Jerónimo Martins, SGPS, S.A. (JMT) Earnings Call Transcript & Summary

Good day, and welcome to the Jerónimo Martins Full Year Results 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luísa Virgínia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.

Good morning, ladies and gentlemen, and thank you for joining this call. Before I invite you to go through the Jerónimo Martins 2019 results, I will give the floor to our Chairman and CEO, Mr. Pedro Soares dos Santos. Mr. Pedro Santos, the floor is yours.

Good morning. For Jerónimo Martins, 2019 was a great year. All our companies outperformed their respective markets, reinforcing their competitive position. Once again, we put more than EUR 1 billion to our top line year-on-year. Our company's strong focus on sales, efficiency and the margin mix deliver a remarkable operational results. Consolidated EBITDA surpassed for the first time the EUR 1 billion milestone, growing even more than sales. This delivery was possible because of the very strong contribution of our established business. Biedronka remains our core growing engine. Pingo Doce delivered its strongest year ever in terms of results. And Recheio overcome for the first time the sales milestone of EUR 1 billion. The profitability increase at the group level also reflects the significant improvement in the performance of our new business. On the one side, the reduction of Ara losses in local currency by 10% in the year and by around 30% on the fourth quarter. On the other side, Hebe's breakeven at the EBITDA level as expected. In a few moments, our CFO will show you in detail that we continue to be a strong investor in the countries where we operated, feeding our business ambition and capacity to grow. And we end the year with a very robust balance sheet, just the way we like it. This means we are very much prepared and willing to support our companies in their efforts to be more and more ready to face the challenge ahead and to reinforce their leadership position and brand equity. Now 2019 was also a year in which we started important transformation and upgrade projects. We want to make sure that we anticipate relevant trends whenever it's possible, and that we cope with increased uncertainty and complexity of our times in the best possible way. At the end of 2019, we performed a stakeholders consultation on sustainability-related topics, very important. First of all, I want to thank you for your participation in the survey addressed also to analysts and investors. With more than 3,400 [ families ] responsible by representatives of 10 stakeholders groups in each of our 3 countries, the results are crystal clear. In the top 10 of material topics, food quality and safety, is, by far, the highest value our stakeholders expect our companies to live up to. That is also why we are investing in a DNA lab to protect our products and our customers from food fraud. Reduction of packaging material and use of sustainability materials in the -- is the second most valued topic. That's why in 2019, we sign up to Ellen Macarthur Foundation's vision and guidelines on circular economy. And we also accelerate our packaging eco design program. I will now take you through the whole list of topics, but I will tell you this. Our stakeholders, you include, expect us to live by the highest standards when it comes to ethic and transparency. Fighting food waste, respecting human and workers' right and supporting social projects to name but a few. We end 2019 being followed by 27 ESG analysts and listed in more than 60 international sustainable index, where we score a leadership level in the most of the criteria. While we are proud of our achievements, we understand that this urge us to step up some investments in transformation projects to cope with this responsibility. That is exactly what we will do because we can and because we believe that is the right thing to do. We will continue to go for growth that is profitable and sustainable. We'll keep delivering in the short-term while taking good care also of the long-term value of our business. This is something we learned from my father, who passed away last year, and who loved Jerónimo Martins, the company in which he dedicated almost his entire life. This year has been good in terms of net result, and we have a solid net cash position. As such, considering the reinforcement of some investments that need to be take place and our will to have flexible, to move fast in face of valid opportunities. The Board will propose to the General Shareholders' Meeting the payment of a dividend in line with payout ratio defined in the company's existing policy. I will give you the floor to Ana Luísa now. Thank you for your attention. Have a nice day.

