Zabka Group S.A. (ZAB) Earnings Call Transcript & Summary

Good afternoon, and welcome to the full year 2024 financial results of Zabka Group conference call. [Operator Instructions] I would now like to hand the call over to Tomasz Suchanski.

Good afternoon, and welcome at our meeting with Zabka Group, where we intend to talk about 2024 results. My name is Tomasz Suchanski and I'm CEO of Zabka Group, and I'm joined today with 2 colleagues from the Board, and I will ask them to present themselves. Marta?

Marta Lastowska, Group Chief Financial Officer. Very nice to be here.

Tomasz Blicharski, Group Chief Strategy and Development Officer. Great to meet you again.

And Filip?

Filip Paszke, IR Director. Nice to be here.

Thank you. So in 2024, Zabka Group experienced a remarkable year filled with significant milestones. One of the most important and actually the reason why we are here today is our successful debut on the Warsaw Stock Exchange in October, unlocking new growth opportunities on the public market. Second milestone, equally important, is our strategic move into Romanian market, which began with the acquisition of DRIM Daniel and the opening of the first food store in June. In the end of last year, we already had 60 new stores in Romania. In the fourth quarter, the upgraded Zabka app up was launched, and we achieved EBITDA breakeven in the digital customer ecosystem. Furthermore, Zabka Group was honored as the retailer of the year, and I can add, it's the 6th time in a row. And we were the second most loved workplace globally being the most engaged organization in Poland according to Gallup Institute. All of these activities and milestones were supported by excellent financial results. So I'm pleased to confirm that in 2024, Zabka delivered on guidance shared during the IPO. Sales to end customers increased by 20% year-over-year to PLN 27.3 billion, driven by the expansion and consistent performance with like-for-like growth of 8.3%. The store network expanded to 1,169 locations across Poland and Romania, with 1,166 gross opening year-over-year, highlighting the proven rollout model that we have. Adjusted EBITDA saw a remarkable 24% increase, reaching PLN 3.5 billion while adjusted net profit surged by 66% year-over-year to PLN 714 million, underscoring the company's financial strength and strategic execution. Additionally, leverage decreased by 0.8x year-over-year, achieving 1.5x at the end of Q4. By way of a quick recap on this slide, you can see key elements of the convenience ecosystem we have created for our customers. In 2024, Zabka continued to grow its convenience proposition in both physical and digital channels with 90% brand awareness and 4.1 million average daily transactions in the physical channel, Zabka is synonymous of ultimate convenience in Poland today. The digital customer offering user base grew to 11.7 million with 33% increase in active shoppers, demonstrating our digital leadership. The ultra-modern physical convenience stores and leading customer application are redefining the shopping experience for millions of Poles today. Zabka remained focused on fulfilling its long-term strategy with tangible objectives being met. The company delivered on each IPO guidance objective, including a 20% increase in sales to end customers in 2024, putting the goal of doubling sales between '23 and '28 on track. With 1,166 stores opened in '24, Zabka exceeded its promise of approximately 1,100 openings for last year. The like-for-like growth of 8.3% was within the guidance range and the 32% growth in DCO sales. DCO sales is on the track with -- is on the track with guidance that we get for the whole 5 years, ending in 2028. Zabka strategic execution thrived, supported by favorable market tailwinds and consumer confidence. Against this positive backdrop, the company executed its strategy strongly with each pillar, including network expansion, like-for-like growth initiatives and focus on new growth engines. The company also saw good initial traction with consumer in Romania and achieved the promised target of EBITDA breakeven in DCO, with 32% of sales growth year-over-year. The supportive consumer environment and market tailwinds aligned with Zabka strategic initiatives, positioning the company for sustained growth and market leadership. Looking ahead, some degree of uncertainty remains due to geopolitical issues and the challenges consumers faced in preceding few years. I will now hand over to Tomasz, who will guide you through the market environment in 2024 as well as the details of our strategy execution. Tomasz?

