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

Good day, and welcome to the Jerónimo Martins First 9 Months Results 2020 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 to present Jerónimo Martins First 9 Months' 2020 Results. As always, the set of materials, including the release and a slide presentation are available in our corporate website. Please remember that as from this year, all the analysis will be made using the numbers under IFRS 16. To access historical series, you can find our financial statements without the application of these accounting standards in the appendix of this presentation. The first 9 months of the year were marked in each quarter by very distinct and evolving market circumstances as the COVID-19 pandemic developed. We had a strong start to the year in the 3 countries where we operate, with favorable consumer landscape and strong market positions. By the end of Q1, the measures imposed in each country as a result of the pandemic required each banner to develop their own action plans to address very specific challenges. Our teams were fast, creative and agile in adapting their value propositions to highly demanding and complex market conditions, reinforcing their assertiveness and relevance to the consumer. Renewed focus on the needs of an increasingly price-sensitive consumer, together with determined cost-control initiatives, allowed us to enter Q3 better prepared to face a period in which both Poland and Portugal eased restrictions, while Colombia remained under a strict lockdown. As in Q2, Biedronka's responsiveness and creativity allowed the company to continue to outperform the market, leveraging also on the nearly total lifting of confinement measures in Q3. As a result, our main banner posted an excellent underlying sales performance that more than compensated for lower basket inflation in these last 3 months. Hebe was also able to grow sales in the quarter, benefiting from the easing of restrictions to circulation. In Portugal, Pingo Doce improved sales delivery versus the previous quarter, despite being impacted by the restrictions still imposed on the sector and the dramatic drop in tourism. In Colombia, Ara's top line performance in Q3 was heavily struck by the long-lasting lockdown. Even so, our Colombian banner proactively put in place a number of initiatives to sustain the level of losses in the period. All in all, in the current context, and thanks to the determination of our team, Q3 for the group was marked by a solid performance and a good set of results. In the next slide, I will update you on the evolution of the restrictions in place due to COVID-19 and their impact on our operations. As you are aware, in each country, governments and health authorities adopted strategies and measures deemed necessary to control the health crisis. Starting with Poland, where initial restrictions were gradually lifted as from May and where no special restrictions were imposed to retail in Q3, we saw a more normalized circulation of people in the last months of the period, though still not back to the pre-COVID-19 level. Already in October, in response to the growing number of daily infections, the country reinstated exclusive shopping hours for people older than 60 years old and implemented a traffic-light color system. This system classifies different geographic areas as yellow or red zones, according to the local severity of the pandemic, prescribing specific containment measures for each. In the stores located in the most affected areas, the red zones, the limit to the number of people inside the store is 1 customer per 15 square meters for stores over 100 square meters or 5 clients per checkout in stores with an area less than 100 square meters. Currently, all country regions are in the red zone. In the case of the entire Biedronka chain, we are back to the situation we had in May with visits limited to 1 customer per 15 square meters. In response to this, Biedronka extended the opening hours of the stores being once again the first player to do so. In Portugal, the state of emergency that in the beginning of the crisis almost shutdown the country with high economic impact, was downgraded to state of calamity in May, followed from July by state of alert, though with some exceptions, including the Greater Lisbon area where stricter restrictions still remained. In September, it was raised back to contingency and more recently in October to state of calamity. Although there has been no change on the constraints imposed to the retail sector since May, namely in what regard to the setting of the maximum number of customers at 5 per 100 square meters, the different stages imply different restrictions on the circulation of people that inevitably affected the retail activity. On top of this, the dramatic decline of tourism in the country put extra pressure on the Portuguese economy and on overall traffic. In Colombia, the stricter confinement measures, the curfew rules and the mandatory closing of commercial activity on certain days of the week directly injured the retail sector in the period. Economic activity and unemployment levels reflect the severe effects of this long-lasting lockdown. In September, there was a progressive easing of the confinement measures, though it is still too early to conclude on the impact it will have on consumer behavior. Since the pandemic brought out more than 6 months ago, our banners have focused on being flexible and fast to adjust to the circumstances and continued to deliver on the promises of quality and price. Running day-to-day operations in the context of a world health crisis has generated incremental costs. The ones that we are able to isolate in the 9 months amount to more than EUR 35 million, of which EUR 32 million impacted EBITDA and the remainder, the other profits and losses heading. These costs relate particularly to special bonus to our operational teams, individual and collective protection equipment and supplies and multiple initiatives of social support in the 3 countries. This support includes direct community aids and contributions to scientific efforts to stop the pandemic and