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

Good day, and welcome to Jerónimo Martins First 9 Months Results 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luísa Abreu Virgínia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.

Thank you, Nadia. Good morning, ladies and gentlemen, and thank you for joining this call. As a reminder, and as usual, in our corporate website, a set of materials is available, including the release, a slide presentation and a fact sheet adding a bit of color on our activities in the quarter. Whatever angle we choose to look at it, the 9 months' figures are undoubtedly a strong set of results. In very challenging context with consumers more and more pressured by rapidly mounting prices on all fronts, we decided to stand by the families and make our best efforts to contain price increases in our stores. This focus on price competitiveness underpins a sales-driven performance in all our bandwidth investments to protect volumes pushed sales to grow by 21%, reaching EUR 18.4 billion. Sales increased ahead of high food inflation in almost all business areas, driving an EBITDA growth of 17.8%. And surprisingly, EBITDA margin that reached 7.3% in the first 9 months, down from 7.5% in the same period of the previous year was further pressured by cost inflation, mainly related to electricity and transportation that has been escalating since May. The unwavering execution of our growth strategy is reflected in the progress we made in our expansion plan, which translates into a total of 172 new stores opened across all banners in the first 3 quarters of the year. Cash flow was driven by the good operational performance and even with an increase in CapEx payments, it reached EUR 275 million in the 9 months period. We, therefore, ended September with a strong balance sheet, net debt reaching EUR 1.7 billion. Excluding capitalized operating lease liabilities, our net cash position stood at EUR 763 million. As you all know well, the context in which the performance was obtained is a really complex one. We have seen food inflation and cost inflation rising ahead of all expectations for this year. So far, the consumer reaction to these growing pressures has differed from country to country. In Poland, even if we noticed a reinforced price-oriented behavior, food consumption remained resilient. The measures implemented by the government to contain inflation have been supporting disposable income. This, together with a larger customer base made of the Ukrainian refugees staying in Poland have been contributing to protect consumption. In Portugal, pressure on volumes and on increased trading downtrends marked food retail sales, with the consumer confidence levels reaching, in September, the lowest value since the beginning of the pandemic in April 2020. In a very different trend, we have turned in tourism and find a strong HoReCa recovery. Finally, in Colombia, disruption in the national supply chain continued to impose extra inflationary pressure on food items and the consumer environment remained weak and marked by the family struggle to face the real loss of purchasing power. Against this background, consumer confidence in the 3 countries continued its negative trend through the third quarter, strongly affecting price sensitiveness and raising consumer expectations regarding the role played by retail banners in such difficult times. Looking now to the financial delivery in a bit more detail. Our retail reflects a sales-driven performance throughout the 9 months of the year. Price investments led to sales growth that limited the cost pressure. EBITDA reached EUR 1.3 billion in the first 3 quarters, 17.8% ahead of the previous year or plus 20.5% if we exclude currency devaluation. EBITDA margin in the 9 months was at 7.3%, down from the 7.5% registered in the same period as previous year. Focusing now on the third quarter. All banners kept investing to drive volumes, while cost inflation accelerated significantly, particularly with respect to energy and transportation costs. Despite this increasing cost pressure, EBITDA grew 15.6% or 19.2% at constant exchange rates. The respective margin at 7.6% was down by almost 50 basis points on Q3 '21. In the quarter, net financial costs were at EUR 50 million and included a loss of EUR 10 million related to currency impact on euro-denominated lease agreements in Poland that in Q3 '21 have generated a loss of EUR 7 million. Other profits and losses totaled minus EUR 31 million and included indemnities and increased provisions for different contingencies. It also incorporates a special bonus that amounted to EUR 22 million paid by Biedronka to its employees in recognition of their commitment and delivery in years still sadly marked by the invasion of Ukraine and the resulting war in the neighborhood country, which all the -- with all the consequences that already came with it. Cash flow was of EUR 275 million, reflecting strong generation from the operations, which more than covered the increase in CapEx payments. In the current circumstances, having closed September with a solid balance sheet is quite volatile for us to keep reinforcing competitiveness and expanding our networks with the quality we plan for. When looking at the top line in more detail, we proudly see that all banners managed to deliver strong sales growth, driving group like-for-like to be at 19% in the 9 months and 21.9% in Q3. In all countries, mounting food inflation was a material feature of the performance and all banners successfully