Sonae, SGPS, S.A.

Thank you for joining the Thornay's 9 Months 2024 Results Conference Call. At this time, we are assembling today's audience and plan to begin shortly. We appreciate your patience and please remain on the line. Thank you. Thank you.

Good afternoon.

We welcome you to SONE's 9-month 324 Results Conference Call. During the presentation hosted by Mr. João de Loures, SONE CFO, all participants will be on a listening remote. 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 1 on your telephone keypad. If you're experiencing any difficulty in listening to the conference at any time, please try calling from a different device. I now hand the call over to Mr. Zero Dolores. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us for SonaEye's results presentation for the first nine months of 2024. We are pleased to update you on our performance, strategic advancements, as well as on the outlook for the coming months. As usual, besides myself and the investor relations team, we have on the call Cristina Nuvaez from RedTexel, Fernando Azuera from MC, Paulo Simões from Vartan, and Miguel Moreira, recently appointed CEO. I would like to start by briefly recalling the significant moves in our portfolio in the first nine months of the year, which together surpassed 1 billion euros in total investments. There are two transactions in particular that I would like to highlight. In March, we successfully integrated Moospeed, the leading pet care retailer in the Nordics, into our portfolio through a public tender offer. Sonai currently owns just over 80% of the company. as a platform for growth in the European pet care landscape. And in July, we concluded the merger with Druni, establishing the leading health, wellness, and beauty retail platform in Spain in partnership with NNL. This is a platform where we also see significant potential to continue to grow, leveraging a very strong value proposition and distinctive managerial capabilities. Bold transactions have an important impact on our consolidated figures, which I will further detail in this presentation.

So let's go business by business as usual. Let's start with our largest retail businesses and MC in particular. MC delivered an impressive performance in food retail this quarter, while continuing to show strong growth in the health and wellness and beauty divisions. In grocery, Frontinense has further reinforced its leadership position in a highly competitive landscape in Portugal. Our value proposition continues to merit the presence of an increasing number of customers who are able to fulfill their needs across the most comprehensive and convenient physical and digital footprint in the market.