Thanks, Tomasz. So hello again. Last time we met here was after Q3 results. And since then, until the end of '24, the market sentiment remained pretty much the same stable way. So the real wages were increasing. The customer confidence was pretty much flat and the customers' perception of their financial situation was up and down, but pretty much in line with prior periods. If you look at the entire market, the trends that we have seen prior in 2024 were continuing at the end of '24 with different channels exhibiting similar dynamics to prior periods as well. On that backdrop, our performance, 18% as perceived here growth was very positive. We increased market share in '24 overall by 1.2 percentage points and continue to increase it in every single quarter. Looking at how we executed on our strategy, let's remind ourselves a little bit what the strategy is. So we want to double our footprint, double our sales within the midterm until '28. And in 2024, as Tomasz mentioned, we have executed well on all the key parameters. So the store openings, the like-for-likes as well as the growth of digital businesses. And let's spend a bit more time on each of these underlying growth pillars in the next few slides. So starting with the expansion in Poland. We opened 11,000 stores in Poland in similar locations that were opened in a few prior years. So we open in every region of Poland were -- so big cities, mid cities, small cities, similar kind of patterns that we have seen before. Close to 30% of the newly opened locations were direct conversions from mom-and-pop stores. And as I mentioned, there is still -- during the last presentation, there's still 50,000 mom-and-pop stores, unorganized or organized under loose French wholesale banners still in the marketplace. We are able to achieve this using the combination of AI and the people in the ground, so the machine -- man and the machine that I mentioned before, and we are well on track to achieving the long-term our potential that we set at 19,500 stores in Poland. Looking at the quality of the expansion in Poland, and that is a very important slide from our perspective because it confirms that our strategy works well. is the quality of our expansion. So looking on the left-hand side, you'll see how each of the vintages of the stores performed in the last 20-plus years, netted of inflation. So it's in real terms. As you can see, the last few vintages were performing better than prior vintages. Having said that, all of the vintages continue to grow even though we still add additional stores in the marketplace. Furthermore, the last vintage, 2024, was among the top 10% -- sorry, the 90% of best vintages we've ever opened. And that is a confirmation that we have a very well-oiled machine to continue our expansion in Poland. What I can add to it, we maintain the same payback periods as we had before. You can see that on the right-hand side. And additionally, the pipeline for the stores to be opened in 2025 is actually full, the highest ever. So we now more or less focus on '26. '25 is pretty much -- well, secured, given that we have signed all the required contracts. Looking at the other subset of this pillar, so Romania. We've told you during the last meeting that we are -- we started the expansion and that will continue with and fine-tuning the format for the next 12 months. So we are well underway with that test. At the end of '24, we had 60 stores operating in Romania, under Froo banner and at the moment, we have close to 90 stores. We are testing the store format. We are testing different store locations. We are adjusting the product to the local customer needs. We can only confirm what we said before at the moment that the test is encouraging, and especially the quick meal solutions and street food assortment is working very well. We'll continue on this test as planned, and we'll come back with prior -- with additional information about the expansion in Romania in the coming quarters. Moving on to the second pillar of growth, so like-for-likes. Here, we have continued to invest in street food, both in terms of remodeling the stores to the latest store format, so including the MerryChef equipment, including the digital screens, which enable additional product offering, including the one that I mentioned last time, which is pizza. Pizza turned out to be a great hit. We sell up to 80,000 pizzas per day, which is -- based on our expectations, a very good result. And we'll continue to effectively remodel the stores this year to complete the entire remodeling by middle of this year. At the same time, we're still fine-tuning the product offering. We're fine-tuning the promotional activities with respect to these products. And we're working towards the goal that we have mentioned. Secondly, we're expanding the services. I mentioned a few times that Zabka is like Swiss Army knife for the customer. So not only the store but also our quick service restaurant, but also the mini-service center. And we have more than 20 services now. We continue to test and add additional services to attract the customers into the stores. And we have done that throughout the last period as well. Finally, we're doing a few things that are more or less standard for any retailers. Having said that in Zabka Way, so we've been innovating with the products. We have launched last year 614 new products into the Zabka stores, out of which 150 -- around 150 is products on their own brands. Additionally, we've been introducing new innovative promotional mechanisms and close to 500 million transactions last year with the use -- were with the use of these innovative promotional activities. A lot of that is with the use of the app that we have relaunched in a completely new redesigned version in Q4, which increased the user base to close to 11 million active users as well as even more importantly for us at the moment, increase the time spent in the app by roughly 50% and consumers in the app are using it also to browse products or promotional activities that we have exclusively for them in the app. And moving on to the third pillar of our growth strategy, which is the digital businesses. Here, we had really 2 goals in the year. One was to continue growing on the path to grow it at 5x a few years down the road. And second one, very important for us, was to be breakeven or positive in terms of EBITDA contribution, and we have achieved both of these goals. All of these businesses, Maczfit, Dietly, Jush! , delio, and Nano grew in last year. Maczfit Dietly volume-wise grew more than 20 -- between 20% and 30%. So these are D2C meals and D2C marketplace businesses. Our q-commerce rapid delivery businesses, Jush! and delio, have grown by 60% becoming the leader in Warsaw and in Poland in the services. And importantly, they became operationally profitable with -- in Q4. Nano, we have continued relocating stores to specialized locations, as we call them, so factories, offices, as well as student dormitories and few others. And lastly, we have mentioned many times that we operate in 3 mega trends, consumer megatrends, and responsibility is one of them. So let's not forget about that. And here, we -- last year, we continued executing on our ESG strategy, which consists of 4 pillars. And we have achieved a majority of our goals here in this respect. What we are particularly proud of is increase of NPS of the franchisees to last reading was plus 11, being one of the most engaged in terms of employees organization in the world, as confirmed by Gallup, increasing the sales of healthy products as well as continuing on decrease of our carbon footprint. And how all of that, that I just mentioned translated into numbers that will be deliver to you by Marta. Thank you.