deal with its effect. Our priorities, as defined at the beginning of this crisis, remain unchanged as does our commitment to deliver on each one of them. Our teams, our customers, our suppliers and the communities in which we are present, remained at the center of our decision-making process during these difficult months. Looking now at the key performance figures. Consolidated sales grew 3.9% to reach EUR 14.2 billion. At constant exchange rates, sales growth was 6.6%. Group EBITDA reached over EUR 1 billion, 1.9% down on the previous year and EBITDA margin was 7.3% which compares with 7.7% in the 9 months since '19. Net profit attributable to Jerónimo Martins was EUR 219 million, a decrease of 17.8% on the same period of the previous year. The group ended the 9 months with a net cash position of EUR 311 million, excluding capitalized operating leases. Going now into Q3 P&L. Group sales grew by 2.7% to reach EUR 4.9 billion. At constant currencies, sales were up by 5.4%. Biedronka was the growth driver behind this very solid quarter. Pingo Doce's sales performance also improved versus the previous quarter, following a dynamic commercial response to an increasingly price-sensitive consumer. All companies are putting in place cost-control initiatives to protect profitability in a challenging operating environment. These initiatives are already delivering in Q3. This more efficient cost management also includes COVID-19-related costs that reached EUR 3.4 million in Q3. Some of these costs have already been incorporated in renegotiated contracts, for example, cleaning and others were reduced as a result of more effective procurement and higher availability as it is the case of protective equipment. Sales performance, combined with cost discipline, allowed for an improved P&L for the quarter, with EBITDA growing slightly ahead of sales by 3.3%, with respective margin at 8.1% from 8% in Q3 '19. Below operating results, just a brief comment on financial costs to highlight that the zloty depreciated from June to September, generating in the quarter EUR 6 million of negative adjustment to the value of the capitalized operating leases in Poland, denominated in euros. This is a noncash movement and is included in the EUR 45 million of net financial costs. Net profits attributable to Jerónimo Martins was at EUR 115 million, 11.2% ahead of the same period on the previous year. On the 9 months, this performance, and as I previously mentioned, sales were up 3.9% to reach EUR 14.2 billion, a 6.6% growth at constant exchange rates. The decline in margin reflected extra costs incurred to run the businesses under the pandemic and the impact of operational deleveraging due to the top line pressure in some businesses. EBITDA was at EUR 1,029 million, 1.9% below the previous year, broadly stable if considering constant exchange rates. The net financial costs of EUR 140 million include EUR 20 million of noncash adjustment to the value of the capitalized operating leases in Poland, denominated in euros. On top of some restructuring costs, the heading of other profits and losses at EUR 21 million includes write-offs related to the closure of 8 Ara stores, the winding up of the pharma business in Poland an increase of provisions for Recheio trade receivables and Hebe stock. In the period, cash flow reached EUR 205 million, driven by strong Q3 delivery. Cash generation has always been, to us, a key measure of performance. This good cash flow delivery reinforces our confidence in our banners' capacity to address uncertain times. Good cash generation combined with our prudent approach to cash preservation led us to end September with an extremely strong balance sheet and a net cash position of EUR 311 million, excluding the capitalized operating leases. In the early days of the pandemic, in response to the extreme uncertainty about the impact of the health crisis, the payouts have been exceptionally reduced to 30%. At this stage, considering the group's solid delivery in these challenging months, its cash position and the necessary level of financial flexibility, the Board of Directors will propose to the group shareholders the payment of the remaining amount to the 50% payout of the 2019 results, in line with the existing dividend policy. This translates into EUR 86.7 million being distributed from free reserves. In what regards, the contribution to consolidated top line performance, not surprisingly, Biedronka in Poland remains the group growth engine. Group's Q3 like-for-like increased by 2.2%, benefiting from improved like-for-likes at Biedronka, Hebe, Pingo Doce and Recheio following the easing of confinement measures in the 2 countries and the stronger commercial dynamics of the 4 banners. The 3 quarters of the year had very difficult operating environment, and that is visible in the performance. I would highlight that our main business, Biedronka, registered a strong delivery throughout the 9 months, having anticipated the effects of the confinement and mitigated the slowdown of food inflation. In Portugal, where the authorities' management of the health crisis has been much stricter, Pingo Doce and Recheio have maintained strong focus on the attractiveness and relevance of the value proposition and delivered an improved sales trend in Q3. In Colombia, from April to August and part of September, Ara operated under restrictive measures that severely impacted the circulation of people and consequently their respective purchasing power. It is still too early to have a clear picture of the resulting consumer landscape following this slow reopening. In Biedronka, sales increased by impressive 10.3% in local currency, with like-for-like at 7.2% in the 9 months. To a leading market position, Biedronka added speed and creativity to address the challenges of operating under the effects of COVID-19. Extended opening hours reinforced commercial dynamics and even stronger price leadership composed a powerful mix that drove the banner to outperform in the first 9 months of the year. Year-to-date market share is estimated to have increased by close to 2 percentage points on the same period of the previous