We continue to optimize our assortment and offer the best value to our clients, and this was reflected in a significant increase of market share in the first nine months of the year. In Q3, we added eight new proximity stores to our network, reaching 18 new openings since the beginning of the year, as we maintain a significant pipeline of new stores in catchment areas where we are currently underrepresented. The recent expansion efforts have had a significant impact on total growth that reached 7.1% in the first nine months of the year. The polite-to-like sales increase was also very positive, reaching 4.4% in the low-inflation context but with a strong performance in terms of volume growth. In the health and wellness and beauty division, this is the first quarter in which Druni's contribution is fully consolidated in our results. Therefore, turnover increased to 668 million euros with a 10% like-for-like increase from Wells and Adenau. Overall, MC achieves years of 12.2% to 5.4 billion euros with a like-for-like growth of 4.9% and was able to improve profitability in both divisions. At the end of the first nine months of the year, MCs in the line of EPA margin improved 30 basis points year-on-year to 9.8% and reached 530 million euros. This was achieved not only through the integration of Druni, which is margin accreted to MC, but also due to solid sales growth together with efficiency measures that more than offset the investment in competitive prices and inflationary pressures on the company's cost base. Moving on to Vorton. Vorton had a quite positive Q3 after a slower Q2. the company showed strong top-line growth and continued to expand its market share, supported by an acceleration of online sales. These positive results were further strengthened by the expansion of iServices, with 25 new stores open in 2024 so far, enhancing our service offering and omni-channel approach. Total turnover reached 942 million euros in the first nine months of 2024, a 7% growth and a 3.5% like-for-like increase, with e-commerce sales growing 15.4% year-on-year and already accounting for 16% of total turnover. If we look at total GMV, including third-party sales on Boston's marketplace, it reached 994 million euros, representing an even higher level of growth of almost 8%. Regarding profitability, Vorten's margin was impacted by an intense promotional activity and also inflationary pressures on the cost base, but was nevertheless able to maintain underlying VTA at 46 million euros with a 4.9% margin at the end of the first nine months of the year, a clear recovery versus Q2 figures. Regarding most fees, the company, as you know, released its quarterly results on November the 7th, In the Nordics, Musti maintained its strong market position during the quarters, supported by a growing customer base despite a challenging consumer environment as consumer confidence moderated and discretionary consumption decreased, particularly in Finland, which is the company's main market. We are now starting to see a more positive trend towards the end of the year, but the market is still subdued. Prospects for 2025 are better, both for the pet tax sectors in Europe and for price consumption in the Nordics. Therefore, the team remains focused on gaining new customers and maintaining market share in Finland and Sweden, while continuing to expand its competitive position in Norway. Total net sales increased by 3% in the last 12 months to 438 billion euros, with a like-for-like of just over 1%, and EBITDA was down to 14.7%, pressured by a lower gross margin due to price and promotional investments. In October, Musti signed an agreement to acquire Pet City in the Baltics, a first step in expanding the Musti family into new geographies. Moving to Sierra, our real estate business. In Q3, the company maintained strong resilient growth across its European shopping center portfolio. It continued to execute its strategy in the services activity and made significant progress in its development pipeline. Sierra's European shopping center portfolio maintained a strong momentum in Q3. This resulted in a like-for-like growth of 5.2% in tenant sales in the first nine months of the year, with occupancy rates remaining high at 98%. In the first nine months of the year, net results increased by about 20%, driven by the strong performance of European shopping centers, enhanced gains from property sales, and improved asset valuations. This improved net results was the main driver for the increase in NEV, which grew 1.9% versus the end of the year in 2023, despite some unfavorable FX impacts. A quick note on NOS that has already reported its results to the market, showing another quarter with solid growth, mainly driven by its core telco business and a steady VPA margin. In our account, the equity-matted results from NOS reached 71 million euros in the first nine months of 2024, an increase of 29 million versus 23, fueled by the improvement in operational performance and the capital gain of 31 million euros related to the sale of another portfolio of towers to sell next in Q2. In terms of cash flow generation, the company is having an outstanding year, driven by the improved operational performance, controlled levels of investment, and non-recurrent cash proceeds from asset sales, the return of activity fees by Anacom, following a favorable court ruling, and also some favorable tax impacts. Total free cash flow before dividends reached 332 million euros in the first nine months of the year, a 3.5 times increase versus 23. Finally, Blackpixel, with more than 40 companies in the portfolio, made a new investment in a cybersecurity company and made also some follow-on investments in the existing portfolio. NAV increased to 343 million euros and cash invested to 136 million with an expected cash-on-cash of 1.85 times as the company continues to manage well its portfolio of assets and protect value in the existing portfolio. Overall, our consolidated turnover grew 15.4% year-on-year in the first nine months to €7 billion, primarily driven by growth in our retail operations and also by the integration of newly acquired businesses. Underlying EVTA increased 21% year-on-year to €611 million, as the margin increased 40 basis points to 8.8%, also reflecting the solid contribution mainly Druni and Musti. Total consolidated IPA jumped 22% year-on-year to 706 million euros, underpinned by the underlying IPA performance and also the higher equity method contribution, essentially from NOSH. This positive operational performance was partially offset by higher depreciations, given the significant level of investment made by our businesses and also higher financing costs. In any case, direct results increased 34 million euros to 201 million in the first nine months of 2024. Net result group shares stood at 149 million euros, a 14 million euro increase year-on-year. Moving on to net debt before dividends paid, we had an increase of 676 million euros in the last 12 months. This was obviously due to the significant In the last year, if we look at the performance of the original portfolio, Sonai registered a total of 182 million euros in free cash flow as we continue to generate healthy levels of cash flow across our main businesses. And we continue to have a quite solid financial position with significant available liquidity facilities and a comfortable net maturity profile with about three years in maturity. In terms of main financial ratios, the holding LTD stood at 16%, slightly surpassing our prudent threshold of 15%, but we will be bringing this down in the coming months.

All our businesses remain at quite comfortable leverage levels. Looking forward, we remain confident in our ability to sustain growth. Our focus remains on strengthening market shares across businesses, effectively integrating new acquisitions, and delivering value for all stakeholders through disciplined execution.

With a clear strategic direction and a resilient portfolio, we are well-positioned to navigate the evolving market landscape and continue delivering strong results. In particular, MC will continue to focus on strengthening its market leadership position in the grocery market in Portugal, while ensuring a successful integration of Bruni. Vartan works to maintain its market leadership in a very important quarter of the year for the electronics sector, as well as boosting its services and marketplace businesses. Musti will consolidate its leadership in the Nordics, integrate that city in the Baltics, and explore new international expansion opportunities. Sierra Shopping Centers are expected to maintain their positive momentum while the team continues working on growing the new lines of businesses. Rock Notch will maintain the positive operational momentum in Q4 and adapt to a new competitive landscape in the Portuguese telco market. Bright Pixel will continue to identify, assess, and invest in new innovative companies, as Sparkfood will be focused on integrating the recently acquired companies into a leading platform for the development and production of innovative ingredients. This is it for me for now. Thank you again for your trust in Somai. You can now open the session for 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. Thank you. Our first question comes from Joao Pinto from JB Capital. Your line is open. Please go ahead.