Thank you, Tomasz. I will go through the key financial highlights. Then afterwards, I will share with you the key drivers for our sales and EBITDA. I will share a snapshot of our nonfinancial results. And finally, as the last point, I will share the near-term guidance. So starting with the financial highlights. I'm really pleased to report that we had excellent results for 2024, and we delivered all the targets, which we discussed at the time of IPO. It reflects the strength and resilience of our business model. As mentioned already by Tomasz, sales to end customers reached PLN 27.3 billion in 2024, a 20% year-on-year increase driven by a balanced mix of like-for-like growth, store network expansion, dynamic growth in sales of digital convenience offering and launch of our operation on the new Romanian market. Adjusted EBITDA reached PLN 3.5 billion, a 24% increase year-on-year with 12.8% margin at the upper end of 12%, 13% target range. The adjusted net profit increased to PLN 714 million with a 2.6% margin ahead of our near-term guidance of PLN 2.5 billion. Strong business momentum, working capital release and disciplined CapEx translated into robust cash flow generation of PLN 1.5 billion, leading to a reduction in the leverage profile to 1.5x EBITDA from 2.3x EBITDA last year. We have also achieved a significant milestone in development of our new digital businesses. As Tomasz mentioned, are in line with our plan, our digital convenience offering segment has achieved the breakeven of the EBITDA level in 2024 and delivered positive EBITDA in 2024. Looking at the profit and sales. Zabka robust sales and customer growth in 2024 was driven by a healthy mix of organic growth supported by improved customer sentiment and unique differentiated product offering as well as store expansion and increased contribution from new growth engines, so BCO and Romania. The company recorded 40 basis point margin expansion in terms of adjusted EBITDA, benefiting from our cost-conscious approach, greater efficiency in internal processes and a decline in energy prices. The adjusted net profit margin increased by 70 basis points to 2.6%, supported by strong operating performance, lower financial cost as a percentage of sales and an improved effective tax rate from about 30% in 2023 to 26% in 2024. When we look on the growth in sales and customers, it was delivered by a balanced mix of like-for-like growth, the new stores opening and the contribution from new growth engines. The new stores opening accounted for 48 -- 46% of total growth, supported by 1,166 gross openings. Like-for-like growth contributed 40% to the total growth, underscoring the strength and resilience of our existing store base. Our like-for-like growth of 8.2% in 2024 was evenly balanced between volume and price. We observed increased store traffic and a growing number -- growing volume as well as a growing number of customers opting for more premium products. The strongest like-for-like performance came from our strategic categories, particularly beverages and QMS, boosted by launch of our new street offering. Looking at new growth engines, it consists of digital convenience offering in Romania, it represents 16% of the total growth in sales and reflect the sustained momentum in our digital convenience offering with 32% year-on-year increase in sales and acquisition of the business in Romania as well as early success of the first stores which we opened in the new market in 2024. Looking at our sales on the quarter-by-quarter basis. As you may recall, our sales demonstrate seasonality. The first quarter is usually the weakest and the summer months contribute at this proportionally high share of annual results. As we have highlighted to you in the past, there is a critical relation between warmer, better weather and increased store traffic and increased sales. In 2024, like-for-like performance followed the trend of declining inflation reaching 7.1% in the last quarter of 2024. Weather also played a role in 2024, when we look on the differences between quarters. As you may recall, we had a mild winter and an unusually warm March last year, which had a positive impact on the like-for-like in the first quarter of 2024. Moving to the franchisee margin. As you may recall, supporting our franchisees remains at the core of Zabka business model. In 2024, average franchising margin per store increased by 8%, so ahead of the inflation in Poland of 3.5%. Zabka contribute -- continued to deliver a stable and attractive franchising margin, the increase in franchisee-related costs as a percentage of sales in 2024 reflects a better product mix, and impact of the higher minimum wage in Poland, driving up franchisees legal costs. It was partially offset by in-store process automation, including increased adoption of self-checkout solution in Zabka stores. In 2024, we welcomed over 2,400 new franchisees the network, we maintained low and stable churn level. And as Tomasz already mentioned, we had double-digit positive NPS of our franchisees in 2024. Looking at the EBITDA bridge. So our EBITDA drivers. The adjusted EBITDA, as I already mentioned, increased by 24%, rising from PLN 2.8 billion in 2023 to PLN 3.5 billion in 2024. This strong growth was driven by incremental sales as well as efficiency gains. Operating and other costs were reduced, thanks to improvements in logistics operations such as more efficient pallet usage as well as lower store costs supported by declining energy prices and optimized energy consumption driven by use of more energy-efficient store equipment. This positive effect, as you see on the bridge, were partially offset by higher franchisee-related costs. When you look at the SG&A expenses, excluding the one-off items relating to the IPO, IPO bonus and LTIP as well as DRIM acquisition, the SG&A costs remained stable as a percentage of sales at the level of 1.4% of sales in both 2023 and 2024. Looking at the bridge, a new growth engine includes digital convenience offering and Romania. Our DCO segment reached EBITDA breakeven in 2024, as I already mentioned, impacting positively our profitability dynamics. As shown on the bridge, the gain was offset by investment related to the development of the Romania business and throughout of the stores. Looking at the net profit