year. As expected, food inflation decelerated in the country as well as in our banner. Biedronka's basket inflation was 2.9% in the 9 months and 1% in Q3. This slowdown was more than offset by improved underlying performance. In the 9 months, Biedronka opened 52 stores, 45 net additions, and we modeled 167 locations. Hebe sales grew 3% in local currency and were stable in euro. The drop in traffic working from home and declining social relations in the context of the pandemic situation were particularly impactful in Q2. As the country started to push for some normality, Hebe was able to improve its performance and posted a positive like-for-like in Q3, benefiting also from the growing contribution of its e-commerce channel. Pingo Doce sales declined by 2.3% to EUR 2.8 billion, with a like-for-like of minus 2.3%, excluding fuel. After a negative peak in April, when like-for-like dropped at minus 16%, Pingo Doce registered a like-for-like in Q3 at minus 1.5%, with a progressive improved performance throughout the quarter, following the assertive commercial initiatives implemented by the company. Due to its proximity locations and an offer design that favors frequency of visits, the banner has suffered with a lack of people circulation. Categories such as restaurants, coffee corners and takeaway are particularly impacted by the circumstances. In Q3, Pingo Doce also felt the impact of the poor flow of tourists, especially in the main big cities in Algés and in Madeira. In the 9 months period, Pingo Doce opened 9 stores, of which 4 under Pingo Doce & Go convenience concept and remodeled 17 locations, of which 6 were lifting. Since the beginning of the health crisis, Recheio has been strongly pressured by the dramatic drop in demand from the HoReCa segment. In Q3, performance improved slightly following the gradual reopening of restaurants and hotels, but it is still very negatively affected by the market conditions and the fact that many small businesses are not yet back to -- into activity. In Colombia, a strict lockdown was enforced from April to August. The long-lasting confinement hampered consumer demand, which, together with trading ban day and curfew, formed a very challenging and complex operating environment. Throughout the whole period, Ara focused on protecting the quality and competitiveness of its value proposition. Sales were up 25.1% in local currency and 9.9% in euros to reach EUR 615 million. The banner opened 33 stores over the period, an addition of 25 net locations in the 9 months. Group EBITDA ahead of EUR 1 billion was 1.9% below the previous year and relatively stable at constant exchange rates. The 9 months performance was impacted by a particularly challenging Q2 top line when pressure in Portugal and Colombia drove strong operational deleverage. In Q3, a continued strong performance from Biedronka, combined with better top line performance in Portugal and cost discipline across all the companies drove a solid EBITDA increase of 3.3% in euros or 5.5% at constant exchange rate. Group EBITDA margin was 7.3%, down from the 7.7% registered in the same period last year. Biedronka margin in the 9 months reflected the pressure from COVID-19 related costs in Q1. In Q2 and in Q3, the company posted stable margins, supported by strong top line performance and cost-control measures despite the investment made in the value proposition. In Portugal, margin pressure was driven by negative sales performance, with April being particularly tough. In Q3, performance improved following better sales and reinforced cost discipline. At Ara, the cost revision process, which began in Q2, has already started delivering in Q3. The company registered a decline in EBITDA losses of 20% in local currency, a 35% decline in euros. All in all, the good progression from all business areas in Q3 drove group EBITDA margin to 8.1% from 8% in Q3 '19. The 9 months were marked by the disruptive effects of the COVID-19 pandemic. All our banners started the year from a position of strength and have been able to adapt to different market circumstances without losing focus on their strategic priorities. Biedronka anticipated the impact of the restrictions on market conditions and consumer needs and behaviors. This anticipation created a strong competitive advantage that drove outperformance in Q2 and in Q3. In Portugal, where restrictions have been severe and long-lasting, the country also suffered with a sharp decline in tourism. Operating in a visibly weakened economy, Pingo Doce and Recheio have been reinforcing competitiveness of their value proposition to respond to an increasingly price-sensitive consumer. Ara operated more than 5 months under very strict confinement measures. The banner was able to protect the quality and the competitiveness of its offer and it's now consolidating a better understanding of the consumer environment in this reopening phase. We ended the first 9 months of the year with better prepared businesses, even more agile operations and with a strong cash position. This gives the Board of Directors the confidence to submit to shareholders' approval on November 26, a proposal of distribution of the remaining EUR 86.7 million from free reserves. We are now 2 months away from the year-end. The Christmas season, which is so important for food retailers, is still ahead of us. And we have no doubt it will be challenging due to a more fragile, price-sensitive consumers. As the disease evolves, we also do know -- do not know if more restrictions will be implemented in the markets where we operate. Despite all this uncertainty, we feel reassured by the proven capacity of our banners to deliver under challenging conditions. We have resumed the execution of our investment program, conditioned by the local circumstances of each market. In Poland, where the market conditions have been more stable, Biedronka is working hard to add the 100 additional stores it had planned for this year. Pingo Doce should open 13 stores and Ara expects to open 50 new locations. CapEx for the year is expected to reach EUR 450 million. Thank you for your attention. Operator, I am now ready to take questions.