Thank you, Chairman. As a reminder, materials include the release and a slide presentation, both available in our corporate website. Please remember that because we apply the IFRS 16 under the modified retrospective mode method, according to which there is no restatement of historical data, to allow full comparability, the analysis of the performance will be made on a pre-IFRS 16 basis. In the appendix, you can find our financial statements under these accounting standards. I will now take you through the presentation. In 2019, the highly successful execution of the plans designed by each company drove strong delivery, with top line growth of 7.5%, translating in the addition of EUR 1.3 billion to the group sales, EBITDA increasing by 8.9%, pretax return on invested capital standing at 28.4% from 26.5% in 2018 and cash flow of EUR 494 million. As important as this strong financial performance was the good progress we made in developing new solutions that will allow the banners to move forward from a stronger competitive position. These initiatives, including -- include testing and implementing automation tools, evolving store concept, improving value propositions and adjusting the organizational structures to anticipate and pursue emerging growth trends. Good progress was made on our environmental criteria and social best practices, strengthening the quality of the overall performance. The pillars of our corporate responsibility agenda relate to the concerns and commitments we incorporate in the way we develop our businesses and create shared value to the benefits of all our key stakeholders and the future of our group, from promoting good health through foods, to being a benchmark employer while sourcing responsibly, making every effort to minimize the environmental impact of our activities and supporting the surrounding communities to our stores and distribution centers in the 3 countries. 2019 was another good year of progress on all these fronts with best practices deeply advanced in the mission of our banners of doing more in an ever more sustainable manner. Looking at the key performance figures. Our businesses added EUR 1.3 billion to consolidated sales, 7.5% growth on the previous year to EUR 18.6 billion. At constant exchange rates, group sales grew 8.4%. EBITDA surpassed the EUR 1 billion mark for the first time to reach EUR 1.045 billion, 8.9% above 2018. The respective margin was 5.6%, up from 5.5% in the previous year. EBITDA growth at constant exchange rates was 9.3%. Net earnings attributable to Jerónimo Martins reached EUR 433 million, 7.9% up on previous year. The net cash position at year-end was at EUR 192 million. Each of our businesses contributed to the good performance, both in sales and profitability. Looking now at our Q4 P&L. Group sales grew 9.7% to almost EUR 5 billion, a growth of 9.7% at constant exchange rates. Group like-for-like in the quarter was an impressive 6.9%. Group EBITDA amounted to EUR 288 million, 15% ahead of Q4 '18. EBITDA margin was 5.8%, increasing from the 5.5% registered in the same period of the previous year. Here, I would like to point out that the EBITDA margin evolution was driven by good execution at Biedronka, with strong like-for-like allowing for price investments while maintaining a stable EBITDA margin, positive margin mix in Portugal driving EBITDA margin slightly up. Ara's EBITDA losses improvement of 34.5% in the quarter or 30.5% improvement in local currency and a solid delivery from Hebe. The other losses totaled EUR 9 million and included in the quarter, restructuring costs and year-end adjustments related to impairments and the revision of actuarial assumptions on employee benefits. Finally, on income tax, we benefited from an adjustment in the quarter relating to a dispute on a double taxation paid in 2017 that was now ruled in our favor. Looking now at the full year P&L. The numbers reflect our strategic options with good sales driving good profits. The gross margin evolution reflects the active management of the margin mix at Biedronka, positive mix at Pingo Doce and Recheio and the margin increase at both Ara and Hebe following the good development of both businesses. The evolution of the cost line include also our decision to strengthen structural areas at corporate level to anticipate trends and prepare our businesses to the challenges, namely in matters relating to security and safety, sustainability, human resources and innovation. Teams are now better prepared and projects are taking off in different areas of responsibility. The cash flow generated in the year reached EUR 494 million, up from the EUR 135 million in 2018. This remarkable performance resulted from the strong operational results of all our business areas, which led funds from operations to increase by 9.2%. Also important was a more favorable seasonal performance of working capital and the higher CapEx payables resulting from significant investments made in the last months of the year. The strength of our balance sheet remains unquestionable and the year ended with a positive cash position of EUR 192 million compared with EUR 80 million of net debt in 2018. In line with our dividend policy, the Board of Directors will propose at the Annual General Shareholders' Meeting, the distribution of EUR 216.8 million in dividends corresponding to a gross dividend of EUR 0.345 per share, excluding own shares in the portfolio. This distribution represents a payout of around 50% of the consolidated net earnings pre-IFRS 16 effect as the adjustments from this accounting standards do not reflect cash outflows. The proposed dividend preserves the group's flexibility to take advantage of any potential nonorganic growth opportunity while executing its investment plan and maintaining a low level of net debt exposure. I will now move into the detail of the performance, starting with sales. All banners maintained sales as a key strategic priority. Group like-for-like was 5.3% in the year which combined with expansion, drove consolidated sales to increase by 8.4% at constant currencies, or 7.5% in euros. Biedronka grew its sales by 8.8% in zloty with a 5.8% contribution from the like-for-like. This performance was achieved with 13 fewer trading days in the year. Continuous improvement of the offer, price leadership and attractive promotions, together with an ambitious refurbishing program that upgrades more than 200 stores every year, were the ingredients of the strong performance. The banner worked successfully to benefit fully from the favorable consumer demand and increased its market share by 0.8 percentage points to 23.9%. Basket inflation in the year was around 2.5%, higher than initially expected, and this also contributed to the performance. Despite being more affected by the Sunday ban to the -- due to the discretionary nature of its offer, Hebe registered in local currency a 25.9% sales increase with a like-for-like of 7.4%. The company continued focus on improving its margin mix and on expansion, having added 43 net locations to the network, ending the year with a total of 273 stores, including 28 stand-alone pharmacies. Looking forward, we feel confident in the prospects for the business, considering that the value proposition was strengthened throughout 2019 with improvements to the store environments and the launch in July of its e-commerce operation. In Portugal, Pingo Doce registered another good year, with sales growing 2.9% and a like-for-like, excluding fuel, of 2.5%. I would like to remind you that basket inflation was 0 as a result of the low food inflation registered in Portugal across the year. The quality of the offer, the strength of the promotional dynamics and the ever-improving quality of the shopping environment continues to deliver. Recheio grew sales 2.7%, passing the EUR 1 billion mark. It delivered another good year of strong performance reinforced by assertive commercial actions and a good level of service delivered to its clients. As an important segment to develop, the foodservice segment grew more than 15%. In Colombia, Ara registered sales of EUR 784 million, 30.8% up on 2018. In local currency, growth was 37.9%. The like-for-like performance in the year accelerated quarter-on-quarter, reflecting the more focused approach to the specific needs of each region in Colombia and the price investments the banner decided to execute from Q2 onwards. In the year, like-for-like was at 17.6%, standing at 27.9% in Q4. This notable performance took sales density to a level that drives profitability and confirms the top line potential of the current network, a potential that is still far from being fully taken. Moving on to operating results. Group EBITDA reached EUR 1.045 billion, a growth of 8.9% over 2018 or 9.3% at constant exchange rates. This remarkable performance reflects the strong operational delivery of all banners, which enabled them to more than offset cost pressures mainly related to labor. Ara's losses at EBITDA level decreased by 15%, 10.3% in local currency. The reduction was not as sharp as originally expected as the banner decided to invest more than plan in price quarter after quarter to fully test the sales elasticity and increase each store's sales density. Hebe reached EBITDA breakeven in line with plan. Group EBITDA margin was 5.6%, up from the 5.5% registered in the previous year. Good sales drove good results and margin increase. Group's CapEx was at EUR 678 million. EUR 270 million were invested for growth on stores and DCs. Ara completed 2 distribution centers that started operations at the beginning of 2020. This will be relevant for the short-term efficiency of the operation and to cope with the expected like-for-like sales growth. The refurbishment plan is another strategic area of our investment program as it allows us to guarantee the quality and the efficiency of the network, upgrading operations and bringing innovation. This absorbed 43% of the total investment program and was mainly spent in Biedronka and Pingo Doce. Just before entering in 2020, I would finalize by saying that 2019 was a remarkable year. The business delivered strongly on key performance metrics: sales, efficiency, market share and quality of existing infrastructure. As importantly, all teams kept very attractive to a changing -- attentive to a changing context, in which evolving consumer trends and behaviors and new technologies will shape new ways to meet people's needs and aspirations. Both Pingo Doce and Biedronka inaugurated new store concepts to test new products and new execution solutions. This ensures increased visibility on emerging trends and allows the development of improved operational standards that can be rolled out in the future. Biedronka, with a clear target of improving shopping experience and driving sales, started after testing to roll out the implementation of self-checkouts in its store. Pingo Doce, that runs a unique ready-to-eat operation in Portugal and that believes this category will lead to a transformational path for the supermarkets of the future, opened another central kitchen, substantially increasing the chain's capacity in this area to drive the transition of the network to a new store concept, much more focused on those solutions. Finally, Ara, in order to materialize the ambition of a regional approach to the consumers and of becoming sharper, faster and more flexible to address the specificities of each market where it operates in Colombia, changed the organizational structure of the company to give more autonomy to each region. All in all, our main banners are better prepared to address new challenges. Looking now at 2020. We anticipate a continued positive operating environment, mainly in Poland and Colombia. We also expect the competitive environments to remain intense with no exceptions. Therefore, our priorities will remain unchanged: grow sales by continuously improving our value propositions, pursue efficiency to drive profitability and to do more and better to strengthen the sustainability of our businesses into the future. These are our 3 strategic priorities for 2020. Our value propositions built a strong momentum, and we want to go through 2020 strengthening what was done in 2019. Price competitiveness and price leadership, together with the quality of our offer, are core to our value propositions, and we will stand by these positions in a way that needs to be made clear to our consumers. Ongoing improvement and revision of the assortment will continue to be key to offer quality and innovation while working also as a tool of margin mix management. The CapEx program has and will always have a strategic role for us. We expect to invest EUR 700 million to EUR 750 million to reinforce our presence in the areas where we see growth opportunities. Biedronka will add at least 100 stores to its network, of which 40% under the [ smaller ] concept. Hebe expects to add around 50 new stores that will have an important role in creating scale and driving profitability. In Portugal, Pingo Doce plans to open around 10 stores and Recheio 1 new location. Ara plans for 130 openings while advancing investments in new distribution centers to be opened after 2020. The 2 new distribution centers constructed in 2019 will play an important role in terms of service levels and efficiency of the operations. Refurbishment programs of Biedronka and Pingo Doce will be kept at ambitious levels. These programs work as drivers of like-for-like growth, efficiency protection and quality boost of the overall value proposition. Pingo Doce will begin the transition to a new store concept and is also -- that is also included in the program. We are aware that we are facing cost pressures in all markets related to wage inflation. Part of the pressure is driven by minimum wage increases and labor shortages. And another part of the pressure comes from our own view that to protect the sustainability of our growth story, we need to continue to invest in our team and in creating value to all the ones we impact with our activity. Given the strategic vision, the efficiency of the operations needs to be clear -- a clear priority. Our main businesses will advance with an extensive revision process to identify best internal practices, while tested solutions will be rolled out. We want to continue building a mindset of constant and progressive improvement in the way we do things. We will work to keep improving in the several metrics we established for our corporate responsibility pillars. I would start with you today -- I would share with you today some key projects that will be at the center of our work in 2020. Remuneration of the teams will remain as a key area of focus to guarantee our competitiveness in the labor market, but also to assure we are using the right compensation instruments to attract, retain and develop the right people for the business. Food quality is a core priority. And in 2020, we will reinforce our approach to it with the opening of a DNA laboratory to protect food authenticity that we believe is paramount for the quality of our offer and to deserve the trust of our consumers. On carbon emissions, we are aware of the challenges being brought by the transition to a carbon neutral economy, and we will continue to work to find better and more efficient solutions to progressively reduce emissions associated with our activities. On the waste front, in which the packaging is a big priority for us, we will foster the principles of the circular economy, working with our suppliers and our clients to increase the recyclability and reusability of the solutions we provide. Finally, further initiatives to support the communities where we operate will be implemented. All in all, we will invest in order to create the necessary conditions for Biedronka, Pingo Doce and Recheio to continue to outperform. Our new businesses, Ara and Hebe, will keep working to gain scale and build sales density that will allow them to deliver improved profitability. For Ara, like-for-like growth will be the key priority that, together with the improved operational focus, will lead to further reductions in EBITDA losses to reach the respective breakeven by 2021. We'll look at 2020 confident that we can deliver on our plan, supported by a sound balance sheet that will allow us to invest in current market positions and act on nonorganic growth opportunities, if and when these are identified. Thank you for your attention. Operator, I am now ready to take questions.

