Ceconomy AG (CEC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Ceconomy AG investor and analyst conference call. [Operator Instructions] I would now like to turn the conference over to Vice President, Fabienne Caron from the Investor Relations team. Please go ahead.

Good morning, everyone, and welcome to our Q3 2022-2023 results presentation. On today's call are Karsten Wildberger, our CEO; and Kai-Ulrich Deissner, our CFO. Before we start, let me remind you that the presentation slides can be accessed through our website. During today's call, we will be making certain forward-looking statements, so please refer to the disclaimer for more information. Please note that our operation in Sweden and Portugal are still including in our reported figures, but they are excluded from the guidance we leave on KPI, currency, and portfolio adjusted sales growth as well as adjusted EBIT. Finally, be aware that given the technical impact of IAS 29 hyperinflation in Turkey, we will comment our business dynamic pre-IAS 29 in the presentation. Let me now hand over to Karsten.

Yes, thank you, Fabienne, and good morning, everyone. Welcome everyone to today's call. Thanks for joining. Back in beginning of June this year, we had the Capital Markets Day and also like to thank all of you for the numerous feedback we received. The Capital Markets Day marked something big for our company when we presented our updated strategy and engaging with so many of you and seeing the acknowledgements for the ambitious, yet achievable, goals we've laid out has been very encouraging indeed. And now today along with our CFO, Kai Deissner, we want to update you on our Q3 performance and we'll also spotlight some of the progress we've made in executing our strategy and we will provide you with an updated outlook. Let me begin with some very good news. We have delivered a very strong performance in Q3, extending our very solid 9-month path and allow me just a very few general remarks. Before diving into the key numbers, let's take a look at the consumer electronics market and more from a general perspective because the consumer electronics market remains very attractive due to the increasing integration and role that technology plays in all our daily lives. However, obviously the market is not without its challenges and even if the macroeconomic situation appears to be easing with a decline in inflation and falling energy prices, consumers' purchasing power remains under pressure, as does the CE market. But Ceconomy is excellently prepared to succeed in a volatile market environment. And at the heart of our new strategy is the customer experience that is even made stronger by our commitment to sustainability. And this shift is not small. We are moving from Ceconomy being primarily about selling consumer electronics towards becoming a customer centric service platform. So now let me start with one important point that I'd like to highlight that our net promoter score, NPS, representing the customer experience, reached an all-time high of 55. So the feedback from our customers and the NPS score show that we are on the right track, increasing customer loyalty and strengthening our position as a leading player in the European consumer electronics market. Let's turn our attention to the current sales development of the consumer electronics market considering the countries we are operating in, including Turkey. So all the markets including Turkey, the consumer electronics market grew by 2% in the third quarter. But if we exclude Turkey, the market declined by 5% over the same period. And in these market conditions, we as a group managed to increase our sales by 7.4% to EUR 4.5 billion in the third quarter. And we gained market share, particularly in Germany, the Netherlands and Turkey. And as a group, our market share was stable based on GFK data. And on the earnings side, we've made further progress with a EUR 43 million increase in adjusted EBIT year-on-year as we stabilized our gross margin and managed diligently our costs. And moreover, I'd like to emphasize that our measures to boost efficiency and strengthen liquidity are yielding tangible results. In the 9 months of the year, we increased our free cash flow by almost EUR 1 billion. And ladies and gentlemen, given this very strong Q3 and overall 9 months performance this year, we update our outlook with one single scenario, the positive Scenario 1. So we now expect a moderate increase in sales and a clear increase in adjusted EBIT for this fiscal year. Let's turn to Slide 6 please. In the third quarter, the market increase was primarily driven by an increase in customer demand for brick-and-mortar business, which offset the decline in the online sector and other general retail sectors like clothing and furniture experienced a similar situation during the third quarter. And we have seen a 7% increase in the number of customers visiting our stores compared to 1 year ago. So there is a good recovery of the bricks-and-mortar business, a very important question always asked obviously after the pandemic. And our overall growth has enabled us to capture more market share in the DACH region and in western southern Europe, we see some encouraging trends and I'll also allude to Spain and Italy a bit later. And let me now turn to the key aspects of our performance during the third quarter on Slide 7. In the third quarter, we as a group sustained our growth as we did in the first half of this year. And this performance was, as highlighted, underpinned by our robust brick-and-mortar business where we saw in terms of sales revenues, a strong 8.2% year-on-year increase. And as the brick-and-mortar sector continues its recovery, it offsets our weaker online sales. As a whole, our online in-house share stands at approximately 20.4%, which falls below our expectations, but remain significantly higher than the pre-pandemic level. I would like to highlight that our pickup rate, a key indicator of our omni-channel approach, so someone orders online, but picks up the product in the store, increased by 300 basis points, now standing at 41%. And during the third quarter, we made notable operational improvements in several key countries. In Germany, our largest market, we increased both sales and earnings, maintaining our upward trend. We experienced similar progress in the Netherlands and Turkey. And furthermore, we are delighted to share that our efforts and focus in Spain and Italy are yielding positive results as evidenced by improving profitability trends. And I would like to -- also like to give a quick update on our portfolio. We are pleased to announce that we closed successfully our Swedish transaction and we expect to finalize the disposal of our Portugal business before the end of the fiscal year. Growth also characterizes our strategic high earning services and solutions business. And despite a more