Ceconomy Ag Ord

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining this Economy AG investor and analyst conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press 0 followed by 1 on your telephone. Please press the star key followed by 0 for operator assistance. I would now like to turn the conference over to Stephanie Ritschel. Vice President Investor Relations. Please go ahead.

Good morning everyone and thank you for joining our Q2H1 results call today. With me are CEO Bernard Duttmann and our new group CFO Florian Wieser. They will guide you through today's presentation. Before we start let me briefly address the usual formalities. Firstly please be aware that this call is being recorded. A replay will be available on our website later today. Secondly Please keep in mind that today's presentation and potentially also some answers to your questions during the Q&A session may contain forward-looking statements. For additional information in this context, please refer to the disclaimer. But now let me hand over to our CEO, starting with an overview of the second quarter. Please go ahead.

Good morning, everyone, and thank you for joining us today. Today's call will be conducted in a new setting. With me here is Florian Wieser, who in addition to his role as CFO of Megazatoren has now been appointed to the CFO of Seconomy as of May 1st. Florian is not a new kid on the block. He has been with us for a long time. He was part of the demerger team when we separated from Metro. He was part, before he had gained experience, operational experience as a controller in a country. After the demerger, he worked as a finance manager for the southern European region with Ferran Reverta and the turnaround of Italy. End of 2018, he became CFO of our German business before becoming the CFO of Major Zatorre Retail Group. To make it short, Florian has been already an important part of the current transformation process, He knows all the details very well, our strengths and our weaknesses we have to overcome. I am glad that he joins the Board of the Economy because he will make sure that we will continue the transformation we have started when we pressed the reset button early 2019. The roll-up of Florian as Group CFO is also a first important step in establishing a uniform management structure of this economy group. So we have one board member for the economy now in a new structure that I can present you today. The second one, Carsten Wildberger, was appointed by the Economy Supervisory Board last night. Mr. Wildberger will take over my position in August. At the same time, he will become also CEO of Media Saturn Holding. Carsten Wildberger has more than 20 years of experience in marketing, and sales roles and led omnichannel, retail, and digital transformation processes of large distribution companies. At the Australian telecommunications company Telstra, he had P&L responsibility for around 400 branded jobs and led the entire retail and service organization. Ladies and gentlemen, with the nomination of Carsten Wildberger and Florian Wieser, we finally eliminate the dual structure We will unite the roles of CEO and CFO at the economy and media market. With that, let's move on to the second quarter. Ladies and gentlemen, I am proud of what we have achieved and how robust our business is. I will give you my reasoning for that. Our stationary business was again heavily impacted by ongoing temporary store closures and severe restrictions. Yet, we managed to largely mitigate the COVID-19 impact on our business. Sales as well as adjusted EBIT came in only slightly below the last year's level, which was significantly less impacted by COVID-19. Encouragingly, we continue to see high demand, both brick and mortar and online, in countries that were less affected by restrictions. Our online business overall remained highly dynamic. We generated more than 2 billion euros of online sales in one single quarter. The excellent online growth, as well as the sales momentum experienced when stores reopened in individual countries, demonstrate our strong market position. We also made sound operational progress. Structures are well in place to continue the progress of our transformation. All in all, the fact that we managed the second quarter well despite all the challenges and uncertainties proves the resilience of our business model. To underpin this and give you some background, let's take a closer look at the restrictions that we faced in the second quarter. Look at last year's number. We only had a lockdown for about two weeks in the second half of March in 2020. In comparison, This year, the lockdowns were significantly longer and more severe. This year, we were basically affected during the entire quarter. The countries that were most severely impacted by temporary closures were our home market Germany and the Netherlands, but also other countries faced temporary lockdowns and restrictions. In Austria, stores were temporarily closed in January, while Switzerland was affected in January and February. And in March, Hungary had to close its doors. At the same time, countries like Italy, Poland, and Turkey faced severe restrictions, including temporary closures on weekends or closure of stores in shopping malls. On average, only 37 percent of our entire store portfolio was open in January, followed by 46 percent in February. In March, we were really eagerly awaiting the easing of restrictions and were looking forward to Germany slowly executing the lockdown. But the German government decided otherwise. They went for a gradual reopening strategy whereby store openings were based on the number of infections per 100,000 inhabitants of a city. In areas with a seven-day incidence below 50, we were allowed to reopen our stores when in areas with an incidence between 50 and 100, the option click and meet with scheduled appointment for store visits was offered to customers on top of compliance with the prevailing distance hygiene and square meter rules. Subject to strict restrictions, the click and meet concept was also applied in the Netherlands and Belgium in March. With the rising number of infections during March, the number of fully open stores sharply declined day by day. Moreover, considering the hassle to make an appointment prior to shopping in our stores, the click and meet option was and is not overly popular for our customers. Frequencies of customers compared to 2019 decreased by roughly 60%. You can see over the entire second quarter, our brick and mortar business was severely affected by these restrictions. and that on top after already the first quarter was affected. In fact, ladies and gentlemen, before