Jerónimo Martins, SGPS, S.A. (OTCPK:JRONF) Q1 2023 Outcomes Convention Name April 27, 2023 4:00 AM ET
Ana Luisa Virginia – CFO
Convention Name Members
Joao Pinto – JB Capital
William Woods – Bernstein
Jose Rito – CaixaBank
Nick Coulter – Citi
Nicolas Champ – Barclays
Ana Luisa Virginia
Good morning, women and gents and thanks for becoming a member of this name to Current First Quarter 2023 Outcomes. In our company web site assessed supplies is accessible. Comprising the discharge, a slide presentation and impact sheet.
Q1 figures certainly mirror a superb begin to the yr. All banners leveraged the robust aggressive positions held at year-end to proceed fueling development in 1 / 4 when meals inflation stays a key characteristic of the efficiency. With shoppers progressively extra pressured, our strategic focus stays unchanged with worth competitiveness because the crucial software to drive development, shield volumes and mitigate as a lot as doable buying and selling down results.
The end result of this strategic possibility was notably exceptional in Poland, the place regardless of the challenges Biedronka delivered an impressive efficiency. Group gross sales grew by 23.4% to succeed in €6.8 billion. And you will need to flag that forex devaluation was a headwind to development. At fixed trade charges, group gross sales grew by 26.5%. The robust gross sales efficiency led EBITDA to develop by 20.1% to succeed in €446 million. EBITDA margin declined 18 foundation factors to six.6%. Money movement era was adverse in €226 million, displays seasonal working capital outflow of the enterprise within the first quarter.
Our monetary state of affairs stays extraordinarily stable. By the top of March, internet money place excluding capitalized working leases, was at €1 billion. We entered 2023 with persistent excessive meals inflation additionally reflecting the comps as inflation accelerated in Poland and Portugal from Q2 2022 onwards, when the struggle exacerbated the strain on meals and power costs.
In face of rising costs and better rates of interest, shoppers have grow to be progressively extra cautious regardless of the assist to family revenue in every of our three international locations from the nationwide minimal wage will increase in January. In Portugal and Colombia, the buying and selling down in meals continued to achieve momentum. The primary quarter P&L displays a sales-driven efficiency.
Worth funding by all retail banners and the consequences of buying and selling down, notably in Portugal and Colombia pressured gross margin which declined from 21.5% to twenty.8%. Our bolstered worth competitiveness led to a superb gross sales efficiency throughout the banners and improved operational leverage, limiting the affect of value inflation.
All in all, EBITDA margin was down whereas the nice gross sales development led EBITDA in absolute phrases to develop by 20.1% and reached €446 million. As beforehand mentioned, money movement was adverse in €226 million with Q1 being as typical, impacted by funds to commerce suppliers notably when following a profitable Christmas season.
Our stability sheet stays very sturdy with a internet money place of €1 billion, excluding capitalized working leases at thirty first March. As a reminder, the AGM held in April 20 authorised dividends within the quantity of €345.6 million to be paid by subsequent Might ’17. I’ll now information you thru gross sales efficiency in a bit extra element.
This was a really robust quarter with all banners contributing to group gross sales development. Biedronka’s exceptional efficiency translated into €1 billion of extra gross sales in Q1 ’23 versus Q1 ’22. Currencies devaluation impacted group gross sales by greater than €170 million.
With the constructive contribution from all banners, group like-for-like reached 21.2% in Q1. Within the like-for-like graphs, on the right-hand aspect you may clearly see that comp will probably be much more difficult from Q2 onwards. Biedronka invested strongly to drive gross sales development, shield volumes and reduce buying and selling down developments within the context of softer shopper demand.
Over the interval, the Firm widened the hole of its personal basket inflation to the market’s meals inflation and clearly earned additional shopper desire. Within the like-for-like, volumes have been constructive in each month of the interval regardless of the slowdown registered all through the quarter.
I might additionally prefer to flag that the early Easter interval in 2023 versus 2022 is estimated to have contributed to the efficiency with one share level. Gross sales grew 28.3% in native forex and market share within the first two months of the yr elevated by 1.6 share factors in accordance with JFK on fast-moving shopper items.