challenging consumer financing business due to the high interest rates, we achieved a solid 5.3% year-on-year sales growth. And this represents 6.5% of our total sales. And we continue to make significant strides in our new highly promising growth areas: Retail, media and marketplace. And with our marketplace, we offer our customers an attractive, extended and fast-growing product range online. And this is for us another source of income through reseller commissions. The marketplace business does not carry stock risk and other corresponding costs. And currently the marketplace is life in Germany, Austria and Spain, where it achieved sales growth of 121% in the third quarter. And the rollout in the Netherlands and Italy is planned soon. The marketplace selection is also steadily increasing for customers. So by the end of July, 2023, we had already more than 1,000 resellers with a total of about 1.2 million products on our platform. So in conclusion, our collective efforts have paved the way for growth in strategic businesses and we are driven by our commitment to customer satisfaction and are constantly striving to improve our offerings. Let's turn to Slide 8 please. As you know, we've made very specific pledges at our Capital Markets Day regarding our new strategic approach of becoming a customer-centric retail service platform. We have defined 9 KPIs for 2025-'26 regarding retail core, services and solutions, marketplace, private label, Space-as-a-Service, and retail media which are highlighted in this slide. And I would now like to give an overview of the progress we've made on these KPIs over the past few months. So on Slide 9, well, I won't go into detail on all of the KPIs, but I would like to highlight that we have seen good growth rates in loyalty members and we are also well on target with the modernization of our stores including our lighthouse openings. And with our growth drivers; marketplace and retail media, we make steady progress. We are not yet satisfied with the development of our online share. Let me explain what we are doing, how we turn this. We are focusing on organic online traffic generation. We are improving our online functionality and quality of content as well as growing the penetration and usage of our MediaMarkt app. And in parallel, we are enhancing our store portfolio and our motto is the right format in the right place. So large tech villages in metropolitan areas, medium-sized stores with plenty of service and advice, smaller stores with a selected assortment where customers can also access our entire range and pick up goods ordered online on site. That's our approach and I will provide a few more details on the next slide. So let me share a few examples of the past few weeks that illustrate our commitment to driving our transformation. So following the successful opening of 6 large tech villages in Europe, we opened in June a store in the so-called Xpress format for the first time in Germany. This is just below 1,000 square meters. And as part of our omnichannel strategy, this store concept combines in a different way; service and assortment tailored to customer needs and digital in elements that enhance the shopping experience. And this kind of store, which is basically also more local, makes our online shopping more regional. Products can be tried out in the store around the corner or quickly picked up. And what is important that this strategy will enable us now to operate more stationary locations close to our customers in the future, but on a smaller footprint. So the smaller formats offer us new growth opportunities by addressing attractive locations that we cannot access today with our former larger formats. And moreover, they improve sales productivity per square meter. And at the same time we drive forward the ongoing modernization of our classic core formats. For example, we upgraded recently in Italy a first MediaMarkt based on a hybrid concept of our store formats with very flexible and sustainable design elements that we're going to roll out and use elsewhere, a warmer look and feel with also more appeal to our female customers. And there are lots of experience zones where customers can try out products. So we'll see and hear more based on this concept from us going forward with also tangible numbers. Slide 11, please. And before I hand over to Kai, here are some further updates on 2 very important topics; technology and sustainability. Our tech transformation continues with steady progress. We've successfully rolled out our new web shop platform now in Belgium in July, making it now 6 out of 11 countries on this new technology stack. And this means that over 80% of our online sales are now generated on this new web platform. This allows us to harvest synergies, increase the speed, and we share improvements across all these countries once we implement them. And all these functionalities are available much faster in all these countries and we'll expand to Switzerland, Turkey, and Hungary during the next fiscal year. And we're also accelerating our MediaMarkt app enhancements with new features, functionalities going live in Germany in the first quarter of the next fiscal year. That means customers can now compare products more easily, they can utilize a QR code scanner, enjoy personalized contents and push messages, status updates on delivery, et cetera. So all these improvements and enhancements will make us more forceful in driving also our app adoption. So our tech transformation remains a key driver in shaping our future success. And on the right-hand side of this chart, in the past quarter, we reaffirmed our commitment to sustainability as a cornerstone of our strategy, reducing carbon footprint, promoting sustainable business operations. For example, we aim to increase the number of better way products. This is our sustainability label based on third-party certification to increase the better way products in our range to 6,000 by the end of 2025. And this initiative will enable customers to save more energy and promote the circular economy. And our trade-in offer is displayed here, has witnessed impressive growth with trade-in products reaching a remarkable 75,000 units during Q3, '22-'23. And so far this year has been very successful with a total of approximately 150,000 trade-in products processed year-to-date. We're also seeing good demand for sustainable services and other areas. Our pilot project for renting electric cars has been very well-received and we are now expanding this further. As of this week, customers can once again rent selected electric vehicles at a very attractive price through a subscription model and incorporation with like to drive, there's a choice of several attractive electric cars. So as you can see, we are well on the way to transformation. And now I will hand over to Kai, who will give you a deeper insight into our financials. Kai.