we dive further into Q2, let me take you back to when the pandemic started in order to show you how much COVID-19 disrupted our sales. The pandemic has been with us for more than a year now. You see here our sales development during this time. In 1920, we had started off very solidly. The 2019 Black Friday season was another success. In January and February, we seamlessly continued the positive trend of the first quarter and were fully in line with expectations. Even until mid-March 2020, we saw a pleasing sales momentum. But then this picture changed completely as COVID-19 started to spread across Europe. COVID-19 caused a temporary standstill of most of our stationary business in March and April 2020. Yet with the easing of the restrictions in May, we saw strong catch-up effects. This was followed by continued strong customer demand and high spending on consumer electronic products. The strongly positive sales trend continued until the return of severe restrictions on closures in several countries mid-December. Up to that point, we had a record sales development in that quarter. It is important to note that the sales disruptions you see over the course of the year are only due to the impact of COVID-19 pandemic on our brick and mortar business. Whenever our business was and is not interrupted by store closures and strict social distancing guidelines, we show a very positive sales performance supported by strong demand for offerings. This demonstrates our potential. The past year has also shown that we are well-prepared to benefit from catch-up effects once our stores reopen. I am therefore confident that we are well-positioned in both channels once we are behind the pandemic. To wrap up the developments for the first six months of this financial year, let's take a quick look at the headline figures. In the second quarter, due to all these restrictions, we were unable to match the previous year's level of sales and earnings. However, thanks to increased cost efficiency and our strong COVID-19 contingency measures, we were able to limit the profit decline. Sales adjusted for currency and portfolio effects only declined by 5.7% and adjusted EBIT decreased by merely 15 million year on year. Looking at first half results, I'm pleased to say that the development of sales and earnings is proof of the resilience of our business model. Despite the drastic COVID-19 restrictions, we achieved an overall positive development in this period compared to the previous year. Thanks to the excellent start into the first quarter of this financial year and the mitigation measures in the second quarter, coupled with the positive developments in less affected countries, first-half sales adjusted for currency and portfolio grew by 4.5%, and our EBIT rose by 41 million to 199 million euros. Ladies and gentlemen, we also remain track in our transformation, despite the massive restrictions on our stationary business and the short-time work that still affects many of our employees. It has been five months since we presented our strategy update to you at the Capital Markets Day in December. As we already announced then, we will most certainly inform you about the continuous progress we are making. Let me begin with the creation of an efficient organization and structure. We made very clear from the beginning that this pillar is fundamental to accelerate the transformation. I'm pleased to say that the ongoing implementation of the new operating model is progressing well. It's even ahead of the schedule. And also with slightly higher savings in the financial year. We have implemented homogeneous management structures in all countries. Moreover, in more than one third of all stores, we have already introduced a standardized organization. which is a prerequisite for consistently convincing customer experience. In addition, our hub for global business services has started operations in El Prat, near Barcelona, with around 150 FTEs. This new administrative center will unify the administrative functions of operational accounting, centralized control of invoices, and other services of the MediaMarkt.org group. it will serve all our non-German-speaking countries. By doing so, our stores and headquarters will be relieved of administrative tasks to focus their capacities even more strongly on value-adding services and most of all on our customers. All in all, our new operating model is an important step for future growth and fast implementation. In the strategic layer, build a unique value proposition I would like to emphasize the steps we have taken so far with the passion for customers training. Despite short labor during the last month, we have trained more than 400 managers and 3,000 employees in passion for customer. Let me remind you that the essence of the strategy is that we want to be the first choice for our customers. We have promised that we will invest even more intensively than before in the comprehensive training of our employees. With this, we have also set ourselves the goal to make a significant contribution to further expanding our advisory and service competence in the stores. The achieved training rate shows that we take our passion to be the first choice seriously. Speaking about service, we have integrated a monthly extended warranty subscription service in our webshops. Although the overall penetration of online services is still quite low, I'm pleased to say that it's starting to grow nicely. To expand our core business, we have successfully engaged in local consolidation and acquired 17 Wharton stores in Spain, where we lacked local presence. The acquisition will strengthen MediaMarkt Spain presence in regions such as Catalonia and Andalusia and enable market entries in cities such as Marbella. In addition, the expanded local presence is expected to increase online sales, including the possibility for click and collect. Finally, a few words on the acceleration of our growth path. We have continued to expand the media market marketplace in Germany. By tapping this new income pool, we will significantly increase our relevance to customers and suppliers and boost organic traffic in our webshops. It will also push our own retail and service sales and allow us to test new categories and products at speed and scale. At our media marketplace in Germany by now, around 230 sellers are onboarded with more than 130,000 SKUs. Besides, we have recently launched the marketplace for Sat1 in Germany, following the pace In 2022, it's our aim to launch the marketplace platform in the Netherlands and Spain. With this, I'm handing over to Florian, who will guide you through the financial performance of this quarter.

