Jeronimo Martins Pe

Good day and welcome to the Jeronimo Martins first half 2024 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia, Chief Financial Officer of Jeronimo Martins Group. Please go ahead, madam.

Thank you, Nadia. Good morning, ladies and gentlemen, and thank you for joining this call to present our first half results. As a reminder, In our corporate website, you can find the results release, a slide presentation, and a fact sheet for the period. In line with our expectations, the operating circumstances in 2024 so far have been extremely challenging, with a sharp drop of food inflation after the exceptionally high values registered in the last two years. Significant cost inflation, mainly driven by rising salaries, and fierce competition. Also, in our main market, Poland, consumer behavior has been unresponsive to the real wage increases, which is somewhat surprising considering the current macroeconomic environment. In these challenging conditions, our banners continue to strengthen their competitiveness, investing strongly in price to push for sales without neglecting the overall quality of their offer to consumers. As a result, and despite the headwind from basket deflation, like-for-like performance was resilient, driven by strong volume growth. Throughout the period, all our banners increased their client base and gained market share. As expected, EBITDA margin went down, reflecting the negative effects of basket deflation and substantial cost inflation. Our net cash position, excluding IFR 16, stood at 394 million euros by the end of June, after paying in May 411.6 million euros in dividends. In the first six months of the year, food inflation declined significantly in all three countries, while cost inflation rose, mainly driven by wages increases. In Poland, despite the growth in household income, and the improvement of consumer confidence, food retail volumes are still muted. The cautious behavior from consumers is further contributing to steer up intense competition. In Portugal, consumers remain promotions-driven, and in Colombia, families struggled with massive pressure in face of food prices that today are on average 67% higher than in the beginning of 2021. The first half results reflect the imbalance created by the combination of low basket inflation and high cost inflation. The significant fall in growth, particularly in Biadronca and Tingudos, was not enough to compensate for basket deflation in a way to fully allow cost dilution. Hence, EBITDA margin and EBITDA growth were affected by the operational deleverage in the period. All in all, EBITDA in euros increased 3.5%, a decline of 3% at constant exchange rates, with a margin pressure of 54 basis points. The evolution of the depreciation heading reflects the execution of our ambitious CAPEX program, while financial charges increased due to higher average net debts and more funding in Colombian pesos at higher interest rates. Other profit and losses that were at minus 62 million euros include the initial endowment of 40 million euros to the Jornio Martins Foundation. It also includes the write-offs resulting from renovation works and some restructuring costs. Net earnings per share, excluding other profit and losses of non-recurrent nature, fell by 17.6%. Besides the combined effects of the current context, Q2 P&L was unsurprisingly also impacted by the reverse of Q1 positive calendar due to an early Easter season this year versus 2023. Cash flow generated in the period was minus 383 million euros. There are a few things I would like to flag here. Firstly, while EBITDA adjusted for rent payments was slightly up, we incurred a larger interest charge from higher average net debt and increased exposure to Colombia interest rates. Secondly, the tax payments in the period were substantially higher. In Poland, the advanced tax payments we make throughout the year are calculated based on our taxable income from two years ago. In April, When we make the final tax payment, the amount is adjusted to match the actual earnings of the prior year. So in Q2 2024, we pay the remaining due. The difference in the corporate income tax of 2023 results, a very strong year of performance, versus advanced payments based on 2021 results. At the same time, we are now advancing payments on 2022 results, another very strong year. Finally, we saw lower generation of funds from working capital, mainly reflecting diminished sales growth caused by a steep drop in inflation. We ended June with a positive cash position of 394 million euros. Dividends in the amount of 411.6 million euros were paid in May. The capital expenditure in the first half of the year amounted to 396 million euros. The investment focused on Biedronka and Ara's expansion, as well as on the refurbishment program that will enable Biedronka to maintain its high standards, and Tingdos to implement the new all-about-food-store concept as a way to further grow their respective businesses. I will now guide you through our sales performance. Total sales grew by 12.3%, 5.5% at constant exchange rates. Group like-for-like was at 1.1%. The quality of the like-for-like is well reflected in the strong volume growth registered in Biedronka and Pingu Doce. All banners did well against the respective markets, having increased their customers' base and gained shares. Q2 like-for-like was impacted by the negative calendar effects of an early Easter compared with 2023. In a market still losing volumes and in face of an increased competition, Biedronka remained firm in its commitment to provide the best prices to the Polish families, having intensified its commercial action and registering substantial basket deflation in these six months. As a result of having a positioning that is well perceived and valued by consumers, our main banner strengthened its customer base grew volumes throughout the period and increased its market share by 0.5 percentage points in the six months. On top of higher deflation, Q2 was impacted by the