Hi, everyone. Thanks for taking my questions. Starting with Sierra, you said in the release that you're expanding the pipeline, namely in Spain. Can you update us on your CapEx plans overall? How does it split between commercial and living? And what type of returns do you expect and how they differ between both areas? My second question on Musti, you mentioned recovery is anticipated in the near future. Do you see opportunity to repair gross margin in the short term or do you intend to keep investing on prices to drive demand? And finally, on MC, can you update us on how many stores do you plan to open per year in the cosmetics segment in Spain? now that you have integrated Journey, and if you could quantify basket inflation in the Q3, it would be great. Thank you.

Very good. Thank you, João, for the questions. I'll take the Musti one first, and then I'll hand it over to Fernando and Miguel to cover the MCNTR questions. So, on Musti, as you know, the context for... in Europe this year has been quite challenging across most countries in Europe, and you can see that from what different players and operators are reporting in terms of performance. There's a bit of a hangover after the increased tech ownership during COVID, during the pandemic, and also we have specific macro impacts in the countries in which we operate, namely in Finland, which is undergoing a bit of a recession because of private consumption. That being said, Musti has been quite resilient in its performance and continues to sustain its market leadership position and actually increasing that market leadership position in several markets. And now we believe that we've already seen some positive signs going into the end of the year in terms of growth. So life-to-life growth in particular is recovering well. We are seeing positive like-for-like in Finland for the first time in a few months. And 2025, in terms of macro backdrop, is expected to be a better year overall in the Nordics as well. So we do expect positive times. In terms of gross margin, what we are seeing is obviously a pressured gross margin versus historical figures. We also expect gross margin to recover and improve in the following months. I would say probably still at a lower level than we saw historically, about 12 to 18 months ago, because we do feel that it is important to sustain our competitive position in these markets at this point in time. And so I would not expect gross margin to return to the highest levels that we saw in the last 18 months, but we do expect a significant improvement in the next three to six months. I will probably hand it over to Fernando to cover the MC questions.

Fernando Rocha- Okay. Thank you very much, Raul. Good afternoon. In terms of the questions, I'll start with inflation, the basket inflation for grocery in MC. In the third quarter, we have seen more or less the foot inflation of around 1 percent in our basket, which is relatively similar to what we have seen year to date. Obviously, when you compare with the national statistics, For food inflation, please bear in mind that there is an impact from the reversing of the VAT zero measure. But in MCF, in the grocery space, we're seeing about 1% of food inflation. In terms of the openings of health, wellness, and beauty, just to give you a sense, year-to-date 2024, we have opened 17 Druni stores plus four R&L stores, so about 21 stores year-to-date. Our plan for the upcoming years is probably to be around to 20 to 25 stores in health, wellness, and beauty in Spain over the coming years.

Well, thank you for the question. We keep our investment management vehicles that we already know in the market. We keep our shopping center activity with a strong performance with a very positive resolution on sales and also regarding occupancy rates. So we are very comfortable with our operational performance. We are now launching a new opportunity for Ciera. As part of our strategy, we are expanding our portfolio into a new segment, as you saw in the news in Spain. It's a residential project in the north of Spain that we will develop through a partnership in which we will participate not only as an investor but also as a service provider, leveraging obviously our proposition our value proposition as an integrative platform for operations in the real estate market.

If I can follow up, do you have any plans, can you quantify in terms of CAPEX, how much do you want to invest in this new area?

It's one of our strategic pillars of developing the company and growing the company, but we don't disclose the exact number that we are going to invest in this area. So it's a relevant part of it. Okay. Thank you very much.

Thank you as well.

Thank you. And we will now take our next question from Jose Rito of Coex-Habang. Your line is open. Please go ahead.

Yes, hi, good afternoon. So my first question on Dronee, I will guess that now you are in an integration phase of both companies. We have already some targets in terms of new stores. The question is, what can you determine in terms of strategy going forward? Is the strategy to continue to expand in Spain over the long term? How much stores can be added? Any reference that we can use? And also related to this, is the format expectable for other countries, other geographies? That will be my first question. Also in the case of MOSI, just to understand a little bit the strategy behind the pet city acquisition, what is the idea is to grow now organically in the Baltic region, is this idea. And also the company looking at other geographies, what is the strategy for multi. And finally, in the case of Sierra, if you can provide a little bit of your view regarding yield evolution for the real estate market. And if, apart from these residential projects, if you are looking at other areas, such as we have been seeing in Spain, other players investing in data centers, this is something that you are also looking at.