Thank you Karsten, and good morning to you all from my side as well. Let me guide you on the following pages through our quarterly as well as our 9-month figures. On Slide 13. As you can see, sales momentum was very robust in Q3 with a 7.4% growth year-on-year. Keep in mind, please, this is adjusted for currency and portfolio changes and we're looking at these figures pre-IAS 29. So pre-hyperinflation accounting effects in Turkey. Now the main driver again for this sales development, just to reiterate, its continued recovery of our bricks-and-mortar business. On a country perspective, we saw good sales development in Germany and in Turkey, as well as improving trends in Italy. On EBIT, group adjusted EBIT reached minus EUR 60 million and that's an impressive EUR 43 million above previous year. So roughly 2/3. Behind this, the strong sales development and successful efforts to offset rising cost inflation, I will come back to that with a bit deep dive later. Now this EBIT improvement over the quarter enables us now to look much more positively towards the end of the fiscal year. With already 9 months under the belt, we feel comfortable to upgrade our outlook and focus exclusively on what we used to call Scenario 1. So the more positive scenario. Looking at our 9 months performance, and yes, despite the still uncertain macroeconomic conditions and continuing cost inflation, we do feel comfortable to deliver this first scenario of our guidance for fiscal '22-'23. That's a moderate sales increase. Mind you, previously we spoke of a slight sales increase and a clear increase in EBIT. If you look at the 9 months performance, our adjusted EBIT increased by an impressive EUR 35 million already. That's almost 1/3. Now on regions. Turning to our operational performance. As you can see, Eastern Europe and DACH were again the main drivers this quarter. However, we're also pleased to see that the trend is improving in Western and Southern Europe. Start with DACH. Sales increased by 1.6% in Q3. Here, Austria and Germany showed very positive sales development while Switzerland and Hungary reported a sales decline largely due to the competitive market environment. In terms of profitability, this region posted a strong EBIT improvement with EUR 18 million plus that's driven by Germany, thanks to good sales development and lower advertising costs. We can clearly see that here our efficiency programs are starting to bear fruits. In the other countries of the region, profitability was rather stable. In Western and Southern Europe, we recorded a slight sales decline. In the Netherlands, we posted solid sales growth. While we still had sales decline in Spain and Italy, in the latter, we see some sales trend improvement as we cycled over the highest comparison base in April. Remember that last year the state subsidies for digital TV supported us positively. In Spain, we're also making progress. Our sales decline here is mainly due to our online business. We've put in place a new team from April, and we've in particular improved our product availability online. We're confident now that all of these measures will bear fruits going forward. Profitability wise, in this region, we're pleased to report that we've reduced our EBIT loss here by EUR 5 million this quarter. The Netherlands and Italy were the main drivers behind this recovery and profitability. And once again, the highest growth rates were achieved in Eastern Europe. That's driven by the strong demand in Turkey. Adjusted EBIT here improved by EUR 22 million in the region. Turning to services and solutions in some detail. As you know, service and solutions remain a key strategic pillar to improve our profitability going forward. Now, technically for the current fiscal year, we're still commenting on the old definition of services and solutions, that services including retail media, including marketplace commissions and fees as well as deliveries. We will switch our reporting to the new definition which we introduced in our Capital Markets Day in June from the next fiscal year. So by the old definition, our services and solutions sales increased by 5.3% year-on-year. That's now leading to a sales share of 6.5%. In terms of service categories behind this, retail media had a very good performance as well as warranty extensions. On the other hand, as Karsten already mentioned, the higher interest rate environment is impacting our consumer finance business. We're also cautious here to manage our credit portfolio in order to limit a potential increase in bad debt later on. Also on the slide, online sales share reached 20.4% on a group level in Q3. This still represents nearly 60% sales growth versus pre-COVID levels. Although we're not satisfied with the performance. On a year-on-year view, online sales declined by 6.6%. It's clear to see that customers still prefer to shop back in stores leading to declining online sales across general retail as a whole, that our omnichannel proposition still continues to resonate well. You can see in the pickup ratio, it increased to 41% in Q3. That's impressive 300 bps increase year-over-year. Now coming back to our EBIT development on Slide 17. We have again stabilized our gross margin in the quarter to 17.6%. The main drivers, the following 2 tailwinds came from lower logistics cost and secondly, stable goods margin, thanks to a more favorable channel mix. On