Sonae, SGPS, S.A. (SON) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Sonae's 2024 results presentation. Our host today is Mr. João Dolores, Sonae's CFO. This conference starts with a presentation followed by Q&A. I will now pass the call on to Mr. Dolores. You may start, sir.

Thank you very much for the introduction. Good afternoon, everyone. Thank you for joining us for Sonae's 2024 results presentation. I'm very happy to have you here with us today. As you will see, we had great results last year. Together with me, as usual, and besides the Investor Relations team, I have Cristina Novais on my left; and Miguel Moreira as well; Fernando van Zeller on my right-hand side, and Paulo Simões. Today, we're trying our new format, a video one. I hope it works well, and that's -- it helps also in conveying the main messages that we have to convey to you. So I'll start with briefly recalling the significant moves in our portfolio during 2024. As you know, it was a quite intense year in terms of investments. We invested over EUR 1.1 billion in M&A efforts. And there are 2 transactions in particular, which I would like to highlight given the importance that they have for the group. So in March, as you know, we successfully built a leading position, a majority position in Musti, a reference pet care retailer in the Nordics through a public tender offer. Sonae currently owns just over 80% of the company, and we see Musti as a promising platform for growth in the European pet care landscape. Last November, Musti extended its presence to new geographies to the Baltics by acquiring Pet City, a player that operates in all 3 Baltic countries. In July, we concluded the merger of Arenal with Druni under MC, thus establishing the leading health and wellness and beauty player in Iberia. And this is also a platform where we see great potential for continued growth on the back of a very, very strong year of 2024. All the acquisitions, the major acquisitions that we did last year are important stepping stones for growth, and they've all been done together with good, solid management teams that remain alongside us in the management of these companies. That is true for Druni. It's true for Musti. And it's also true for BCF, the largest acquisition done under Sparkfood in 2024. I will share a bit more information about the financials and the performance of these companies as I go along. So if you look at our portfolio right now, we believe we strengthened the portfolio in a number of areas. We have enlarged our presence in the retail sector. We have expanded our geographical reach, positioning ourselves for growth. And we strongly believe that these new opportunities can be captured in the months to come, and we can help these companies accelerate their growth potential. Most of our companies are leading companies in their respective sectors. And in the sectors where we are not leaders, we have a clear path to achieve leadership. I would also like to highlight the transaction which was already completed in 2025, which was the acquisition by NOS of Claranet Portugal, a very important transaction, an investment of over EUR 150 million to better position NOS in the ICT space in terms of services for B2B customers. So NOS wants to position itself more and more as a digital partner for Portuguese companies, and this acquisition is going to be instrumental in that regard. I will now go into each one of the businesses, starting as usual with MC. MC had a fantastic year in 2024, as you can see. It continued to increase its market leadership position in food retail in the country. We enhanced our market share by 50 basis points, thus increasing the gap versus #2 in the country. We grew in total more than 7% to EUR 6.5 billion in the grocery segment with a like-for-like of 4.4% and a stable EBITDA margin versus 2023. If you look at the other segment, the other big segment that composes the portfolio at MC, Health & Wellness and Beauty, we more than doubled the size of the business there, obviously, with the contribution from the Druni's acquisition. But even without that contribution, the business had a like-for-like growth of 10% with very strong performances from both Wells and Arenal during the year and with an enhanced EBITDA margin of 12.5%, also benefiting from the integration of Druni's results in the latter half of the year. If you look at consolidated figures for MC, MC reached a record level turnover, so growing by 15% to EUR 7.6 billion, and the total EBITDA margin went up from 9.7% to 10% in the year. In terms of balance sheet, the company continued to enhance its financial position. And if you look at a pro forma consolidation of Druni's numbers into our accounts, this means a decrease in net debt to EBITDA of 2.8x -- from 2.8x to 2.7x. Moving on to Worten. Worten also had a very positive year in terms of growth. So total growth of 8% to EUR 1.4 billion, slightly above that if you consider total GMV, which includes the sales done by the sellers on our marketplace, 4.2% like-for-like growth with a very strong performance, not only in the core electronics business, but also in extended ranges that we have in the marketplace and also in the services business unit. And so we continue to have a very strong momentum in all areas of Worten's offering. And that means that we increased also our market share in Portugal, both offline and online in the core electronics