Metro AG (OTC:MTTWF) Q3 2022 Earnings Conference Call August 11, 2022 2:45 AM ET
Company Participants
Steffen Greubel – Chief Executive Officer
Christian Baier – Chief Financial Officer
Conference Call Participants
Fabienne Caron – Kepler Cheuvreux
Frederick Wild – Jefferies Group LLC
Xavier Le Mené – Bank of America
Steffen Greubel
Yeah, welcome. Good morning, everyone. Welcome to our METRO Q3 2021/2022 results call. We are happy to present our most recent business developments today. So today’s agenda is like always almost, I’m going to introduce our progress on our sCore strategy execution, Christian Baier is going to run us through the financials, and then we have proper time for Q&A.
So let’s directly stick into the content. What do we want to do today? I will explain you how we have made commercial and financial progress, how we have advanced with our sCore execution, and how this is visible on channel and on country level. And how our recent acquisitions and access also contribute to that strategy. And also how we are affected buy and manage externalities just as the war in Ukraine and the rising inflation.
In summary, I can already say we stay on track. We had a strong Q3 that led to an increased outlook for the year. We have good momentum in all important KPIs and the traction towards our long-term goals. This traction comes from all channels in pretty much all the countries. So it does not depend on a few individual ones. It’s quite balanced. And despite the fact that we are having very sort of uncertain environment in the moment, we are confident and sure that with a simple focus on strategy execution, we still can outperform the market.
As a result, we also have a solid volume development in the group so far. Businesses in Ukraine and Russia are stable. Inflation obviously is visible in our cost of goods sold, but they can be passed on so far. The cost pressure might, of course, increase in the next month and in the next year, depending on the further macroeconomic development. We reconfirm the recently raised outlook for financial year 2021/2022 based on a strong overall positive business development and stick to our mid- and long-term targets.
So let’s look a little bit into details and in underlying data bonds, starting with sales and adjusted EBITDA first. In Q3, we achieved 27% sales growth and €128 million adjusted EBITDA growth at constant currency. Over the 9-month period, that adds up to 24% in sales growth and the €321 million adjusted EBITDA growth. And we see consistent growth dynamics across the quarter. Some support, obviously, from inflation, but also low double-digit volume growth in all quarters. To be specific here, we are looking roughly in the first quarter on 5% inflation; on the second one, on 10%; and on the third one, in 15% inflation on our sales prices.
The next couple of slides explain you a bit what drives that momentum. So first, let’s look at our strategy visual of the sCore strategy. Let’s look at the channels. Our store-based sales channel, so the Cash & Carry mainly grew by 19%. Our FSD focus continues to pay off, so we are growing here with 64% in Q3, which is an all-time high sales share record of more than 22%. METRO MARKETS P&L sales increased 50% versus previous year, and we are also doing significant progress in connecting the circles through digitalization. Hospitality Digital number of subscribers increased by 24,000 compared to Q3 of this year, and it adds up to 58,000 subscribers, totally. And we didn’t include so far the 8,000 subscribers from the recently acquired company, Eijsink. The increase is strongly driven by joint sales activities with the country and sales focus.
So let’s look a little bit more into METRO MARKETS, our digital sales channel. METRO MARKET is our B2B marketplace for non-food with pan-European approach that allows a fast scaling of both the vendor and the seller business. The geographic reach so far, we started in Germany and then Spain, now Italy, entry took place in July as planned. Business scale is we cooperate with roughly 1,400 partners, 4,000 brands, and we have 650,000 professional products listed on the platform. So it’s indeed a true marketplace. The P&L sales are more than doubled in the first 9 months from €24 million last year to €49 million this year, and we have a very good progress towards our 2030 targets.
We are continuing the rollout within Europe, Portugal will come October, November 2022. We will hook up 2 to 3 countries per year. The next one you can expect is France and then the Netherlands. So we are on track to deliver our marketplace sales of around €3 billion by 2030.
Let’s dive even more into details, and let’s see how our underlying strategic KPIs are progressing in Q3. Let’s go through sales force first. We added more than 650 FTE in 9 months on top. We have a growing dynamic here, and we need that sales force to push our FSD and digital sale share, which is very much a push sales approach. We are on good progress towards our 2030 aim to at minimum double the sales force.
