the volumes are all the same, as much as our customers cannot expect that the model that they run can just operate the way it operated prior to COVID-19. So our advice to our customers is you need to adjust your business model in order to succeed in COVID-19 times.In order to succeed, you need to have a partner that makes sure that when you want product, you get product; when you want service, you get service. And that's exactly what we prioritized throughout our group. And we developed the playbook on how to deal with that situation that was shared among all the countries, both in the HoReCa and the convenience cluster in order not just to try to reinvent the wheel everywhere but leverage the benefits of a large group and to drive excellence throughout the portfolio.The other one was fair pricing. In times of a crisis, there might be a temptation to play with prices. We didn't because we wanted to make sure that predictability is going to be absolutely intact for our customers.As much as I already mentioned, we reached out to them to advise them on how to adjust the operations but also to help them to learn what kind of governmental aid packages are available, and are they applicable? So are you basically in a position to request for those? And if then, that's the case, how can we help you?We also offered controlled support on payment terms. We didn't reduce payment terms or cut off customers, but we offered a more flexible way but in a controlled way. We know our customers very well for all the data sets we have from the past. And we have been a bit more generous, leading to very positive customer response and actually not a steep increase on payments outstanding -- receivables outstanding.So therefore, I think the fact that we have been supporting these guys way beyond just the day-to-day operations also lead it into an engagement into country-wide initiatives like #restartGastro in Germany but actually almost in every single country where we do operate. So providing white papers and helping authorities to think through how to reopen HoReCa, hospitality sector, certainly was a key driver also for the momentum in May when we then saw the gradual reopening throughout Continental Europe.It's our clear conviction that this combination of things is the base and the reason why we were able to achieve higher market share throughout the period of quarter 3.Just to give you an example on how far this went. Here, you have an extension of services in the hospitality space, which included offering a meal-ordering function for those restaurants that actually wanted to provide that for takeaway or delivery, but they didn't want to pay that high commission that they need to spend at other places. We collaborated with rental companies throughout Europe to provide them access to mobility in case they wanted to start their own delivery service. We initiated voucher sales. Might sound small, and it is, it's not small in regard of the impact it had on the trust and the engagement with our customers.One thing that sounds very tactical, but it turned out to be a very effective tool, is here in Germany, you can only visit a restaurant if you register. So you need to leave your name, your address at the point in time you enter the restaurant. Quite often, this is done with a paper and pen. We released a tool that can do that digitally and provided that free of charge to thousands of customers already; as much as our digital menu tool, which also helps you to access the menu of a given restaurant without the need to touch a document or book which might have been in hands of others before.The digital expansion will continue, as we see that not only we already have roughly 200,000 accounts, restaurants that operate on DISH, which is our digital platform, but we also have now, meanwhile, more than 30,000 installations for our reservation tool. We just added another 3,000 over the course of the last weeks, processing basically 0.5 million of reservations in the recent past. And what we see as well is that this has been a great tool to acquire new customers. At the same time, we experienced that those customers that are digital tend to have a higher purchasing frequency and typically also a higher basket.When you look into the performance that we could deliver in our HoReCa countries, our assessment on the data, and it's difficult to get the data as we don't have GfK and Nielsen data, so I beg your pardon for the long, long footnote there, but the collection of data is quite demanding. But it suggests that we are roughly 40% above what the market has seen. This has to do, as we believe, with the flexibility of the 2 channels: our FSD, which also suffered a bit more than the Cash & Carry operations but is re-bouncing nicely as you can see also in the recent weeks; and the other one is the fact that we are focused on the smaller guys, the people that run the one restaurant, the small bistro, the café and not the large installations, not the large chains and certainly not the large tourism locations, turned out to be an advantage and should turn out to be an advantage in the upcoming weeks and month. And we also see that in Southern Europe, where certainly right now, there's a setback on tourism, but local tourism stays, and local consumption actually is up in many of those locations.Now let's go into Germany because Germany in that particular quarter certainly has shown one of its best performances in the last years. And this was also linked to the fact that the team leading METRO Germany, and you see the guys on the picture on the right, didn't wait to go the extra mile. They went the extra mile, many, many times together with the thousands of colleagues in the stores, in the depots and in the sales force. As a result, you'll see that we were able to improve customer satisfaction on the back of 97% food availability, and we also were able to reactivate a significant number of SCO customers.We feel that we are building a unique selling proposition, a differentiation to competition in the way we are teaming up with our customers. And we have given them support on onetime crisis rebates on payment terms like I mentioned before, on the reservation tool and the check-in tool. And we continue to support ways and means on how to learn and adjust the operations in times of crisis by running regular webinars with the industry. So all in all, a solid foundation for the future for METRO Germany resulting in a 3% like-for-like growth in the month of July, which certainly gives us good confidence for the time ahead.Now let's move into the convenience cluster into the Trader side of our business, and it's essentially the same. True partnership is key here as well. And let's not forget, this is also a super attractive market to be addressed with EUR 1 trillion that are addressable.The rules of the game are different, and then they are not because operational excellence