margin. We achieved net profit of PLN 740 million with a net profit margin, adjusted net profit margin of 2.6%, exceeding our near-term target of 2.5%. This strong result was driven by lower interest costs and improved tax efficiency. Financial costs declined as a percentage of sales from 3.8% in 2023 to 3.2% in 2024, and it was supported by a lower reference in Poland, lower LIBOR in 2024 compared to 2023. And improved margin on our main loan facility, which was driven by 2 factors: lower leverage in line with the margin rate in our agreement and 100 basis point margin improvement negotiated with our syndicate post IPO. As the margin improvement was implemented only in December last year, the full impact of that will be visible only in 2025. These savings on the margins were partially offset by an increase in lease-related interest costs due to our new stores opening due to the stores expansion. As indicated in our IPO guidance, our goal is to further increase our net profit. To that end, as announced this morning, we are actively exploring the bond market. Given our strong business profile and financial track record, we believe we will be able to further diversify and optimize our funding structure. The process has been launched and is expected to advance in the first half of this year. Important to mention that we do not plan to increase our total net debt. In line with our expectation and in line with what we shared with you during the IPO, we have also delivered the improved tax efficiency. Our effective tax rate decreased from 30% in 2023 to 26% in 2024, and it was mainly driven by repayment of tax -- non-deductible debt facilities as well as recognition of a tax benefit related to new distribution center located in the -- in a special economic zones. Now moving to CapEx. CapEx spend reached PLN 1.5 billion and was below the expectation which we shared with you within the prospectus of PLN 1.8 billion for 2024. It was higher than last year. And similarly, as in the previous years, it was discretional and growth oriented. Maintenance CapEx was similarly at the level as a percentage of sales, similar to 2023 of 1.3% of sales to end customers. In 2024, ultimate convenience CapEx, focused on business growth with major spending on new stores openings for remodeling, including implementation of MerryChef to a number of Zabka stores in 2024 and logistics. CapEx per store remained stable in 2024 at the level similar to the CapEx we spent per store in 2023. New growth engine CapEx included enhancement for our digital convenience offering, primarily development of our new customer app and its integration with our entire convenience ecosystem. It also was realized to international expansion and opening the new stores in Froo -- new Froo stores in Romania. Corporate and strategic leadership CapEx covers IT licenses in technology projects as well as AI, advanced analytics and data projects. Now moving to the cash flow generation. Zabka financial performance in 2024 was marked by robust cash flow profile, a key indicator for both operational efficiency and the financial half. The company generated free cash flow of PLN 1.5 billion, which was more than 3x higher than in the previous year. This resulted in a strong cash flow conversion ratio of more than 60% as you see, and was driven primarily by significant growth in sales and profitability, disciplined CapEx expenditure proceeds from sale and leaseback transaction involving selected Zabka stores, and improved network capital -- net working capital position, partially supported by a timing shift in cash flows between 2023 and 2024. As mentioned during our previous meetings, there was a calendar effect between December -- or [indiscernible] day of December 2023 and the beginning of 2024. We improved -- finally, we improved also our balance sheet. Zabka robust free cash flow supported a deleveraging trend with a net leverage ratio, excluding leases, at 1.5x, down from 2.3x a year ago. As per our guidance, we will continue on our deleveraging journey, aiming at net debt-to-EBITDA ratio, excluding causes of below 1x EBITDA in the midterm. And now moving for a while to nonfinancial results. While growing our business, we remain focused on sustainability. We have integrated ESG targets into both our short-term and long-term incentive plans. In 2024, we once again received the EcoVadis Platinum Medal. We reduced Scope 1 and 2 emissions by more than 30% compared to the base year. Our sales of owned brand products, promoting healthier and more sustainable choices reached PLN 1.8 billion in 2024. And a key step this year was also a group-wide rollout of our sustainability reporting. We concluded a double materiality assessment. We shared that with you in the annual report. And as early adopter, Zabka prepared voluntarily its first CSRD report, reinforcing our commitment to transparency and accountability. And finally, I would like to share with you our guidance. So what is very important is that we remain confident in the medium-term outlook shared during the IPO guidance. We expect continued strong momentum in our business. We aim to open over 1,100 stores in 2025, which, as you recall, ahead of our midterm guidance. And this is a reflection of very good performance of recent vintages, which Tomasz shared with you and also very good pipeline and availability of real estate in Poland. In the medium term, we continue targeting 1,000-plus store opening per annum in Poland and in Romania. On like-for-like, Zabka anticipates delivering mid- to high single-digit like-for-like growth for the full year 2025 in the medium term. The company expects payable adjusted EBITDA margin towards the top end of 12%, 13% range in the near and medium term. And in 2025, we expect to deliver EBITDA margin, which is similar to the margin delivered in 2024. Adjusted net income margin will further increase. It is expected -- we expect it to improve towards 3% in the near term and progress towards the medium-term target of approximately 4.5%. In terms of current trading, we continue to see robust trading with the first quarter like-for-like expected to be mid-single digit, reflecting seasonality and high base effect. I will now hand over to Tomasz, who will summarize the meeting, and then we will be ready for your questions.