segment. A small note to iServices, which continued to expand its presence internationally. And so we continued to grow in Portugal, but also expanding its presence in Spain, France and Belgium with a quite distinctive concept, which we believe can have further potential to grow outside of the country. In terms of total profitability, the margin was a bit pressured by increased costs and also a bit of gross margin erosion. But still, the team was able to almost compensate that fully with efficiency measures, and we were able to maintain EBITDA margin at a healthy level of 5.6%. Regarding Musti, the numbers I'm showing here are for Q4 as Musti had to close the year with a 15-month period to align with our financial calendar. I would say that Musti's performance throughout the year was improving. So a bit of a hard couple of quarters in Q2 and Q3 with a challenging macroeconomic backdrop in the Nordics, putting some strain and some pressure on private consumption. But already in Q4, we saw improvements in terms of like-for-like growth, but also in terms of total growth. In the quarter, the company actually grew 5.6% to EUR 122 million. And throughout the year, the company continued to improve its market share in all its key geographies. And so it was a tough backdrop in the market. But in Finland, in Sweden and in Norway, we continue to increase our market share, which is obviously quite important for us to make sure that we maintain our leading positions in these geographies and are better prepared to seize market growth when it resumes, and we feel that happening already going into 2025. In terms of profitability, EBITDA margin was a bit pressured, came down to 14.1%, but the economic outlook and consumer confidence that we are seeing right now in the Nordics are improving, driven by lower interest rates and also increased purchasing power. And Musti's fundamentals remain quite strong. So we believe the company is well positioned to capitalize on this economic recovery. And again, the return of the pet care market to its long-term growth trajectory. Sierra, our real estate business had a very strong momentum in its core shopping center operations, both in Europe and in Brazil. In Europe, our tenant sales reached EUR 3.5 billion, increasing 5.3% year-on-year. So a very strong display in terms of footfall, in terms of sales from our tenants and so with a very positive impact in our EBITDA and our direct result. Our shopping centers continue -- in Europe continue with practically full occupancy, which is a good sign of the quality of the assets. And if you look at total net result, we increased that by 9.8% to EUR 97 million here also with the contribution from revaluations of assets in the portfolio. This improved net result was the main driver for the increase in NAV, which grew by 4.5% and our total assets under management increased also to EUR 6.8 billion with a very strong weight of shopping centers, but we're already -- but already with a higher diversification in terms of real estate uses as today, 1/4 of our assets under management are already in alternative real estate segments. If you look at our LTV, it remains practically flat versus last year. So the company has a very healthy balance sheet and debt position. NOS in its 10th anniversary had its best year ever in terms of operational and financial performance. So it grew 6.2% to EUR 1.7 billion with strong performances across all the segments, not only the telco business, but also in terms of the cinema exhibition business and within telco with strong displays in both B2C and B2C segments. That growth means that the company continued to gain market share in the Portuguese telco market and is now even closer to #1 in the market as we strive to reach market leadership in years to come. EBITDA margin was improved by 20 basis points to 38% as we continue to have strong efficiency measures deployed across the company and have registered a very, very strong operational performance. Net income and free cash flow had an extraordinary performance in 2024, as you probably saw already as the company announced the results to the market a couple of weeks ago. Net income increased 50% to EUR 272 million. Free cash flow had a very strong increase to EUR 360 million. Here, both metrics influenced not only by the strong operational performance, but also by some extraordinary impacts such as the sale of an additional set of mobile towers to Cellnex, but also some rulings in our favor in terms of the activity fee that Anacom had to return to operators in 2024. But overall, a very strong display from NOS, both operationally and financially. Bright Pixel had a resilient year. It was a less active year in terms of the investment management activity but it was a quite resilient year in terms of the performance of the underlying assets and also in terms of the valuation of these assets on our balance sheet. So currently, we hold 45 companies in the portfolio in the 3 segments that you know, cybersecurity, retail tech and infrastructure and software. During '24, Bright Pixel invested in 4 new companies, mostly in the cybersecurity area. We also sold a couple of companies in the portfolio, but NAV was practically stable, and it still represents roughly a 2x cash-on-cash return vis-a-vis the investment that was made historically in these businesses. So going on to consolidated results. If you look at our consolidated