Sonae, SGPS, S.A.

Good morning. We welcome you to SONE's first quarter 2024 results conference call. During the presentation, hosted by Mr. Joao Dolores, SONE's CFO, all participants will be in listen-only mode. Q&A is available after 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 call over to Mr. Joao Dolores. Please go ahead, sir.

Good morning. Hello, everyone. Welcome to SANAE's results conference call for the first quarter of 2024. Besides myself and the investor relations team, we have on the call Cristina Novaes from BrightPixel, Fernando Wanzler from MC, Luís Mota Duarte from Sierra, and Paulo Simões from Vorten. I would like to start by giving you a quick note on our portfolio, as we have made important moves this year. The first quarter of 24 was marked by the integration of Musti into our portfolio. following the successful public tender offer launched in November of 23. In March, the consortium led by Sonai reached just over 80% of Musti's share capital with a total investment of roughly 700 million euros. This operation is an important step in the development and future proofing of our portfolio as we expand into new markets with a leading player in the pet care sector. Musti has been included in our consolidated accounts since March, though still with no material impact in the quarter's results. Already in April, our subsidiary Sparkfood completed the acquisition of an 89% stake in BCF in France for 160 million euros, expanding our portfolio of businesses in the food ingredients ecosystem. This company will obviously start being included in our accounts from the second quarter onwards. So, moving on to NAV, as usual, our net asset value grew almost 100 million euros this quarter and reached 4.6 billion euros at the end of March, which equates to 2.38 euros per share. This positive evolution was mostly fueled by profitability improvements at MC and Vartan, as we will see in the next few pages. So, let's have a look at our largest businesses in the portfolio, starting with retail and MC. MC showed once again a strong operational and financial performance in a context of a significant reduction in food inflation versus last year, and also intense competition in the Portuguese grocery market. Continente was able to increase its market share in this context and further reinforce its leadership position in the quarter, having opened six new proximity stores since the beginning of the year. The health and wellness and beauty segment also delivered positive results and fueled MC's revenue growth on the back of strong performances of both Wells in Portugal and Adenal in Spain. Total revenues increased by 9.4% to 1.6 billion euros, with a like-for-like growth of 7.6%, with grocery volumes recovering quite significantly this year. Profitability improved on the back of this solid top-line evolution, and also additional efficiency gains, which enabled MC to maintain its price competitiveness in the market. At the end of the first quarter, MC's underlying EVTA margin improved 20 basis points year-on-year to 8.6% and reached €139 million. As for Wharton, it also had a good start to the year, reinforcing its leadership position in the electronics market in the country. Both core segments and new growth avenues maintain the robust performance, with Vartan leveraging its marketplace, offering new categories and services to increase its share of wallets and customer loyalty. Total turnover reached €310 million in the first quarter, a 9.3% growth, and a 5.3% like-for-like increase. With the online channel continuing to be a key contributor to this growth, having grown 17% year-on-year, and already representing roughly 20% of total sales. Just a quick highlight to iServices that delivered a robust top-line growth while continuing to expand both in Portugal and also in foreign markets. The company is currently operating already in Spain, Belgium and France and has significant plans to continue to increase its presence in other geographies. Regarding profitability, Vartan's strong sales performance coupled with the ongoing cost efficiency measures led underlying EBITDA margin to improve 40 basis points year-on-year to 4.7%. Moving on to real estate, Sierra delivered strong results in Q1, once again, mainly fueled by the solid performance of the shopping center portfolio. Indeed, this portfolio delivered, once again, quite impressive results. Tenant sales increased year-on-year by 7.4% like-for-like, driven by the macroeconomic conditions and also rental contract inflation adjustments, as we continue to have practically full occupancy in our shopping centers, around 98% occupancy in total. The services area delivered a 5% year-on-year growth, driven by the contribution of new vehicles, such as the CTT real estate vehicle and also new RS in Germany, and new development projects continue to progress well. All in all, direct results increased in the quarter to 14.7 million euros, a 3.4 