Sonae, SGPS, S.A.

Good morning, we welcome you to Sone's first half of 2023 results conference call. During the presentation hosted by Mr. João Delores, Sone's CFO, all participants will be on a listen only mode. There will be an opportunity for Q&A at the end of the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star key followed by one on your telephone keypad. If you're 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 the conference over to Mr. João Delores. Please go ahead, sir.

Good morning, everyone. Welcome to SunEye's first half 23 results conference call. Besides myself and the investor relations team, we have on the call Cristina Novais from BrightPixel, Luis Matadouas from Sierra, Paul Simoes from Vorten, and Fernando Van Adler, our recently appointed CFO at ENTI. As you know, the second quarter of the year continues to be marked by a challenging macroeconomic environment. Geopolitical tensions remain high. and inflationary trends and rising interest rates continue to pressure the disposable income of households. In any case, the Portuguese economy was quite resilient, and our businesses maintained high levels of agility to adapt to changing circumstances, namely by continuing to partially absorb inflation to protect households and cater to the needs of consumers. As usual, I will start by going through our portfolio management activity in the period. As you know, during Q1, we acquired the remaining 10% stake in Sierra at a 10% discount to NAV, and we now own 100% of the company at this point in time. We also reached an agreement with Bank Inter Consumer Finance to create a 50-50 joint venture with Universo, which aims to become a leading consumer credit operator in Portugal. That agreement will be executed up until the end of this year. Brightpixel, our corporate venture arm in technology, made three new investments in Q2, so totaling six new minority investments in the first half of the year, and already has 40 companies in the portfolio, including three unicorn companies. MC in Q2 reached an agreement for the combination of Hernal and Bruni in Spain. This will result in a leading health and wellness and beauty player in Spain. with about 800 million euros in turnover, a transaction which increases our international exposure in a sector that is benefiting currently from clear tailwind. This transaction should be concluded by the end of the year, turning MC into the leading health and wellness and beauty retailer in Iberia, with over one billion euros in revenue, if you include wells in Portugal as well. Already in Q3, SONAI received a notification from JD Sports communicating its intention to acquire the remaining stake in ISRG with an equity value of €1 billion. This transaction implies a €300 million cash-in for SONAI and an estimated capital gain of €175 million and completion should happen until October. SONICOM acquired SONI's direct stake in NOS, a total of 11.3% for €213 million, and SONICOM now holds the 37.37% stake in the NOS share capital, and this had no material impact on the voting rights in NOS, which are attributed to SONI. Regarding our key businesses, I will start with retail. And I would like to point out that MC continues to face challenging market conditions with food inflation remaining high, although at lower levels than the beginning of the year. And so in Q2, we saw inflation around 11% versus practically 20% in Q1. And this, coupled with evolving consumer behaviors, significantly changed the context for MC, where we continued to see trading down movements which were quite significant. In any case, MC was able to grow by 13% year-on-year in Q2, with a like-for-like of 11%, to over €3 billion in the first half of the year. This was fueled both by food and non-food formats, and Continente continued to expand its market leadership position in Portugal. In terms of profitability, trading down movements coupled with the partial absorption of the inflationary pressures in prices and costs pressured gross margin. These negative effects were more than offset by reduction in energy costs and also the implementation of efficiency measures which enabled us to maintain a very solid profitability level. And the line of the TA grew 16% year-on-year in Q2 and reached 279 million euros in the first half of the year, a total margin of 9.2% versus 9% last year. MC continued with its expansion plan by opening up 18 new stores, of which four new continence Bombilla, which, as you know, is our proximity format in Portugal. As for Vorten, Vorten also delivered a positive operational performance, being able to increase market share in core categories, but also growing well in new product categories and adjacent services. Turnover grew 5% year-on-year in Q2 to a total of €557 million in the first half of the year, which implies a 7% year-on-year growth and a like-for-like of 5.5%. The online channel continues to be an important growth avenue, representing now more than 15% of total sales, underpinned also by the marketplace expansion into new categories. Profitability also evolved positively despite the pressure on operational costs, coupled with a challenging market backdrop with increased promotional activity. Underlying EBITDA increased 6% year-on-year with a stable margin of 4.8% in Q2, leading to an underlying EBITDA of €25 million corresponding to a margin of 4.5%. As for Sierra, Sierra maintained its growth momentum in Q2 with the trading performance of our tenants in shopping centers significantly above pre-pandemic levels. In Europe, tenant sales increased at