the selling prices, part of this, we were able to pass some input cost inflation to consumers, not all. On the bottom of the slide, our OpEx ratio dropped by an impressive 90 bps this quarter to 19.8% of group sales. On an absolute level, our OpEx increased by only EUR 9 million this quarter as our efficiency measures are accelerating in bearing more and more fruit. What's behind this is already highlighted in previous quarters. We do feel cost inflation in several areas like personnel, location, energy cost, but we do continue to work diligently on these headwinds and have mitigated the OpEx increase with very strict cost management, even better than in previous quarters. Slide 18 summarizes the familiar drivers behind our gross margin, which I already highlighted just now. In this context, let me give you an update on our efficiency programs. Overall, we continue to expect roughly EUR 100 million restructuring costs, of which EUR 60 to EUR 80 million this financial year. In Q3, we booked EUR 31 million and expect to book the remaining in Q4. This will enable us to deliver roughly EUR 130 million savings run rate from the end of fiscal '23-'24. In Q3, we generated a high single digit amount of savings and still expect EUR 40 million savings as a whole this fiscal year. Behind this, we continue to streamline our headquarter structure and we've reorganized as you well know our repair services in Germany and expand our digital platforms and solutions internationally as Karsten highlighted. Now next to reported EBIT down to EPS on Slide 20. In terms of one-offs, we registered EUR 63 million one-offs in the quarter. That's EUR 15 million less than Q3 last year. Of that EUR 31 million as restructuring costs and a roughly similar amount, mainly non-cash due to IAS 29 hyperinflation in Turkey and the deconsolidation of Sweden and Portugal. This led to a negative reported EBIT of minus EUR 123. That's almost EUR 60 million better than last year. Next on the line, our financial results reached minus EUR 33 million. That's due to higher interest payments and higher interests on leases in line with market development. However, do please note that out of the EUR 22 million increase, the main part is non-cash. The main driver behind this is this, as we regularly renegotiate our lease contracts, this leads from an accounting point of view to a higher interest component in the financial results. This does, however, not change our rental cash out. For the full year, we assume a net financial result of roughly minus EUR 100 million. Now a specific effect, on taxes, we recorded a minus EUR 30 million charge in the quarter. And as you can clearly see, this is the one main driver of our net result in Q3. Let me try to explain this. Last year, we recorded a large tax income in the quarter, and that's due amongst others, to the impairment of our Fnac Darty stake at the time and at the time, lower business expectations. As we use an integral approach for tax, this effectively distorts our tax rate on a quarterly level. In practical words, we set our full year tax rate at the beginning of the year based on our budget for the full year and adjust quarterly charges along the way based on non-foreseeable impacts. Like for example, the impairment charges, which we saw last year. So you need to think of this negative year-on-year effect in Q3 effectively as a one-timer. For full year '23, we expect a lower tax rate induced by the Convergenta transaction, a mid-double digit tax charge. And from a cash perspective, we assume a limited cash outflow of around only minus EUR 30 million. All in all, in particular with this tax effect, in Q3, we reported a minus EUR 186 million net result, that's EUR 90 million below last year. And as explained, more than EUR 100 million delta comes from this extraordinary tax effect in the quarter. Our key focus in all of what we're doing remains on free cash flow, and we're very pleased with the strong development in the 9 months, which you see on the current slide. Our free cash flow post lease adjustments increased by EUR 996 million year-over-year to minus EUR 87 million. We recorded a positive cash inflow of EUR 55 million from working capital for the 9 months. That represents a very impressive EUR 820 million improvement year-on-year. In particular, behind this, our actions to reduce stocks paid off, our overall stock position declined by almost EUR 0.5 billion year-on-year, and our stock turn increased to 9.4 weeks. This is 10.5 weeks in the last year. You can interestingly see also here the underlying positive development in taxes despite the one-time effect with the EUR 40 million improvement year-over-year at the top of the chart. The third effect, other operating cash flow is normalizing versus last year because last year was impacted by the cash out of deferred tax severance payments. Finally, Slide 22, highlights our net working capital improvement with the focus on stock management. So ladies and gentlemen, our very strong free cash flow makes us confident in the execution of our current strategy. Still let me remind you as always, we have no major debt repayment coming due at least until 2026. We have access to EUR 1.1 billion revolving credit facilities, which is still undrawn to date and has never been drawn. This completes the financial section, and let me hand back to you, Karsten, for the closing remarks.