year-on-year increase, and NAV reached 1.1 billion euros at the end of March, slightly above the year-end figure. In terms of balance sheets, Sierra's gross LTV continued to reduce and reached 37.9% at the end of March. Just a quick note on our telco and technology businesses, so starting with NOSCH, As you know, Nosh already published its results some days ago, showing once again a solid operational and financial performance. The company continued to grow in the telco segments, both in B2C and B2B, where it continued to gain market share, and also had a very positive quarter in the media and entertainment segment, particularly in the cinema exhibition business. Net results were significantly influenced by an additional reimbursement of activity fees by Anacom, and this has a significant impact both in the net income of the company and also in the equity method results that consolidate at Sonai. The dividend of 35 cents per share relating to 23 results was already paid in April and resulted in a total cash-in for Sonicom of 67 million euros. As for BrightPixel, the company continues to develop its investment activities. It currently has a portfolio of 43 companies in total. In the first quarter, it did not execute any new investments, but it continued to manage its portfolio of existing investments. And at the end of Q1, NAV was quite stable, which shows the resilience of the portfolio of investments that we have. So NAV stood at €344 million and cash invested at €177 million. reflecting a cash-on-cash of the existing portfolio of around two times. Moving on to consolidated figures, our turnover grew 11% year-on-year in Q1, reaching €2.1 billion, mainly driven by MCI and Vorten that benefited from a resilient consumption momentum. Underlying EBITDA increased by 15% year-on-year to €158 million, mostly driven by profitability improvements at MC, which led underlying EBITDA margins to improve by 30 basis points to 7.6%. Total EBITDA followed a similar trend, increasing by 13% year-on-year to 180 million euros, benefiting from the underlying EBITDA performance, obviously, coupled with the higher equity method contribution, essentially from NOF, which more than offsets the sale of ISRG and its contribution in the first quarter of 2023. Looking at the bottom line, this very positive operational performance was partially offset by higher depreciations following our businesses' investments in the last few months, and also increased financing costs related to higher interest rates and also higher debt level, leading direct results to reach 33 million euros in the quarter. Indirect results benefited from some small foreign exchange rate impact in BrightPixel's portfolio shareholding. All in all, net result group share stood roughly stable year on year at 25 million euros. In terms of cash flow generation and debt, in the last 12 months, Sonai generated a solid operational cash flow of 112 million euros, This is a reflection of the strong operational performance of our main businesses, despite the significant investments that we are doing to accelerate our footprint, namely in food retail in Portugal, and also due to some important refurbishment efforts in our existing stores. When excluding Mussi's acquisition, consolidated net debt decreased by 224 million euros year on year. Obviously, with the investment in Mussi led total net debt to increase to 1.4 billion at the end of Q1, which was well expected. The group's capital structure remains solid, with a conservative loan-to-value, significant liquidity facilities available, and a comfortable debt maturity profile of above four years. Looking forward, and as we take a look at the rest of the year, we remain confident that our main businesses will deliver solid performances while continuing to reinforce their leadership positions. MC and Vartan will remain focused on reinforcing their market shares and also delivering further growth and profitability. And Musti will accelerate expansion in the Nordics while integrating itself within the Sonai ecosystem and looking for new international expansion opportunities. At Sierra, shopping centers should maintain the good momentum, while services are expected to grow further, supported on existing and new investment vehicles, together with new accretive developments that are being launched. BrightPixel will continue to pursue and invest in innovative startups to grow its portfolio and also manage its existing value in its current portfolios. In addition, and after Musti, we have already announced the completion of BCF, as I mentioned at the beginning, the BCF acquisition, and should be closing the Bruni transaction as well in the health and wellness and beauty space in Spain soon, as we get the approval from the Spanish Competition Authority. So we will be focused in successfully integrating in the group all the recently acquired companies. This is it for now. Thank you. You can now open the session to Q&A.