[Operator Instructions] And your first question comes from the line of José Rito from Caixabank BPI.

So my first question is related with these new restrictions that we have been seeing recently, both in Portugal and in Poland. What is the expected impact on your operations based on the experience from April and May cost-wise and in terms of sales? This will be my first question. The second question related with the retail tax. Do you think it is possible to accommodate this tax and maintain profitability in 2021, if applied? So we still don't know if the retail tax will be applied or not. But nevertheless, I think that you have already some ideas of how to cope with these potential liability? And my third question on Colombia, if you can detail what has been done in Q3 versus Q2, considering the strong swing in losses between quarters?

Thank you, José. So as for the new restrictions, so these have -- in the case of the restrictions to access the stores, these are not novelties. So these were already restrictions that were in place until May in Poland and continue, in fact, in terms of access to the stores in Portugal. It's true that, of course, this hampers and this changes the consumer behavior. But now the operations are much more prepared because, of course, we know and we have already this experience in the past. So basically, the enlarging of the opening hours in the case of Poland and the kind of offer that we are putting in place and considering that also, we are much more prepared in what considered the safety of the stores, the protective measures, I think that the whole sector and even the consumer feel much more confident than before in what comes to go into the stores and do their shopping. So on that, of course, we expect -- what we expect is, of course, the consumer that is not so prone to spontaneous or to the impulse buying that plans the shopping that decreases frequency and what we have to have in place is really the opportunities and the possibility of buying at very competitive prices, a good basket because, of course, this is what will happen. It will continue to decrease the number of tickets, and we will work to make sure that the basket compensates for that.

Okay. Understood. Just a follow-up. So what is the like rule of new bonus to be adopted, let's say, in Poland and in Portugal? So similar to what we saw actually...

The bonus for the operating teams?

Yes.

Okay. We don't exclude to pay a special bonus to our operating teams, that, of course, are in the forefront of our stores and are basically making sure that the business doesn't stop and that our clients get what they deserve. So we don't exclude that until the year-end to attribute...

Yes. But it's difficult to quantify at this point?

At this point, yes. Yes. On the retail tax, of course, it's already in the state budget in Poland. So there is a high likelihood that it will be implemented. As in the past, we know that this will affect the whole economy. So we are not sure if the government will implement, considering the current context. And we know that we are still also with a high level of probability of having a positive response from the European Courts, as General Advocate has already given a favorable recommendation or at least had a positive to the retail tax. But the fact is that as we said in the past, this is something that has to be incorporated by the whole economy because it's a further tax. And at the same time, we are sure that this tax will be -- if implemented, will be used in further stimulus to the economy, and this can have also a positive side to it. So if it's not the retail tax, they will have to have other kinds of financing along with the other funds from the European recovery and resilient funds to make sure that stimulus to the economy continues to be put in place to overcome as it seems to be the case of the Polish government that is very interested in maintaining the economy overperforming or outperforming compared with the other economies. So basically, I think you asked me if we could maintain profitability. Of course, this puts further pressure on the whole supply chain, but -- so we know that the teams will do their best to maintain profitability, but it's, of course, challenging and particularly in the current context. In Colombia, so the swing -- the measures were not just implemented in Q3. Basically, what happened is that we had 3 months that were very tough on our operations. As I said in our previous call, the fact that you didn't know which days the store would be allowed to operate to do -- to plan for the supply of the stores for the -- even the planogram for the team. This was very inefficient to the whole operation. The fact that some months have elapsed, of course, made possible to adjust to this and be ready for the surprise, in fact, if stores would be open or not, if there would be further curfew rules or not. And so this -- in terms of the first inefficiency can be somehow mitigated by the fact that you are already prepared and expecting for the worst in a certain way. At the same time, the company put in place immediately to see and started renegotiating in terms of energy, in terms of advertising. So all the headings that were possible to negotiate, to make sure that the company could cope and protect somehow not the profitability because the company is still not profitable at EBITDA level, but at least to be able to refrain and to contain the losses for the quarter.