Looking at the infrastructure, we have 3 additional locations in Q3. We have opened a total of 10 new out of store delivery points in 2 dedicated depots in 9 months. We are also on track with the implementation of the corresponding network plan. This results among us as in a growing sales share with strategic customers, which is HoReCa and Trader customers, and we reached a 70% sales share, which is a 7 percentage point increase to previous year. We also see a continuous growth momentum intra-year, so 3 months, 6 months, 9 months, there is growth dynamic also in the strategic customer share.
NPS grow, so our Net Promoter Score, the customer satisfaction, so to say, by 0.4%, [that’s bond] [ph]. And you could say this is not a lot, but we feel very proud on that figure, because as you can imagine in an environment of price increases and challenges in supply chain and availability the better feedback, so to say, of the customers is quite something, and we are very proud that we are achieving those kind of values.
And then, last but not least, own brand sales share, which is one of our key strategic KPIs. It reached the 19% in 9 months. This is all-time high record of own brand. And there’s also a very good intra-year dynamic. So every month we are improving the own brand share so far, and so that means consequently, every month, we celebrate all-time high records within that year.
So let’s look in countries. So how are countries or the regions driving the growth? The simple answer is, and I mentioned that in the very beginning, we have a balanced contribution over countries to our growth numbers and to our EBITDA growth as well. So we stand on solid balance feet. And when you look at records, you see that also the records we are doing, they are getting more substantial.
So we’re looking for instance, for France, Croatia, Poland and Romania to best quarter ever. So that was the best quarter ever since these companies have existed. Germany, historical and highest FSD sales share ever. Serbia is the FSD quarter ever. Hungary, highest FSD sales in a single month ever. Slovakia, Austria, best month ever in May. Spain, highest FSD sales, a number of FSD stable customers ever. And there is plenty of other records we are doing in the moment. So we think that our customers are very resilient that there is still a lot of momentum in gastronomy, also in tourism and that we are also able with our multichannel business model to actually tackle that opportunity.
Let ‘s check the next page, besides our Q3 results, we were also affected by some strategic portfolio decisions. So let’s first look at the acquisition. Our serge in sCore prioritize organic growth, but we obviously scan the market for strategically relevant targets. Therefore, we acquired c and Eijsink. On 4th of August, we also completed the acquisition of Günther Group in Germany, a provider of commercial kitchen technology. Together, they would contribute more than €150 million in profitable delivery and digital sales on a fully annualized basis. The plan is, of course, to grow and to integrate into our existing strategy. And in the case of icing to internationalize the great technology that we are having with their core product.
We also completed 3 exit in recent months. This is Myanmar, Japan and recently, Belgium. The business were either B2C focused and/or financially unattractive. Belgium, in particular, was signed and closed on June 15 and impacts the quarter results with a one-off charge. Together, the exits contribute roughly €15 million EBITDA in the current year pro rata. And thanks to the real estate monetization from Japan additional cash proceeds in Q4.
So let’s sum it up. We see METRO well on track towards reaching the defined 2030 sCore goals. We are thrilled to see the common effort and the progress in the execution in the channel view, in the country view and as well with the strategic KPIs.
Let me now hand over to Christian, who is going to lead us to our financial performance a bit more in detail.
Christian Baier
Thank you, Steffen, and good morning, everybody. Let me continue with the financial performance and how also financially we stayed on track in Q3. We have achieved 27% sales growth at constant currency versus PY and again exceeding the 2018/2019 levels. Inflation has clearly increased also during the course of this quarter. And in Turkey, inflation has now reached a level which IAS 29, the hyperinflation accounting is being applied. Nonetheless, sales growth also continues to be driven by volume increases.
In Q3, we once again achieved low double-digit volume growth compared to the previous year. The top-line also translates into EBITDA growth, which is now standing at €441 million EBITDA in that quarter, also clearly exceeding pre-COVID levels. The operational EBITDA growth is, however, eaten up by the one-off cost to exit the Belgian operating business and a sizable non-cash deterioration of the net financial results. As a result of these effects, reported EPS in the quarter has declined. We have further generated a solid €399 million free cash flow, the decline against previous year is purely driven by an extraordinary development in net working capital in 2021.