Thank you. Ladies and gentlemen, the Q&A session starts now. As a reminder, if you would wish to ask a question, please press star followed by one on your telephone keypad. And our first question comes from Joao Pinto from JB Capital. Please go ahead.

Hi, good morning, everyone. Thanks for taking my questions. Starting with Sun IMC, could you please quantify the calendar effects? There's an additional trading day. there's Easter, if you could quantify them, would be great. Also on IMC, can you update us on consumer trends? Are you seeing any changes to trading downtrends? Do you see signs that consumers are getting stronger? Then on Moosty, can you share any targets for store openings this year and for the next couple of years? And finally, in terms of uh net financial costs and comparing to the 35 million reported for the q1 what's the reasonable uh reasonable um level to assume for the next quarters after the recent acquisitions many things okay thank you as well for your questions do you want to take the mc questions first and then i'll take the other ones absolutely good morning uh just starting with the calendar effect as you mentioned

So when we look at the impact on Q1 from Easter, we have around 2%, slightly above 2% from the Easter impact. In terms of the leap year, we have an impact of slightly above 1%. So in total, the impact for the quarter was about 3% from the Easter and the leap year. And that's obviously a very important aspect to mention in the accounts. When you look at the consumer trend, as you rightly mentioned, last year in Q1, we were seeing an inflation of around 20%. This year we're seeing an inflation around 1%, food inflation around 1% in Q1, and obviously that has an impact on the consumer behavior. So what we have seen in Q1 was the stopping of the trading down. We are not seeing a significant trading up movement, but we are seeing a stabilization in terms of the consumer profile and the weight of the private label in our sales. I would say that's the key point in terms of the consumer trends we're seeing in the food division.

Okay. Thank you, Fernando. So on Mosty, as you probably know, Mosty has stopped giving guidance to the market following the acquisition made by Sonai. So we are not providing official guidance to the market also because we are reviewing the current strategy and value creation plan of the company. But what I can tell you is that the company has is going to accelerate its expansion, namely in Sweden and Norway, where it still has significant room to grow its presence. As you know, the company was originally based in Finland, where it has a market share roughly above 32%. In Sweden, the market share is slightly below that, so it's in the high 20s, and so our goal is to bring that level to the same level of Finland. And in Norway, where the company has opened up more recently, we have a market share roughly around 16-17%. And here is where we see the highest expansion potential for the company. And so we will continue to open up new stores, particularly in Norway and also still in Sweden in the next few months. But we will probably give you a better update of that in the coming earnings calls. In terms of Net financial costs. Well, as you know, you now know our new debt level following the recent acquisitions that we've made. Obviously, net financial costs, we expect them to be slightly higher in the next few quarters, given the fact that we have increased debt and that interest rates are still to come down significantly vis-a-vis the recent increases in the last few years. But if you assume that we have an average spread of around 1% and we are indexed to obviously the interest rates that are out there in the markets, I think it's relatively easy to make an estimate of what it would equate to in terms of financial costs.

Thank you very much.

Thank you as well.

Thank you. And we're moving on to a question from Jose Rito from Kaiser Bank. Please go ahead.

Yes, good morning to all. So on Sonai MC, my first question is, which players are losing ground, losing market share? Because we have been seeing very strong performance from Sonai. The same applies to Geronimo. Mercadona is also gaining market share. So which players are losing ground? And also for Sonai MC, what has been the market share evolution years to date, if you can share that. The second question also on the SunIMC is related to the gross margin evolution. So you mentioned that you are not seeing any more further trading down. If you can share how much was the evolution of the gross margin years to date. And when I say years to date, it's basically to eliminate the calendar, positive calendar effect from Q1. And also related to that, if the EBITDA margin increase in Q1 had any positive contribution in terms of margin terms from the Calendani effect. And finally, a last question on MUSTi. So there was the recent changes you mentioned in terms of the targets. Just to understand, is this to be aligned with the fact that FANAI also does not provide targets? or because the strategy might change for the company. Thank you.

Yes, so thank you, José, for your questions. I'll take the mostly one first. So the fact that the company removed its targets was obviously that those targets were set in a different context, in a context where the company had a diversified shareholding base. Right now, with the level of control that Sonai has, We obviously have a different value creation plan for the company, one which is more accelerated in terms of investment and growth, and that's why we decided to stop providing or removing those targets from the market. You're right that Sonai typically has a history of not providing guidance to the market, but we will be updating you with the objectives that we have for the company and also with a track record that we will continue to see in the next few months in terms of execution of that strategy. Do you want to take the MC questions?