[Operator Instructions] Your first question comes from the line of Rob Joyce from Goldman Sachs.

Three for me. Firstly, just on Poland. Obviously, a lot of questions there around wage inflation, et cetera. Are you confident that you can maintain flat margins at Biedronka in 2020 as you did in 2019? And any insight into how -- what kind of savings you might get from that self-checkout rollout, would be great. Second one, just on Colombia. How many stores now can the DC network you have in place support? And any guidance on how you think the losses will evolve in 2020? And then the third one, you mentioned inorganic opportunities. Are you seeing these in Colombia? Or are they in markets you're not in at the moment?

Thank you, Rob. So on Poland, yes, we are aware of the wage -- the minimum wage adjustment. That was quite significant, and the overall wage inflation of the country. And we are taking that into consideration in our plans for the year. So it's -- yes, it's quite challenging, and we know that we have that pressure on our P&L. But as I said, we also expect some savings not only for the checkouts, and I would not give here any granularity exactly on the savings, because this, of course, are several moving parts here. But we think that it's challenging, but it's still possible for the company, considering that it has still some ways to manage the other P&L heading namely, not only on margin, but also on the other costs, it's possible to post a flat EBITDA margin at EBITDA level. And this, again, is on pre-IFRS 16 basis. On Colombia, so we think that the current logistic infrastructure that we have can cope with the expansion that we are estimating. The question is that we need, of course, to build more distribution centers, and hence, we are flagging that we will start -- or we are already starting the construction of other logistic facilities to cope with the future expansion. It's true that we now reduced slightly the number of openings but we expect, nevertheless, to be able to cope to with another 1 or 2 years of expansion, at least with the current logistic network. On the losses -- sorry. On the losses at EBITDA level. So as I said, so the progression is in this 2 years, so '20 and '21 to reduce it significantly in order to reach the breakeven next year on the full year. And on the inorganic opportunities, at current -- so we usually -- and I'm repeating myself, I must confess, but it's true that we are building an operation in Colombia that is to become profitable and not only profitable at the EBITDA level, is to be profitable including on the return on invested capital. We decided, as you know, to go from scratch. So to present losses instead of [ parking ] a goodwill, if there was a big acquisition. We know that we have a basis to grow from Latin America. But for now, the way that we see it in short-term is inorganic opportunities, but in Central and Eastern Europe, growing from Poland into the surrounding countries.