Let’s now look at the regional split of our performance. The 3 regions, West, Germany and East contributed with a double-digit sales increase and drove EBITDA growth. More specifically, when we look into the individual regional segments, in Germany, we have reported sales increase of 17% versus PY, which is supported by a continuing positive trend of Rungis Express, our FSD business in Germany inflation and also strong performance during the Easter business.
Strong HoReCa sales growth overcompensated in Germany, the slight decrease in tobacco and SCO sales. This translates into a strong increase also of adjusted EBITDA to €64 million and thereby, the tight cost management initiated in the previous year and the optimization of costs in connection with the increased FSD business also had a positive impact on the profitability development.
In the segment West, reported sales significantly increased by 32% and reached €3.3 billion. Almost all countries in that segment contributed to this with double-digit growth. The largest sales growth was recorded in France, Italy, Spain and Portugal [ph]. The lower Belgium sales following the exit were partly compensated by the AGM acquisition and its related sales. The adjusted EBITDA increased to €203 million due to good sales development.
When we look at Russia, sales in local currency increased by 3% to €0.7 billion. The sales growth was driven by HoReCa and especially by the FSD business. However, the invasion into Ukraine and the related sanctions affected customer sentiment and also our business, which led to a decline in volume in Russia in that quarter. Due to a positive currency development, reported sales, though, increased by 23%. Adjusted EBITDA at constant currency stayed stable compared to the previous year.
Looking into the segment East, there, sales in local currency increased by 33% and almost all countries contributed to the sales growth, mostly through the strong HoReCa development. Turkey achieved a higher sales growth strongly supported by inflation. The Ukrainian business continues to show high resilience with a stable number of stores open and sales at only minus 37% in Q3, which is a strong improvement from the minus 45% that we have still seen in March of 2022. The adjusted EBITDA in the segment increased to €108 million and thereby, by €31 million at constant currency, following and resulting also from the overall sales growth.
In the segment Others, reported sales almost doubled from €16 million to €31 million, and this sales growth is mainly due to METRO MARKETS and furthermore, the Eijsink sales that we have added in Q3 by the acquisition. Adjusted EBITDA decreased to €10 million due to those expansion efforts and other investments into further driving digitalization.
So let’s briefly look at how this performance really does translate into our market share development, a chart that you have known from previous quarters. Also in Q3, METRO has continuously developed above the market in the HoReCa sector in the key markets, Italy, Spain, France and Germany. This positive Q3 trend is driven by METRO’s strong performance on both store and the delivery channels, while the market stays mostly below pre-pandemic levels.
So let’s now go back into the overall group P&L and summing up the segments where we have now achieved 27% FX-adjusted sales growth and reached €7.9 billion and hence, again, exceed the pre-pandemic levels. This was driven by HoReCa momentum and inflation, including roughly 2% support from the previously mentioned hyperinflation accounting for Germany. Not only all segments, but also all channels have contributed. The store sales increased to €6.1 billion, up by 19% versus previous year. FSD sales increased to €1.8 billion, up by 64%.
METRO MARKET sales are now €18 million and increased by roughly 50% versus PY. The growth in the marketplace is due to strong development in Germany and in Spain, and the dynamic is well in line with our plan and 2030 goals. The sales momentum is also reflected in the earnings development overall in the group as adjusted EBITDA reached €241 million compared to €310 million in the previous year. Also, when we look at the EBITDA margin, this is a very solid development. Reported EBITDA amounts to €305 million and included transformation costs of roughly €136 million, mainly from the disposal of the operations in Belgium.
If we now move further down the P&L, looking at depreciation, this is above the PY level and mainly driven by exchange rate effects in Russia and hyperinflation in Turkey. As a result, the EBIT decreased by minus €38 million versus the prior year. The interest and investment results improved due to a positive court ruling in tax litigation in the segment East and also lower interest.