invested to contain pricing increases on the shelves and protect volumes. Biedronka kept price competitiveness at the center of its strategy, while continuing to guarantee the quality of the overall value proposition. The banner continued to secure consumer preference. And in the 9 months, its sales grew 23% in local currency, including a like-for-like of 19.5%. As a result, market share was reinforced. In euros, sales were at EUR 12.7 billion, 19.7% ahead of the first 9 months of 2021, fueled by food inflation. The CapEx program is being executed as planned. And in the first 9 months of the year, Biedronka opened 65 new stores, 54 net additions, remodeled 252 locations and added a new distribution center to the 16 already being operated by the company. Hebe opened its 300th store and maintained a strong sales performance that also reflected its recovery against previous years, which were highly impacted by the restrictions imposed by the pandemic management. Sales grew by 33.6% in local currency, including a like-for-like of 26.4%. Pingo Doce maintained a strong focus on its commercial strategy, creating value opportunities for consumers and trying to limit the inflationary pressure on households. The banner has been largely able to protect volumes, but trading down has been an avoidable feature during the period. All in all, the strength of the value proposition and an even sharper commercial strategy drove sales to grow 10.3% and to reach EUR 3.3 billion with like-for-like, excluding fuel, standing at 8.3%. Pingo Doce opened 7 stores for net additions and renovated 25 locations. Recheio delivered strong growth, albeit against the comparative that was still impacted by COVID-19-related restrictions. The banner is reaping the fruits of the work and investments done to protect its value proposition during the pandemic, which has positioned it to further benefit from the tourist-led recovery in HoReCa. Sales of our wholesale banner grew by 28.8% to reach EUR 850 million in the first 9 months of the year. The company opened 1 new store in Cascais, Lisbon, during the period. Moving on to Colombia. Ara delivered consistently well throughout the 9 months. The banner continued investing in its everyday lowest price policy and also in strong promotions in circumstances that are extremely challenging for the Colombian family. As a result, sales grew in local currency 66.2%, including like-for-like at 40.2% with basket inflation also playing a non-neglectable roles. The banner opened 86 stores in the first 9 months and closed 1 location. Leveraging on its strong momentum, Ara is working to reinforce its expansion dynamics, raising the 2022 new openings target to the range of 230 to 250 stores instead of the 118 initially planned. The additional openings will be concentrated around year-end, and therefore, the contribution to this year's top line will be minor. Group EBITDA grew 17.8%, 20.5% at constant exchange rates to reach EUR 1.3 billion. Biedronka remains, as expected, the dominant growth driver for the group, while the contribution of Ara continues to gain relevance. In Portugal, the banner determination and competitive strengths are supporting the recovery against the comparisons still impacted by the pandemic. All banners contributed positively to the group's EBITDA performance. EBITDA margin for the group in the first 9 months of the year was at 7.3%, down from the 7.5% attained in the same 9 months of 2021. This evolution reflects sparse investments trading down in Portugal and Colombia and cost inflation in all 3 countries. Looking at Q3, the margin decline from 8.1% to 7.6% reflects the acceleration of cost inflation, particularly in Poland and mainly related to electricity and transportation that led Biedronka's margin to compress by around 50 basis points despite the strong operational leverage. In Portugal, there was also pressure on EBITDA margin as we came to the end of the energy hedging program that was in place until the end of June. Ara and Hebe, in line with their own development cycles, improved their respective EBITDA margin. We are approaching the events and adding to the very concerning geopolitical instability, there is still a high level of uncertainty about the evolution of prices in food and energy. These factors, coupled with interest rate hikes, further increased pressure on household disposable income and are expected to keep impacting consumer behavior. Our strategic choice to stand by the consumer and try to limit price increases in our stores drove the solid performance recorded so far this year and enabled us to end the 9 months with stronger market position as well as a solid financial situation. Therefore, despite the uncertainty and the challenges that most certainly lie ahead, we remain confident that our banners are both ready and willing to continue deserving the preference of our consumers. As we consistently work to reinforce price competitiveness, we acknowledge that this effort, together with cost inflation will further pressure our banner's EBITDA margins. As we see it, it is particularly when times get really tough, that food retail companies must do their very best to live up to consumers' needs. A final word on investments. We remain fully committed in executing our strategy to reflect Ara's most ambitious expansion plan and the higher cost of construction and equipment in the 3 countries, this year's investment program is updated to EUR 950 million. Thank you for your attention. Operator, I am now ready to take questions.