Okay. And just to be clear, on Colombia, you expect for the full year '21 to be breakeven EBITDA?

Yes. Yes.

Next question comes from the line of João Pinto from JB Capital Markets.

A couple of questions from my side. Just a follow-up on possible flat margins in Poland. When is it possible to reach flat margins? Are you including a possible retail tax, or this retail tax is excluding? And my second question is regarding opening costs. We see a EUR 9 million increase in fourth quarter versus the third quarter. Could you please elaborate on those? Do they have a recurring nature?

Thank you, João. So on the retail tax, I think that you are aware, the law is suspended until June 30 this year. After that, we don't know. The government has already flagged that they would like to put in place the tax already with the -- or the ruling from the European court giving them a favorable opinion. Let's see if that happens. The question is, and I usually say that Poland continues to increase the stimulus to the economy. And the fact is that it needs to finance this stimulus. So we think that, of course, there will be pressure from the tax part to finance this stimulus. So I think that we can conclude that we can have a negative impact from the retail tax in the economy, but we also can expect the economy to continue to be in a healthy context. And consumers continue to increase their spending, namely in food. The only thing I must acknowledge that we would prefer in this -- in the -- in Poland would be some slowdown in the inflation. And this, of course, will also not only affect -- that is a given for us, it will affect our costs, but it also can affect our sales and namely our sales like-for-like. And on the positive, we would prefer to have a lower food inflation than last year because as we usually say, this can hit volumes if the consumer feels that it's paying much more for the product. And so basically this, to let you know that we are facing a lot of, let's say, moving parts and different drivers that can be tailwinds and that can be headwinds. And so this, we think it's possible to still maintain a flat margin. But of course, it's challenging and we have to see along the year, how things progress. One thing is clear. The company is ready for each scenario, if the tax enters or not into force, and other regulations, by the way, that can also -- [ about ] to come into force in Poland. And so for us, we feel very comfortable with the competitive position of the company currently in Biedronka. As for the EUR 9 million. So in fact, this includes -- this EUR 9 million have to do with projects and initiatives that are led at corporate level, and as you may probably notice from the call, we are having a quite increased number of new projects in 2019 that mainly came into happening in late 2019. And the majority of these projects are transversal and will benefit all businesses. So we are talking about not only HR-related, that, of course, have to do with our compensation programs, but also has to do with new developments in the agribusiness with projects that have to do with environmental and social matters, with innovation, with automation, with cybersecurity projects. So this is really several projects that have been put in place and that have added up this EUR 9 million. As a basis for the future, I think we have -- we said it in the call that we will further develop the work done in 2019. So I think that you can assume this is the basis for the future, yes.

Your next question comes from the line of Cedric Lecasble from MainFirst.

Yes, this is Cedric Lecasble from MainFirst. I have 2 questions. So first one is on Colombia. Can you explain us how you found 130 openings, which is between the '17, '18 level of closer to 150 and 85 or 84 net in 2019? So how do you arbitrate between store openings and your profitability target with breakeven confirmed in '21? And how can we look at midterm expansion beyond 2021? Can we -- will it accelerate beyond the 130 target you have for this year? That's the first question. And the second one is housekeeping on your tax rate. You said you had a benefit in the fourth quarter, we had a lower tax rate than expected. You mentioned seasonality on working capital also with a strong number this year. So what is sustainable, what is not? And how can you guide us on tax and working capital for this year?

Thank you, Cedric. So on Colombia, I think probably it's easier to make this point, which is we opened 85 stores this year because we decided to open the 85 stores. In fact, we could have opened more but there was a clear decision and an inflection during the year that we didn't hide to really go for the like-for-like as it was showing that the sales density of the store and the potential of each store could really go up with the way that sales were reacting to our new pricing policy in the stores. Just for you to have an idea, we opened the 15 stores that we missed to the 100 stores in January. So all the cost in fact from the opening were already booked in 2019. The question is that we decided not to do it because we didn't need it to do it. So on the expansion. What we feel is that we prefer to continue in 2020 to take the most out of our current network and to focus the attention of the operating teams that are the same in the regions that have to do all the reviews and check the competitors and have to do also the expansion. So it's quite -- I know that it may be difficult to understand why this is a trade-off at the beginning, but the fact is that you have to have the same teams really focused on different drivers of sales. So for now, really, the priority was decided at the Board and at the company level that it would be like-for-like. And hence, the fact that we are slightly decreasing the number of openings, regarding the 150 that we were stating before. After that, so in midterm, we think that we will go back to the expansion once that we have really the proper price perception, the proper assortment in each store, and this new structure very focused on the specificities of each region really in full speed. On the tax rate, so we have these benefits. As you may recall, even last year, we also made some adjustments on our legal contingencies. And so that's also reflected in the tax rate. I think that we have to exclude that. And I would say that as a good basis for the future. So with no one-off, would be the marginal -- usual marginal rate -- tax rate, which is around 25%, considering the average of Poland and Portugal, basically. As for the moment, we are not [ putting any deferred ] tax on Colombia. On the seasonality of working capital. So this is really -- sometimes it's difficult to understand because, of course, we are seeing a snapshot, sorry, at year-end. So a snapshot at year-end. And at year-end, as you know, we have our biggest months of sales for almost all our businesses. And the fact, for instance, this year of having concentrated also a lot of investments at year-end, this means that you are having a lot of payables, even CapEx payables in the working capital. One thing is for sure. Excluding these CapEx receivables -- sorry, payables, that can change depending on the CapEx program along the year, all the rest in principle is more or less comparable. So we think that we'll be able to cope with the same number of stock, the same number of days of stock in our companies, and the same for the average trading payables, which are the ones that are to be kept on a regular and normal basis.