Okay. Understood. So we can conclude that on Colombia, as we saw also in the case of Poland in Q2, some of these initiatives are expected to be recurrent. So I mean the good result in Q3, at least on the cost side, are here to stay, right?

Yes. Because, of course, the big surprise here, considering what had happened in Q1 and what we were expecting in terms of the -- of our sales budget, of course, our bet was on improving sales density, as you know. We were posting very high double-digit like-for-like growth, and that was very important to, of course, compensate and decrease the losses at EBITDA level. And that was jeopardized by the pandemic and by its effect. So at this point, the measures that we are introducing is to be stable in most of our fixed costs.

Okay. Understood. Sorry to come back to the retail tax, but just to try to fully understand this. I assume that basically you are assuming as a central scenario that something will be applied. If it is not a retail tax, it will be something similar to that or an alternative for the states to receive some revenues. So my question is, is your central scenario already including this? And do you think it's possible to have flat margin?

Yes. So what we are expecting is, of course, we are -- our basic scenario, as it is highly or most probable, is that the retail tax will be in place. So we will be working and planning at our operations and take into consideration all the headings in our -- and all our cost lines, taking this into consideration. This, of course, when we say, if we are going to have a stable margin, as you know, in this business, this all depends on how the top line behaves. And so it's going to be very important also how the rest of the economy, the consumer behavior under this pandemic. So for us, it's still really a question mark. What we will do is everything on -- at least on the things that we can control at the P&L to be -- to maintain that profitability. But of course, we cannot commit at this stage with flat margins. I think they are possible, but we cannot commit to that.

And your next question comes from the line of Rob Joyce from Goldman Sachs.

Just wanted to get a couple on Colombia, first of all. Just, I mean, is there any thought that the sort of long-term outlook here, has anything changed now in Colombia? Do you think there's any sort of impairment to the long-term opportunity or the profitability here? And then the second one, do the cost measures you've put in place mean there is a -- maybe if you do get the, say, the top line coming through, more of a hockey stick potentially in terms of the improvement in profitability, given you've got a lot tighter on those costs? And what sort of top line do we need to see that improvement come through? And then just more generally on the business, it looks like you clearly put a lot of cost measures in place and can yourself well prepared as we go back into more restrictions. Does it feel you can go into Q4 with the business in it? In terms of the profitability impact we saw in the second quarter, it's unlikely to see anything quite so dramatic as that in the fourth quarter, even if we have some quite strict lockdowns.

Thank you, Rob. So in Colombia, what we are seeing is -- as I mentioned, is a slow reopening. There are signs, of course, of slight improvement at top line in these last months considering what happened and, of course, the -- versus the total lockdown scenario. But what I mentioned and I reiterate is that it's very early to take conclusions out of this. So in the short term, I think that we cannot -- we have to take into consideration that we are talking about the country where when people cannot go to work, they do not receive any income or almost any income, even if there is some aid from the state to the family. So this has an immediate impact. And we know that there are a lot of families, millions of families in Colombia that are striving to survive, and this is very tough on the economy. This is the pressure on the short term. On the long-term opportunity, we consider that the opportunity is still there, and it's valid. What we think, of course, is that it's going to be very difficult in the short term and medium term to probably count on the profitability that we were assuming, particularly if sales do not react, as you said. If we can get the sales, the hockey stick will come in. But we know that the clients and the consumer that we chose to target in Colombia is now very pressured with the economic impact on the country. We also know that these kind of countries are somehow very fast to adjust also. And so at this point is -- we think that we have to wait to see how fast the economy can adjust to the reopening, also depending on how the health situation evolves. So long-term opportunity, yes. Short-term pressure, we think that we -- it's far from being ahead. And even for this fourth quarter, if you can remember, we were already posting like-for-likes of 30% last year. So it's going to be a very tough comp for the company to meet this kind of comparisons for the period. On the business overall. So the cost measures are to, of course, continue. And we don't hide that we are taking advantage that the cost of energy is decreasing. That's the fact that the oil prices have been reduced. This means that from the transport point of view, we can also negotiate better prices. And we are looking at all our heading -- our other headings. So we are, for instance, increasing, as I said, our advertising in Portugal and in Poland, but we are managing to have it at a lower price. And this is something that we don't expect at this point to have a big increase or swing versus what happened in Q3. Q4 will really depend on how top line behaves. And we flagged the Christmas season and the year's end eve season because these, as you know, are the most important period of sales for our companies in -- particularly in Poland and in Portugal, but also in Colombia. So if there is a lot of restrictions to the mobility of people, if people are not able to travel due to the pandemic, if they are not able to get together with the families at Christmas, we know that there will always be an impact, but the magnitude of the impact will depend really on how the pandemic evolves and on the restrictions that will be put in place in the countries where we operate.