Thank you. Okay, Zech. Thank you for your questions. So, I'll start with the Mufti one.

So, as I mentioned, the idea with Moosty is we see still a lot of potential for the consumer to grow in the Nordics and to gain further market share. And there's a lot of potential for value creation expanding organically in the market, the original markets of the company when we acquired it. But obviously, we also see it as an interesting platform to grow into other geographies. And we feel that the market in Europe is an interesting, there's an interesting landscape for consolidation right now. And so we are, take the mostly value proposition into other countries and to bring the know-how and the capabilities that we have in that business to drive growth across other geographies. The rationale for the Tech City acquisition was a bit the start of that journey and so it's a natural extension of our current geographies and there's a lot of synergies that can be expressed by operating a pet retailer in the Baltics from Finland. So there are several synergies in terms of structure, logistics, obviously sourcing, procurement, which I'm by now clearly identified and which we will try to extract as soon as possible. We found in Texas an interesting company which is relatively small but located with presence in all three bulk districts. And we feel that we have the potential now to bring the best out of the existing store network and online presence. And there's a potential to continue to expand within those markets. And so we will explore those options and we feel that it's a nice first acquisition to start our international journey and a very sensible one to start that journey. When we look at other geographies, as you can imagine, we've looked at the wider European landscape. Consolidation has started to happen. There are other players with larger size who have consolidated the sector in a number of different countries still a number of players operating in specific geographies where we feel that the mostly public opposition could be an interesting one. And so we are looking right now at different opportunities. The idea is to obviously with a lot of care, thinking very well on how to fund these movements, and obviously within our defined leverage thresholds and the way that we manage our leverage and our balance sheet. But we are currently quite active in looking at opportunities in this space. Do you want to speak to Druni one more?

Hi Jose, good afternoon. In terms of Druni, as you know, Health, Wellness and Beauty is one of our key pillars in terms of growth avenues going forward. For Druni and Arenal in Spain in particular, we are quite focused now on the integration. As you know, we are merging two companies of a relevant size. Druni has about 400 stores, Arenal 70 stores, and so the current focus that we have is really on the execution and integration, not only in terms of the full footprint, but also in several other aspects, such as logistics, commercial, even the different channels they have online, offline. And so the current focus of our team is really on making sure we have a smooth transition in this integration of two different companies and two different cultures, and so that's really the key focus as of now. The business is performing extremely well, as you saw in the numbers. In Q3, both companies have, or the combined company has a like-for-like of more than two digits, more than 10%, and so the growth is quite healthy, and the focus is really on making sure the integration goes well at the same time as we maintain the growth momentum in the business. Obviously, a key part of this is making sure that we continue our expansion in the offline channel. As I mentioned, our plan has between 20 to 25 stores per year over the next five years, the foreseeable future. And in terms of online, it's also a very relevant channel in this operation with about 10% of the sales. and we will continue to focus on providing a very strong omni-channel offering to our clients. And so really, just to summarize in terms of Druni, really focused on the integration, but also in maintaining the current growth momentum of the two companies and the combined company together in the Spanish market. In terms of international expansion, I think it's too early to say. We truly believe this is a very strong format in Spain, but also a format that in European standards has a very distinctive value proposition. But for now, we have a lot of work to do on the integration and the growth to deliver the plan we have, and then we can discuss and think about other growth opportunities.

Well, regarding the question about residential or living projects, We are taking the benefit of a strong demand on the market, especially in Portugal and Spain, and we are approaching the market with two different solutions. We've built rent and built to sell, and we are looking to opportunities both in Portugal and Spain, and these are our key priorities. We have projects in the pipeline. We are studying them and trying to launch them as soon as possible, taking benefit of this momentum in the markets. Regarding the other options like data centers that you mentioned, we are expanding our portfolio, as we mentioned before, and data centers is obviously one kind of the opportunities that we are looking for, but it's something that we are studying. It's not clear at the moment if we should invest on that. And we are obviously not sure if we have the right to play on that market, but we are studying. And if there is an opportunity, obviously, we will take the value of it.

I think there was a question on yield expectations. Oh, sorry.