[Operator Instructions] The first question comes from the line of João Pinto from JB Capital.

Three questions, if I may. On the EUR 100 million upgrade to CapEx, can you give us some color on the drivers? How much of it is for higher store openings? How much of it is related to other investments or CapEx inflation? And if you could give us some color on what is the average investment per store in Colombia and Poland currently, it would be great. Also, related to this, can we consider that this 230, 250 annual openings in Colombia, can we consider it as a run rate for the next couple of years? And finally, regarding this news on a potential windfall profit tax in Portugal, do you have any information on how it can affect supermarkets?

So from the EUR 100 million increase in CapEx, I would say that it's more or less 50-50. So coming from the increase in the number of stores that we will open and prepare even to open in Colombia and the inflation on construction and equipment. Regarding the average investment per store in Colombia, we are talking more or less EUR 500,000. So the equivalent in Colombian pesos. Regarding the run rate. So of course, we think that we can accelerate and we will probably can keep this pace. We have already identified more locations to open in Ara. This being said, of course, our idea is to keep accelerating our growth. So it can be a good proxy. But I would say that for the moment, you should wait for the guidance that we will give for the full year in March. On the profit tax in Portugal. So we have the highest corporate income tax in Europe already here in Portugal. And we don't know how the law will come in terms of the computation of the so-called unexpected profits. Suddenly, we don't see, unfortunately, in Portugal, the progression in profits that probably would allow us to say that we are having an extraordinary or exceptional profit gain, but we'll have to wait to see what will be the impact, depending on how the law will be published and enter into force.

Could you just provide the average investment per store in Poland as well.

So depending on being an own store or a rented store, but I would say, on average, we are talking about EUR 600,000 or equivalent for the zloty.

And the next question comes from the line of José Rito from Caixabank.

Yes. So the first question on Poland in terms of margin evolution. If the decline seen in Q3 is the bottom. So the minus 30 basis points ex IFRS 16, if this could be a good reference going forward, taking into account the over moving parts…

I don't know if there is a problem in the line, but I hardly can read you -- can hear you. Can you repeat.

So a question on Poland. So margin pollution if the decline seen in Q3 is the bottom. So the minus 30 basis points that we saw in Q3 IFRS 16, it could be a bottom, considering all the moving parts that we are seeing. Second question on the windfall in Portugal just a follow-up. So if you can remember what is the percentage of the group profit before taxes coming from Portugal? If 10% could be a good reference? And the third question on Ara, an overview of the competitive landscape. If you are seeing any improvement post what happened with Justo & Bueno basically filling the gap left by Justo & Bueno this acceleration in terms of store expansion is one of the consequences of the problems that we saw with Justo & Bueno.

So on Poland, so you mentioned 30, but I think that I mentioned 50 basis points of margin decrease. So again, this is very hard to predict, and we are not going to give any guidance on this. So we think that the most important now is really to stay competitive because, as I usually say, the best way to protect our profitability is through sales growth. And as we are seeing the way things are progressing and people really feeling -- the family is feeling the way of all the inflation and all the several movements even in interest rates, waiting on their disposable income. Of course, they will tend to further trade down to decrease the volumes. And although we know that we have some tailwinds with unfortunately probably also the fact that Ukrainian refugees will have to stay in Poland longer due to the way that the war is progressing. The fact is that the company has to stay competitive, has to stay with the consumers to continue to provide sales growth. And by that, protecting the fact that we are assuming that all cost headings will continue to grow for the future. This being said, I cannot give you, of course, or say that if the 50 basis points will be a good proxy or not. We'll do our best, of course, to try to dilute costs and to have saving opportunities on that. But of course, it's going to be challenging. On the windfalls, so we have several businesses in Portugal, as you know. And you cannot -- we cannot say that in the last years, the profitability has increased, as you know, also. So COVID-19, in the case of Portugal, highly affected the profitability either of Pingo Doce either of Recheio and in the case of Recheio was, of course, even more noticeable taking into consideration the restrictions. But this being said, so it's -- I don't know if the windfall really will have any effect on us because it's -- as I said, it will depend on how they will put it in terms of calculation. But I don't see any exceptional profits in here. So the percentage of our total net earnings is -- or the contribution at the net earnings level is very limited for the total Portugal. Justo & Bueno so we, of course, the fact that there was 1 competitor main competitor that went into trouble is something that we are taking also the opportunity. We didn't have much overlap with Justo & Bueno. So I would say that most of our gain is not really coming from a transfer of clients from Justo & Bueno although in some locations that will also happen. So from our like-for-like, we don't expect more than, I don't know, 3% to 5% being from a possible transfer of consumers from Justo & Bueno. For the store expansion, at this point, it's very limited. And so we had already identified -- our operations team has already identified stores even before the closure of Justo & Bueno. These expansion and these 230 stores are totally from the expansion of the operational teams that we have in Colombia.