And just on the early stages, I guess, you've now got a month of trading in October, how is that looking versus the third quarter given the enhanced restrictions?

Rob, I will not, of course, give any flavor on that. Of course, even October, taking into consideration that most of the restrictions are being -- for instance, were put in place on 17 October in Poland. So it will depend now on how things evolve. But for the moment, we are not giving any note on that.

And your next question comes from the line of Ali Birkby from Citi.

Two, if I may. So firstly, your 2020 store open target in Poland sees an acceleration into the fourth quarter. How confident are you in achieving this level given the current environment? And could you also specify your store opening target for next year as well as store remodeling? And then secondly, looking at working capital, you've seen a significant benefit in the quarter. Please, could you outline the key drivers and maybe specify the leading parts within inventory and payables as well?

Thank you, Alastair. So for the fourth quarter, I think I will try not to repeat myself, but we think it's too early because to -- we think it's going to be very tough, in fact, to -- because we have, as you know, 2019 Christmas season was very strong in our banners in the 3 countries. And under these restrictions and the circumstances of how Christmas will go, and even, as I said, the New Year's eve season that is also important in this sector, it will depend on really the pandemic evolution and on how people will be able to get together or not and to celebrate. Because, of course, this -- otherwise, it will have a big impact on our businesses. Next year, I would say -- and this, of course, applies also to Poland. That, as you know, has now reintroduced restrictions even in the number of clients inside the stores. And this for high-traffic as Biedronka. It's true that I believe that in relative terms, Biedronka will always outperform the market. But from an absolute point of view, we don't know exactly how the market will behave and how the market will contract or not. So this is for the fourth quarter. For next year, I believe that the pandemic will still be here, so it's -- even considering the history of other pandemics. And even if there is any vaccine or whatever, it will not be spread. So it's something that we'll have to continue to have to live with it. So the number of refurbishments or the number of store openings will really depend also on how things evolve. For the moment, we are assuming that Biedronka will maintain the level of openings because we continue to see opportunity in the market, and we want to see beyond the pandemic period and want to be prepared, of course, to take all the opportunities in Poland that we can. So if there is no restrictions in construction, if there is no restriction in the circulation of people, we will maintain more or less the same level, probably with an increase in the refurbishments, that this year, during the period, the first months of the pandemic, of course, was stopped because of the lockdown. On the working capital, so there was a big improvement in the third quarter, but this has really to do with calendar effects. As I mentioned in the first half, we have to take into consideration because the main driver of cash flow in the quarter is, one, of course, the lower level of CapEx payments because there was a refrain in the first months of the pandemic to the capital expenditure, that was only resumed when the measures were eased. And this meant that in the first half, we paid for the invoices of the CapEx that we had done until March. And now we are basically paying for the -- for what was the CapEx on the second quarter, which was very limited, as you know. And the second one was the working capital. And that had to do really with calendar effects because, of course, the fact that you have payment cycles to the suppliers in a certain day of the week or the fact that you end in a Sunday instead of -- has a big impact. And also the fact that in the second half -- sorry, in the second quarter, as you had a decrease in sales, particularly in Portugal and in Colombia, that also has an impact on the working capital. When performance improves, that there is also, let's say, an operational leverage that happens not only at the P&L level, but also at working capital. So more sales more we have in terms of benefit from our working capital from a cash perspective.

And so looking into Q4, should we expect a similar benefit to working capital? Or should we expect a similar -- or should we expect something more similar to 2Q?

Rob, it really will depend on how sales will perform in Christmas, in fact. Because usually, you have to -- the stronger the Christmas, the strong -- the more purchases you do, and you usually pay for the Christmas purchases in early January. So the picture at year-end will really depend on how much you are able to buy and how much stock you are able to sell. So the working capital performance will really depend on how sales will behave.

And your next question comes from the line of Cedric Lecasble from MainFirst.

I have 3, 2 on Poland, 1 on Colombia. On Poland, on inflation and promotional intensity, could you maybe give us some color on what's going on with the deceleration of inflation? How do you see inflation in coming months? That's the first question. The second one would be on your market share evolution on your most recent data for market share. Did it accelerate versus Q2? And last one is on Colombia. Could you maybe discuss the performance -- or the relative performance of Ara versus the competitors and especially the most comparable competitors in Colombia?