figures, this year was a milestone year for us. So we practically reached EUR 10 billion. And in pro forma terms, we more than overcame that figure. So an 18% increase versus 2023. And even excluding M&A, we are talking about a 7% growth in total, so quite strong growth. And if you look at the longer-term trend here, if you look at the last 9 or 10 years, you can see that the growth momentum has been accelerating. And this is very important for us because it means that, obviously, we are generating higher returns and we are reaching more communities, we are reaching more people with our value propositions and with our mission. And so this is really what drives us and what makes us run at the end of the day. So if you look at the last few years, you can see the acceleration of growth, which we expect to continue to register in years to come. The growth came from several angles, as you can see. So very strong display from most of our retail businesses but also from the acquisitions that we made throughout the year. So strong contributions from the MC Food component, also from Health & Wellness and Beauty organically and inorganically. Worten also with an important contribution to our growth. And then the consolidation of Musti obviously has an important impact here as well. And so if you see most of the growth came from our major retail businesses, and that -- we expect that to be the case also in the next 12 months. In terms of EBITDA, we reached for the first time over EUR 1 billion of total EBITDA, a 4.5% growth. This growth is actually even more significant if you take into consideration that last year, we had EUR 168 million of capital gains from the sale of our 30% stake at ISRG. But even with that tough comparable, we were able to increase our EBITDA by 4.5%. And again, if you look at a longer-term trend, you see that the growth in EBITDA has been double digit in the last few years. And so this is also something which is very important to us, making sure that we grow, but we don't grow at the expense of operating profitability, which has been increasing and improving in all our major businesses. All in all, our net result reached EUR 223 million. On a comparable basis, an 18% increase versus last year if we exclude the contribution from the capital gain of ISRG last year. So quite strong display in terms of net income and bottom line. If we look at the evolution of our balance sheet and our debt, our debt actually increased by EUR 160 million, but that's mostly on the back of the acquisitions that were done during the year. If you look at the cash flow generation capacity of our portfolio, it reached EUR 286 million. And then obviously, with the EUR 1.1 billion of M&A, we have -- this increased a bit. But still, we are at quite comfortable levels of leverage, 16% LTV, which we will bring down in the next few quarters and with very strong -- very attractive funding conditions, very enlarged maturity profiles and with a very comfortable profile of debt, which is above 3 years right now in terms of maturity. So we are quite comfortable with the balance sheet that we have right now, but we will probably deleverage the company significantly over the next few quarters. Our dividend policy remains the same. And so we are proposing that the dividend that will be proposed to the AGM will be, again, a 5% increase in EPS, which equates to a dividend yield of roughly 6%, 6.5%, which complies with our historical and very consistent dividend policy. We continue to progress also in a number of ESG objectives. We are on track on most of these objectives, which are quite stringent and quite demanding. We continue to decrease our carbon footprint by lowering our CO2 emissions. We reached 90% of plastic packaging recyclability in our own label. We have a very strong target of 100% by 2025. We will probably not be able to reach it because it's technically not possible. But the fact that we put this target out there means that we went from 70% in 2019 to 90% this year, which is an amazing achievement, and we are very proud of that. In terms of leadership positions occupied by women, we have a target of 45% by 2026. We are at 41% in '24, also on track to reach our desired goal. So when I think about what's coming in 2025, it's hard to say, as you can imagine, in terms of global geopolitics and macro economy. So we are living under a backdrop of a lot of uncertainty, trade tensions, a lot of protectionist policies being waived around. And at the same time, lower interest rates should provide for some relief in terms of financial costs and also consumer spending. But in this evolving landscape, we need to do what we've always done in the last few years, which is to remain flexible, agile, making sure that we have the ability to act quickly on changing circumstances and ultimately seek for long-term growth and value creation. All our businesses will strive to maintain their leading positions in their respective businesses. And I'm quite confident given what we are seeing at this stage that, that will be the case. So very happy to share these results with you as they reflect, again, the efforts of thousands of people that worked along -- that worked throughout the year to make these results possible. And now we will obviously be open for your questions. Thank you again for listening and for your trust in Sonae. You can open the question -- the session to Q&A, please.

