Jeronimo Martins Pe

Good day and welcome to Geronimo Martin's first half results 2023 conference call. Today's conference has been recorded. At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia, Chief Financial Officer of Geronimo Martin's group. Please go ahead, madam.

Good morning, ladies and gentlemen, and thank you for joining this call to present first half 2023 results. As you are already familiar with, in our corporate website, you can find the results released a slide presentation and a fact sheet. As we anticipated, consumer demand remained very challenging throughout the first six months of 2023, with persistent pressure on real household disposable income. Under current circumstances, with food inflation falling and cost inflation impacting our companies, continuous investment in price and in promotions, is even more critical to drive volumes and protect the profitability of our businesses. As such, our banners maintained an unwavering focus on price competitiveness. This strategic focus, combined with robust value proposition, boosted sales, with all banners delivering positive volumes in Q2. In the six months of this period, group sales increased by 22.1% to reach 14.5 billion euros. At constant exchange rates, group sales grew by 23.3%. Our commitment to price competitiveness and top-line performance drove EBTA to grow by 18.1% to reach €1 billion. EBTA margin declined 24 basis points to 6.9%. Cash flow generation was negative in €127 million, reflecting higher CapEx payments and some effects over the working capital in the period. Our balance sheet remained very robust, as we think it should be. By the end of June, after the dividend payment of €345.6 million in May, our net cash position, excluding capitalized operating leases, was at €721 million. Despite the very challenging operating environment demanding a relentless work from the teams, our companies didn't fall short of making progress on our responsibility agenda. On this front, I would like to highlight some key developments in the period. We maintained a strong focus on the recognition of the work of our operational teams. In H1-23, the group paid more than 120 million euros in performance and extraordinary bonuses to the teams, an increase of 30% versus the same period in the prior year. And surprisingly, Food safety ranks high in our priorities, and it is of great importance that our laboratory of molecular biology is now certified as meeting general competence requirements for carrying out DNA tests on food products and animal feeds. Regarding the environment, we made important progress in relevant climate change related areas, renewable energy, circular economy, and deforestation. I would now like to go into a bit more detail on the performance. Food inflation remained the key element of the operating context. We entered 2023 with high food inflation that gradually fell in Q2 in the three countries where we operate. Although at different levels, consumer confidence remains fragile across the board. In Poland, consumer price sensitiveness has increased and price gained importance when choosing where to buy. In Portugal, trading downtrends are ever more noticed with impact on the food basket. And finally, Colombia is facing an increasingly impoverished population and is where consumer demand contraction is even more evident, considering the very difficult circumstances the families have to cope with as a result of the cumulative impacts of a severe pandemic crisis and extremely high and long-lasting food inflation in basic products. At a group level, the first half P&L reflects a sales-driven performance. Following significant price investments and impacted by strong trading down in Portugal and Colombia, gross margin declined 60 basis points in the period. Nonetheless, our steady commitment to price competitiveness and sales growth limited the pressure from cost inflation, driving EBITDA to perform solidly, reaching for the first time ever in six months' period 1 billion euros. Just a couple of highlights on Q2 P&L. First, on other profits and losses, which incorporate, among other items, indemnities, write-offs, and an increase in provisions for legal contingencies. And second, on financials in Q2 23 that include a positive impact related to the capitalization of Euro-denominated leases in Poland due to the Zloty appreciation from March to June. In Q2-22, this effect on the P&L was negative. Cash flow was minus 127 million euros. Following the execution of our investment program, there was an increase in CapEx payments. Also, the change in working capital reflected the very strong 2022 year-end position in light of the outstanding Christmas season and other effects, including the implementation of the temporary zero VAT measure in Portugal, which resulted in a reduction of the value of trade payables at the end of the period. Our balance sheet remains solid with a net cash position by the end of June of 721 million euros, excluding capitalized operating leases. This value already includes the payment in May of dividends in the amount of 346 million euros. All companies are executing their respective investment programs for expansion and remodeling. Most relevant numbers in this half year are coming from Biadronka, with 50 openings and 164 remodelings, Ada, with 110 openings, and with 20 remodelings, all set to deliver on the targets for the year. I will now guide you through sales performance in a bit more detail. All banners maintain the good sales momentum throughout the six-month period. contribution are worth highlighting. Our Polish banner was unstoppable in its effort to provide consumers with unique saving opportunities and