and being close to your customer plays a role as much as it does for HoReCa. However, the means that we need to apply differ.On the other hand, we also expanded into a new group of Trader customers that we team up with, and that has to do with the B2B2C, like the e-grocery part of the business, where some of these operators already worked with us in the Ukraine before. And as you can see on the chart, we are now actually looking into that into quite a large number of countries in Central and Eastern Europe and Asia predominantly.And Trader franchise continues to be the growth model. It's a model that has a lot of promise for us, and let's go into that into a bit more detail. So here, we are essentially supporting our customers, as you know, not only with a banner but also with a format and a clear definition of playbook on how to run your store independently. We have used the crisis to suggest to our customers to expand their services, including providing a home delivery to end consumers. This, as you can see, is picking up, and we believe this is another great opportunity for an independent grocer to ensure that their proximity to the neighborhood is turned into great business. We're dealing with them with a much more intensified sales force. So also here, proximity to the customer is key.Secondly, we need to digitize our operations as much as we do on the HoReCa side. And by being able to switch M-Shop, which is our front-end for our foodservice distribution which we deployed first in HoReCa, now for Trader, has turned out to be an accelerator for order processing but as you can see as well on improving the basket size.And then on the right, you can see that this is becoming a more and more meaningful business, a 24% growth in Q3, 2.5x a higher basket than a conventional Trader and already more than EUR 0.5 billion in sales. That tells you here, you see another pillar of growth for the future of METRO and certainly one where we will engage even further to double down on that opportunity. And that's a good bridge to Russia.Russia has been one of the critical points in the recent past also from a capital market point of view because we had our issues there. But the management team has worked intensively, and we shared with you our new pricing strategy. We shared with you that we wanted to adjust the stores to give more a warehouse style experience and to differentiate against the competition. We also shared with you that we are strongly convinced that it's the people on the shop floor that make the difference when people buy at METRO. And as a result, we turned into positive already in January and February.Prior to COVID-19, we saw a great return to growth, very much driven at the time by the Trader sales and by HoReCa sales. And now in the times of COVID-19, SCO has joined in, and we could attract a significant number of new SCOs buying at METRO Russia. This means that this is a very healthy return into profitable growth. You might challenge the profitable because, yes, we did invest into pricing and into service in the recent quarters, but we are committed to return not just to growth but to profitable growth.And growth is also fueled by our partnership with Sbermarket, an e-commerce channel that we are supporting in more than 50 cities. And as you can see, it already turned into an 8% of sales in the month of May, a very exciting initiative that has been created by the local team and METRO being fully committed to our partner there in Russia to take this advantage very serious and grow that in the coming month ahead.And Fasol, just in line with our observation on franchise in general, continuing to be a strong contributor as well for the turnaround in Russia as a whole.Now let me come to the summary and how we looked into the sector. And it's clear that yes, COVID-19 had a significant impact on us, no question. However, we feel that the demand for high-quality of food and nonfood essentially remains a high priority. The dining-out trend has been slowed down. It has been impacted, but it is one of the preferences of our times, and it will not go away.You've seen that while the restrictions were released, we recovered nicely and see that the positive trend dynamics are continuing in the month of August. We, therefore, have a strong conviction that the flexible structures that we have, in combination with our 3 channels and the new services that we are adding, will lead to a competitive advantage and not only in July to a growth of 1.5% but also in the upcoming future to a more competitive position than other peers in the market.We will also look into that market from an investment point of view. And while we have now seen a nice net proceeds out of the transactions, we are now ready, as Christian already has indicated, to actively participate in a consolidation of a market, which many of you will know, some of you might not know, is still very fragmented. In many markets that we are operating in, the top 5 have less than 50% of the market share, leading to the fact that we have a large number of operators that are significantly smaller. And yes, we will look into the M&A opportunity to drive sustainable growth and profitable growth.On the other hand, our very strong cash position puts us into a situation that we can also indicate readiness for dividend continuity, although this is only due for our decision in December later this year.And then last but not least, deleveraging this company, I hope you agree, is a good, good thing to have because no one knows what will come. What we know is we are ready for it. We are ready for it from an operational point of view. We're ready for it from a strategic point of view, and we are ready for it from a financial point of view.So let me then close the session by mentioning our new guidance that we just have released earlier this week. In essence, we expect that sales decline in local currency and on like-for-like roughly will be in the magnitude of negative 3.5% to 5%; and on an EBITDA level, on an adjusted EBITDA level, a decrease of EUR 200 million to EUR 250 million. That already indicates you that Q4 would be a significant improvement in performance against what you've seen in Q3.And let me close here without now going into every single line item on the right side, I ask you to take note. Now just the last chart on the financial calendar and the upcoming events.And now Christian and myself are ready to take your questions.
[Operator Instructions] First question is from the line of Xavier Le Mené from BofA.
Two if I may. The first one, how do you see 2021? So do you expect the SCO to offset some potential weaknesses with HoReCa potentially, especially if a recession is coming? So I just like your view there.The second one is just on the 20% stake in China. How do -- how are you going to value that 20% stake, so you have already some specific valuation multiples that are going to be used?