Thank you, Kai. And finally, I would like to give an outlook and summary of our key messages today. So as we have stated already and earlier, so based on our strong performance during the first 9 months of the year, we have updated our outlook and only work with 1 scenario, the positive Scenario 1. So we expect a moderate increase in sales and a clear increase in adjusted EBIT for the 2022-'23 fiscal year as a whole. Ladies and gentlemen, I'd like to conclude today's presentation, before we move to Q&A, with a summary. So first, in the third quarter, the good operating momentum continues. Second, in a challenging consumer electronics market, we grew in key markets and maintained our market share overall. Number 3, we are clearly in command. Our measures to master the current challenges are taking effect. Number 4, we focus on the customer experience and are building momentum as we execute our strategy. Number 5, our focus remains on cost, profitability, and liquidity. And finally, we update our outlook for the financial year '22-'23 with a positive Scenario 1 as our sole guidance. So with that, I thank you for your attention and now we look forward to your questions.

[Operator Instructions] The first questioner is Mr. Volker Bosse of Baader Bank.

Volker Bosse, Baader Bank. Congratulations on the encroaching set of results. I would like to start with your comment on consumers' purchasing power remains under pressure. How do you see that in your figures? How do the consumers react? Do they trade down or what do you see behind this statement? And second would be on the sales split by product group. So just as a rough indication, what is highlight, what is lowlight in regards to product sales? So which product segments performs better, which worse? And the third question would be on the same service and solutions business, which remains stable at 6.5% in comparison to group sales. Isn't this a bit below your expectation as you invested into smart powers path and invested into this transformation into a service company? Your comment on that would be helpful. And finally, if I may just a brief one on July current trading, how do you see things developing in regards to sales in July?

So to cut it short, there were 4 or 5 questions basically. Kai will cover the last one, the current trading one, and of course he will add whenever he feels like he wants to add. So consumer purchasing power remains under pressure. How do consumers react? So situations in my view as follows. As we said earlier, the situation generally remains volatile. What does that mean? It means there is a month where we feel okay, it's a bit softer, and then there is another month where it's going better. So there is a certain volatility in that and that's why it makes it hard to predict. The thing that we still see is that the premium goes very strong, and more pressure we see in the entry point, which suggests that there is more pressure on purchasing spend. What do customers spend money on? Now, of course we have, everyone hopes, it's the holiday season and then when people come back at some point, there will be another demand. But we see kind of this bifurcation, if you like, this split between entry and premium, but premium goes strong. That would also lead me a bit to the split of the product groups. So let me start with the things that we see very, very strong. Very strong is telecommunications, hardware, mobile phones. We see also wearables strong. Also computer accessories are very strong. What also is strong on the entertainment side, entertainment hardware, software is for us a good growth and what goes well in the, what we call the white goods, which are the big device, big products like washing machines and the small domestic appliances, small domestic appliances like floor care going very strong. What is not that strong is a continued pressure on the TV section. I guess this is still a bit of a hangover from the COVID period, but let's see. But this is still under pressure. Computer hardware is not that strong either, I think that also has to do, and what remains kind of stable is actually the big domestic appliances. So it's a mixed bag, but within that you can see that premium, if you like, goes better. Then services and solutions stable with 6.5% below our expectations. I look at it the following way because Kai elaborated a bit more on this. The thing that is in the number is that the financing part of services, due to the high interest rate, is under pressure, but is actually a big contributor in the financial numbers. And that is an effect of the interest rates and the current market situation. I personally think over time, of course, we will hopefully also reach a more normal situation again, and I'm quite generally positive on this one. If I take this effect out, we are actually going very strong. Why is that? We see good footfall in our stores and we see very strong attach rates on the various services that we sell. That means we are doing operationally a very good job in selling services and solutions. What also gives me confidence going forward is that we have good new services in the pipeline that we are going to launch, like my MediaMarkt Plus, which is basically this enriched guarantee proposition, worry free for customers that will take some time to ramp up, but it's a very attractive proposition. So I look at it with these 2 sides. Just from a pure numbers' perspective, when I just look at the number, you're right, but we know where this is coming from. If I look at it operationally, I'm actually more positive, but as always, there is clearly work to do, which we will do and deliver. And on July current trading, Kai, and please feel free to add.

Now on current trading, as all of you are well aware of, we cannot share details at this point. But I would go back to our guidance and let me just reiterate that we're assuming for the full year, a moderate increase in sales and a clear increase in EBIT. Now that implies for EBIT that for Q4 we still do need to see another clear increase in Q4, otherwise the full year numbers wouldn't add up. And so a moderate sales increase and a clear increase specifically also in Q4, there's nothing in current trading. There's nothing in current trading that let me doubt this particular statement. On a regional perspective, let me remind you what we highlighted. We highlighted good performance in Germany and in particular in Turkey and encouraging trends in Italy and Spain. And there's also nothing in current trading that lets me doubt this particular statement about the first 9 months. This is how I would comment.