What impact would be the CapEx payables you mentioned, just to have a rough idea of the potential difference?

Not totally sure, but I can ask Claudia to give that number after that?

Do you think it's a meaningful number? Or it's like EUR 10 million, EUR 20 million?

I think it can be more than that, but considering the number that we got in terms of working capital, which was almost, I think, EUR 200 million valuation.

Yes, it was so.

Yes, it's not the majority, but it has an impact. Yes.

Next question comes from the line of José Rito from CaixaBank BPI.

So 3 questions. The first one is a follow-up on these other losses. So departing from what you reported in the 2019, and you mentioned already, this should be your floor and going forward, we should assume this as recurrent. My question is, if we should assume now normal inflation on these other losses going forward? Or we could see relevant step-ups on these losses, as was the case over the last 2 years. I remember that this increase year-on-year by EUR 15 million in '18 and '19. So that will be my first question. Then in terms of Colombia, just to understand, because the EBITDA losses came a little bit short of your guidance. Just trying to understand what has impacted more these losses in the second half of the year, if it was the fact that we have decided to be more aggressive on prices. And in this case, I'll assume a negative contribution to these losses? Or the fact that you opened fewer stores versus what you guided at the beginning of the year. And in this case, probably this had a positive impact? And finally, also on Colombia you mentioned this tax rate going forward. And you also said -- also mentioned that you are not activating the tax credits in Colombia. If you have considered when you could activate these tax credits, given that you all now have a little bit more visibility, considering the breakeven guidance for 2021? That will be my last question.

Thank you, José. So on the central costs. I think that you cannot rely on inflation on these costs. Because they have -- it's true that the -- you have here the costs with labor. And -- but on top of that, you have, as I said, all the projects that are being developed not only for the benefit of the group, but even for the benefit of all our banners. So all the transversal projects are being led and developed in a coordinated way to take the most out of these projects and to apply them to whom it makes sense. And so there is no -- I would say that it's -- we cannot take inflation here as the way to move forward. Nevertheless, as I said to João, I think that as a basis for the future you can consider this. I would say, corporate costs account for more or less 0.3%, 0.4% of our group sales. And I think that this will be maintained in principle. So -- or at least this will be the basis for the future because of all the things that we are developing also with the sponsorship of -- and being developed at corporate level. On Colombia, so the main contribution were not the stores and the fact that have delayed to January some of the openings, if it did affect something was increasing the losses of 2019 because as you can imagine, we have to hire the people. We have to train the people for when the store opened to be already in place and working. So the same even with the distribution centers. We had -- we opened the distribution centers in the beginning of the year. So in fact, we had already all the costs of the distribution centers being recognized in the fourth quarter because, of course, you have the test, we have -- you have to put things in place to then open either the stores or the DCs. So basically, what we have to do and where we missed is in our margin. And in our margin because we thought and the reaction in sales for us was quite significant. So one thing is we think that it's worthwhile to have the client in our stores and go then after margin, then having the margin in place, but not taking the full potential of our stores in terms of sales. And so basically, I would say that's the main responsible, of course, there are other things because we are talking about, in euros, the absolute number, of course, in percentage, it's magnified, but in absolute numbers, the miss, I think it's quite easy to explain. But -- so I would say that the main contribution was in terms of the margin. On the deferred tax on -- in Colombia. So one thing is reaching breakeven at EBITDA level. Another thing, of course, is reaching top line or bottom line net earnings. And particularly taxable ones. So at this point -- and usually, we don't book deferred taxes. If we think that probably in 3 years' time, we may not have taxable, or we may not be taking the advantage of these deferred taxes. And hence, the fact of not being booked for Colombia. At a certain point, if we feel that the visibility is higher. And considering the rules to take advantage of the losses brought forward that exist in Colombia, will allow us to do that. We will feel comfortable, and we will, according to our criteria, start booking the deferred tax but that we will also flag, of course, because it will have an impact.

Quite clear. Just a follow-up on the other losses. So you mentioned this reference of 0.3%, 0.5% -- 0.4% of sales, but you also mentioned that these investments is to improve the overall structure or the overall businesses in Portugal, Colombia and Poland. So for instance, the contribution and the positive evolution that we saw important is already the result of these investments that you are holding at this central level? So my point is, if you're having these losses, what is our visibility or the -- on the positive contribution going forward for the -- each of the company's business?

So José, we think that the investments that we do, of course, have a reflection and are good for all our businesses. Of course, when we are talking about the study, for instance, on automation for the business, and this comes to the logistics as to the financial teams as to analytics. So we are talking about a quite high spectrum of initiatives. Of course, the company will still have to do its investments, and it will have to do -- if it rolls out these projects, it will have its own benefits. So yes, we can say that what we do or part, not all, of course, but the majority of the projects, we think that what we do centrally will have also a reflection in the group's performance -- overall performance.

Next question comes from the line of Vincent Lee from Bernstein.

I have 3 questions, please. The first one is on Colombia. Can you give us a bit more color on the breakeven by 2021 guidance? Given how the frequency of revisions to your targets in the past few months, if I think about the changes to your store opening program as well as the miss of the loss reduction guidance this year. What gives you confidence that you can achieve this new breakeven target? My second question is on Poland. I think you touched upon it briefly earlier, but can you maybe give us some more color on how you expect food inflation to develop throughout the year ahead? Has fruit and veg inflation continued to step down in Q1 as it did in Q4 last year? And further to that, as we cycle through the meat supply side issues in Q2 last year, the stimulus programs in Q3, how quickly do you see that food inflation figure falling over the course of 2020? And lastly, just back on the EUR 9 million of other losses. You talked about the several projects you put in place in 2019. But those seem quite normal to me as part of doing business. And given that you expect these losses to recur going forward. Can I ask why they don't go through underlying earnings?

Vincent, what do you mean by the last comment? I didn't quite understood what...

Yes. The EUR 9 million of losses, you talked about the projects benefiting all the banners across the group and how you expect those kinds of losses to recur going forward. Can I ask why they don't go through underlying earnings?