Hebe continued to carry out nicely with gross sales development at 31.9%. The net operations posted a 43% enhance and represented 17% of the overall high line regardless of the nonetheless marginal contribution of Czech and Slovakia. In Portugal, we noticed an acceleration of buying and selling down developments because the buying energy of shoppers deteriorated.
Being these saved investing in worth and promotions to guard gross sales and ship the expansion of 9.4%, with like-for-like at 8.4%, excluding gasoline. Recheio continued to learn from an bettering space sector and delivered robust gross sales development of 29.2%, together with a 27.1% like-for-like. In Colombia, we noticed already early indicators of meals disinflation, although inflation remained excessive at 24% and contributed to a really troublesome market context.
Persevering with to concentrate on its worth competitiveness and promotional dynamics, Ara do gross sales in native forex by 50.8% with like-for-like standing at 18.9%. The growth program stays a high precedence and the banner opened 64 new shops within the interval. Pushed by the robust high line supply, EBITDA grew 20.1%, 22.7% at fixed trade charges.
Following worth investments and likewise pronounced buying and selling down within the instances of Pingo Doce, all our retail banners registered gross margin discount versus the identical interval of 2022. The robust gross sales supply, nonetheless, allowed for operational leverage to mitigate this strain on EBITDA margin that decreased 18 foundation factors within the interval.
Biedronka’s EBITDA margin was 22 foundation factors down with a powerful like-for-like gross sales development, limiting the affect of inflation in labor prices registered within the interval. It’s value highlighting that regardless of remaining risky, value strain from power and gasoline eased in Q1 ’23.
In Portugal, EBITDA margin at Pingo Doce was down by 13 foundation factors, pressured by worth investments whereas displaying sustained restoration allowed its margin to enhance. At Hebe, margin decreased 16 foundation factors, reflecting the funding to launch its worldwide operations.
Ara EBITDA margin was 25 foundation factors down in Q1 ’23 on account of the mix of worth funding to drive gross sales and numerous shops with very low maturity. Wrapping up, all banners proceed to ship nicely regardless of the deteriorating shopper atmosphere.
The context remains to be unsure with reference to the evolution of the value of the meals, power and gasoline and the development of rates of interest. All these components will decide the extent of strain on shopper demand. We all know that the bottom of comparability will problem us much more to any extent further, however we’re assured within the skill of our banners to navigate difficult occasions and preserve delivering on bold objectives.
Including to this, we protect a really stable monetary place. As such, we are going to stay targeted on guaranteeing worth competitiveness to drive gross sales. On the similar time, we are going to proceed to execute our CapEx program as deliberate, increasing and bettering our retailer networks within the three international locations the place we function, not dropping sight of our long-term imaginative and prescient. Thanks in your consideration. Operator, I’m now able to take questions.
Thanks. [Operator Instructions] We at the moment are going to proceed with our first query. The questions come from the road of Joao Pinto from JB Capital.
I’ve three, if I’ll. The primary one, are you able to please quantify the Easter impact on Biedronka like-for-like? The second, meals PPI has decelerated materially in March, are you already seeing or are you able to anticipate some decrease strain from COGS inflation for the following few quarters? And final one on Slovakia. Are you able to give us some shade in your plans there? When do you count on to enter and we’ll do it organically or what number of shops are you able to supply utilizing the present logistics construction that you’ve got in Poland?
Ana Luisa Virginia
Good morning, Joao. So relating to Easter and as I referred, we estimate the contribution of early Easter to have been one share level in our like-for-like. As for meals CPI and the price inflation, we’ve seen some discount within the inflation.
However we — I consider it is nonetheless untimely to essentially give a number of shade or estimates on this as a result of, in fact, we all know that a number of drivers can change or make it totally different to any extent further. So you’ll have — it’s going to additionally rely on the prices of our personal suppliers. As you realize, salaries have been growing, the minimal wages in all of the international locations and this additionally impacts the suppliers.
So it is not only a query of commodities that we’ve seen whose costs have taking place, but it surely’s additionally the opposite prices that need to be considered that we expect it’s going to mirror nonetheless and it’ll nonetheless strain the price of our suppliers.