The other financial result decreased significantly due to reversible non-cash FX effects on METRO’s intercompany positions, which is also partly offset by hyperinflation effects in Turkey. The income tax is calculated on the expected full year group tax expense. As a result, net income is at minus €290 million and included an about €400 million negative impact from the sale of Belgium and the FX related negative effects in the net financial results. Adjusted for these impacts, net income would have been positive and would have exceeded the prior year. Correspondingly, earnings per share amounted to minus €0.80 with the previously mentioned impact amounting to €1.20 negative.
So let’s move on now to the cash flow perspective, where the operating cash flow reached €553 million, which is roughly €300 million below the prior year. The change can almost to fully be attributed to the net working capital development that we have seen in this quarter. And the decrease in delta net working capital is mainly driven by the extraordinary catch-up in the prior year that we talked about in last year’s Q3 call. This year’s Q3 development is very well in line with the pre-pandemic seasonal pattern in our net working capital. The other operating cash flow elements remained roughly stable. The remaining free cash flow positions also stayed roughly on the prior year level, leading to a free cash flow of €399 million in Q3 and corresponding to a decrease in net debt compared to both Q2 this year and Q3 last year.
So to summarize the strong Q3, this brings us to a 9-month performance in the guidance view of 25% sales growth and the year-to-date EBITDA growth of €314 million. We, therefore, are well positioned to reach our full year guidance of 17% to 22% sales growth and €150 million to €230 million EBITDA growth. You might ask yourself how the expected lower nominal performance is driven, and this is mostly by 2 effects. First of all, Q4 last year was specifically strong due to the post-COVID recovery. This recovery is much more spread out evenly this year across various quarters.
Secondly, we continue to invest into speeding up our transformation, and this also entails our digitalization efforts such as our rollout of the marketplace and our digital POS solutions. Below EBITDA, we confirm our D&A expectation of roughly €950 million, and we update a couple of the other expectations to reflect the Q3 events.
On the real estate game side, we have increased this to €140 million following the successful sale of the remaining real estate portfolio in Japan in early Q4. So that has been shown in our report as subsequent events and has been closed already during the quarter that we’re in right now.
The transformation costs have been increased to roughly €130 million due to the exit of our operational business in Belgium, which has already been booked in Q3. The net financial result increased to roughly minus €550 million due to the noncash FX effects on METRO’s intercompany positions booked in Q3.
Tax expense has slightly increased to roughly €200 million due to the higher EBITDA expectations in our upgraded guidance. The cash investments are now expected to be slightly below €500 million. This leads to a roughly stable net debt expectation for the full year, an upgrade of our previous expectations.
So let’s now conclude and briefly sum up the development for this quarter. Q3 clearly marks another quarter of significant sales and EBITDA growth, despite the continuously volatile market development. On the back of this performance, we continue the execution of the sCore strategy and reconfirm our midterm ambition of 3% to 5% sales and EBITDA CAGR in the period, 2022 to 2025.
And now Steffen and I are very happy to take your questions.
Question-and-Answer Session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Fabienne Caron from Kepler Cheuvreux. Please go ahead.
Fabienne Caron
Good morning, everyone. And thank you, Christian, for the detailed guidance. 3 questions from my side. The first one to come back on the guidance. I’m a bit confused if Belgium is in or out? Because when you released July 1, you said the full year will not be adjusted for Belgium, but now I see on Page 13 that Belgium is in until May. So if you could clarify would be good? The second question exactly to the point you made on Q4. If we do the quick math looking at the numbers ex-currency, if I’m not wrong, I’m getting a margin for Q4 between 3% and 3.5% EBITDA margin, which appears low to me, given the investments you’re making, because it’s summer, and hotel restaurant catering are working very well this summer. So if you can give me some view or maybe my math is wrong, I don’t know?
And the last point would be on the acquisitions that you’ve made. It would be useful if you could give us the impact that you expect for the year, not on an annualized basis, but since there will be – or have been consolidated? Thank you.
Christian Baier
Thank you, Fabienne, for your questions. Happy to comment on with respect to Belgium. Belgium is in until the very day it generated sales and was consolidated. We did not adjust this from a guidance perspective. So we did not basically reduced that guidance for that. So therefore, Belgium is in and is not adjusted.