Yeah, thank you, Bernhard, also for the very warm welcome. And good morning to everyone in the call. Before we dive into the quarterly figures, I would like to give you some further background about myself. I started my career as a management consultant at Stern Student Company. In 2011, I joined the economy's former parent metro group. There, I held various senior finance positions before I joined Mediamarkt Saturn in 2017. Initially, I was responsible for operations and finance for the region south, closely collaborating with Ferran Rivatea. I gained lots of insights about the business in Spain and was part of the team sustainably restructuring Media World Italy. Then I moved on to Germany and became the CFO of the German country organization. Amongst others, we improved the steering of the German business and modernized structures and processes, managing the cost base and gaining speed. At the end of 2018, I extended my scope and became CFO of MediaMarkt.com retail group. In my new role as economy CFO, I want to further simplify our governance and continue the consistent execution of our new strategy. Also, I look forward to engaging more with the capital markets. Also, still virtually, I'm excited to meet many of you in the coming weeks and months. So much about myself. Let me now walk you through the quarterly numbers. In summary, we look back to a quarter that was characterized by a very challenging environment. Yet, we achieved a very solid and resilient business performance. Let's start with a closer look at the sales development. Currency and portfolio adjusted sales came in at around 4.3 billion euros, declining by around 6% year on year. As Bernhard mentioned before, in Q2 of the previous financial year, COVID-19 restrictions did not impact our business until mid-March. This year, the entire second quarter was characterized by store closures in a large number of countries. Our home market Germany, the Netherlands and Switzerland were most affected. All other countries achieved sales at least on par or sometimes even significantly above previous year's levels. This clearly reveals the continued strong underlying consumer demand for our offerings. Online sales developed very dynamically, but were not able to fully compensate for the losses in the stationary business. Online growth even accelerated further against the backdrop of COVID-19 related store closures and restrictions. As a result, we saw triple-digit growth rates in the online channel in January and February. We are very pleased with the massive growth of our online business. It is the result of our strong increase of online visits, but also lifted conversion rates and higher average bonds. In addition, we registered around 2.2 million new online customers in Q2, 60% more than in the prior year's quarter. It is also good to see a sustainably high and even increasing pickup rate again, which was 38% in Q2 versus 34% in the previous quarter. From my point of view, this is an outstanding result given the strongly increased total online order volume, and it demonstrates the customer convenience and resilience of our omnichannel approach. Let's now take a closer look at the development of the online share to see the dynamics over time. In the first quarter of the financial year, our online business more than doubled and accounted for 30% of total sales. In the second quarter, the dynamics in the online business intensified against the backdrop of the increasing number of store closures and restrictions. Our online share almost tripled to around half of our total sales. In light of these dynamics, even after the future reopening of our stores, it is likely that our online sales share remains elevated and will not return to pre-COVID levels. This chart further illustrates the success of our online business. It basically shows two things. Firstly, we have consistently outperformed the overall online market in Germany, whereby the pace has even accelerated. Secondly, we did especially well during the lockdown period. We saw the largest market share gains in the online channel in the second quarter. In total, Mediamarkt Saturn generated more than 20% of the sales of the entire German online market. This clearly shows that our focus on online sales activities, which was intensified with the beginning of the pandemic last year, has been essential to mitigate the impacts of COVID-19 on our business. Services and solutions sales declined significantly in the second quarter. This is attributable to the decline in customer footfall as well as the temporary closure of our stores. Moreover, we observed that the stationary business has become more transactional during the pandemic due to social distancing precedes. As you are aware, the sale of services and solutions is still strongly linked to purchases in stationary retail and benefits from the personal advice given to our customers. All service categories declined in Q2. However, extended warranties financing and our power services showed a trend reversal in March with a pleasing sales and income development. Also, we see a significant increase in services and solutions sales in our online channel the lower base cannot fully compensate for the reductions in the stationary business. In order to expand our service business despite the increased online share, we are constantly working on improving our online attachment rate. Besides the sales trend, we even more focus on the sustainable income contribution from service and solutions. For example, by switching to subscription models, for example, our extended warranties offerings, we achieve a steady income contribution and win customers for our company in the long term. The group's gross margin declined by more than two percentage points. This largely results from COVID-related headwinds. The significant shift to the online channel, coupled with product mix effects and higher delivery costs, negatively impacted the gross margin. In addition, closure-related write-downs on inventories had an adverse effect. At last, the decline was also due to the lower service and solutions income, as I had just described. Yet, these effects are, at least in their current magnitude, non-sustainable and should diminish once the restrictions are lifted. This should then lead to a higher impact of the improved goods margin, which already supported the gross margin in the second quarter. Overall, we therefore expect a trend improvement of our gross margin in the third quarter. We managed to largely compensate the sales decline and lower gross margin by actively managing our costs. The improvements are related to temporary cost mitigation measures like short-term work. At the same time, we sustainably reduced personal expenses as a result of natural fluctuation and savings from our new operating model. Location costs also improved year on year, while marketing expenses are on prior years level to stabilize sales development. On the other