Thank you, Marta. In conclusion, Zabka continues to deliver consistently strong results with attractive top line performance driven by a healthy mix of like-for-like growth and store expansion. The company achieved margin progression at both the adjusted EBITDA and net income levels, resulting in strong free cash flow conversion and accelerated deleveraging profile. Zabka remains committed to delivering on growth initiatives, including store openings, rolling out street foot across all the network and seeing positive traction from digital customer offering. The company remains confident in delivering the near and medium-term outlook for growth and profitability in line with what was communicated at the IPO. So I would like to end our presentation here and move on to the questions. Thank you.

[Operator Instructions] This webcast is being recorded, so by participating in the ZOOM call, you're agreeing that recordings made during the event may be shared with Zabka Group. Our first question comes from Izabel Dobreva from Morgan Stanley.

I have 3 questions, please. So my first question is on the path of the debt refinancing and the PLN 1 billion potential issuance, which you have now announced for the first half of the year, could you just confirm if this PLN 1 billion is successfully issued; number one, would you expect any spread benefit relative to the current cost of debt? And number two, should we assume that this will be used to rotate the existing debt under that more tax-efficient structure? So could you just confirm that that's how that works mechanically. And then my second question is on working capital. Is it possible to quantify how much of the movement in this year's working capital was linked to the calendar effect, which you mentioned and what your expectation is for the working capital movement to 2025? And then my final question is on the cost outlook. So if I look at the marketing costs, they were up 19%. So should we be expecting a similar level of growth into next year or should we expect an acceleration in the marketing costs in line with the completion of the remodeling? And then similarly, the IT costs, those were up just under 25%. Was there any front-loading of the IT spend in the 2024 number? Or should we expect a similar level of growth in IT costs in 2025?

Izabel, thank you for your questions. So maybe I will start with financing. So as you've seen this morning, we announced that we have signed a bond program agreement. So we are planning to we are considering issuing bonds in 2025. We may do the first tranche in the first half of 2025 as you correctly mentioned. It is to diversify our source of financing. We are, as you may imagine, in the beginning of the process so it is this hard for now to assess the spread benefit. But of course, if it will be possible, we will -- we would like to achieve it. On the top of that, we will -- as I mentioned already, there will be no increase in the total debt as a result of bond issuance. So therefore, what you can expect is that we will use the bond proceeds for the operating activity and spending on the -- on our investments that will -- in the same time, we will repay part of our existing debt, which is nontax deductible. Out of that, we will achieve the -- our debt structure will be more tax efficient. In terms of net working capital, as I mentioned, there is a calender effect between 2023 and 2024. The receivables as at the end of 2024 were unusually high as the last day of December 2023 fall on Sunday. And therefore, the franchisees did not repay to us their receivables because they do not -- they usually don't do that during the weekends. So -- and additionally, as at the end of 2023, there was also some accelerated payments to the suppliers. The effects of those 2 was approximately like between PLN 250 million and PLN 300 million. So we may expect that going forward, we -- this is a part of the positive CapEx coming through working capital, which is visible in 2024, but will not be visible every year going forward. And to your final question was on...