With respect to the bridge, we look at a Q4 basically where we have stated that the last year ramp-up, especially in July and August has been tremendous because this has mostly been focused the stock-up purchases basically during those periods of time, and that’s where we reported on last year during the same period, so very strong comparison base. We still see strong performance, but it is, at this stage, more evenly spread out across the quarters, and therefore, we expect a little bit softening from the performance from that perspective.
And secondly, the other piece that we mentioned on the call, our speeding up of the transformation that’s not only related to the digitalization efforts, but also to, for example, the hiring of sales force that Steffen mentioned before, where we are really now gearing up heavily to further speed up the transformation. I think those are a couple of the key elements.
And then one more point in the segment Others. You will remember that when we sold our business in real, we continue running our logistics in Germany, which is mostly catering for METRO Germany, where we are now ramping up at this stage, third-party businesses. And given that the old volumes from real have fallen away there, there is also a little bit of special situations that we are ramping up through. So that adds up to a quarter where we are still confident in a strong performance, but expected it to be slightly softer than what we have seen in the last year. When we look at…
Fabienne Caron
So is my math – sorry, Christian, is my math 3% to 3.5% EBITDA margin correct for Q4?
Christian Baier
It’s broadly correct, and it’s obviously, if you go to the upper end of the guidance, there is also numbers that work out reasonably well with that overall perspective of the 2 key elements that we see. If the lower part of the guidance you would take, we would need to see some softer macro developments, which at this stage we do not expect, but we cannot rule out. From the perspective of the 2 acquisitions basically on AGM, we would basically see – we have included now in Q3, roughly €25 million. And for the next quarter, there is again roughly €25 million.
So annualized, you can call it, 100 from that perspective. And the logic for I think, works also roughly €5 million this quarter, €5 million next quarter. So again, when you gross it up, roughly €20 million can be the number that we see for the full year. And this, obviously, we drive very heavily forward given that we are not rolling it out in the existing jurisdictions of the Netherlands, but also into other countries, which is exactly the strategic rationale for the acquisition.
Fabienne Caron
Sorry, Christian, is that EBITDA or sales you just quoted €24 million, €25 million?
Christian Baier
We’re talking sales from that perspective. And the EBITDA data we do not disclose, but you can count on both businesses being accretive from an absolute EBITDA.
Fabienne Caron
Okay. Thank you.
Operator
Next question is from the line of Frederick Wild from Jefferies. Please go ahead.
Frederick Wild
Good morning, Steffen and Christian. Thanks for taking my questions. Congratulations on such a strong Q3 EBITDA performance. Just a few questions from me, if you don’t mind. First, could you please talk us through how your trading developed in the non-Russian Ukrainian businesses throughout the quarter and maybe into July and August as well, just to give us some steer on that sort of underlying consumer health?
Secondly, Russian performance seems to have exited that stockpiling phase you maybe saw in the earlier part of the year. Do you expect the Russian consumer to help to deteriorate further from here? Going back to the Q4 guidance, I sort of get the point that year-on-year, Q4 was really strong last year, but seems to be guidance implies there’s really strong deceleration even versus 2018/2019 pre-pandemic in Q3 from around 20% to significant in Q4. Could you maybe quantify a bit more just how much the transformation costs such as the extra sales force will impact so we can think how that carry through to the next year?
And finally, just a sort of broader one. Perhaps a few details on your ability to extract cash from Russian ops. Is there any way to repatriate this? Or how are you thinking about it? Thank you.
Christian Baier
Yeah. Thanks, Frederick, for your questions. Actually, just we were – it was tough to hear you just from that perspective. So let me just briefly summarize what we have understood and then we – Steffen, and I take the questions step by step. So I think there was a question with respect to overall Russia and Ukrainian business development. We will be happy to comment on that. There was a question on July consumer sentiment, where also Steffen will comment on. I’ll take the one on the year-on-year perspective and the Russia dividend flows. So when – is that broadly correct?
Frederick Wild
Yeah. So the first one was more about non-Russian Ukrainian business through the quarter. Hopefully, you can hear me a bit better now?
