Sonae, SGPS, S.A.

Good afternoon, we welcome you to tonight's QualiOne 2023 results conference call. During the presentation hosted by Mr. Joao Dolores, tonight's CFO, all participants will be on listen-only mode. There'll be an opportunity for question and answer at the end of the presentation. If you wish to ask question during the question and answer session, you may do so by pressing the star key followed by one on your telephone keypad. If you are experiencing any difficulty in listening to the conference at any time, please make sure you have your headset fully plugged in, or alternatively, please try calling from a different device. I now hand over the conference over to Mr. Joel Dolores. Please go ahead, sir.

Hi, everyone. Good to have you with us today. Welcome to SANAE's results conference call for the first quarter of 2023. Besides myself and the investor relations team, we have on the call Rui Almeida from MC, Paulo Simões from Vorten, Luiz Mota Duarte from Sierra, and Cristina Novaes from Bright Pixel. As you know, the first quarter of the year was marked by a quite complex macroeconomic context. Geopolitical tensions remained strong. We continue to witness significant inflationary trends and also rising interest rates, which continue to put pressure on the disposable income of households. In Portugal, food inflation reached roughly 20% in the quarter, and we saw inflation also affect our cost base, most notably in what concerns salaries. Nevertheless, our businesses proved once again their resilience, and adapted quickly to mitigate these impacts, namely by absorbing parts of the inflation levels to protect households and continue to deserve the preference of consumers. Before we cover the results of RBUs, as usual, I would like to give you a quick note on our portfolio management activity. In the quarter, we continued to make some important moves, namely by acquiring the remaining 10% stake in Sierra for 89 million euros, again representing circa 10% discounts over Sierra's NEV at the end of the year, and we now own 100% of this business. We also reached an agreement with Bank Inter Consumer Finance to create a 50-50 joint venture, which aims to become a leading consumer credit operator in Portugal. And finally, BrightPixel, our corporate venture arm, continued to expand its portfolio of technology companies, having executed three new minority investments. Already in the second quarter of 2023, the results of the tender offer over SONICOM were disclosed. We now own 88.8% of the share capital in the company and 90.5% of the voting rights and therefore SONICOM will remain listed and focused on executing its investment and value creation strategy. Also, together with Balaico, our Spanish partners, we notified JD Sports of the decision to exercise a buy or sell option, which is foreseen in the existing shareholders agreement of Iberian Sports Retail Group. We expect an outcome of this process during the second half of this year. Now, considering the latest portfolio movements, the operational performance of our businesses, and also the evolution of market multiples, our total NAV increased by 2.6% to 4.1 billion euros at the end of March. This evolution was mainly driven by the good operational performance of MC, the NAV increase at Sierra, coupled with the acquisition of a 10% stake at the 10% discount, which I mentioned before, and also the share price performance of NOS in the first quarter of the year. Regarding consolidated results, the group's operational performance was quite solid. Sonai's consolidated turnover increased 12% year-on-year in the first quarter to 1.9 billion euros, mainly fueled by MC and Vorten. Our food retail unit continued to adapt to the evolving consumption behaviors in a context of abnormal food inflation and high interest rates, which again pressured household disposable income. The focus of our team at MC was on adapting its product offering, and offering the lowest possible prices to consumers. In the quarter, MC's total turnover increased 13.5% year-on-year, with a like-for-like growth of 11.8% to 1.5 billion euros, with a growth of 8.9% in hypermarkets and 17.4% in supermarkets. We also continue to clearly lead the market in online sales, which is an important strategic driver for the company. Vartan was able to reinforce its market position in core categories, but also grow in new product categories and services. The company's turnover increased 9% year-on-year in the quarter, with a like-for-like of 7.5% to €284 million, fueled both by the online and offline channels, as the company continued to gain market share in the Portuguese markets. Regarding profitability, consolidated underlying EBITDA increased 11% year-on-year to 137 million euros, with a slightly lower margin than last year. MC was the main contributor to this evolution, given the positive top-line performance, significant efficiency gains, and also lower energy prices, offsetting the efforts to absorb parts of the inflationary pressure that we felt, also a different product mix, and clear trading down movements on the part of consumers. In Q1, underlying EBITDA at MC reached 124 million euros with a stable margin of 8.4%. If we look at total EBITDA, we see a similar trend as EBITDA increased by 9% year-on-year to 161 million euros with a positive contribution also from equity-consolidated businesses, namely NOSH, which was offset by the evolution of non-recurring items. as last year we had registered some capital gains on assets sold by BrightPixel. Direct results decreased €10 million versus last year to €32 million due to some asset impairments and increased depreciations following our investment efforts coupled with higher funding costs and tax expenses. Indirect results also reduced as we didn't see any significant asset revaluations in the period. If you recall, last year, BrightPixel had posted an 8 million euro gain from an asset revaluation after a financing round. Therefore, net results reached 26 million euros in Q1, below last year's 42 million. Pre-cash flow totaled 181 million euros, driven by a solid display in terms of a BPA generation, working capital management, and also asset sales in the last 12 months. M&A CapEx of 282 million euros was fully financed by operational cash flow and also cash proceeds from asset sales. If we look at our balance sheet, total net debt decreased to 922 million euros versus 931 last year, and the group's capital structure remained solid with a low level of leverage, significant liquidity levels, and also a stable debt maturity profile of around four years. At the end of Q1, our holding LTV decreased year-on-year to 7.4%. Regarding our business units, the leverage ratios also remained at conservative levels. MC's total net debt-to-BPA ratio stood at 2.8 times below last year, with a net financial debt of €494 million and an average maturity profile of more than four years. Sierra's gross LTV ratio reduced to 40% in Q1 this year, coming down from 45% last year. And at NOSH, net financial debt to EBITDA ratio stood comfortably below two times at 1.7 times. Going forward, the outlook remains volatile. We do expect to continue to see inflationary trends and rising interest rates, and this should continue to impact the disposable income of households. and so we must continue to have the ability to manage this situation and adapt to this uncertain environment. As a holding company, we will continue to support our portfolio companies to quickly adapt to this demanding context and future-proof their business models, always with a focus on social and environmental responsibility. Given our solid financial position, we have the ability to sustain harsher times, but also to capture investment opportunities that may arise in the near term. Thank you very much for listening, and you can now open the session to Q&A.

Thank you. As a reminder, if you wish to ask a question, please press star followed by one on your telephone keypad. We will take our first question from George Rito from Cash Your Bank. The line is open now. Please go ahead.