Marketing and the...

Marketing cost outlook. So when you look on the like SG&A costs, including technology as a percentage of sales and you adjust that for the portion of nonrecurring costs which were related primarily to the IPO and some of that also to like -- to the acquisition of DRIM and IPO bonus and LTIP the adjusted cost as a percentage of sales will be constant. So the level will not increase in 2024 compared to 2023. And in the following years, we also do not expect those costs to increase as a percentage of sales.

[Operator Instructions] Our next question comes from Michal Potyra from UBS.

I have 2 questions, please. So the first one, if you could comment on your expectations regarding the franchisee margin evolution in 2025 and in the longer run? And the second question, if you could comment on the supply environment in Poland are -- is your position improving versus the last 2 years remain stable? If you could give any color on that, that would be helpful.

Michal, thank you for this question. In terms of the franchisee cost as a percentage of sales, so as we discussed historically, the like engagement of franchisee is key for our success. And therefore, we always make sure that we keep involvement and engagement of our franchisee on the high level. As it was mentioned during the presentation, in 2024, we increased in fact, engagement of our franchisees, which is very important for us. As you may recall, in 2024, we had very significant increase in the minimal salaries in Poland, which impacted the labor cost of our franchisees. And on the top of that, we had a Zabka postive product mix coming from the higher sales of our QMS and [indiscernible] and soft drink -- drinks categories, which, as I mentioned during the presentation, had the highest like-for-like. So as a result, the franchise cost as a percentage of sales increased. Going forward, like we do not expect a very significant increase. However, there may be some coming primarily from the improved product mix. So if we make sure within our strategy that we share the benefits coming from a higher margin between us and our franchisee. So if we see, we have a better product mix and better direct margin we will share part of the benefits with our franchisees. So from this perspective, we may expect like some increase but not significant coming from better product mix.

Yes. To add and build on what Marta said, obviously, the increased cost on the franchisee side, we -- it's counterbalanced against productivity increases that we're working on with franchisees. We are implementing tens, if not more different solutions to reduce the time spent on any given task. We're optimizing the test inside of the stores as well as in between the logistics and the store. And we are introducing technology solutions, including building up with additional features, the franchise app in which the franchisee is effectively running the store. As well as working out on increasing the utilization of service check-outs inside, which are in all our stores now and adding different technology solutions to effectively be able to minimize the labor intensity in each of these stores. So there are 2 effects. And over the last years, we've been able to successfully roll out and have a pipeline of these efficiency gains to counterbalance the increased cost.

Thank you, Michal, for the second question. we were always saying that our relationship with suppliers is based on respect and planning. So we work with all the suppliers together, making plans for the future. So thanks to that, we are, for many, many years now, a retailer #1 chosen by suppliers. But we also know that we are -- we are one of the most growing companies in Poland, opening more than 1,100 stores per year and having more than 20% of sales growth. So we know that we have a purchasing power, and we have arguments on our sites. If you add to that, that we don't have fresh -- so vegetables meet these kind of things. In many categories, we are the best customer for our suppliers. So we know how to use it, and that's why we are increasing our margins as well. So I don't know if you answered that question, but I would stop here.

Let me please have one follow-up question. And if you could maybe give us your view on the shape of consumers in Poland because there is a lot of kind of, I would say, mixed opinions given by some of your peers and also the retail sales data as reported by the statistical office seems to be very volatile. So if you could maybe give us a little bit of color maybe also on your 1Q trading, like were there any differences between January, February? Or is it more or less the same?