[Operator Instructions] Our first question comes from João Pinto of Sonae (sic) [ JB Capital Markets ].

Regarding food retail, how is the competitive backdrop evolving in terms of promotion intensity? You keep reporting strong sales. Mercadona is also growing quite fast. How are competitors responding? Related to this, do you see any margin risk into 2025? And still on food retail, how many stores do you want to open in 2025? And what's the split between grocery and health and beauty? Then on Musti, are you seeing any signs of rebound in terms of demand? And could you provide your target for store openings in 2025?

Okay. Thank you, João. Fernando, do you want to take the food retail questions first, and I'll take the grocery one.

Sure. João, thank you very much for your questions. Tackling them one by one. So in terms of the competitive position, as you mentioned, the Portuguese market is highly competitive at the moment, the food retail market. What we are seeing is the level of promotions more or less stable, slightly increased over the last quarters. And in terms of price investment, we're seeing the players, I would say, quite aggressive in terms of the price investment in the market. Obviously, and that being said, MC has been performing well in terms of sales, as you mentioned. I would also say that in terms of the competitive landscape, it's important to mention the investments of many players in the market in terms of expansion and refurbishments. In terms of expansion, the sales area in the market is growing about 2%, 3% a year, which is obviously put pressure in terms of the competitive landscape. And in terms of refurbishment, as you know, a lot of our competitors and ourselves are investing a lot on their store network. And so even from a demand and from a supply standpoint, we're seeing a lot of pressure. And that's on the food retail side. In terms of the margin, for 2025, as you know, our cost base is increasing at a higher pace than our inflation in top line. Our estimate for this year of food inflation, as João mentioned in this morning, is about 2% and our cost base is growing in terms of inflation at about 4% to 5%. And obviously, that puts pressure in terms of our margins. That being said, MC has been deploying an important cost to serve program over the last years. We'll continue to be very focused on efficiency and obviously focusing on volumes growth in this highly competitive market. And so our goal for this year is obviously to -- not to decrease EBITDA margin, and we are confident that with the value proposition, the strategy being very clear, we'll be able to deliver it in 2025. In terms of the openings, in terms of our strategy is to maintain more or less what we have done in 2024. For food retail, we are -- we have opened, as you know, 25 stores in 2024, probably more or less the same in 2025. On the Health, Wellness and Beauty side, we opened 21 stores in Wells, 32 in Druni. I would say that it should be very different in the year of 2025, both on the food side as well as in Health, Wellness and Beauty.

Okay. I can tackle the Musti questions. The answer to your first question is yes, we are already seeing a better performance in terms of demand and in terms of growth. As you know, we finished the year with a like-for-like of around 1%. And we are seeing progressively from January to March, that low single-digit like-for-like go up to a high single-digit like-for-like. So a very healthy -- much healthier performance in terms of growth in our like-for-like store network. And in terms of openings, store openings, we don't -- Musti doesn't -- that is a listed company, as you know, it doesn't provide guidance. But I can tell you that last year, we opened half a dozen stores, so 5 to 6 stores in each of the main geographies of expansion. So excluding Finland because Finland is quite a mature market in terms of store footprint. But if you consider Sweden and Norway, we opened 5, 6 stores in each geography, and you could expect that to be the norm going into 2025 as well.

We'll now take our next question from António Seladas of A/S Research.

I have a specific question regarding Sonae MC. Your depreciation increased sequentially increased a lot and also the taxes, tax provisions also increased. I don't know if you can explain or provide some explanation about these 2 things.

Sure. António, thank you very much for the questions. On the depreciation, it's mainly the impact of the acquisition of Druni. And so obviously, it impacts both on the fixed assets, but mainly really on the lease liabilities. And obviously, with the opening of our stores and the investments in terms of refurbishments, we are obviously seeing a higher level of depreciation this year. In terms of the taxes, I would say there are, I would say, 3 main components. One is around the inclusion of Druni in our taxes. Obviously, that has a relevant impact. The good performance -- operational performance of the business has also increased the tax basis. And so that's the second component. And the third component, there are a couple of accounting adjustments, which doesn't -- are not included in the -- are not included necessarily. There is a difference between the accounting taxable income and the taxable income. And therefore, there is a difference in accounting, which also accounts for a relevant part of this difference versus the last year.

I have just a follow-up question on the depreciation and if you can provide some color in terms of capital spending. So this time this figure of depreciation, should we see this on a quarterly basis? Or it should keep the profile of the pattern that we have seen in the last quarters, so?