Absolutely. Good morning, José. I'll go one by one, but if you have any questions, follow-up questions, let me know. So in terms of the market share, as João mentioned in the beginning of the call, we have seen a positive evolution of market share here today. So we have increased our market share in food retail in Portugal in Q1 2024. In terms of who are the players who are losing share, I'm obviously not going to comment that in detail. What I would say is We are seeing, obviously, a significant change in the competitive landscape with recent entrants, obviously, as you mentioned, gaining share with their expansion. We are seeing mergers, as you know, with Oceania. We are seeing also the traditional channels not expanding the way that the modern channel is expanding. And so we're seeing a lot of different movements here, but I would say that focusing on MC, we have been quite focused on our value proposition and reinforcing it and also reinforcing our expansion in convenience, as you know. And as a result of that, we have seen a positive evolution in terms of market share. Going to the question of margins and starting with the gross margin, I did mention that trading down was not happening in Q1 2024, but I would emphasize that we have seen pressure in terms of gross margin in Q1 2024. No trading down, but still gross margin going down because of the competitiveness of the market and the investment in price that we have done in Q1 2024 to remain competitive and having price leadership in the market. Those effects are different when we go down to EBPA margin and following the question you typically also ask. In terms of gross margin, we have seen a slightly decreasing gross margin in Q1 2024, as I mentioned. In terms of the staff oversells, we have improved the ratio also because of the strong top-line performance, but also because efficiency measures we have put in place. The energy costs have also increased. a negative impact because despite the low energy costs, we have seen an increase, a significant increase in access tariffs in Q1 2024 versus Q1 2023. On the other side, on the other costs, meaning logistics, head office, shrinkage, we have, as you know, put in place a very strong efficiency measure plan, and we have seen a significant improvement there. And that overall led to an EBTA margin increase of 0.2 percentage points in Q1 2024. But as you mentioned, it's important to say that it's not fair to compare exactly Q1 2024 with Q1 2023 because having the Easter and the leap year in 2024 obviously helps in terms of the turnover performance and obviously has a positive impact in margin. That comparison, the slight increase we have in the EBT margin of 0.2 percentage points also need to bear in mind that we are in a quarter where the calendar effects are also quite positive.

Okay, understood. Thank you. And on the energy costs, so going forward, do we expect it to be tailwind or headwind? We have been seeing the decline on energy costs. I'm not sure if you have it.

Can you repeat the question? was difficult to follow.

Yeah. So going forward over the coming quarters, if the energy costs will be a positive or a negative for the margin evolution. Yeah. Right. Year on year.

Yeah. So year on year, as we mentioned in the last call, we expect the energy costs to have a negative impact on, on our margin. As we are all seeing, the energy prices are quite low, I would say. But the access tariffs, they were 20 euros per megawatt hour in the first semester of 2024. And for the second semester of 2024, the estimate we have, given the government disclosures, is around 40 euros per megawatt hour. And so we expect, depending obviously where the spot prices will land, we'll expect a continuous pressure from the energy costs over sales.

Okay, thank you.

Okay, thank you, José. Maybe just to give you a little bit more color on the MUSTY question. As you know, the company had previously set out targets in terms of revenues, growth, also profitability, balance sheets, net debt to the DTA, and also dividends. And so I think we made this clear to the market. But in any case, I would like to stress that our focus really right now is going to be on growing the business. And so that entails that I would not expect any dividends to be paid by the company in the next few years. And that was articulated to the market because we want to fund growth and we feel there's an opportunity for the company to reinforce its dominant position in the three markets in which it operates. and also eventually find international expansion opportunities. The company had a target of 500 million euros in sales for this year. We would like to accelerate that. We would like the company to achieve higher levels of sales already this year, even if at the short-term expense of profitability, given the investments that we need to make to grow the company. And in terms of leverage, As you know, we have a quite conservative and prudent view on leverage. And so, although we could expect to see a higher level of leverage than the company has right now, it's currently very conservatively levered. That's below two times in that type of EPA. I wouldn't expect to see a very high level of leverage in the company in the next few years.

Thank you. Thank you, Sean. Thanks, Rene.

Thank you. And as a brief reminder, to ask a question today, please signal by pressing star 1. Up next, we have Antonio Saladas from AS Independent Research. Please go ahead.