Thanks, I'll take this. I think we not -- we see the consumer environment pretty stable. So my kind of answer to that question doesn't change. I think I answered a similar question in our last meeting. There is neither extremely good, neither poor. I would say that if you look at the -- through the lens of 10 years, so removing all the noise coming from COVID, inflation or and a few other kind of events. We are in a market that is exhibiting more or less normal patterns of growth overall. Of course, there are different channels and different shopping missions even effectively perceive it differently, right? There are kind of differences between the different aspects of the market. But from our perspective of our business, the consumer is pretty stable, and we see quarters -- last few quarters, which are pretty similar to each other. With relatively not so such a big variances between the months even. What drives the biggest variances of all these factors is the weather. And especially in the time of the year where we have kind of the variability could be big, right? We can see positive or negative variances coming from the weather impact. But overall, if you look at the grand scheme of things, these aren't that sizable, right? So we have positive kind of growth in all these underlying months that we have, right? Now obviously, that is looking at our business from our perspective. And what is worth mentioning is that we, through the strategy that we had over years and was especially visible this strategy in the last few years, we have separated ourselves from everyone else from the market by focusing on convenience, focusing on impulse mission, focusing on hot food and QMS, on the things that we do the best, right? Here, as you know, we are -- we're a little bit long on that part of the market, right? So in our part, I think that's what we can say.

So maybe I can add to that repeating what Marta was saying and adding a little bit color on the weather during the first 3 months of the year. So January was good. February in terms of weather was good. But March is quite good. So altogether, we are pleased with our performance. So what we can say is that in this quarter, we expect to be mid-single digit, which is reflecting seasonality and high base of last year. Marta was showing that. Last year during first quarter, we had 11.5% of like-for-like. Thank you.

Our next question comes from [indiscernible] from [indiscernible].

I have 3, if I may. I will ask them one by one. First is around fourth quarter gross margin, there was a deterioration year-on-year in fourth quarter following a different trajectory than in previous quarters of 2024. Could you clarify the reasons for the decline to what extent did the positive effect in electricity prices, prices effect or what was the impact of the product mix and supplier trading terms? That's the first question.

Yes. So in terms of -- like when you look on the EBITDA margin, the margin in the last quarter last year on 2024 is similar to the margin which we generated in 2023. There is, in fact, like 0 -- like slightly lower margin -- direct gross margin. And it is driven by what we -- by our multilayer strategy to drive volume at our stores. So we are tried, as Tomasz mentioned, and we introduced at our stores number of very innovative promotions. In fourth quarter of 2024, we also launched our super app and there was some investment related to the launch as well. So we wanted to attract new customers to our stores and to our app. And from this -- and therefore, we invested also to achieve that goal. Overall, we expect that going forward to 2025, given what Tomasz said, given our position and relation with the suppliers and given that we are planning to continue the growth of the top line in 2025, we believe that similarly as in the previous years, we will be able to improve our terms of trade with suppliers based on the increased sales.

Okay. That's helpful. The second one is around like-for-like. Could you share with us to which extent like-for-like growth in 2025 is driven by price and volume?

I think what I can say at this stage is that we see positive volume and positive price effect. So we see more customers coming to the stores. We see higher traffic. We still see that customers choose more expensive products or more premium products. And we also see the positive price effect. So all of them like contributed positively to our like-for-like in the first quarter. We will be able to share more details probably when we released the results for the first quarter in May this year.

And the third one is around loss in Romania. Because you mentioned a positive contribution from this segment, while the new growth engine segments shows EBITDA loss at around PLN 70 million losses. So is it fair to assume that the EBITDA loss from Romanian operation combined with DRIM Daniel logistics was around or over PLN 70 million, PLN 80 million. Could you talk about that?

I think it was like -- for sure, what I can confirm is that we invest in Romania. So the current operation of our stores in Romania, like does not contribute positively to EBITDA. But I think that the calculation which you have performed is not fully accurate is what I could comment. The excess of the loss is not as significant as you mentioned.

[Operator Instructions] So we have another question here from Elena Jouronova from JPMorgan.

I have a few questions, please. First and foremost, on amortization. I think it went up significantly towards the end of last year. Can you please talk about the reasons of this? And if your current amortization run rate is sustainable in 2025?

Elena, so we have like -- as you correctly noticed, there is an increase in amortization and depreciation in 2024, but part of that is nonrecurring. So we have increased in right of use, which is driven by the fact that our contracts with the rental contracts are indexed by CPI, so by inflation. And given that in 2024, they were indexed with inflation for 2023, which was higher than 11%. There is some increase in the accounting depreciation of right of use coming from this adjustment. On the top of that, and this portion is not recurring, we have in 2024 accelerated amortization of some of the legacy software for Zabka as well as for the new business -- for digital for the new -- for the digital businesses, which was -- so the software, which is going to be priced with the new super app. And given that the new super app was launched in the fourth quarter of 2024, there was an accelerated amortization which increased the total value for 2024. Going forward, we expect that the growth which we had in 2024 is going to be nonrecurring. So in the near term and in the medium term, we expect to come back to the levels of depreciation, amortization as a percentage of sales, which we used to have in 2023 and in the previous year. I'm not sure if it answered your question, Elena.