One follow-up on your online sales. If I may say online sales is still down, I think that has also something to do with the COVID effect; however, how do you see the future of your online sales channel and when do you return to positive online sales figures again in regards to, yes, sales growth?

Yes, important question. So generally Q3 in terms of online share is always a quarter, which is in terms of there are also some seasonal patterns, which is different, but clearly this is below our expectation. What we see overall is a -- if you look at the whole market, quite a decline in the online market overall. So that is something that we are of course also exposed to. In our particular case, what happens is we see a very strong 7% increase in footfall in our stores. And that means that our online business is, say, is more under pressure. But if I look at it operationally, the work we need to do and where we have to get better at, we have to grow our organic traffic, not paid traffic, because from an efficiency perspective more, there are things technically that we are developing like search site optimization, et cetera. So there are some -- lot of technical capabilities that we are building in the background. I'm confident that over time this will bear fruits. Also, our functionality of the website is improving, is getting better, but there is more work to be done also on the content side and where we will accelerate much more because that's an important part to basically go native through the app. We see a refresh of our app in September, and we will push that hard. And last but not least, the marketplace, the extension of our portfolio is an important part of our strategy. It's now the first time that I see growth rates that are really great to watch. And over time, this will also pay the dividends in terms of building more attractiveness for customers to search for products and to purchase with us. Last comment, I would say, given the environment, of course we balance also very strongly what is our promotional activity versus our standard business to protect margins, which I think given also the mix, we've done a very good job. That in turn also has an impact actually on the digital share, which is often more exposed to say price competition. So that saying this all and squaring this, obviously we have real work to do, as I said. What gives me confidence that we know the levers and what we have to do and hopefully in the not too distant future, we will update you with, again, figures that I also enjoy more.

The next questioner is Mr. Adam Gildea of Bank of America.

This is Adam Gildea from Bank of America. I had 2, please. First is on retail media. I was just wondering if you could give any quantification around how it grew in the quarter and if it's growing at the rate you expected at the CMD when you outlined the new targets. And then second is on the new web shop. I was wondering if you could talk through the services and solutions attachment rate. Are you seeing an uptick on the new platform?

Adam, I'll take the first question on retail media. Look, at the Capital Markets Day, we included retail media in one of our key pledges. Just to remind you of the figure, the target for '25-'26 is EUR 45 million in income. Now we will update quantitatively with our annual figures, so with the next quarterly results. Qualitatively what I can say, so I make explicit the errors that you saw on the slide that that Karsten presented, you saw a big arrow up. And that is also the tendency that we do see, but we can only share numbers after the next 3 months, Adam. But it's all on the right track. This is how I would summarize it. And Karsten, for you, the second question.

Yes. On the service and solutions attach rate uplift on the platform, clearly the attach rate on service and solution generally is far higher in the offline environment than in the online environment because of the interaction with the customer. What we have achieved over time is more than a doubling of the attach rate in the online world. And this is sometimes painstaking work that needs to happen because it depends really on the service we talk about. Let me give you a few examples and then please, if hopefully this answers your questions, but if you have further questions, please do ask, give you a few examples. When you, for instance, buy a washing machine or any device, then of course we have improved the engine, also the new web platform that the relevant services for these particular customers are displayed and shown. We've also made the process of then say clicking and adding the service much easier. What does that mean? It could be, for instance, a guarantee extension, it could be an installation process. On those things like installation we see very, very high attach rates. Let's take another very important service of ours. If you want to basically buy a mobile phone contract in combination with the mobile phone. This is something we are developing as we speak to actually make the process of signing up to a mobile phone contract, including credit checks and all of that much, much easier. So this is a more complex process where we've seen considerable uplift of 70% compared to the past, but there is more work to be done and so on and so forth. So it depends really on the service and the product combination and where we build the capabilities now to measure the customer journey and the attach rate in the process. And the specialty about this new web platform is of course that all the development basically happens on this website or on this tech stack. And once we've improved something for one country where maybe the demand came from, basically then the same functionality is available in all of these countries. So we have strong synergy gains and strong speed advantages. And last but not least, we do the same work on the app and we have the app in all the countries that are on their tech stack in this current format. So this is a key focus area of ours and over time we're able to more than double the attach rate, more work to be done. So hopefully more growth to report on.

The next question comes from Mr. Clement Genelot of Bryan Garnier & Company.

I will have 3 questions. So the first one is on Germany. Were you able to reserve at least your markets in Germany, because if I remember well, you said during your CMD that you have gained about 120 basis points year-to-date there. My second question is whether on the guidance, if I might, the current consensus of expectations for the '23 EBIT implies an EBIT decline in Q4. So just wondering what's exactly your view on that and what are your assumptions for in terms of demand and especially gross margin? Because if I'm right, in Q4 of last year, you have booked as well an inventory write-off. So what should provide a kind of boost of this year? And my third question is rather on the services and repair. Could you give us more color on your ongoing Space-as-a-Service team reorganization? Because some price articles recently mentioned about 400 job cuts at a subsidiary named the Tec-Repair.