I understand. I think that you are talking about the nonusual operating results that we said was either impairments or write-offs and the actuarial's calculation that we had to revise, of course, with new assumptions and new interest rates, et cetera. So these are 2 different things. I've been answering to the question of the central costs or the others at EBITDA level. Then we segregate what are things that are really nonrecurrent. And this is a different thing. But -- so probably, I don't know if that clarifies. So on the EUR 9 million, of course, I cannot predict because these are the nonrecurrent items. So if we had to do some other one-off things, of course, we will flag it and we will say it's a nonusual and things that should not be forecasted into the future. But in the case of the central cost, what I'm saying is that these are to be considered also for the future.

Okay, that makes sense. And on the first 2?

Okay. On the breakeven on 2021. So on that, I think that we are being a little bit more assertive. We initially -- it's true that we initially said it would be after 2020 or soon after 2020, to be more precise. Now we are really saying that it's in 2021. So what gives us the confidence of this really is the -- what is happening in sales and really very motivated team with the new organization, I really think that -- and the fact that they are doing really a terrific job in Colombia to really cope with the local specificities of the region, gives us confidence to put -- not saying that it can be in 2021 or 2022, that it is possible to be in 2021. I don't think that we revised the targets. It's true that we revised the number of openings in these last months, but this really has to do just with the operationality of the business as the way it is. And so I don't see it really as a very big shift in our plans. I really think is, for us, going after what drives profitability in a retail -- food retail business, which is sales. It's really our key priority. And that, of course, it will come a time when we will have also to add to this new like-for-like reactions in Colombia, we will have to add the expansion, no doubt. But for the moment, we think that we have very good stores with a lot of potential in terms of sales density per store, and we think that we should take the opportunity to go for that as a reaction to these new price investments that we are making in each region in a very assertive and in a very granular way. In Poland, so we are -- we continue to see food inflation in the country in this first months. But -- so it will depend, of course, on how -- because we know that the wage increases also puts pressure on inflation. We are aware of that. And there are other, let's say, even the economic context, nowadays, may put some pressure on that. So what we think is that we will have to cope either with a high inflation or not. In our case, what we can say that we will remain competitive. That probably and definitely, we will not follow the food inflation because we think that it can harm the business at a certain level, as I said. If inflation is positive because -- and last year, we recognized that it benefited also the like-for-like. The question is that is the moment when the inflation starts hitting the volumes, and that is definitely not good for our business. So it really will depend on how things will evolve, but we expect it to slow down because we think it's the best thing for the country and for the economy. As for the stimulus, I believe that the government will continue to put stimulus in the economy, [ contrary ] to others. And basically, is finding new ways to finance that through several different taxes that is putting into place even in our sectors, like on the alcohol or on the -- on sugar, et cetera.

Your next question comes from the line of Nicolas Champ from Barclays.

I have 3 follow-up questions. I mean, in Colombia, following your price investment last year, did you see any reaction from competitors, local competitors? And more precisely, could you give us some color on where you rank in terms of price positioning versus the main competitor? Just to give an idea of the magnitude of the running price investment? Coming back to Poland and your guidance of a broadly stable margin for this year. Could you share with us some number regarding your wage cost you expect in Poland for this year? And lastly, a recent survey by OCC show that we don't care of your perception among Polish customers were slightly deteriorated last year, and this seems to be mainly explained by your strategy to upgrade your stock concept according to OCC conclusion. Do you agree with the outcome of this survey? Are you concerned by this overall perception? And do you plan to address this issue more precisely?

Thank you, Nicolas. So on the price positioning. The main investments that we made in price was in traffic builders that -- and we are talking about bread, meat. So we see some reactions from the competitors, but it's also difficult for them because we have a store that is prepared to deliver these kind of products. And contrary to, let's say -- and I'm assuming that we -- you are referring to the other discounters. And so for these, of course, they will react. We have no doubt but it will take their own time to do it because most of them are not ready in terms of the store, the type of store, the format of store is much more on the grocery part. So not so much as on the traffic builders, where we have invested to increase and really improve the price perception of Ara. And that was really what happened last year. So Ara had good prices but was not perceived as having the best prices. And currently, what we have is a difference to our competitors in terms of price, but it's already perceived or being perceived by the consumers as really being the best prices, which was not happening previously. So for us -- and in terms of the competitive position, I think that we are currently, in Colombia, the most competitive and have the lowest prices in the markets where we operate, in the regions where we operate. And as the regions have autonomy to react even to the prices of independence that can do, for instance, opportunities, major opportunities in basic products to which lower-income consumers react very fast, we can respond to that. And even if that deteriorates margin, if it brings more cash margin due to the volumes, is -- that is usually and will -- it will continue to be our option. On Poland, for the wage costs so we are, of course, adjusting our salaries, we made an increase of salaries already in January. But we also have other benefits that we introduced in our remuneration packages. So we think that we have a very competitive wage package, and we are assuming that, of course, this -- the wage cost will continue to grow. It grew last year in percentage of sales. And we'll probably continue to increase. What we think is that we will, as I said, be able to compensate for this. So currently, we think that we have a very competitive remuneration package versus the rest of the market. And so we feel quite comfortable with that. On the number four, wage inflation, this is very difficult to say because, for instance, I can give you double-digit for the lower salaries, but that, of course, then is compensated at other lines of the personnel cost heading. So of course, we don't expect double-digit growth at the labor heading for the P&L.

No, but something around 5%, 6% is a sensible assumption again?

We are assuming more than that, probably high single-digit. That's our assumption for the year. On the study of OCC, so, well, we don't see the reflection of this deteriorated perception in our performance. So we gained market share. We improved our like-for-like, probably there is this -- the fact that when we refurbish stores and when we present store that aren't in good shape, sometimes the consumer -- and we felt that in Portugal also and even in Colombia. So the fact that -- of having a much better shopping experience than the other discounters, of course, it may give the impression to the consumer that the prices may have increased. But I think that once they enter, and they see that they haven't. And particularly, they have decreased even in other categories where -- that are important to them, like the meat or whole cuts. I think it will prove and it will -- and the continued good performance of Biedronka will prove that this slight deterioration or apparent deterioration does not materialize in the performance.

Your next question comes from the line of Carole Madjo from Exane.