remarkably added 2 billion euros to its sales in six months. On its turn, our Colombian banner further reinforced its position in the market and added more than 400 million euros to the group's top line at constant exchange rates. With a solid delivery from all businesses, Consolidated Like for Like reached 18% in H1. For Biadunca, In a context of decreasing food inflation, volume growth became even more of a priority. The banner invested in price and promotions, having widened the gap between its own basket inflation and the country's food inflation. The consistent implementation of this strategy further strengthened the Hedronka market position and drove volume growth across the period. Sales grew 24% in local currency, and market share in the first five months of the year increased by 1.7 percentage points, according to JFK, on fast-moving consumer goods. This was an outstanding performance in a context of contraction in private consumption and declining volumes in the Polish food retail market. Hebe maintained a good sales delivery across the six months' period, with top line growing at 27.5%. the online operations posted a growth of 45% to represent around 17% of the total sales. In Portugal, the trading down in food was a direct consequence of the pressure over household disposable income. Following an aggressive price policy and with the contribution of its meal solutions area, PINXOS delivered a solid sales growth of 9.2%, with Life2Life standing at 8.2% excluding fuel. By steadily executing its refurbishing program, the banner is further reinforcing its value proposition in key competitive areas, such as fresh and new solutions. The Shale's value proposition is in good shape, and the company is benefiting from a dynamic corrective sector. The banner delivered strong sales growth of 23.2%, including a 21.2% like-for-like. The slowdown of like-for-like in Q2 reflects the drop in inflation and, most of all, the tougher comps. From Q2 onwards, the comps will no longer be affected by the impacts of the pandemic restrictions. In Colombia, the consumer is showing the distressed effects of long-lasting pressure over disposable income with families going through very tough times. ADA has been consistently investing in price leadership, and on the occasion of its 10th anniversary in Colombia, Aurobana took the opportunity to make a firm statement on price, having initiated in May a disrupting savings campaign. The consumers reacted promptly with a meaningful increase in traffic and volumes in the stores. In H1, ADA grew sales in local currency by 52.4%, with Like for Like standing at 18.1%. In euros, sales increased by 31.6% to reach 1.1 billion euros. In Q2, sales in local currency grew 53.9%, with Like for Like at 17.4%. The banner remains fully committed to executing its expansion program and opened 110 stores over the period. Driven by strong business models and a clear and consistent focus on price competitiveness, Group EBITDA grew strongly in the first six months of the year. The group gross margin was pressured following price investments and strong trading down impacts in Portugal and Colombia. However, the strong sales delivery limited the pressure of cost inflation, particularly visible in labor, on the P&L. All in all, And as already stated, group EBITDA margin fell 24 basis points to 6.9%. The Adroncas EBITDA margin was 24 basis points down in the six-month period. The reinforced leadership in price continued to drive growth, containing the impact of inflation in labor costs registered in the period. In Portugal, EBITDA margin at PINGDOS was very slightly down on the previous year, with good sales performance diluting the impact of higher costs and trading down effects on the margin mix. RCEI's EBITDA margin continues to steadily improve from the squeezing caused by the pandemic crisis. At REBE, margin increased from 6.3% to 6.8% following the good sales delivery. An improved operational leverage more than offsets the costs resulting from launching and developing its international e-commerce operation. Our CBT margin was down from 3.1% to 1.7%, affected by the massive price investment campaign executed in Q2, by the strong trading down effects, and by the large number of stores with low sales maturity. Very briefly, and just to wrap up, all banners were able to maintain strong sales delivery across the six-month period. The firm's focus on price competitiveness drove a very good performance despite the challenging consumer context. We will continue to experience falling food inflation in the three markets, and this will be reflected in the growth rates going forward. Against this background, volume growth is even more important to protect the profitability of the businesses. We acknowledge that the outlook is still uncertain, and that the base of comparison will challenge us even more in H1. Nevertheless, the six-month performance attests to the quality and competitive strength of our models and makes us confident that we will continue delivering while also executing our investment program and advancing our corporate responsibility agenda. Supported by the strength of our financial, our strategy remains unchanged. In the current context, Price competitiveness will continue to be essential to drive sales in the short term and to strengthen our position in the different markets for the longer run. Thank you for your attention. Operator, I am now ready to take questions.

Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1 1 again. This will take a few moments. Now we're going to take our first question, and the question comes from the line of William Boots from Burstein. Your line is open. Please ask your question.