Okay. So there is an element obviously -- go ahead, go ahead, please.

Sorry, I was asking if I didn't -- maybe I didn't explain well, but just profile the depreciation increase usually in the last quarter. And I'm asking if we should see again the same profile or not?

Yes. So I would say there is -- in terms of CapEx and the investment for next year, it's not necessarily your question, but it's related to it. So we are expecting to see more or less the same level of CapEx, both in terms of Health, Wellness and Beauty and Food. There were a couple of extraordinary effects in the depreciation in 2024 that we probably will not see at the same level in 2025, but I would say it should not be too far away from what we have seen in the last quarters.

[Operator Instructions] We will now take our next question from Jerome van Bruggen of Degroof Petercam.

Two questions from my side. First one on capital allocation. Some of your peers like Exor, Wendel, GBL, they have been selling listed assets lately to buy back shares or to deleverage a bit. So could you just talk a bit about how you look at these transactions of your peers? And could you comment whether you would consider such a transaction to be part of your capital allocation toolkit? If I may call it that. And then a second question is maybe relevant for Bright Pixel. Could you maybe give a comment on the exit market, what you're seeing there? Is the bid-ask spread narrowing? Or is it still an issue today?

Thank you. Let me just make sure that I understood the first question. So the first question is on the possibility of doing share buybacks as an alternative in terms of capital allocation. Was that the question?

Yes. What we see is that these holding companies are selling listed participations from their portfolio and they are using those proceeds to buy back shares of their own holding company.

Yes. So I can take that one first, and then I'll ask Cristina to answer the one on Bright Pixel. So we currently don't have any such plans. And so the investments that we -- the portfolio that we have of investments is one that we feel quite comfortable with. And so the exposure that we have to our different assets in the portfolio is the one that we want to have and that ensure that we have the influence that we currently have to deploy -- to help these companies deploy their strategies. And so we are not planning to divest -- make any significant divestments in any of our listed companies. In terms of share buybacks, this is obviously something that we have discussed in the past and it's something that we have decided not to do in the recent past, and we also don't have any short-term plans to do buybacks. We understand the economic rationale, the potential economic rationale to do so. But we -- as long as we feel that there are good investment opportunities to deploy capital to generate superior returns in our existing portfolio, we will always privilege those options. So the short answer to that is we don't have the same plans as other investment holdings have executed in recent months.

Thank you, Pedro. Can I start? Regarding Bright Pixel and the exit question, the market continues to be very close at VC exits. We have been seeing some positive signs on the IPO market, but still very modest. In terms of M&A exits, we see some transactions, but lower levels because the M&A last year was focused on earlier companies, which means that the money that the exit transaction generates is lower than what investors need to pull the VC market. In that sense, of course, we have a great portfolio, and we expect to return a lot of value to the group, and we are always aware of the opportunities that arise to execute that strategy. But we are not pressured to sell the assets. So we are waiting for the market to open and to execute the best exits. But we did this year 2 exits with a great return. And we hope to do it again during the next year and the next ones. And we hope that the market helps us to give this value that we have in our portfolio. I don't know if I answered or...

And we will now move on to our next question from Guilherme Sampaio of CaixaBank.

So I appreciate your comments on the MC margins for next year. But specifically for Q4, on grocery retail, we've seen a slight decline in margins coming from a slight improvement trend. So what could explain this decline in Q4 specifically?

Yes. Thank you very much. Very good question. So in Q4, as a whole in the year, as you know, we have maintained our EBITDA margin in the grocery part of MC business. In Q4, we had a couple of extraordinary costs, which deteriorated our margin by 0.1 percentage points. And so from a, let's say, recurrent EBITDA standpoint, our margin needn't not decline in Q4 2024. Also, as you mentioned, based on the strong performance in terms of sales and also in terms of cost discipline. And so that was really a one-off, which was driven by some extraordinary costs.

That was our last question. I will now hand it back to Mr. Dolores for closing remarks.

Okay. Thank you very much for your questions. Thank you very much for listening in to our results. And we will see you again in May when we announce our Q1 results, hopefully, with the same backdrop, the same positive backdrop that we saw at the end of 2024. Thank you very much. We'll see you next time.