hand, Variable cost components such as payment transaction or call center costs increased with the higher online sales level. In total, we effectively reduced costs by more than 130 million euros in Q2. Our OPEX ratio improved by 160 basis points. All in all, we were not able to match the previous year's earnings due to the extended lockdown. However, thanks to intensified cost measures, we were able to significantly limit the decline. Adjusted EBIT decreased by only 50 million euros year-on-year. This was largely driven by the decline in the DAF segment. The main driver was Germany and the material impact of the country's COVID-19-related stock closures and restrictions. This was paired with a rising share of the online business, higher delivery costs, and lower income from the service and solutions business. Austria, on the other hand, reported an increase in earnings, amongst others due to the pleasing sales development in the quarter. Earnings in Western and Southern Europe recorded a slight decline. The result in this segment was negatively affected by the COVID-19 related pressure on sales and margins in the Netherlands. On the contrary, Italy recorded a substantial increase in earnings due to a positive sales and margin development. So did Belgium and Spain, with adjusted EBIT slightly above prior year's level. In Eastern Europe, adjusted EBIT improved due to a strong sales development and margin improvement, as well as cost savings in Poland. Turkey also developed well in terms of earnings, supported by a positive sales and margin development and declining personal costs as well as cost-cutting measures. In the other segment, adjusted EBIT rose because of Sweden and lower holding costs. In sum, I want to stress that this is an extraordinary result, given the difficult environment, and I am very thankful to all employees who made this possible and showed their extraordinary commitment to our company. Let's now move on to slide 20, which explains the bridge from adjusted to reported EBIT in the current financial year. In the second quarter, there were two main effects that explained the difference between adjusted and reported EBIT. Firstly, we had negative earnings effects, mostly related to COVID-19-related permanent stock closures and the new operating model. These amounted to 34 million euros. We still expect to book the remainder of the communicated non-recurring expenses in the third and fourth quarter of this financial year. Secondly, on the positive, we had the partial FNACTA-T impairment reversal and our profit share. As of March 31st, 2021, the market value of our investment in FNACTA-T had gradually recovered. We hence conducted an impairment test, which led to a partial reversal of last year's impairment. All in all, reported EBIT improved by 366 million euros to minus 2 million euros. Now, moving on to bridge from EBIT to EPS. The improvement of our financial results was mainly driven by a dividend payment from Metro Properties, which was around 20 million euros higher than in the prior year period. The tax rate in the first half year stood at 18.5%, following the integral approach applied during the course of this fiscal year. The non-tax-effective reversal of the FNAC-30 impairment had a positive impact on this. Please be aware that the tax rate does not yet reflect any benefits related to the acquisition of the Mediamarkt Satur Minority Stake, since it's still conditional upon the closing of the transaction. Due to the FNAX IT impairment in previous year and the reversal this year, our EPS increased significantly year-on-year. Let us now look at the networking capital development. The net working capital position at March 31st, 2021 was significantly below the prior year, which was mainly attributable to a significant reduction in trade liabilities. To a small extent, trade liabilities decreased because of lower purchase volume. The vast extent of the decline, however, is related to prior year's temporary extension of payment terms with certain suppliers. In other words, last year liabilities mostly became due in Q3. This year, we have deliberately decided not to repeat these extraordinary extensions given our solid cash position and the fact that we had much more time to prepare alternative measures against COVID-19 effects compared to last year. You see that both in the previous year as well as in this year, we faced an impact from COVID-19 lockdowns on our network and capital development. Excluding these non-sustainable effects, I am very pleased to see a broadly stable operational network and capital trend. The free cash flow development in the first half of this year was influenced by seasonality and COVID-19 related effects. The absence of payment term extensions beyond March 31st, 2020, in particular, led to a normalization of trade liabilities this year. Moreover, in the light of currently tense worldwide supply chain conditions, especially in China, we deliberately increased our inventory to ensure sufficient stock availability. Hence, the picture looks quite distorted. and the free cash flow of the first half year cannot be used as an indication for the full year. Given daily news flow on pandemic and political developments, our visibility is low at the moment. It remains very difficult to estimate the further impact of the corona pandemic on our business. There are several factors for this. The continuous extension of the lockdown in Germany in connection with the unclear opening strategy. the high volatility of regulatory measures and temporary store closures in some countries abroad, the unknown extent of possible catch-up effects after the reopening of the stationary business, especially in Germany, a possible shift in consumer behavior once tourist traveling is allowed again, and the unclear further opening and vaccination strategy, especially in Germany. Against this backdrop, we currently refrain from publishing a new specific guidance. For the moment, we are only able to provide you with possible future scenarios and their underlying assumptions. Regarding portfolio and exchange rate adjusted sales, depending on the length of the lockdown in Germany and the extent of catch-up effects, this could result in either a decline or increase for the full year. For example, if openings are pursued more quickly, especially in Germany, and the catch-up effects are higher, sales may come in above prior year's level. With respect to adjusted EBITs, Excluding associates, if the lockdown in Germany continues until the end of May 2021 and only moderate catch-up effects occur, this may result in a year-on-year decline in adjusted EBIT. However, if openings happen sooner, in particular in Germany, and the catch-up effects turn out to be higher, adjusted EBIT compared to previous years' level may increase. With this, I think it's evident that the current situation does not permit any precise outlook. Now back to Bernhard for closing remarks.