Just to follow-up on that. Can you tell us what is the average basket size now at Biedronka? And how it has evolved versus last year? And whether you still see or not room to increase it further? And then maybe as well on the promotional activity, can you tell us what the figure was for Q4? And if you intend to maybe reduce it a bit in 2020 or not?

Thank you. So for the average basket, we are talking about currently PLN 41, the average basket. So it's gone from, I think it was PLN 37 last year -- or PLN 37.7 last year. And I think that there is still room to improve, but this, of course, also depends because you have to take into consideration even -- although with not such a big impact now, but even the Sunday ban. So if you concentrate, there are less trading days. So in some cases, you concentrate part of your purchasing. And this, of course, also affects your average basket. In 2020, we'll have less 7 days. So we have also that to compare. But we think that with the improvements that we are making in the offer, it's -- there is potential still to improve the average basket. And as it is far from other countries in Europe, even considering the number and the frequency of buying in Poland, which is different for -- still different from the majority of the other countries. In the percentage of promotions and in&out was 40% this year. Sorry, 38% this year, 40% in the quarter because I think it was...

40% in Q4?

Yes.

Okay,. Got it. And how do you see it for 2020, there's an evolution?

I think that it may be slightly less because we are really betting on our regular assortment and on the changes that we are making on the regular important to increase sales. So it may be slightly less, but I think that you can assume more or less level of between the 35% and the 40%.

Next question comes from the line of Ali Birkby from Citigroup.

Three, if I may. So firstly, please could you give some details around the debt profile in Colombia and outline your expectations for the evolution of group finance costs over the next couple of years? And then secondly, going back to a previous question, what is the current level of unrecognized deferred tax losses in Colombia? And should we use that future recognition as the gauge of achieving profitability? And lastly, as you open a greater proportion of smaller format stores in Poland, around 1/3 in 2019, increasing 40% in 2020, how would you now view your growth runway in the country?

Ali. So the debt profile in Colombia changed slightly because we got renegotiated new loans with the World Bank with IFC for 7 years, so it slightly increased the maturity of the debt. But basically, all the debt is in Colombian pesos. So the local debt. And I would say that we ended the year more or less, with slightly more than EUR 200 million in that in Colombia or the equivalent, but it will -- it is all that in Colombian pesos. So as a way basically as a natural coverage for group. And the idea of running this loan with IFC was really to try to have more matured or more terms that are aligned with the idea of the business, which is long term. Of course, the level of losses, I do not know them by heart, I can ask Cláudia to provide it to you. But at currently, I would say it's a quite big number because we are talking about all the losses from -- since 2013 in the business. As I said, it was really an option to have the losses instead of the goodwill in case we have any opportunity there, which is not the case. But I will ask Cláudia to give you that number. On the last question. Can you please repeat because I thought it had to do with the format improvement, but...

Sorry, yes. So you're increasing your penetration of smaller format stores in Poland. So I think it's 40% in 2020 that you've guided to against around 1/3 in 2019, kind of how do we think about the growth runway beyond 2020 based on that trend?

So I think that you can assume that, of course, we will be continuing to open some of the more standard stores. And whenever there is the opportunity we will open the smaller. Probably, I would say that in the longer term, so probably in 3 years' time, there will be slightly more of the smaller ones. But for the moment, I think that you can assume probably 50-50 after this year?

And is there a big difference in the economics between the 2 formats?

I would say that it can have lower sales, but also lower investment and lower costs. So totally in terms of return on investments, if -- they are very similar.

Your next question comes from the line of Xavier Le Mené from Bank of America.

Just on Colombia first, you slightly flexed, I would say, the strategy. You were talking about still fine tuning the concept. So where are you in that journey? So you cut prices, you go for decentralization. So is it completely done and now we should just expect you to get the like-for-like up for the next 12 months? Or do you think you need to do more. And linked to that, can you also help us a bit to understand what is driving the like-for-like in Colombia? Is it the average basket, the footfall both? That would be quite interesting. And sorry to back to that, to Rob's question, but actually, the line was quite bad. Did you mention the losses you were expecting for full year '20 are actually for Colombia.? And lastly, if I may. Can you just expect -- explain, sorry, the difference for CapEx between the payable of EUR 570 million you had in 2019 and the EUR 670 million, actually, you were mentioning for CapEx?

Xavier, so for the -- in Colombia, the decentralization, on that part, we are done in the sense that we have the full operational teams in the current regions where we operate. We think that, of course -- and I have to be very clear that, of course, we have -- we expect to continue with the double digit, very strong double-digit like-for-like for the year. And we have to acknowledge that we will have an easy comparison in the first quarter because, as we said, we started the investment in prices in Q2 last year. And so the levels of like-for-like in the first quarter were quite low. So we expect also, of course, the level of like-for-like to be very strong in Q1, taking into account the comparability of this. So what we are doing more. So basically, what is driving is not only the average ticket, but also the number of tickets. So we are getting more clients into the store. And for us, we think that considering the Colombian market and the -- let's say, the low-income level of most of our consumers, this is very important to us even. I would say that's probably the best driver in this case, more than the basket is the number of business. And that is what is happening basically. On the losses, we didn't provide any numbers. What we said is that would progressively or would accelerate to, of course, then post the breakeven at 2021. So I would have to assume that, yes, we are going to have to decrease it significantly this year, but also last year, but I don't want to be accused of missing again the percentage because for us, the important one is really to reach our targets by 2021.

Okay. On CapEx?

Sorry, on the CapEx, can you please repeat the question because I didn't hear it quite well?

All right. Okay. It's just the difference between the payables, what you've got in your cash flow of EUR 570 million as you see all CapEx you're reporting is EUR 670 million. So why do we have about EUR 100 million difference?

It's the part that is in the working capital. So basically, we paid -- in terms of payments, we had more payments last year in terms of CapEx than this year. But then you have to consider what was the amount that was in working capital last year in 2020 -- sorry, in 2018 and then in 2019. So you have to take into consideration the variation and enhance the difference. So that's why I said, we probably -- we have CapEx payables in our working capital late 2018 and but we have increased that number, late 2019. And that is the reason why we have less payments.