Christian Baier
Okay. Good. We will comment on that. We’re now good. Thank you, Frederick. So just from a year-on-year perspective, with respect to 2018/2019, yes, this would be a slightly softer development, but really slightly is the emphasis here, because also 2018/2019, the summer season has been very strong. And again, this year, we are still in hospitality from a market perspective below those levels. METRO overall has been stronger than those 2018/2019 levels in the recent quarters, and we expect to still have a strong performance, but slight softening that we would expect to see in the Q4.
With respect to the Russia development from a funds flow perspective, yes, definitely, this has become more complicated in recent months for obvious reasons, however, from an accessibility of that situation. First of all, our Russian business is self-funded and well-funded overall. And we are in a fully sanctioned compliant manner, actually able to distribute dividends in reasonably sizable amounts. Therefore, we feel quite confident with our control also and full compliance with all applicable rules there.
Steffen Greubel
And let me maybe echo on the customer sentiment and also talking a little bit about current trading. So as Christian mentioned, it’s also July. It’s softening a bit, but that’s mainly driven by the previous year extra effects of the ramp-up of the gastronomy. So we are still growing, but obviously, this is not more at the same growth rate than in the quarters before. And maybe I can also generalize a little bit and talk about customer sentiment as such of our industry, the HoReCa, because, obviously, it’s quite hard actually to predict how this is going to turn out in the next month or even longer term. I would say, still, we are looking at a very resilient industry. Consumers are still going out. They are traveling. It’s not a big drop in like indicators like booking numbers or things like that.
But, of course, when you look at polls and you look at surveys and when the going gets tougher a bit on the cost side, people are always saying they will cut on also spendings in the gastronomy. So it’s a little bit – we don’t see it so far in the figures. We are still progressing. I think there’s also the effect that a lot of customers, they want to go out, they want to go to restaurants because they couldn’t go, so to say, for the last 2 years. So there is still this effect that is compensating a bit the budget cutting plans that might actually occur.
So overall, we look, I would say, slightly positive towards the upcoming months. We don’t know exactly what the energy situation will then be to gastronomy, could be beneficial, could be not beneficial. It’s a little bit unclear for us. But so far, what we know is that we can focus on the execution with our – in most of the markets, low market share, we still have room to grow and [Technical Difficulty] and we are confident to get market share anyway.
Frederick Wild
Perfect. Thank you. And if you can, just on that Q4 matter, you address it a bit. Just if you can, in any way, quantify those Q4 transformation costs, sales force, et cetera, just so we can figure out how that’s going to impact through the course of next year as well?
Christian Baier
Yes. Happy to do. I think when you look at the expected slight softening of the Q4 versus the prior year, you can basically attribute half of that effect into basically Q4 ramp-up and much stronger last year from that HoReCa perspective and the other half would basically be related to our increasing speed on the transformation digitalization sales force and also the logistics part, probably, you can evenly split this other half into those 3 buckets.
Frederick Wild
Thank you very much. That’s really helpful. Very clear.
Christian Baier
Thank you.
Operator
[Operator Instructions] Next question comes from the line of Xavier Le Mené from BofA. Please go ahead. Mr. Le Mené, can you please unmute your telephone?
Xavier Le Mené
Sorry. I was on mute. Two questions, if I may. The first one, can you potentially give us a bit more granularity on the sCore strategy? And how much of the benefit you are already seeing or what you’ve seen in Q3, you had significant improvement, you said inflation was higher, volumes were actually a bit better. But how much also is linked to the changes you made in the last 18 months? And what are you expecting going forward in terms of improvement with the growth strategy? The second one, a bit more technical, is just on the working capital. So you had a negative impact relatively in Q3. What should we expect in Q4 and potentially for next year?
Steffen Greubel
Yeah. Thank you very much, Xavier, for the question. Let me take the first one, and then I’ll hand over to Christian for the second part of the question or the second question. Of course, we are benefiting in the top-line from inflation effects. I’m always saying inflation. This is not something that is coming in from somewhere. We also need to increase prices and pass price increases from our suppliers through. So that’s also operational work. But you could say maybe roughly half of it, 10% roughly of the overall growth is exactly coming from those effects, 5% first quarter; 10%, second; 15%, third.