Ladies and gentlemen, let me briefly wrap up today's presentation. This is what I would like you to take home from this call. Firstly, we are, we were and we are severely affected by extended lockdowns. The most decisive factor is and remains the restrictions in the stationary business. Foremost, the lack of a clear opening strategy and a clear perspective in Germany. Despite these restrictions, our business model has proven to be resilient. Secondly, we are prepared for the reopening of our stores to show our strength we have regained during the last two years. Thirdly, succession is in place. We finally unify the management structures, which will help us to increase speed and move closer to the customers. And lastly, we will continue the transformation as planned. With Carsten Wildberger and Florian Wieser, the future management team is in place to lead the company strategically and operationally in this phase of transformation and beyond. Thank you for your attention. I will now turn the call over to the operator for your questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask the question may press 0 followed by 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press 0 followed by 2. If you're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press 0 followed by 1 at this time. One moment for the first question, please. First question is by Fabienne Carot of Kevlar Chevrolet.

Yes, so good morning, everyone, and welcome, Florian. Three questions for my side, if I may. I appreciate that you don't have any visibility for this year, but could you help us regarding Q3, for example, for DACH and Western Europe? Assuming all the stores will remain closed in Germany, which seems to be the case, Should we expect for DACH the same kind of like-for-like and EBIT loss in Q3? And on the contrary for Western Europe, because the Netherlands started to reopen, should we expect a better like-for-like and EBIT in Q3? It would be my first question. The first question, could you share with us the GMV for the marketplace in the quarter? And the last point is that, do you have any update on marketing services and ads? It was one of the points of... of the Strategy Day, you know, saying that clearly improving your marketing services and selling ads or media online could be a good part of improving your profitability. Have you advanced on this topic? Thank you.