Yes, yes. Perfect, very clear. Then another question I had was about your expectations and impact from the excise tax increase on the tobacco category from, I think, May this part of your like-for-like and margin guidance? And what is roughly the impact that you've modeled on like-for-like in margins?

Maybe before Marta will go into details, just helicopter review on that. In Poland, for many years, excess tax for alcohol or for cigarettes are growing. So it's nothing new for us. We know how to deal with this. Also, it has a limited impact on consumption, maybe at the very beginning, but then it's stabilized. So we will -- we don't see here any threats for the business. There is one excess tax that is related to e-cigarettes, which will come in September. What we discuss with our suppliers is the fact that people will move from cigarettes that are not liquid, yes, there are onetime use, right? Cigarettes, they will move to -- from the single use to the multiuse. So also, we do hear a lot of activities with suppliers to mitigate that possible risk in terms of the impacts.

Yes. So as you said, Tomasz, so in terms of the total impact, we do not expect it to be significant. And so we will see a positive impact coming from higher prices, which will be, to some extent, offset by slightly lower volumes. But we don't see that as a main driver of our like-for-like for 2025.

Our final question will come from Luca Codagnone from Lombardi Capital.

I have 2 in theory, if I can. So the first one is just as a clarification, I think Marta said that QMS offering has been growing very fast and is the category with the highest like-for-like. So could you please detail how much like-for-like was impacted, right? In other terms, how much that QMS category contributed to like-for-like for the whole group? And then the second question is on inventories. I think if you compute inventories in terms of selling space, that has been increasing, and it's now the highest over the last 4 years. So why is that?

So maybe starting with the QMS like-for-like. What is -- what I can say is like that the category has the highest like-for-like and is driven by mostly by new products, which we develop and launch in our stores. So it is includes the new street food offering, also the MerryChef products, which we offer at our stores, but also a number of ready meals, which is internally developed and is like new and exclusive at Zabka store for our customers. This positive or high like-for-like of the QMS also impacts other categories through buying. So customers usually buying QMS by also like soft drinks or other categories. So it has like wider impact on our sales. In terms of inventories, there was an increase, as you said, at the end of the year. And like -- it was driven by a number of reasons, but it was also related to the expected increase in the excise tax, which we discussed like a few minutes ago.

Understood. And maybe a clarification. Would you be able to say how much higher the QMS like-for-like is versus the rest of the group?

Yes, I think we do not share this info -- this detailed information currently.

We do have an additional question come through. So that's from [indiscernible].

I've got one question regarding working capital. As you stated that there was some extraordinary positive impact in 2024, so what are your expectations? Could you give us a bit more color on 2025, should working capital have some positive impact on cash flow in 2025? Or should it be less positive than we saw in 2024?

Yes. So there will be positive inflow coming from our working capital in 2025. But the value of the positive impacts in 2025 will be lower than in 2024, given the like nonrecurring effects, which I mentioned. So as we discussed, there is like between PLN 250 million and PLN 300 million of this calendar and like year-end effect between 2023 and 2024, which will be nonrecurring. So -- but even after that, we expect, as you can see, the positive impact also coming from working capital, given that it has negative profile for us. And we expect sales and the number of stores increased in 2024. Also, working capital will bring positive impact on free cash flow in 2025. But the extent will be like similar to historical number rather than a similar to 2024.

Okay. And maybe last one on the CapEx. So how much CapEx would you expect for this MerryChef rollout in 2025? The completion of the rollout as I guess, it would -- will not recur in 2026 year.

Yes. So in 2025 -- '24, we have -- most of the stores were like we added the MerryChef to most of the stores in 2024, and the major of CapEx was spent in 2024. In -- currently, we have 70 -- as at the end of the year, we have -- we had 75% of our stores like with MerryChef. And also another 25% is to be like implemented in 2025. So the -- and we -- I think we disclosed historically that the like CapEx for MerryChef, including also the screens like our stores is approximately PLN 50,000 per store. Yes. So based on that, I think you can estimate. What I can also say is that as a percentage of sales, when CapEx for 2025, will be lower than in 2024. Given that we had in 2024, this like one-off CapEx related to MerryChef implementation in most of our stores.

There are no further questions on the call, so I'll now hand back to Zabka management for closing remarks.

So actually, we are after the closing remarks. So thank you very much for that meeting and see you in May. Goodbye.

Thank you.

Thank you.