Then on the recent merchandise, which accounts a fairly massive waste on our gross sales, that is additionally a query mark as a result of it’s going to rely. We’ve got seen some discount on inflation in March and even in April now. However we additionally know that it will rely on the harvest and on the climate in reality. So, it is nonetheless a query mark. Our expectation, as we talked about in our outlook is that inflation will scale back and that is the situation underneath which we’re working and the Firm has deliberate instructions to any extent further.
On Slovakia, so I feel it is nonetheless early, however the thought, Joao as you talked about is to develop from Poland. So to take benefit on the primary foundation. It is a nation that, in fact, is far smaller than Poland. However the place we expect that there’s a possibility. I feel it is a little bit bit early to present a number of shade on this.
However the thought is to make use of the infrastructure and the sourcing and procurement capability from Poland to enter Slovakia. And — however in precept, to open and opening organically, it is not going to be this yr nonetheless. This might be to organize any entry within the nation.
We at the moment are going to proceed with our subsequent query. The questions come from the road of William Woods from Bernstein.
My query is on volumes in Poland. It seems like if you happen to take your 24% like-for-like and also you subtract inflation and your decrease basket inflation and you then have a look at the volumes available in the market being down adverse 5% in direction of the top of the quarter, it seems that you gained vital quantity share.
Do you see vital quantity share and quantity development? And if that’s the case, who’re you taking that share from? After which the second is only a follow-up on that. May you simply give some context in your basket inflation? How a lot do you assume you might be underinflating the market or how do you see that delta altering.
Ana Luisa Virginia
So on volumes, as I discussed they have been constructive within the three months for Biedronka. In keeping with our estimates, we’ve grown 3% within the quarter by way of volumes. And what we consider is that we’re gaining shoppers from different codecs. And so I consider that this quantity has come principally from different banners which have a unique worth proposition.
I might say that from primarily the standard, the hypermarkets and the opposite half, different supermarkets which have — that aren’t so worth aggressive. And that contemplating all of the evolution that Biedronka has executed remarkably by way of assortment and by way of high quality of that assortment, I consider that at present individuals after they begin shopping for in Biedronka they just like the format, they just like the banner and proceed to take action.
So I feel that a number of the shoppers get used to purchase or store in different banners at the moment are buying in Biedronka and growing their basket in Biedronka. And that is why we’re gaining share by way of quantity. As to basket inflation at present or on this quarter, we’ve widened the hole as I additionally talked about. So it was on common in 2022 round two share factors. It is now shut to three% within the complete quarter and it was barely increased in March in reality.
We at the moment are going to proceed with our subsequent query. And the questions come from Jose Rito from CaixaBank.
So I’ve two questions. So the [indiscernible] affect, aside from the like-for-like, how a lot it helped by way of profitability in Poland if it had any affect? And likewise associated to profitability in Poland, aside from Easter what different components have helped in Q1? You talked about power. How do you see the transferring half evolving? As a result of I feel that if Q1 run fee is maintained by way of margin evolution, margins truly might go up over the following quarters. Are you able to affirm this?
Ana Luisa Virginia
In order for the Easter impact, I feel that is and the affect on profitability which I consider it was the query. In order I discussed, we expect that it was — this one share level. However in profitability, what is actually essential for us and what is going to proceed to be essential as I additionally repeated is to proceed to achieve momentum with gross sales and proceed to enhance gross sales as a result of that is the primary driver of profitability.
So I do not disguise that, sure, we have been helped by a cheaper price in power. But when we’ve not grown gross sales, we couldn’t dilute our prices in power or our value in gasoline. So it is fairly essential to us that gross sales proceed to ship. And that is why we repeat like virtually a month or that we must preserve our competitiveness and our relevance for the patron.
So Easter impact ought to have helped, however I might say that the primary driver of profitability was actually the truth that Biedronka proceed to supply to the Polish, the most effective worth proposition available in the market. So probably not being simply happy with the present state of affairs and actually making itself related by holding this hole to the inflation within the nation and by strongly investing in worth.
As to Power, it was one — it was diluted and we do not disguise that there was a assist there. However for the longer term as you say, it is at all times troublesome to say. It is true that the costs proceed to go up in 2022. So this — we’ve this tailwind in our profitability, but it surely actually will rely on how issues evolve.
So it is nonetheless a little bit bit early to say. We expect that it might assist and we do not disguise that we’re counting a little bit bit on that. However in what we depend actually to guard our profitability is actually proceed to drive robust gross sales and having a powerful high line development.