Thank you, Cedric. So on inflation and -- in Poland and on the promotional activity. So in terms of promotional activity, we have been doing more relevant promotional campaigns. But in terms of the percentage of sales that we are both having in Poland, there is no big change. It continues to be around 38%. And this compares with the same 9 months of last year. So there is no big shift on that. On inflation, it really will depend on how things will evolve, of course. We know that there will be pressure -- continued pressure on the wages side. We know that the minimum wage will increase 7.7% in Poland next year. It has already been announced by the government, as you are probably aware. So it really will depend on how much the government will allow also for that. But in the coming months, we don't think that the consumer from a classical point of view, being more sensitive to price in these current circumstances. We don't think that our basket inflation will go the same way as the market, in fact. And this also depends because now we have a different comparison. When it comes to price of meat, as you know, we had the issue of the pork meat previously, and we usually also have -- if there is any harvesting issue on fruits and vegetables that are now accounting for a larger weight in Biedronka's basket. So this will have a comparison of last year that, of course, is quite high. So in terms of further increases, we are probably -- we'll probably have a lower food inflation in my personal opinion, and so not only in our basket, but in the country. On the market share evolution, I don't think that we can conclude that this decelerated. Of course, we had peak in April because the market reduced, as you probably recall, 9% in April, and Biedronka was able to increase sales. So we took really a big increase in terms of market share. Usually, what happens is, of course, not only the market now progressed in a different way, but also, there is seasonality that we have to take into consideration in the market share and the sales of the company. So currently, I think that the fact that we are posting and increasing market share every month and on a cumulative having around 2 percentage points, I think it's a very good performance for the company and shows that it's really outperforming in a market that is growing, of course, in -- at a lower pace than was expected due to the pandemic. In Colombia, the related performance. So this, of course, when -- we are comparing with players like Éxito or Cencosud is different because, of course, they are targeting a different customer. And as you probably are aware, they gain a lot in what comes their e-commerce sales. When we compare with D1 and Justo y Bueno, of course, we have also to take into consideration the places and locations of their stores because the curfew measures, the restrictions differ from municipality to municipality. We have a lot of stores in the north where -- so the Caribbean zone, where the restrictions had a bigger impact in the beginning. Now we are seeing a little bit different situation, and they are recovering better. But in terms of comparisons, we are not performing worse than the D1 and Justo y Bueno. Although as I said, they have different locations, and they were affected differently by the restrictions.

And your next question comes from the line of Maria-Laura Adurno from Morgan Stanley.

And apologies if some have been answered, but sometimes the line was a bit patchy on my side. So the first question that I wanted to ask you is with respect to Ara stores opening, are you actually stepping away from the target -- and in terms of store expansion? And if you are, then are you still comfortable with reaching breakeven potentially next year? That would be one question. The second thing, again, coming back to Hebe, what is the current strategy? Are you still in store expansion mode? Is it still part of your growth story? With respect -- and so that would be both on Ara and Hebe specifically. Then the other 2 questions which I had are more at the group level. So the first one, you mentioned a calendar impact have benefited you positively at the working capital level. Are you expecting a similar technical effect to come through into 4Q? And then the other question which I wanted to ask is more with respect to 2021 on the back of the comments you made with respect to the retail tax. So you mentioned cost savings to mitigate that impact, but would you still expect us to conceptually think about flat margins into next year? And if so, what type of cost-saving measures would you actually be actioning?