expected negative calendar effect. As a note, even including this impact, the volumes were positive in the quarter. I need to flag here that at constant prices, the best proxy for volumes, food retail sales were down close to 4% in Q2. There are also a sound contribution to top line growth from new space of 4.7 percentage points. Total sales increased 11.9% plus 4.5% in local currency to reach 11.5 billion euros. Hebe delivered a solid sales performance with sales growing by 22% in local currency, including a like for like of 12.4%. the good delivery reflects an improved value proposition and a consistent e-commerce development that represented around 19% of sales over the six months. PINGDOS grew sales by 5.9% to reach 2.4 billion euros, including a 6.1% like-for-like without fuel, even though it faced deflation during the period. The continuous promotional campaigns and the increased contribution from the banner's strategic pillars, fresh products, private brands and meal solutions, in the all-about food stores drove significant fall in growth and allowed PINGDOS to outperform the market. In the period, 41 stores were refurbished to the new concept that is now the standard in almost 25% of the network. delivered a solid performance, with sales increasing by 2.1% to reach €645 million. The Arreca channel in Portugal has been impacted by weak domestic out-of-home consumption. However, and against the strong performance of previous years, Recheio grew customers in all segments of the operation and extended its partnerships in the main store stores, ending the period with 651 locations. ARA maintained an intense commercial activity, continuing to create relevant saving opportunities for the struggling Colombian families by combining a strong promotional dynamic with a consistent low-price policy. Allow me to remind you here that in Q2, ARA faced a particularly tough comparison as in Q2-23, sales benefited from a massive price campaign on the occasion of its 10th anniversary in Colombia. In the six months, sales increased by 13.3% in local currency, a 32.1% growth in euros, to reach 1.4 billion euros. Consolidated EBITDA grew by 3.5% in euros, a reduction of 3% at constant exchange rates, reaching 1 billion euros. The basket deflation registered in our main businesses combined with the high cost inflation led to operational deleverage. Group EBTA margin fell to 6.4% from 6.9% in H1-23. At Pedronca, the pressure on margin was mainly driven by increased weight of costs, essentially coming from high wage inflation and lower sales growth due to basket deflation. Hebe's margin improved following good sales performance. In Portugal, the margin evolution reflects the execution of the intense promotional dynamics together with cost inflation. And finally, in Colombia, Ara was able to improve EBTA margin by 109 base points in H1. Excluding the effect of IFRX16, Ara's EBTA is now back to positive ground. In summary, In the first half, we operated in an extremely challenging context, marked by basket deflation, high-cost inflation, subdued consumer demand, and more intense competition. Although we anticipated and flagged most of these challenges from the start, we acknowledged that the shyer than expected consumer demand in Poland drove heavier price investment across the industry, leading to a more competitive context in our main market. As a group, our strategic focus has always been clear to reinforce price positions in order to grow volumes and invest in the overall quality of our value propositions, including the execution of our CapEx program to expand and revamp our stores also as a way to sustain growth. Our banners are therefore delivering accordingly. As a result, in competitive contexts, we reinforced our market positions, delivered solid volume growth, and strengthened our client base, which is the best possible confirmation of effective consumer preference. This execution, in the current circumstances, pressured margins, and H1 figures reflect exactly that. Nonetheless, we do believe we are following the right path and that our planners have the competitive strength to continue outperforming their respective markets. For the year, our strategic priorities remain unchanged. Make our stores the first choice of consumers and growth sales in volume. This strategy will allow us to keep our competitiveness, increase our customer bases, and reinforce market shares. Entering H2, a period of more demanding comparatives in terms of volumes, Biedronka will increase its price investment, reinforcing its competitive position, and creating further saving and value opportunities for Polish consumers. Having in mind that our main banner is expecting basket deflation to continue in H2, the execution of this strategy may even put further pressure on EDTA margin versus the 85 basis points registered in H1. We reiterate our commitment to our CAPEX program that in 2024 will reach 1.2 billion euros of investment, mostly in the expansion and revamping of our infrastructure. Finally, we continue to foresee an increased investment in working capital versus prior years, considering the deflationary scenario and the current context that will also continue to pressure our local commercial partners, particularly in private brand and fresh categories. We are conscious that the sharp reduction in food inflation will affect the top line in our balance sheet and that together with the already high costs will hamper earnings for the year. As such, we will keep improving competitiveness and efficiency as a way to protect our business fundamentals. Thank you for your attention. Operator, I am now ready to take questions.

Thank you. Dear participants, if you wish to ask a question, please slowly press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Please stand by. We'll compile the Q&A roster. This will take a few moments. And now we're going to take our first question. And it comes from the line of Joao Pinto from JB Capital. Your line is open. Please ask your question.