And the next question comes from the line of Andrew Gwynn from Exane BNP Paribas.

Two questions if I can. So firstly, just help us understand, are the cost pressures accelerating sequentially in Q4 versus Q3? I appreciate you're not going to give us guidance on the margin, but help to understand the cost story. Second question on the consumer. You mentioned obviously some signs of trading down. Just wondering if you could elaborate a little bit more on what you're seeing and perhaps I should also, the impact that it has on gross profit. So presumably more private label, but yes, just any color would be very helpful.

Thank you, Andrew. So the way that we see it, of course, for Q4, currently, we don't see any, let's say, ease from the energy and from the fuel cost. And that, of course, will continue throughout Q4. And as you know, we performed very well in Q4 last year. And so we are facing a very tough comparable, which means that with higher costs and probably lower or a more difficult base to grow from, the dilution can be quite challenging in this. And so that's why we say that there will be further pressures on margins. In terms of the consumer trade down. So what we see -- and this is particularly at this point, particularly in Portugal and Colombia, as I mentioned, although in late Q3, we also slightly noticed that in Poland, people are starting to -- private label is increasing. So the A brand sales decrease versus the weight of our private brands, which is usually a very good quality proposition, but at a lower price on one hand. I can tell you that, for instance, in Ara, the private brand, on average, grew more than -- or around 3 percentage points in terms of the weight on sales. In Pingo Doce just on the grocery, it's more than 6 percentage points just on the basic product year-on-year. And in Poland, as I said, we see the first signs of it. The other point is, of course, people tending to buy within the categories that do not have even the fresh ones trying or buying the products that have lower price or replacing more value-added products by cheaper ones, really. So this is what we are seeing in each category. You mentioned the gross profit. So the effect on the gross profit? So I can, of course, not give you very detailed among all the businesses, but I can tell you that all our retail businesses have decreased their gross margin quite significantly. And that's why on -- at consolidated level, we are posting a 60 basis point decrease in our gross margin.

And just on the cost point, any sort of increments on the wage side, I don't know if we've got the big minimum wage coming through in January, but any help on Q4?

Well, for Q4, so we have been -- one thing that is important for us is, of course, to maintain competitive versus the market because, unfortunately, we are also seeing a challenge on having on labor offer. We don't hide that. This is throughout and particularly in Poland. So we are having -- but that also happens in Portugal, which means that we have to stay competitive. And it's going to be a challenge, as we mentioned in at least the references or the proxies in the different countries point to, as you know, 20% minimum wage increase in Poland. Probably between 10% and 15% in Colombia and around 8% in Portugal. And we want to stay competitive, which means that we'll take these references, of course, into consideration. For Q4, at this point, we never excluded, of course, the possibility and we are always taking into consideration the context, but we usually don't make any salary adjustments in Q4.

And the next question comes from the line of James Grzinic from Jefferies.

Just ask in terms of balance sheet. In the immediate aftermath of the Ukraine invasion, you talked to feeling very conservative about -- given the overall risks out there understandably. How do you feel now about the need to have considerable buffers on the balance sheet? At the end of the day, we've had much better performance than you would have hoped for I presume post the invasion. So I'd be really curious to hear about that. And secondly, can you perhaps go a little bit more into the specifics of consumer behavior changes in Poland besides mix trading down? Are you seeing higher frequency? Are you seeing a trading down from branded and unlabeled, but also unlabeled to opening price points? Just trying to get a little bit of a better take on that, please?