Yeah, good morning, Fabienne. I will start with the last question. As you pointed out right, that we are working on marketing services. We are preparing, we're laying the foundation to work on marketing services, but we have not yet anything specific to report on marketing services at this point in time.

Okay.

The second two questions, first of all on marketplace at GMV. The marketplace is still a pilot, so we are ramping it up in Germany. Made a lot of progress with it. I'm very satisfied with the development. I've already More than 100,000 SKUs and more than 200 sellers on the marketplace. Now with the rollout of the new webshop to other countries, recently to Spain, we will extend the marketplace operations to other countries in the next 50 years. And then we will also give you some more color on the GMB development. Regarding the outlook, I know the current situation with scenarios is not very precise. And also for us, as I said in the call, visibility is very low. So Germany, the picture is still quite unclear. You know that the German government passed a new law, basically linking openings of the stores and the way you can open stores to the number of infections in certain counties. So basically the situation is changing day to day, whether we can do click and collect, whether we can do click and meet, or whether we can open stores fully. And even if we have openings, let's say, By click and meet, it is very different from county by county how customers accept this offer. We see that frequencies in the cities are still down and not going up, and so like a forecast or a precise estimate how this will develop in DACH is really difficult. Looking at Western Europe, we are really pleased with the development in Italy. Italy is developing nicely. Consumer demand is fully there. Also in Spain, the lockdown restrictions have officially ended, so we see a further easing in Spain and also there our business and our offerings are developing nicely. Netherlands was severely affected, so the click and meet offering, which the government allowed, was very, very restricted, so it wasn't easy for customers to actually accept this offering. And now we have to see how the situation develops in Netherlands. If we see the same catch-up effects as we have seen them in other countries, for example, Austria, Austria has seen a tremendous catch-up. then I'm also very positive for the Netherlands. But as I said, we have to see day by day and hope the best that the restrictions are ending and customers' frequency is going up again.

Okay, let me go back on Germany if I can. I completely understand, but we all see, assuming that the stores do not open, click and meet doesn't work, as you said. So just for us to get a feeling, should we take the... the loss in Germany, if you don't know the loss, because it's in Q2 as a kind of worst case and base for Q3, assuming that we don't open stores anyway, because before the end of June.

Maybe giving you some more color on this one. So if you remember last year, we had in April still a full lockdown. So we have seen a little bit of more turnover and a little bit of easing of restrictions in April. And then in May and June in last year, we saw a tremendous catch-up effect and tremendous recovery. Basically, if you take the period of time from May till end of September to the fiscal year, we had very, very good growth rates, sometimes even double-digit. And so the comps will be very tough starting from May. In April, you can be basically more positive. So to answer your question precisely, if the lockdown should continue, In this drastic way, until the end of the Q3 in Germany, we will have very tough comps.

Okay. Thanks a lot.

The next question is by Volker Bosse of Baader Bank. Your line is open now, sir.

Hello. Congratulations on your great online sales dynamic and welcome to Mr. Wieser. All the best for the new position. I have three questions. First of all, I would like to start with online KPIs. If I'm not mistaken, Karen Zonemuser promised to deliver a certain set of KPIs on a rolling basis. And at the Q1, we already missed this KPIs. And then you said, yeah, we will report it with the H1 figures. But now in the H1 figures, I do not see the KPIs either. So how is your look on that going forward? Will you provide these kinds of figures going forward? And the second question would be also coming back on your guidance. I know I see the uncertainties. I'm sitting in Germany as well, of course. But at the 15th of December, you were quite concrete in guidance of 320 to 370. Now we are mid of May, and you see the global progress of vaccinations, or at least in Europe, we have seven months in the books, and no guidance is possible. It's fair to work with scenarios, yes? but then you can be a bit more precise. What means the best case scenario means sales X, Y, that leads to EBIT X, Y, that and press in a different scenario, sales could look like this and then EBIT as follows, yeah? But it's the 15th of December concrete, now seven months, no concrete. I mean, the 15th of December, we also have been in the lockdown and there was also much more uncertainty, I would say, as of today. So that I would like to flex perhaps to get some granularity on that. And a third one would be on rental costs. I heard from others that other competitors are saying that in our city locations, we see a downward trend or the potential to reduce rental costs by 10 to 25%. Would you agree on that? And have you already renegotiated any rental contracts going forward on a sustainable basis, so to say? And yeah, which potential you might see for your rental contract? And is it just Germany or do you see that potential for lower rental costs across Europe? given the pandemic and given the digitization trend, which is the driver, I guess. But over to you. Thank you.