I suggest, Kai, you start with the financial questions. I will deal with the German market share and then the service repair, Tec-Repair question.

Clement, let me comment on Q4 again and perhaps also avoid some misunderstanding that my previous answer may have given. So for Q4, I would anchor it into the full year guidance. And for the full year guidance on EBIT, if you look consensus expectations, we feel very comfortable with these consensus expectations. So if you assume those consensus expectations, roughly speaking, this leads for Q4 to a more or less stable plus/minus 0, plus/minus a little EBIT in the quarter versus the same quarter of last year. That's our expectations, roughly speaking. Now, you asked about margin in that quarter and you're right about certain impacts that we saw last year, in particular from stock in our margin. As we've highlighted continuously, we've made some progress in managing stock consistently over the last 3 quarters. Having that in mind as well as our continuous efforts to stabilize and even grow margins, my expectation is that with a roughly stable EBIT versus last year, underlying, we would actually on a margin base see an increase versus previous quarters in that particular quarter. These are the 2 items that I would give for that, Clement. And I'll hand to Karsten for the other 2 questions.

Yes, so the other question you asked was on the German market share evolution in Q3, is that in line with what we did say during the Capital Markets Day? So a clear answer, yes, it is absolutely in line and we have gained market share in Germany. And notable, obviously this market share gain was primarily driven, was driven by the stores, not online, but stores. But overall, we have gained substantial market share. Let me give you one more detail, which I normally don't talk about, but I think it's also important and I feel, yes, I feel good about it because we were able in Germany also to gain market share on the brand MediaMarkt as well as on Saturn. And why this is important to me and to the team is because we said we do one kind of advertising, one type of campaigning beginning of the year as an efficiency measure. And we did say that we think, and we hope that also Saturn will benefit from this. And actually for a long time we see good market share evolution on Saturn as well. And we can also attribute this to this in decision where we took to say we streamlined the portfolio for customers, we have stronger advertising, we do 2 brands under 1 roof, and this is working well. So of course market share of yesterday, we have to work on the market share of tomorrow. But to your question, a clear yes, I confirm what was said during the Capital Markets Day. Thank you for the question on the Tec-Repair side. On the service side, maybe just one sentence for all the others who may not understand exactly where this question comes from. In Germany, we have a subsidiary, which is called Tec-Repair. This is a company, a separate company that does in-store repairs. And the German team took the decision, and now this is very important, it took the decision to strengthen our service offer for our customers. But in order to do that, they had to close this company. This sounds very counterintuitive. Let me explain why this is. This is because when you go into a MediaMarkt or a Saturn store as a customer and you want to get your phone repaired, you're basically talking to 2 companies. You're in a MediaMarkt, but actually you are doing it with a Tec-Repair company. If you have any other question outside repair my screen, anything, they can't answer it, they don't do that because they only do what they are basically employed for. So basically we have a lot of customer confusion and also actually quite some frustration amongst our own people that we do the service in 2 worlds, in 2 parallel worlds that is hard to explain to customers. So the German team said, enough of that, we want to be one service offering in the stores. For that we have to close Tec-Repair. Now, in terms of numbers. In the Tec-Repair, we used to have 800 people doing repairs. In the future, we will minimum have 1,200 people. That means we will basically increase the number of people who are able to do service. And for that, out of the 800, we will take over 400 from Tec-Repair and we will also qualify other colleagues to do repairs. And moreover, we have a central repair facility in the city of Erfurt, which we will also ramp up and grow. And my final comment is, this model is actually in certain parts, like in the central repair function, a copy paste of our best-in-class organization in Spain. So we're basically replicating something we learned and demonstrated elsewhere. But unfortunately to get to this state, we had to close an organization and we're working through with the Works Council, of course, with the employee. We used to do this in the right way. This has, understandably for those people affected, created a lot of noise. But underlying, thank you, Clement, and I hope I could explain what the rationale is and what we're actually doing. More service, clearer, better for the customer in the end.

At the moment there are no further questions, therefore I will repeat the combination. [Operator Instructions] We have one more questioner, it's Mr. Alexander Koefoed of Nordea.

I was wondering, I have 2 questions. So in terms of your suppliers and agreements with suppliers, can you give a bit of light on any sort of KPIs that you have with them in terms of how many days payable you will have with your suppliers? Or would it be more dependent on qualitative negotiations? And then could you give a bit of light on if you have a batch coming up on negotiations with suppliers? Or if they are, yes, scattered throughout more or less in the coming year?