Thank you, James. So on the balance sheet, I think that -- so probably, as you may remember, we have been cautious or been warning of this kind of outlook since March this year. The moment that the war happened and the first signs that on top of the inflation that was being driven mainly from the disruptions in the supply chain, which didn't finish, on the contrary, I think, currently. So the COVID-19 has imprinted a new path in terms of inflation and availability even as some of the commodities or some of the products. And on top of that, of course, the invasion didn't help. And this was something that we flagged since the -- or from the first moment. This being said, we -- of course, the first -- and we were able -- I think that we were very good positions in the 3 countries where we operate because we are a low price -- we are low-priced players in all markets. And we really kept the competitiveness versus what was happening in the market, trying to contain the price increases in the purchases that we made to suppliers. And this was really paramount to have the performance that we have at the P&L levels. And as you know, with a kind of business like our own, which is highly operational leverage, the fact that you keep growing at the top line really helps with the balance sheet. This being said, we -- I think that we have more reasons to continue to be very conservative on what the balance sheet refers because we know that, of course, any intervention that we have, we may be able to do even to help our business partners, our suppliers, et cetera, will have an impact on cash. So I think that currently, we have a buffer, true, in our solid balance sheet. And I don't think that we will want to take that buffer away. So I think that we will want to keep that or we have more reasons even to continue to have that.

So I shouldn't be taking the step up in CapEx that you -- we're seeing as we exit this year as an indication that you are a little bit more willing to be prone to risk and taking more risk on from a balance sheet perspective because that's not the case here.

No. I think it's definitely, considering even our own performance and the way that we see the different businesses and the opportunities in the countries. At this point, we didn't have reasons to refrain in what the CapEx is concerned. Of course, this -- if there is a disruption in consumer demand, if we see a very different progression in terms for next year, we will probably have to revisit, but -- and so we will keep monitoring what is happening in the market. But for the moment, and considering our balance sheet, we saw no reason to refrain the expansion and to grab the opportunities in the current businesses. On the consumer behavior in Poland. So what we -- of course, the main driver of our like-for-like is the number of tickets. It's not the average ticket and despite the very high food inflation. So this even -- and if we also take the information from our loyal card and so on the consumers, what we think really is that we are increasing the number of clients. And of course, the refugees from Ukraine we'll probably weight on that also, but we don't have the clarity on that weight, but we think there is this weight. On the current consumers, so they -- or the clients that were -- used to go to Biedronka and continue to go to Biedronka, what we see is a low volume in some cases on the average ticket. So buying less products. And in some cases, already, as I mentioned, late this quarter, already also doing trading down. So we are seeing also a slight progression in Q3 on our private labels. So in this case, what I think is, as I mentioned, is we have the pressure from higher inflation and from probably more trade down from now on. But we have also the positive of having more customers in the stores.

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

Just one [indiscernible] with Ara. If you can provide more color what were the triggers for the decision to accelerate your investment because the environment from our understanding remains challenging that you mentioned, I think, trading down. So why do you think it's now time to -- or why did you decide to assert your investment in Ara?

Thank you, Antonio. Well, unfortunately, sometimes when the markets are tougher, the ones that are better positioned should take the opportunities to grow. I think that the fact that Jerónimo Martins had a strong balance sheet and the fact that was confirming the opportunity that it has created to consumers in Colombia really make it important, of course, to speed up having the opportunity to do so. We know that some of our competitors went into trouble. But we also know that the market will recover probably not next year as families, as we mentioned, are struggling, but we want to be prepared when it recovers, and we think that as Ara is really proving that is a successful format in Colombia. We think it's the best moment to really accelerate. The opportunity exists. The locations exist. We have the financial means to do it. And we have more and more customers coming into our stores and really confirming that there is saving opportunities in our stores. So we think that it would be a good moment to expand.

Could you provide a figure of your market share now in Colombia, just a figure?

Antonio, I think that at this point, we don't have much information, as I usually say. The biggest competitor in Colombia is really the traditional retail and particularly in times of struggle, where when people really have to go to their shopper and ask for credit that is even more important. So I think it's very difficult to say what is the market share or have at least reliable figures. This being said, of course, what we see the big progression when you look at the country's food retail growth, Ara is growing while the food retail market is decreasing. So we must be growing a lot of market share. But this being said, giving you a number, I think it's a little bit extemporaneous considering that there is no reliable figure. And it's very different from region to region, in fact. So I would presume that, for instance, our market share would be much higher in the Axis so in the coffee-growing region than in Bogota, for instance.