Good morning. Thank you for taking my questions. The first one, well, is mainly related with MUSTi and is related with the performance of the first quarter, the quarter that finished on March. at least looking for the figures and taking consideration of the conference call, it seems that the figures were on the weak side, some pressure on gross margin, and apparently we need to decrease some prices on some items for the coming quarters to... Well, I didn't understand well, but maybe because they are losing market share or have some pressure from the competitors. So I don't know if you want to comment on this and if the performance of Moosky regarding the first quarter was in line with your expectations or not. Thank you very much.

Okay, thank you, Antonio, for the question. You're right. As you know, the company already announced its results to the market a few weeks ago. You're right that the Q1 performance was, I would say, weaker than in previous quarters. This has a lot to do with the macroeconomic conditions currently mainly in Finland. The country is facing a slowdown in private consumption and that's where 40% of the revenues of the company are generated. So we are seeing some trading down movements there that have an impact on both food products for pets, but also accessories and discretionary products. So the pressure on gross margin was a reality in the first quarter. It's composed of two different main impacts. You're right. One, there was some more price aggressiveness on the part of Musti to maintain its market position. The company did not lose market share in our estimates. The company retained its leadership position and did not lose market share in any geography. Actually, in Norway and Sweden, it continued to gain market share and increase its leadership position. Half of the pressure on gross margin was related to that price competitiveness that for us is, as you know, in most of our businesses, non-negotiable because we want to remain leaders and maintain our market position. The other half was due to exchange rate effects. As you know, the company operates in three different geographies, Finland, that is a Euro country, but also Sweden and Norway where currencies are different. And obviously, because you buy products in euros or dollars and you sell them in a different exchange, in different currency, there was an unfavorable evolution in this quarter, which accounts for half of the pressure on the gross margin. So I would say that this is something that obviously we cannot fully control. And our expectation is that we will see improvements along the year up to the end of the year. It's probable that in Q2, we will still see some pressure on gross margin vis-a-vis historical figures, but we expect this to be recovered in the next few quarters, not only driven by external factors, but also by things that the company is doing to improve its gross margin, namely insourcing a great part of the production of its own label into their production facility, which will have a direct impact on the gross margin of the company. And so key messages Yes, a bit weaker performance than in recent quarters. No, we are not losing market share. The company is still strong and still gaining market share in total in the Nordics. And the pressure in gross margin is expected to ease up until the end of the year.

Okay, thank you very much. Just if I could, a question on SunIMC. I know that you don't like to talk about margins for the coming quarters. Nevertheless, it seems from what you said, from your answers before that improvement on margin, on ABTD margin, 20 basis points was mainly due to the easter effect and leap year. So should we conclude that over the coming quarters you should not be able, and taking into consideration the energy cost, you should not be able to improve margins or not necessarily? Hello, good morning.

I would say that it's difficult to predict as of today. As I mentioned, we are seeing a slightly decrease in gross margin because of the pressure on the prices and the strong competitive environment that we're seeing in the Portuguese market, as you well know. In terms of the energy costs, we're also seeing some pressure. That being said, as you know, it's a much smaller component of our cost structure. And we are putting a lot of emphasis on our efficiency measures, which we are being able to successfully implement. So I would say difficult to predict where the EBTA margin will land over the next quarters, but we remain confident that with this strong sales performance, we'll be able to do a good job. To really predict if we're going to be able to increase, decrease, or maintain it flat, I would say it's probably too early, given the uncertainties in terms of the macro environment, the consumer environment. So I would prefer to leave that question for the end of the second quarter.

Okay. Thank you very much. And congratulations for the figures. Thank you. Thank you, António.

Thank you. As there are currently no further questions in the queue, I would now like to hand the call back over to you, Mr. Dolores, for any additional or closing remarks.

Okay. Thank you very much for attending our Q1 results conference call, and thank you for making it this early in the morning. We will be back in July for our Q2 earnings announcement call, and we expect, as was mentioned, to produce positive results also in Q2, continuing the good trend and the good momentum of the first quarter of the year. Thank you very much, everyone, and talk to you soon.

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.