On the yield, we don't have a... a clear expectation on that. We expect them to be stable until the end of the year. If there is any benefit from the NAV, our conviction is that it will be from the operational excellence on the shopping centers and on the operational side, and we are not expecting any benefit from the use, and so we expect them to remain stable.

Okay, understood. So, just to follow up on Druni or Renald Druni, which product category is performing strongly? So, on this line of double digits, what has been the main product category for this growth? If you can share.

When we look at Druni, we see two main segments. We have the perfumery and we have what we call the mass markets, which are mainly cosmetics. We are seeing a very strong performance in both segments. obviously with a little bit of over-performing in terms of the cosmetics, but both are performing extremely well. When you look at Arenal, the product mix is slightly different. It has the higher parapharmacy component, which is a very small part of Bruni's business, and obviously that's one of the key levers of the integration and the value creation. And in Arenal, we're seeing more or less the same trend with parapharmacy also growing at a very healthy level. But I would say There is no clear underperformance or overperformance of one category versus the others. The cosmetics and the perfumery in parapharmacy are all performing extremely well in both businesses. Arenal has also a very small drugstore component, which is probably the area where we are growing the least from all of them, but across the others, very healthy growth.

Okay, thank you. Thank you, Jose. Thank you.

Thank you. Once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We will now move on to our next question from Antonio Seredas of AS Independent Research. Your line is open. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. Just to, first of all, on Blackpixel, I think that the asset rotation stock, or at least price is slowing down. Meanwhile, stock markets are at record highs, so maybe you can explain the dynamic behind and why the asset rotation is not doing so well. And the second question is related to your portfolio at Sonar. Should we expect more divisions in the coming quarters, or do you believe that the the positions done recently or over this year are now enough and you're going to stabilize the portfolio. Thank you very much.

Okay, Antonio, thank you for your questions. I'll take the portfolio one first. and then over to Christina to address the practical one. We do not expect any major new acquisitions in the near future, and so we are happy with the portfolio configuration that we have right now in terms of main businesses within the portfolio. Obviously, parts of the strategy of each of the business units entails also inorganic growth, and so we will probably continue to see some inorganic moves within our businesses, some bolt-on acquisitions, but that's part of the strategy in terms of investment and growth of each of the businesses. But we do not expect any major new business lines or major acquisitions in the near future. Thank you, Antonio, for the question.

Well, what I can say is that we continue in a market that is surrounded by huge uncertainty. So we keep our activity and we are not decreasing our activity. Of course, our investment activity is not a linear activity. So, we can invest a lot in a quarter and then the rest of the quarter we keep growing our pipeline but not executing investments. We executed one investment in this third quarter and already in the fourth quarter we did another one that will be disclosed in the next day. So, we are increasing our activity. and this year we're not expected to achieve the same level as last year, but we keep pursuing our strategy and we remain confident that in the next month we will increase our investment. In terms of valuations, We keep confidence in the value of our portfolio. Our main companies are performing very well. And the market will open in the next month, as we hope so. And we are not expecting relevant impact in terms of valuation.

Just a follow-up question, actually, too. You mentioned that the market should open, but it isn't opening yet. It's not opening, and the stock market remains at a very high level. So I don't understand why the IPO market is not open.

Well, I would like to know also, but I don't know if you see, but yesterday Klarna disclosed that they will do an IPO. So we are expecting a good moment, but let's see. We'll have to wait. Okay. We would like to know. Okay.

So just regarding the first question, not any growth. You are talking about Moose. Yeah, I understood. Or you think that MC could also do more acquisitions or any acquisitions?

Look, Anthony, to be very honest, as you know, we are quite active in looking at investment opportunities across all of the businesses. So Morton has acquired small and bold firms recently. Sierra has acquired services companies to boost its services offering in several geographies. NC, as you know, has also made a number of acquisitions. So it's hard to pinpoint, especially specific prospects for M&A in any of the businesses. You know, we keep looking for opportunities to expand But my point is that I wouldn't expect any sizable large acquisitions, at least at the same level that we saw in the last 12 months, particularly with Druni and Musti. We are looking at all the businesses in Musti for sure, but also in other businesses at potential acquisitions with smaller companies. Okay.

Okay, Anderson. Thank you very much. Thank you.

Thank you. There are no further questions coming through. As a final reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

Thank you. There is no further questions in queue.

I will now hand it back to Mr. DeLores for closing remarks.

Okay. Thank you very much for listening. Thank you very much for your questions. We hope we have been able to clarify all of them. And we will speak again when we present our annual results in March 2025.

Thank you, and see you all soon.

This concludes today's call. Thank you for your participation. You may now disconnect.