And the next question comes from the line of Nick Coulter from Citi.

Firstly, please, could you comment on your market share evolution in Poland, I guess, particularly from a volume perspective would be helpful. And then secondly, on your promotional participation of Biedronka, whether it's more or less a focus in this environment?

Thank you, Nick. So in terms of market share in Poland, as I mentioned, we reinforced market share. We keep -- so it's slightly below 1 percentage point, but we maintained this market share gain. For the future, of course, we have a very tough comparable, as I mentioned. So if we maintain this progression, it really will depend. I think that we are one of the best positions, as I mentioned, in the market because we stay as the most competitive with a price gap for the other players that we keep. And for this has been very important, the price -- the shelf price and the fact that it's true that the weight of promotions, as I already we have flagged in the 6 months has slightly go down. And this, of course, has to do with the relevance of the promotion. Sometimes, we don't have the total amount of product available to do big and very relevant promotions, but promotions continue to be very important. And I think that they will continue, particularly to manage the balance with the A brands. This is -- will continue to be important. This being said, as I mentioned, it's going to be tough, but I think that we are -- in terms of the market in relative terms, we will keep gaining.

And presumably, on a volume basis, you're taking more than that, just less than 100 basis points?

In terms of volumes?

Yes.

We are growing more than 1 percentage point, yes, market share.

And the next question comes from the line of Ana Fernandez from Goldman Sachs.

It's actually Rob Joyce here from Goldman. I've got a couple. So just to help us understand the CapEx sort of evolution from here, Ana Luisa. How long do you think, in terms of years, you have the runway to continue adding a sort of net 130 stores in Poland? And how many stores do you need to have before you add an incremental distribution center? And then the second one is just on the energy cost side of things. I think you said on the last call in '21, energy costs were around 1% of your sales. Can you tell us where that now is in the third quarter? And just help us understand why the sort of pretty severe for, I think, in the spot prices of energy isn't helping in the fourth quarter in terms of that evolution of the cost base?

Thank you, Rob. So as we've been mentioning, of course, this is not a guidance, but we think there is room for the -- in the next couple of years to continue to add around 100 stores in Poland. We see still opportunity, particularly on smaller towns. And of course, depending on how things progress, I think that it could be a good basis to grow. On energy costs -- sorry, on the DC. So we added 1 DC this year. I think that probably in the future we'll add another one. But I think that we have a very strong base in terms of logistics to serve the stores currently in Poland. Probably we'll have to do some improvements in some of the flows of the logistics, some more automation, et cetera. But for the moment, we have a very good infrastructure from the logistic point of view. If we have the ability to really have a good service from our suppliers and probably will not have any issue from that side on the supply. On energy costs, yes, I mentioned that more or less on the consolidated level, we had energy accounted for 1 percentage point. I would probably -- this -- it's more or less probably it's not totally because usually, it's computed with other utilities. But I would say that it's probably 50 basis points increase on the quarter for the total consolidated level with a little bit more weight on -- or slightly on Poland. On the spot prices, I will not elaborate on that, of course, Rob, I think it's that nobody, even the experts, will dare to do it at this point in time. We are not assuming, as a base case that we will have a softer spot prices for. So I think that there will continue to be a lot of volatility around the energy issue.

And the next question comes from the line of Michal Majerski from Allianz.

A couple of questions from my side. First is about the case you have lost with Polish consumer watchdog UOKiK in the appeal. Do you plan to appeal further or rather to pay this fine? And if you have any further proceedings with UOKiK? Second question is related to energy price and your legal argument with Polenergia you demand PLN 40 million from them. Does it mean that they have broken the agreement for the fixed price and now you are fully exposed to the spot prices in Poland? And does this amount cover your loss in 2020 or maybe in '23? How much do you expect to lose on energy prices? Third question is on the capital allocation because you have reached the breakeven point in Colombia. You have a lot of net cash of your balance sheet. And the question is, do you plan to enter maybe the new country organically? Maybe some M&A as I think the multiples are more favorable than a year ago, for example? Or do you rather think about dividends maybe to shareholder? Fourth question is about Sundays in Poland. There are some press rumors that you are trying to make some initiatives to open your stores on Sunday, like some libraries for kids. I don't know, could you confirm or deny to how important is this Sunday trading for you, taking into consideration that you probably provoked the watchdog with these activities? And last question about the windfall in Portugal. I know that this is a fresh issue that it was already been questioned twice during this call, but I would like to understand the main idea behind this tax because we have this pan-European solution comparing 2020 profits to '21 and '20. But for example, you will be punished for the COVID. Yes, the base is very low. Does the regulation take it into consideration? What would be the -- simply speaking, rather the construction of this tax?