The rest I would attribute to the execution of the company. Of course, we have some catch-up effects in – from the previous year. But nevertheless, we are progressing, and you can measure that by the KPIs that are the input factors like own brand share, like sales force ramp-up, like strategic customer share and plenty of others that you can really attribute to the execution of our sCore strategy, exactly. And let me hand over now to Christian for the second one.
Christian Baier
Yeah. Happy to take the net working capital question. First of all, the historic one on now Q3, what are the 2 key effects that we basically had? As mentioned before, last year, we had from mid of June, basically a tremendous race in catching up on hospitality. This led at the end of June to a situation where we had lower inventory that were bought during that period, and we still had all the payables there, so basically the perfect combination from a working capital perspective, which we also commented on then last year.
In that perspective, we now have a much more normal development, which is really consistent with net working capital in that Q3. And furthermore, as you might have seen from an inventory overall perspective, we increased by roughly €600 million on the balance sheet this end of June compared to last end of June. This is basically by half driven by inflation and FX to a certain extent, and the other half is driven by volume, where not only we have higher sales development, but also we prioritized the availability point of view from that perspective.
In the perspective of net working capital for Q4 and going forward, we basically expect a stable development during Q4 of this very year, also slightly softer compared to what we have seen in the last year, where we have had another improvement. Also, that’s related to our drive on the availability side and obviously needing to ensure for our businesses being able to cater for the higher demand and the sales growth that we continue to see.
Overall, in the longer-term perspective, I think we continue to be a very working capital efficient business, also by what we do in the sCore strategy, reducing assortment, having faster stock turns and, therefore, continuously highly efficient on net working capital, but certain seasonal swings actually with these high sales developments do kick in.
Xavier Le Mené
Thank you.
Operator
We have a follow-up question from the line of Fabienne Caron from Kepler Cheuvreux. Please go ahead.
Fabienne Caron
Hi, thank you for taking my question again. First, on cash, the €138 million, I think, for Belgium hasn’t been cashed out, this quarter when will it be cash out. Then just for the sake of profitability [ph]. Can you explain as your accounting behind this €300 million non-cash, I suspect has to do with IFRS 16 assets and liabilities, valuation that I just want to be sure? And then a follow-up on inflation. Do you expect price inflation to remain at 50% in Q4? And a follow-up again on sales force, how easy or how difficult it is to recruit sales force in the different market for the sCore strategy? Thank you.
Christian Baier
Yeah. Thank you, Fabienne. Steffen will go for sales force and for broadly discussing also inflation. With respect to the Belgium set up basically, we have €140 million overall in the transformation cost right now. About half of it has been cashed out – sorry, half of it has been cashed out in Q3. The remainder will come over the next couple of quarters from a provision point of view in that perspective. So that’s the first one. I think the second with respect to the FX development on the non-cash side. It’s not related to IFRS 16. It’s related to basically intercompany liabilities and assets and basically, therefore, a complete internal development from an FX volatility perspective.
The interesting fact is when you look in the development in the net equity position, so the other comprehensive income, there is the reciprocal amount in the positive direction. So this has no impact at all on the net equity position. It’s just that the one thing flows through the P&L and the other one directly into the equity, because it’s related to intercompany volatility that might still persist down the road. And if the ruble basically depreciates, there will be a relevant gain in that position if it appreciates there could be additional negative numbers.
Steffen Greubel
On inflation for Q4, we would expect roughly 15%. So it’s not increasing anymore compared to Q3, but it’s also – but we’re still looking at the significant inflation in our selling prices. So roughly 15%, that’s what we would estimate. Second, on sales force, it’s possible to recruit. Of course, you have to be attractive in the market, and we are able to recruit also in all the core markets sales force. What we are sure is with a good sort of growth strategy, good remuneration package, obviously, a multichannel business so that you also can rely on stores and so on. We are with a very attractive customer segment, the gastronomy able to attract talent also on the sales side, so that works, that works.
Fabienne Caron
Okay. Thanks a lot.
Operator
There are no further questions at this time, and I would like to hand back to Dr. Steffen Greubel for closing comments. Please go ahead.
Steffen Greubel
Yeah. Thank you very much, and thank you very much for your participation and for your question. And see and hear you soon on the next occasion. Stay safe, stay healthy, go out eating, see you.
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