Volker, I take your second question, the guidance. And you are absolutely right. We were confident in December that we have good guidance and that we will have a good year, despite the lockdown we already had in that time. But unfortunately, we had to realize that politicians act a little bit irrational because we know that from the institutions, health institutions, they had proven that in the trade, the infection rates, the risk of infection rate is rather low. Still, the politicians did not follow these facts and decided otherwise for further lockdowns. And in Germany, as you know, it's 50% of our sales and more than 50% in our profit. That makes it incredibly difficult to put a guidance on our business when this big country is completely out of any means for judging when we can open it. And that makes it very, very difficult to really make a guidance. And you know also, that in September a big part of our margin is being generated in that month. And for that reason, right now it's very difficult based on the current scenario that we do not really have open markets in some countries. The most important one is Germany, which is also our biggest market, that for that reason cannot give a guidance. And I think you need to understand that, but it's just for us not possible. For the two other questions, I would like to have Florian answer them. On rental costs, he was always in the center of the universe, also negotiating. So you can have from him firsthand information on this.

Let me please start with your first question on online growth. So I think also in the presentation, in the speech, we gave some transparency on online KPIs. So we published the figure on online growth and development of registered customers. And for me, very, very important is the pickup rate. So the pickup rate increased from 34% last year, going up to 38%. And this was such a tremendous online growth. Actually, the pickup ratio, even stronger, or the pickup orders, even have stronger grown than our online orders directly delivered to the customer. So that was also always a critical point, whether the omnichannel approach is customer convenient. And we see now that even with such tremendous online order volume, the pickup rate is accepted and even demanded by the customer. So there are several KPIs which we have disguised. I can also give you some more colors on the underlying KPIs. So the frequency, the conversion rate, and the basket. All of these figures have raised against previous year, especially the frequency. And the second question regarding the KPIs, when do we disguise the KPI set, which we announced at the Capital Markets Day? So we will do this at the end of the year. At the moment... Many of these KPIs are clearly distorted by COVID-19, so they do not give a fair picture of the transformation and the current status. That's why we decided to give you the full and fair pictures of this KPI development at the end of the year. The third question you raised has been on rental costs, and they are a clear yes. So we see a downward trend on rental costs, and we actively negotiate these rents. So in the Q2, you see a double-digit million euro improvement in location costs. This is mainly related to the occupancy costs. The stores have been closed, so we have used less energy. Then there is an impact, which you see basically in the income margin coming from corona negotiations we did. So every time stores have been closed, we have found agreements with our landlords to cut the rent temporarily for the time the stores have been closed. And we do this really now day by day. Thanks to this very complex regulation in Germany, we do this negotiation really on day by day when the stores are closed. And the last aspect on this rental negotiations, yes, we have used the current situation to renegotiate our rental or our real estate portfolio with many landlords. We have done a lot of package deals, substantially lowering our location costs and our rental expenses with landlords. Please do not expect to see these positive impacts of this in the next quarter EBIT, because according to IFRS guidelines, we have to face these rental savings across the time or the lease term of every specific contract. So we made a lot of progress. We are very pleased with that, and we made particular use of the current situation.

So would you agree that you see the rental costs downside or downside potential across Europe or is it especially in Germany?

No, it's across all Europe. So we see these deals basically in every country and there are various tools which we apply. Sometimes we change the location cost and the rent contract to a percent of sales measure. So we pay the location cost and percent of sales. In other cases, we have substantial rental reductions and we have extended the rent contract, so various tools we apply when we do this across all Europe.

Perfect. Thank you very much and all the best. Thank you.

The next question is by Clément Genelot of Brian Gagné.

Yeah, good morning. Three questions from my side, if I may. The first one is on the impairment that you booked on inventory in Q2. What is the exact amount of this impairment? Or do we have to expect another one in Q3 if the lockdown in Germany lasts beyond June? My second question is rather on the click and meet in Germany. So obviously, this new feature was implemented very recently. What is its impact on the store sales? And what did it really help my business in Germany in Q3? And my last question is regarding the gap in performance between Southern Europe and Italy and the rest of Europe. Do you see such a gap in performance maybe because the Southern Europe governments are helping the consumers and so on. Because that's what Snagdati already highlighted. Thanks.