Okay. Understood. However trying on the profitability supply in Q1, however I feel it was excellent contemplating the run fee that we noticed in Q3 and This fall final yr. My query is, was this additionally a shock for you? And if you happen to assume that is sustainable as a result of whether it is finally margins can truly commerce that over the following quarter.
Ana Luisa Virginia
Jose, I feel that we additionally within the outlet talked about this. We all know that it is going to be underneath strain as a result of if the inflation volumes and the combination is our drivers of our present efficiency. So we all know that buyers are extra worth delicate that they’re — the developments of buying and selling down are additionally taking place in Poland because the market efficiency exhibits.
So Biedronka has been ready and I feel that’s actually exceptional, the staff to have the ability to principally being performing towards a adverse market development in actual phrases. However the query now could be if there’s, in fact, if the patron react way more strongly and if this inflation could be very quick, et cetera, these are all drivers that we’ve to take into accounts.
As I mentioned, a number of the prices and relying on the extent of dilution can also assist. However others, we all know that they’ve already elevated just like the personnel prices and that is one thing that we will solely dilute if we’ve gross sales. So it is holding the most effective worth proposition as I mentioned to the market, to essentially ensure that Biedronka is the one which the Polish households select as a protected harbor for them in nonetheless a excessive inflation context as a result of even when inflation reduces, it’s on the premise that had a really excessive meals inflation.
We at the moment are going to proceed with our subsequent query. And the questions come from the road of Nick Coulter from Citi.
I do not usually say, however congratulations on the quarter. So if I’ll, firstly, can I ask the way you’re shifting the combination on this atmosphere? I assume, I am making an attempt to grasp the restricted affect to gross margin given the size of the inflation hole that you just’re pushing by means of or is that simply the advantage of the format value construction? Simply making an attempt to get the mathematics to work.
After which secondly for Ara, we it’s doable to get a way of the shop maturity affect on margins and if we must always count on this to persist as you proceed to open shops?
Ana Luisa Virginia
Thanks in your form phrases. I feel that actually the staff has actually carried out they usually earned all of the congratulations from our half. As to the shift in combine and I am assuming since you spoke concerning the hole that we’re speaking about Biedronka.
I feel [indiscernible] however clearly it is a restricted affect.
Ana Luisa Virginia
What we expect is that — and as you realize, when the consolidated gross margin decreases, in fact, we all know that the large half needs to be a contribution from Biedronka. So there’s actually a really robust not — so the essential or crucial is actually, in fact, the value investments, however there’s some combine impact, though this combine results began to be seen in February final yr.
So we all know that persons are shopping for extra of the fundamentals, but it surely’s not crucial characteristic within the — or that explains the discount in gross margin in Biedronka is actually the value investments. Though as I mentioned we’re seeing some combine, but it surely’s not — so we see a slight enhance in personal manufacturers. It isn’t so vital, for example because it occurs in Portugal.
So in Portugal, simply within the quarter was greater than two share factors within the waste on gross sales. Within the case of Biedronka, it is barely lower than 1%. After which, in fact, you may have in all probability the next weight of additionally the recent merchandise the place we’re staying fairly aggressive. However I might say that at present worth funding is the one strain in gross margins essentially the most to essentially ensure that we, as I mentioned, keep and even enhance the hole to be extra related for the shoppers.
As for Ara and the shop maturity, in fact, we opened a number of shops this quarter additionally. As I discussed, we opened 64 shops. Final yr within the final weeks of the yr, we opened greater than 140 shops. So I feel within the quarter, the final quarter it was much more than that. They’ve — so it takes some time to construct the gross sales density that we would like within the shops.
And naturally, we all know that we’re towards an atmosphere that could be very troublesome for the Colombian households. Most of those households are low revenue. We’re, for the second yr with meals inflation above 20%. So collected in all probability in 2.5 years, we’re speaking about virtually 60% enhance within the costs of meals that accounts for the primary finances of the household.
So I feel that is greater than the maturity. We face a shopper that isn’t greater than worth delicate. It actually has its finances with a number of constraints to purchase extra even when they need it. This being mentioned, we expect that we’re constructing actually an excellent worth notion and are constructing our future in Colombia as a result of in reality — and that is why we expect that it is a good alternative to take a position now to then when the nation picks up and we all know that these cycles are typical in Latin America.