Thank you, Maria-Laura. So on Ara store opening, it's not that we are changing the main strategy in terms of opening. We had a lot of constraints even in Colombia with the lockdowns that lasted almost 6 months, a full lockdown. So this also affected the expansion rhythm. It was -- it would be almost impossible to cope with a situation where people cannot circulate or have curfew rules. And so that also affected. So for the moment, we say that we expect still to open the 50 stores, but this was really basically regarding the pandemic. And so we have to adjust our expansions calendar, considering also the pandemic. And of course, all the restrictions that come with any construction of new DCs or whatever because that, of course, is also paramount. In terms of breakeven, I mentioned that, I believe, in our last conference call, I think it's going to be now very difficult to reach them next year, considering that we see it very difficult to even with the cost-control measures, we need more sales density in the stores. And we were assuming to reach the breakeven with a double-digit like-for-like for the company, which happened until Q1 this year. But with the pandemic and with the impact that was very, very severe on the economy, as I said, and you probably also know the situation on the surrounding countries, this, of course, puts in jeopardy the -- or jeopardizes the possibility of having a breakeven. Again, if there is a big swing in the situation, it may be possible, but I think it's almost -- we cannot take that as the most possible scenario. On Hebe's current strategy. So basically, the company now, of course, is focusing on having -- on mitigating the impact on top line that it had the fact that we had all these lockdowns and the fact that people are not back into the street. They are not back into the shopping centers. And probably in the fourth quarter, of course, this will also have an impact. But in terms of expansion, so I would say and anticipating because the companies are now reviewing their plans that we'll have to have a mix of stores because the ones that are performing better at this stage are not the ones in the shopping centers, are the ones in the retail parks that allow for -- to have a higher distance and to -- so -- but this has to do with the pandemic. So beyond this, I don't think that -- I think that probably we'll have to have a mix of stores that have to account for shopping center of high-density street, but also retail parts and other kinds of locations because, of course, this also gives -- on the risk management front also helps. But for the moment, no change on that with -- in terms of the strategy that we have for the company. Probably just here some setback in the sense that we have to change the timetable again because of the pandemic. At group level, so on the working capital, I've already mentioned that in the fourth quarter, the way that the working capital will behave will highly depend on the top line performance. Last year, we had a very strong Christmas season in all our businesses. So even Ara that during the fourth quarter increased sales by 30%, as I said, like-for-like sales. So depending on this, we may have some more pressure on the working capital front because we have this kind of tough comparisons. And on the retail tax, I said we will -- the retail tax, as I also mentioned, will affect the whole economy. We are, in our basic scenario, assuming that it will be in force again. But we know that we'll -- so it's not going to be -- or the flat margin will not only depend on the cost saving, it will depend basically on the top line performance again. And this will not depend just on the retail tax and its impact even in inflation, but it will depend also on how the consumer will behave under the pandemic that we still expect to evolve even next year, unfortunately.

And your next question comes from the line of António Seladas from A|S Independent Research.

It's a small one -- a quick one. For the coming years, should we expect Biedronka, your basket inflation to continue to evolve below the official -- well, the official numbers? Or do you think that it will be more in line with the official numbers?

António, so we are very competitive, and we want to maintain the gap for the market. So I think that it will depend, of course, but I would say, trying to guess that in principle, because in these last years, if you compare all the evolution and we get the historical numbers, you'll see that Biedronka has posted for a lot of years a basket inflation lower than the market. And so at this point, I would say that if this can be a proxy for next years, probably the same will happen in the coming years.

And your next question comes from the line of Xavier Le Mené from BofA Securities.

Just 1 quick one, actually, just thinking a bit more longer term. You were talking about potential for acquisitions, especially in Europe, Romania was mentioned a few times. So do you think that the current environment offer more opportunity for you and you can potentially accelerate plan? Or do you think that actually the current environment requires to be more cautious?

Xavier, so we still have -- we continue to have an ambition to grow and to open another front in Eastern Europe growing from -- and taking advantage of the sourcing capabilities of Biedronka. That hasn't changed. Of course, in terms of timing, I would say that the way that -- how the market is behaving now, as you said, it can create opportunities, but for us, it's also a constraint because with the mobility constraints that we have, and you know our track record and our culture in terms of what comes to acquisitions, we know -- we want to know what to be in the ground to do any acquisition. And of course, this may delay it somehow due to the current situation and the constraints to the mobility and the traveling, but the ambition continues to continue to think about growing elsewhere.

Okay. Just a quick follow-up, if I may. But if any plan was delayed, so would you reconsider paying special dividend going forward then?

Well, at this stage, Xavier, I think that even having paying, for instance, now the remaining -- the amount that we had retained somehow, if we can say it like that, in the beginning of the pandemic, when there was even lower visibility than now, and we didn't know how things would progress, so we retained a part of the dividends. We are going to pay now. But even after this payment, we think that we have the flexibility, even for a big acquisition. So it will not be a question of finance resources. And even for the next years, we will maintain our dividend policy, and we don't have any reason not to think that the dividend policy will change. I think that we'll -- we continue to have finance capability to do an acquisition as we expect.

[Operator Instructions] And there are no further questions that came through, please continue, ma'am.

Okay. Thank you all for your questions and for attending this conference call. Our teams are now fully focusing -- focused on delivering to the best of their ability as we approach Christmas season without losing sight of our long-term perspective: to continue growing in a sustainable way beyond the pandemic, our banners will do the utmost to maintain their competitive position, carefully reading the context to anticipate and deal with the changes and challenges in each of our markets. Thank you once again, and I wish you all a nice day.

Thank you. And that does conclude our conference for today. Thank you all for participating. You may all disconnect.