a double-digit pace, 15% year-on-year. and shopping centers reported an occupancy rate of 98% throughout the European portfolio, also with improved footfall being registered in the beginning of this year. The services activity also showed a strong performance in the period, fueled by property management on the back of 47 new contracts signed in the first half of the year across several geographies, and also the good performance of assets and the management, demonstrating the company's ability to add value to managed assets owned by its partners. Net results increased €10 million to €38 million on the back of a strong direct result evolution, although we did record a positive indirect result in the quarter. NAV increased €50 million since the beginning of the year, having again surpassed the €1 billion threshold. Regarding NOS, the company published its results last week and continued to deliver a strong operational performance with both turnover and profitability improving year on year. NOS continues to lead the deployment of 5G in Portugal, with a coverage of 90% of the population, and today the company offers the best mobile network in the country, which has enabled higher levels of growth, particularly in convergent customers. Revenues increased 4.5% year-on-year in the first half of 2023, on the back of the telco growth, which grew 3.5% in the third half, and cinema theaters, which continued their recovery path, growing 15% in the first semester of this year. EBITDA reached €353 million in H1, with a 45.5% margin, a 2 percentage point increase versus 22, and net results stood at €81 million. As you know, NOSH distributed €0.43 per share in dividends, of which 15.2 was extraordinary dividends following the sale of the Towers mobile towers to Celnex in 2022. Still in the technology segment, BrightPixel continued its active portfolio management activity with six new investments in each one, with a total capex of €32 million and currently cash invested totals €166 million in more than 40 companies, and the portfolio is currently worth roughly double this amount. So in a rather volatile period for tech companies, BrightPixel's portfolio has shown strong resilience, and we haven't registered, nor do we expect to register, significant changes in valuations up to the end of the year. On a consolidated view, Sonai maintained a strong top-line growth in Q2. Total revenues grew 11% year-on-year in the quarter, reaching 3.8 billion euros in the first half of the year, mainly fueled by the performance of MCI. In terms of profitability, underlying EBITDA increased 16% or €23 million year-on-year to €163 million in Q2 and reached just over €300 million in the first half of the year with a margin of 7.9%, 15 basis points above last year's 7.7%. Total EBITDA followed a similar trend. but increased slightly less, 9.5% year-on-year to €350 million, with a positive contribution from equity-consolidated businesses, namely NOSH, due to our increased shareholding, which was partially offset by lower capital gains from BrightPixel this year. Direct results decreased year-on-year to €84 million in the first half of 2013, due to increased depreciations following our investment efforts, coupled with higher funding costs and tax expenses. Indirect results also reduced in the first half of 2023, mostly due to lower valuation gains in the minority stakes of Bright Pixel in H1 when compared to 2022, and also to lower revaluations of Sierra Shopping Centers when compared to last year. All in all, net results group share stood at 43 million euros in the second quarter of this year and 69 million euros in the first half of 2023. All in all, SONAI generated 202 million euros of free cash flow before dividends paid in the last 12 months. This is a quite solid cash flow generation and is a function of the strong operational performances of our main businesses, also our portfolio management activity, And lastly, the dividends received from our investment companies. Consolidated net debt decreased to a bit above 1 billion euros after dividends paid to our shareholders and partners, which totaled 161 million euros. The group's capital structure remains solid with a low leverage level, strong liquidity available, and a stable debt maturity profile of about four years. At the end of June, Our holding LTV decreased significantly year-on-year to 7%, so minus 2.4 percentage points versus last year. And at the individual BU level, leverage metrics remain within our defined thresholds. MC decreased its net debt-to-BTA ratio to three times, even after dividends payments of 214 million euros. NOS presented a net financial debt-to-BTA after leases of two times, and at Sierra Gross LTD reduced significantly to 38.7%. Lastly, a brief overview of StoneEye's NEV. Our NEV, based on market preferences, amounted to 4.2 billion euros at the end of H1, 4% above the Q1 level, mainly fueled by the positive contribution of ISRG's valuation following the recently announced transaction the operational performance of our retail businesses, and the NEV evolution at Sierra, which more than offset the negative evolution in the knowledge share price. Going forward, the outlook remains volatile, but we are confident that we will continue to deliver a strong performance in the second half of the year. Thank you, and you can now open the session for Q&A.

Ladies and gentlemen, the Q&A session starts now. As a reminder, if you wish to ask a question, please press star followed by one on your telephone keypad. Our first question comes from João Pinto of JB Capital.