When the nation picks up, I feel that the patron will keep in mind we keep costs low in meals and we are going to decide up all of the leverage from this as a result of, in fact, any change in family revenue will go to meals and we expect that it’ll go to the shop that has the most effective worth and the very best quality, so the most effective worth proposition for the Colombian household.
So sure, it is a waste. However I feel that is what that is right here greater than a value enhance is actually the truth that we face a troublesome context for the households that even when they need it, they might not purchase greater than they’re doing in the mean time.
[Operator Instructions] We at the moment are going to proceed with our subsequent query. The subsequent questions come from the road of Nicolas Champ from Barclays.
I’ve three. The primary one is about Poland. May you please quantify your market share acquire on this nation in Q1? And the way did this market share acquire developed versus in contrast with the earlier quarters? Second query additionally relating to Poland. You talked about decrease power prices this quarter, however might you make clear concerning the different value enhance in Poland?
I imply, minimal wage, wage are anticipated to extend considerably this yr. How a lot did your workers value enhance in Q1. Equally, the lease costs are additionally anticipated to extend fairly considerably in Poland this yr. Once more, what’s already included in your value construction in Q1, ought to we count on extra lease enhance over the approaching quarters?
And the third and final query is about Colombia. So that you mentioned CPI was 24%. May you tell us your basket inflation on this nation additionally in Q1? And the way has the value differential versus CPI evolve additionally in Q1 versus earlier quarters?
Ana Luisa Virginia
As for Poland available in the market share, so the numbers that we’ve from JFK and naturally, we talked about the supply as a result of, in fact, it may be barely totally different. However utilizing the identical foundation, we talked about that February year-to-date we gained 1.6 share factors in market share.
To be very simple, I consider that with the numbers that we noticed from the markets nonetheless this week for March, I might say that we’ve additional elevated market share with the sort of efficiency that we’re delivering and having the ability to acquire even in volumes. In order for — as we’ve been rising on high of the final yr development, I feel that even when we’re occurring the road, so we grew barely beneath two share factors in final yr by way of market share.
And so I feel that is — on this case, we’re persevering with to show or Biedronka is proving that it continues to be related for the patron. As for the price will increase, so, sure, we’ve — in January, we — or principally all our prices have included the wage will increase, the wage will increase that we make. There weren’t solely the — alongside the strains of minimal wage, however we elevated the salaries to take care of competitiveness additionally on that as a result of the labor market in Poland continues to be fairly tight. The unemployment fee is kind of low.
And so we expect that we must always keep competitiveness on this and we’ve already executed that. So it is already included within the quarter numbers and the lease costs additionally. So by way of lease, a lot of the CPI is the proxy for the lease enhance within the case of Poland this yr. And most of it’s already mirrored in our money place as a result of, in fact, in accordance with IFRS 16, you do not see actually this enhance.
So what we’re seeing principally is a rise in our working bills alongside the strains of 20%. These rents are barely decrease as a result of it is in accordance with the overall CPI, not the meals CPI as for the longer term. So I feel that we keep or we expect that, in fact, it will impact versus final yr alongside this type of line. However it’s going to rely, in fact, the burden on gross sales, it’s going to rely on profitability. As I already talked about, it’s going to rely on how the highest line will evolve. And that is why it is so essential that we preserve targeted on our relevance for the patron.
As for the — for Colombia, so our basket inflation can also be beneath the 24%. We have maintained kind of than alongside the strains of final yr round or close to two share factors distinction.
We’ve got no additional questions presently. I’ll now hand again to Ms. Ana Luisa Virginia for closing remarks. Thanks.
Ana Luisa Virginia
Thanks all in your questions and for attending this convention name. Regardless of the challenges we had a superb begin to 2023 and we’ll proceed to work arduous to maintain shopper’s desire whereas we reinforce our market positions going ahead. The context will definitely stay difficult, however we’ve our technique and precedence is evident and our codecs are in fine condition to ship. Thanks as soon as once more and I want you all a pleasant time.
Girls and gents, this concludes right now’s convention name. Thanks for taking part. You might now disconnect your strains. Thanks.