Yes. Let me start with the second question because that is a straightforward answer. There is a floor of the valuation, which is essentially the valuation that we achieved in the closing process in April. And then there's a clear valuation scheme, in case things, of course, turn to the better so that we can then calculate that as agreed with our partner, Wumei, in China.On to '21, it's, of course, a tempting question, I understand, and we have not yet given a guidance for '21, but let me try to give you a bit of insights on how we think about the industry.Number one, it's clear that there will still be restriction in the market, and therefore, accessibility of hospitality might be less than it used to be prior to COVID-19 times, but that's the case today already. And therefore, our ambition is, in a market that is demanding, find our way, find our solution to come to a superior performance than the market itself.Compared to the first half of the year, 2021 for the whole industry should already be better than 2020 because -- and this is with the disclaimer, as long as there is no continental lockdown like the one we've seen in April. But if that would not happen, the preconditions for the hospitality industry in 2021 for the half year already should be better.On SCO, we will not follow the temptation to make the SCO now our strategic priority. However, we are continuously working on how to make sure that we keep those customers, and we have customer retention. In other words, how to keep them loyal. And it looks like this is turning out to be successful in those countries where we have a larger SCO share. Germany is one. Russia is another. And we are confident that we can keep those customers with us as they have now experienced the new METRO. And don't forget some of them have not been with us for years, just started to join us in April, May, and many of them continue to stay. So I think the chance to come to a better precondition '21 certainly is given.
Next question is from the line of Andrew Gwynn from Exane BNPP.
Yes. Two questions if I can. So first, just on the M&A. I'm just wondering if you could just flesh out a little bit more in terms of what you're looking for. Any sort of particular key markets sort of interesting?And then the other one, just [ our all-favorite ], other one-off. I wasn't quite sure the Chinese payment for the brand. I wasn't quite sure of the magnitude there, and whether or not we should expect recurring income within the other line.
Yes. Let me start with the M&A. As I mentioned before, in most of our markets, we have a highly fragmented competitive space. And our teams have been instructed not only throughout COVID-19 but already in our value creation plans to take stock on who are those operators. And now in COVID-19 terms, we are watching that. How do you need to think about the way how we screen the targets? Most important is complementary customer base, i.e., a different regional scope or complementary in capability. So a good example for that has been Pro à Pro in the past, very complementary to our own business because it is largely institutional. And therefore, it didn't have any real overlap to METRO France and turned out to be a real catalyst for growth. Another example would be an operator of stores in a region where we have a white spot. That's the way how we are looking at it. Don't expect that to be all large ticket things. It could be quite a number of smaller ones. But all in all, this could fuel further growth.
And on your question with respect to China, as mentioned before, you should expect for the next 3 years, basically starting with the closing of the transaction that there is roughly a low double-digit million net impact from -- positive from the China transaction that is both related to brand fee, is also related to transitional services agreements with respect to IT topics or other things that are customary in those transactions. So next 3 years, low double-digit in others.
So is that per quarter? Or is that per year? Sorry.
That's an annual low double-digit number.
[Operator Instructions] Next question is from the line of Andrew Porteous from HSBC.
A few if I may. Could you talk about some of the market share within the HoReCa countries a little bit more? And any markets you feel you've done particularly well with in sort of outperforming the market through that period? And I just wonder whether you could perhaps talk about the evolution of that through the period. I mean has that continued into July as things have started to open up a little bit more?And then I guess linked to that, could you just talk us through how you see the sort of market for consolidation opportunities? Have there been a lot of smaller peers out there that you think could offer or presenting more opportunities for M&A in the future?
Yes. On this outperformance, as I mentioned, unfortunately, we don't have real GfK or Nielsen data, but what we get is from various associations a subset of numbers, and our IR team is happy to share that with you to go in more detail. But what we have seen is that this is an ongoing trend. So it is not that this was only happening in May at the restart time when hospitality was allowed to reopen, but actually, it even turned stronger in June and July. And as outlined on the chart, according to the data that we have, it was up to 40%.And I think it has to do a bit with your second question. We have seen competitors telling their customers that they will not supply goods if they don't pay their invoices outstanding. We have seen competitors saying I will only deliver on prepayment. We have seen announcements that as of COVID-19, there are reduced ranges of products that are offered. And this has, of course, to do as well with the size and the stability of an operation where we -- I think we can now show with all the numbers we have shared with you today have proven to be very resilient.The market consolidation is, as I highlighted earlier, one that will address a large number of operations. And in some cases, it might not lead to M&A. In some cases, it just might lead to grabbing that share, knowing that there is a customer base that is not served and supplied. In other cases, it might lead to partnerships. In other cases, it might lead to acquisition. We'll keep you posted. I can share with you that we are already actively working on a number of those. And you shouldn't be surprised if we will share with you, throughout later summer, our first steps in that direction.
There are no further questions at this time. And I would like to hand back to Olaf Koch, CEO, for any closing comments. Please go ahead.
Well, thank you all for participating in this Q3 call. Should you have any further questions, please don't hesitate to contact our IR team. Other than that, I wish you a great rest of the summer, and stay healthy and talk to you soon. Take care. Buh-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.