We try to explain a bit more -- give a bit more color on how this works with our suppliers, how broad the range of, say, interaction said agreements kind of is. First question about like payment terms, to be very clear, payment terms are stable, something which we are very, very clear about and that's working well. So that is something as we said on cash flow, et cetera, is very important. Then there is a broad range actually of KPIs with suppliers. It's not just that we've kind of negotiated with suppliers say kind of once a year to arrange the big agreements. It's actually an ongoing daily cadence of working with them. It's a true partnership. It happens on all levels, including myself regularly meeting suppliers, obviously we do this on a frame agreement. This can contain of course sales numbers, unit numbers, qualitative numbers, how we drive experience, attach rates of services, et cetera. Some suppliers also ask us to use our space, Space-as-a-Service, we call it, to present their brand. It has to do with repairs, it has to do with installation, explaining the product, attach rates of selling a universe. Think of telecommunications companies that have different products. So it really depends on the suppliers, but I can say that the big suppliers we have, there are sometimes multiple things they ask of us and they of course also become then part of the agreement because we are much, much more than a sales partner. We are also a service partner of helping to present their brands. And with some companies, they also say, hey, we want to do something very big with you. We plan to launch new products. And some companies call this the moonshot agreement, which is sometimes something on top. So can imagine moonshots often comes more from the U.S., but also other companies. And we have a strong partner network that we work with. So it's a broad church, but let me be also clear, payment terms stable.

And you mentioned this, the frame agreement. So if there were any changes, not that I have a preconceived idea that that's relevant right now as you say, but if there were changes, how fast typically would that be implemented? Just to my understanding, for example, you said there could be a sales KPI, for example. So if there is a deviation there in a quarter, typically how fast would you see changes to the payment terms? Are we talking immediately for the next quarter or would that be a bit longer until you actually see the change to payment terms, for example?

Payment terms are very stable. They don't change, something we are very clear about and it's working with the suppliers. This is something critical, but also suppliers do understand that, they do understand that. And the customer experience strategy we have on NPS, et cetera, they also like to get information around this, data on this. Let me be clear. We have, for instance, this retail media business. This is something that a lot of our partners are interested in, and that can happen that we reach an agreement on top around retail media. That means they can now position, for instance, on our website, they do advertising in a different way. They get good customer insights data on this. That's something we would implement, for instance, within 1, 2, 3 months. This can happen. We're in good conversations that some of our partners say, hey, we would like to have more presentation of our brand in your stores, maybe online, do something special for us. That is something we can pull off within a month, 2 months. But these are things which I think the way to think about it is that it makes the agreement and the engagement stronger. But let me be very clear, all the results that we have shown also on the cash side would not be possible if we didn't, are very clear about stable payment terms. And that is to continue.

And if I can just add a half sentence here, Alexander. To be very specific on what Karsten said, when we say stable payment terms, we mean a multi-year perspective. So if on a per supplier basis, compare payment terms a few years ago with a few less years ago, with last year, with this year, and very, very likely with next year, it's just a flat line. So just to quantify a bit what customer is saying.

But maybe just final here on my side, but against expectations and I understand that it is stable right now. So I think I'm more talking about how it would work in practice is if things change, again, not that I have a preconceived idea that that is necessarily going to happen, but if it changed, how fast could suppliers change the payment terms? Would it be typically restricted within a quarter or would it take longer time for them to implement changes to these payable, for example? Do you understand what I mean?

I understand what you mean, Alexander. And I do see where you're coming from, but it -- forgive me for saying that, it's a bit of a hypothetical question because we have not seen that situation before. but let me still try to give you some cover. I'm not pushing back. I'm just telling you that we're still grappling a bit with an answer. So these payment terms are contractually bound in multi-year contracts or annual contracts. So any change to that hasn't happened and I struggle to foresee how it would happen very, very short-term. That's as much as I can say. But it's a 2-layer answer if you will. First, haven't seen it. Nobody has asked for it. Second, if it had to happen, if whatever, I don't know if sky came down or whatever if it had to happen, then it would run against a contractual agreement that we have that is pretty much cast in stone and is agreed on an annual level. Does that give you some color? I'm trying to be helpful to answer your question while having to say, I just haven't seen it. Yes.

No. It is very helpful. I appreciate that. And that's very helpful. I guess it was more of a household question for me to understand some of the background workings and some of these contracts. So it's very helpful. Many thanks for it. I don't have any further questions.

There are no further questions at this time. I hand back to Karsten Wildberger, CEO for closing comments.

All right. We've come to an end of this Q3 results call. Thank you very much for joining today. As always, our investor relations team led by Fabienne Caron is always available for any further question you may have. Kai and I, we also look forward in the upcoming period to see and meet some -- many of you. And, of course, also happy to discuss in person and answer questions and discuss. With that, I would like to conclude today's call. I thank you again for your attention and for your interest. I wish you all the best, take good care, and see you soon again. Thank you very much.

The conference is no longer being recorded.