Thank you, Michal. So starting with the UOKiK and the case or the proceedings on the prices. So it's true that the first instance was not favorable to us. But of course, we are totally convinced of our case and our -- and we really believe that our case is strong. So we are going to appeal, and we are not going to pay the fines. And we hope that in second instance, this is a subject that, of course, has some technicalities that have to be taken into consideration that it will be favorable to us. On the…

So if I understood correctly, you have lost in the second instance, yes.

No, no, in the…

Because the highest appeal court is left…

No. We just lost on first instance. We are now going to appeal. We lost in first instance, Michal. Okay?

Okay. And based on the press release, so maybe it was mistake by the journalist. Okay.

And on the energy litigation that we have, of course, I will not elaborate on that. It's -- of course, it's -- unfortunately, we usually only litigate if we have to. In this case, we are exposed we never hide that we are exposed to the spot price in the case of Poland. But this was -- we were exposed throughout the year. So I don't think that it would be fair here to be elaborating on the case that we have against this energy provider. On the capital allocation. So yes, as I mentioned, we are quite conservative and we carry net cash position in our balance sheet if we exclude, of course, the operating capitalized leases. And we don't exclude -- we continue not to exclude an M&A operation. I would say it's a little bit more difficult for the short term, considering the current context. I mentioned that in our previous calls -- so I think it will be -- but we don't exclude, of course, if the opportunities come, we will take a look at it. But we think that we are in the context where we should be careful the we may jump into the acquisitions. On the special dividends, again, this is, of course, a decision for the Board. Currently, our dividend policy is 50% of our net earnings, excluding the impact of IFRS 16. So this is the policy that we have to assume, unless the Board decide otherwise. The way that I see it, in the current context, as I mentioned, I think that we want to really be prepared to cope with any operational deleverage that we may face in the short term. And currently, we face a lot of uncertainty on that. So our main priority really is for the current businesses. And is really to protect those businesses and having a strong balance sheet is pivotal to us, as I mentioned. On the Sunday openings, we don't hide that since the beginning, we thought that the best for the consumers would be to maintain the opportunity to continue buying even on Sundays even since the COVID 19. This being said, of course, currently, we are not opening on Sundays, and I don't think that any player is opening on Sunday. So it's something that we think it would be good for the consumer if there is an opportunity, but we will always abide by the law. So this is something that it's -- we think a nonissue or something that sometimes is escalated with no reason. On the windfall, it's true that at European level, that there is this recommendation to have a solidarity contribution, particularly on energy levels. In Portugal, yesterday, it was announced that this would be extended not only to energy companies, but also to the distribution. It was the name mentioned. But I don't know even what would be the base. So if it's going to be in the last 4 years. You are absolutely right, of course, as I mentioned already, the years of COVID in Portugal, for our 2 main businesses, were not easy. And this being said, I'm not seeing any special or any exceptional profits and no speculation being done by our banners, but I will have to wait for the law and for the letter of the law to understand really the -- if this will have an impact or not, Michal.

And could you remind there is mentioned this competitor with troubles Justo & Bueno or is it in Portugal or Colombia?

It was -- it is Colombia, Michal. It is with Colombia.

[Operator Instructions] There are no further questions. I would now like to hand the conference over to your speaker today, Ana Luisa Virginia, for closing remarks.

Thank you all for your questions and for attending this conference call. This has been a challenging 9 months period that all companies prove to navigate well. We have, therefore, reinforced confidence in all our banners' competitive strength, the best expression of that confidence being the decision to step up Ara's expansion capabilities and consequently imprint a new pace of growth in Colombia. We will stick to our strategic focus and continue to work to protect top line volume growth, while leading up to our values and acting responsibly, standing by our teams and our customers [Technical Difficulty] and business partners. Thank you once again, and I wish you all a nice day.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.