Yeah, Brian, thank you for your questions. I take the second question first. Click and meet. is not helping us to be very frank here. It's not popular and the customer we saw the frequency is really coming down on click and meet. The only thing what really helped on that we have seen during the quarter rising is the pickup rate Florian has just mentioned. Here we really ended up getting better and better with the pickup rate, but click and meet is not helping, and when you walk into the stores where you have click-and-meet, you see empty stores. This is very critical. For that reason, we need a clear opening strategy in Germany and not just kind of this fuzzy click-and-meet. On the other ones, Florian, will you comment on the impairment booked on inventories? Yeah, happy to do so.

Looking at the inventories, the effect in the Q2 was roughly one-third of the goods margin loss, which we have seen, and we are very positive that this is a non-sustainable effect and will revert in the next quarters. Why is that? The first reason is that the stock is still relatively fresh, so it's not in the very old aging bands, but in the younger aging bands, and clearly related only to the lockdown and the stock sitting in the stores. And second reason is we have some experience from the past year where we have seen a similar situation that after the lockdown, stock aging has worsened and this effect was also reversed and we made good experience with that.

On your third question, I can comment we are happy with the performance in Spain and Italy. Both countries, whenever they were open, have shown a very, very good performance. And when you see a downturn in this region, it's coming from the Netherlands, because we had a severe lockdown in the Netherlands. On top, we had some temporary restrictions in Belgium, But in Belgium, whenever it was opened again, we saw a good performance, as we have stated also. Sweden had a good performance as well. And Turkey, we were happy also with the results of Turkey. So, yeah, I think that should answer the question.

All right, the last question is by Fabien Caron of Kepler-Chevreux, a follow-up.

Hi, thank you for taking my additional question. Two quick ones. The first one, can you remind us how are the online orders fulfilled, particularly in Germany? Because I remember you don't have, or Göttingen just starts to work, so you don't have centralized fulfillment. I'm trying to get a feeling of the cost to serve for the online order for big countries like Germany. And the second question is more a broad one. So we're having a new CEO coming. From where we stand, how can we gain confidence that the strategy that you presented last year will remain because the CEO most of the time, you know, want to give as well its input. And we bought into an equity story that has been presented to us. Florian has been there before. but then we'll have a new CEO. So what can you say to let us gain confidence that the strategy will continue as presented? Thank you.

So I take your first question on the online orders. So there are various options we have. First of all, we have several dedicated online warehouses in Germany from where we fulfill the online orders directly. Second option is this famous ship-from-store option. So anytime... where we have a lockdown situation and where we have a specific high demand. So peak season, Black November, Friday, then Black November, Black Friday, I want to say, and the Christmas business. And we also use ship from store to further additional demand from the store. So this is basically the two main options we apply.

But the bulk is for the dedicated online warehouses.

Pardon me, I didn't get you?

The bulk of the volume goes to the warehouse.

And I would say it's a quite mixed picture. So you see also pickups. So that's a clear online order. And you have seen that now 38% has been fulfilled in the store with a physical pickup. Then we have shipped from store, which is mainly applied for parcels. So not two-man handling, but for parcels. And then the remainder is done by the online warehouse. So it's a quite balanced portfolio, I would say, quite balanced approach.

Okay.

Fabien, the question of a change of strategy with a new CEO is a real valid one. But I can confirm you that we just yesterday had a discussion on the strategy in the supervisory board. And the strategy as a whole was confirmed. The only thing what we will look at, did the pandemic change anything in our assumptions and in the long-term development of the markets? And what would it be what we need to react to? But apart from that one, we're confirming the strategy and we will continue to do so. And that's, as I said in the very beginning, that's the reason why I'm so glad that Florian takes over the CFO role because he will guarantee that the transformation we have started will continue because there's a lot of things, a lot of issues still to do. The centralization processes are not yet done all, so there are still lots of things to do. And we want to continue with that because this is a prerequisite to become a real successful player in the market.

Okay. And Mr. Dittmann, in case we don't speak because you're leaving in August, I wish you all the best for the future.

Thank you very much, Fabienne. I will miss our meetings.

There are no further questions at this time. I hand back to Stephanie Richel, Vice President, Investor Relations, for closing comments.

Ladies and gentlemen, this concludes today's results call. Thank you for your time and questions. As usual, and in case you have any follow-up questions, please feel free to contact us at Investor Relations. We look forward to talking to you. Take care, stay healthy, and bye-bye.