Okay. So we should expect 2020 to be more in line then?

Yes. Yes. I would say so.

Your next question comes from the line of João Calado from BiG.

You mentioned the negative -- the possible negative impact of inflation in Poland and on volumes. And I would like to ask you if you already see decline in volumes due to the high inflation? And next question is about Colombia and the EBITDA margin. Yes, you mentioned about not having enough taxable income for the next 3 years. So what sort of EBITDA margin should we expect for the next 3 years? And the third question is more about the new-concept stores in Nova SBE. Can you give us an update on that concept? And if it's replicable to other stores?

Thank you, João. So on the inflation impact, as you can imagine, we -- it's true that -- and if you take into consideration that Biedronka's inflation is lower than the food inflation in the market. So we are benefiting from inflation. And currently, we don't see the volumes being hampered because, of course, we are also seeing some trade up with more available income from the families. And all this is benefiting the like-for-like. But being a food retailer, and this -- if this continues, there can be a perception from the consumer that things are very expensive, so I will not trade up and -- or I will not buy so many things that may be more value-added. And this is something that we don't like, to be very honest. So we prefer -- we like to work in inflation, we have to acknowledge, but we prefer not to be very, very high because that gives the impression that if things are very expensive, the consumer tends to trade down again, also even having more available income. But -- so for the moment, we cannot complain. I think that the terrific performance of Biedronka and of the team down there in terms of operation, considering even the impact of the 13 days of the Sunday ban are really remarkable, and we don't feel the inflation impact. On Colombia, so the losses that I'm talking about, of course, are at collectible income. So at net earnings basis, already after interest. So we have to consider that even if I reach breakeven in -- even if I reach breakeven, for instance, this year, which is not the case. I think that we are reaching next year. The fact is that I still have the depreciations. I would still have the interest to taken into consideration in the equation to start posting taxable income, and that's what we are talking about in this case. On Nova, so Nova is quite important for our group, particularly not really as a store that can be replicable because if you visit the store, it's a store that is really adapted in terms of the assortment to campus of the university. So mostly our -- say, our takeaway and grab-and-go things. It can be, of course, probably more replicable in certain other areas or certain others, but not in terms of the total concept of the stores to the total stores that we have in Biedronka or in Ara or in Pingo Doce. What we can learn from the Nova story, and which is quite important, is the technologies is certain types of assortments that can be. So you have, in terms of processes, in terms of the -- as I say, the technology, there are things, there are new processes, planograms, et cetera, that are done differently, using much more technology and digital too that can be replicated to other stores. But I think that in order to do that, we will have to continue testing in different -- let's say, in -- with a different consumer in mind and in different places to also pass this different technologies and different processes and different offers.

The next question comes from the line of António Seladas from AS independent.

So just more question. In 2020, you are still talking about figures pre-IFRS 16? And if that is the case -- well, I'm assuming that Ara will be breakeven pre-IFRS 16. Can you confirm, please?

Yes, António. So all the guidance is still given pre-IFRS 16. So -- because in that case, we would have something to help.

Okay. So...

Because we have a higher EBITDA under IFRS 16 then. So yes, pre-IFRS comparison, assuring the full comparability. From now on, of course, we'll have to report, and we have the 2, but just to let you know that we will continue also to provide the numbers. So the analysis will be done already comparable with IFRS 16. But we will provide numbers pre to have a long series to compare. And because, as we said, even our dividend policy, that one will be kept pre-IFRS 16. Because there is no cash impact from the accounting policy. So the number and the 50% that you have probably to take into consideration is on the net earnings and before the application of the standard.

It means that we will continue to do -- to have to do the both estimates. Okay.

No. No. I don't think so. I think that's -- the idea, of course, here is to provide information that can cope with the long -- probably long series that you have from the last year. But the idea is to start using the numbers with the IFRS 16.

Next question comes from the line of James Grzinic from Jefferies.

I just had like a couple of very quick ones in the interest of time. First one is around M&A and the scale of M&A. Can you please perhaps clarify just how big you'd be comfortable in terms of redeploying your balance sheet on M&A, whether it's in absolute euro million terms? Or how much comfortably you would push your leverage?

James, apology. I don't know, James, I'm sorry. I don't know if it's -- it's like the problem of our system, but I'm not hearing you well.

All right. Can you hear me better now?

A little bit better.

All right. Let's try again. Yes, I was just wondering to -- or was trying to get a measure of the scale of M&A you'd be comfortable with in terms of scale of redeployment of balance sheet, you'd be comfortable with, whether it's an absolute number? Or what sort of leverage ratios you'd be happy to work with post acquisitions? And the second one, I'm just curious on your self-checkout trials in Biedronka, how much of sales did you manage to push through self-checkout in those trials?

So James, for the scale of M&A, of course, this is quite -- I think that we have, and I can't -- probably discreetly, but from the several offers that we got from banks to bridge loans or whatever, I can tell you that it's quite sizable the opportunity that we have. In terms of financing very quickly, and M&A and even a big one, so -- and probably talking about more than EUR 1 billion if needed. The question for us is that we want, even if we do a big acquisition, we want to make sure that the balance sheet -- and we don't mind, I think that the Chairman has already said that, we don't mind to have or to get out of our balance sheet policy or finance policy as regard to the balance sheet for a couple of years or for some years, if we feel that we are making a quite solid and robust move that really can be value accretive. But on that, I'm just referring to a theoretical situation. But -- so we feel that we have quite -- we are quite comfortable with the size and with the flexibility that we have in terms of balance sheet. And on post-acquisition, the idea, of course, is then to recover and that the companies would be value-accretive to be enough to then push forward and decrease the level of debt to another situation that would be comfortable to us. As to the self-checkout. So the self-checkouts were introduced this year. So currently, we don't have the number of sales for that. But we can ask the company and can provide it to you after that.

Thank you. There are no further questions.

Thank you all for your questions and for attending this conference call. We had a strong 2019 delivery, and our businesses entered 2020 from a strong position, which makes us confident that we will continue to outperform and deliver profitable growth in positive macro environment and very competitive retail sectors. Thank you once again, and I wish you all a nice day.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.