Jeronimo Martins SGPS SA
ELI:JMT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
15.29
23.68
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. We are here today to talk about Jeronimo's performance in the year, we celebrate 230 years of [indiscernible]. And reason we'll guide you through all details in a couple of minutes. I just want to very briefly share with you my personal view on what we, as a group, have been able to accomplish in these times we are living and how we are looking at maybe at what may be ahead of us.
I told you 1 year ago 2 weeks after the invasion of Ukraine that uncertainty was at a record high levels. Unfortunately, I don't think that has significantly changed. Going forward, we will still have to cope with uncertainty and with much higher inflation rates than we look -- we would like in the countries where we operate, at least in the first half of 2022.
2022 was a year of extremely uncertainty and high pressure. The war had to the disruption in international supply chain caused by the COVID-19 pandemic and led to global food and energy crisis and persistent high inflation. The last 3 years have been tremendously hard on our business and our people. That's to strong in face of the adversity.
We kept delivering solid results, posting consistent growth and expansion on all fronts year-on-year, while always being a responsible corporate citizen and preparing for the future.
Between 2020 and the end of 2022, in the 3 countries, we opened more than 1,000 stores create over 5,500 jobs and invested more €20 billion in our business. In this 3 years period, market by the less multiplication of simultaneous sources of pressure, we dedicated nearly €700 million to a knowledge and awarding our employees for their [indiscernible]. Their sense of mission and their fat contribution to the business.
Our proximity mindset and position also allowed us high visibility on the growing needs of the community since surrounding our operations. As such, in the last 3 years, and including the activities of the Biedronka foundation, we have done to share this nonprofit organic at be equivalent to more than €200 million in food and financial support. Of course, these 3 years of severe constraints rates, costs and high pressure have less their market and the low net profit ratio to sales is a good evidence of debt is 2.3% in 2022.
Even so, and also because of the operational discipline and efficiency that set us apart, we almost doubled the net earnings that multiplied by 1.9x, €278 million more in 2022 than in 2020. Last year, I told you that all our partners starting with [indiscernible] would keep price leadership in the contest of malting inflation and extra social and economic challenge, even at the cost of sacrificing profitability, the EBIT.
We've seen this not only as the right thing to do for our customers, especially in tough times but also for our business in the medium and long term. And we will keep doing it while we make progress toward our sustainability targets. I'm proud that in 2022, for the third consecutive year, we are accessed by the CDP as the best-performing food developed in the world in the fight against the [indiscernible].
And as for the second consecutive year, CD3 [indiscernible] for the top-performing companies in the climate action and managing what a critical natural result. This achievement because of the underlying collective effort that represent show how deep sustainability is invested in our business. We have made reasons to remember 2022 as an extraordinary year in our long history.
Personally, I will recall as the year when we surpassed the €25 billion milestones in sales and €1 billion in investment. And when at EBIT, excluding [indiscernible] was for the first time positive in the full year. We accomplished all this while keeping and change the strength of our balance sheet. This is our best shield and weapon to keep us safe and win in the tough times we see ahead of us.
And now we will now take to the full year results. Thank you for your attention. Ana, the floor is yours.
Thank you, Chairman. As a reminder, and as usual in our corporate website, a set of materials is available, comprising the release, a slide presentation a fact sheet and also including a couple of videos that give an idea of the look and feel of our Biedronka and Ara stores and add a bit of color on our activities.
2022 was a very tough year on several fronts. The war in Ukraine added to the already high overall uncertainty and the accumulative impact of COVID-19 on global supply chain, driving food and energy crisis that led to mounting inflation throughout the year.
Against this backdrop, all our banners kept faithful to their commitment to keep prices low and to invest to offer the best saving opportunities to increasingly pressure consumers. Even if we acknowledge the effective inflation on sales, at least on the first moment, it was indeed this highly competitive mindset, the key factor behind the strong delivery registered in 2022.
With very hard work and an absolute focus on building sales momentum, all our companies were able to not pass on to consumers all the rising costs and partially limit the price increases on store shelves while continuing to invest in the overall quality of their value proposition.
As a result of this strategic decision to further invest in price leadership, group sales grew by 21.5%, surpassing the €25 billion mark and EBITDA margins declined nearly 30 basis points to 7.3%. The good sales performance led EBITDA to grow by 17% to reach €1.9 billion. The commitment to growth is also reflected in the fourth 473 stores opened and in the more than 400 remodelings concluded in 2022. Both have a decisive contribution to top line delivery.
Cash flow generation reached €706 million, further reinforcing our strong balance sheet. By the 31st December, net cash position, excluding capitalized operating lease liabilities was at €1.2 billion. Profitability measured through pretax ROIC was up 27%, with the increase versus 2021 being fueled mainly by sales performance.
As such and in line with our dividend policy, the Board of Directors will propose to the AGM, the payment of €345.6 million in dividends. Despite all the pressure and challenges, faced by our businesses in 2022, all companies continue to make relevant progress on our corporate responsibility targets.
First things first, and starting with what concerns promoting good health through food which is at the core of our mission, we continue to reduce the amount of sugar, fat and salt in our products, improving the intrinsic quality of our private brand offer.
As mentioned by the Chairman, we also gave important steps in our commitment to develop our activity while respecting the environment. Particularly important for us is in the current circumstances is to support our people and the surrounding community to our operations through the direct support measures.
As we now move to looking into the detail of the performance, allow me to strength that all the countries in which we operate experienced challenging landscape, even if different levels of consumer resilience were evident. Food inflation and cost inflation, which were on the rise throughout the year, pressure consumers and also our cost structure.
In Poland, this pressure was more visible towards year-end the food market having been supported early on by the influx of Ukrainian refugees who stayed in Poland, enlarging the consumer base. And by the government measures, to limit the impact of inflation and high interest rates on consumers' purchasing power.
On the other hand, in Portugal and even more in Colombia, the fragility of consumer demand in face of persistent high inflation led to an immediate negative impact on food retail sales with relevant trade down trends. Price investment and consumer trading down effects are reflected in the gross margin decline from 21.5% to 21%. This focus on reinforcing competitiveness resulted in good sales performance across the balance and limited the impact of cost inflation.
Other profits and losses at €95 million include, amongst others, the payment of €45 million of exceptional bonuses to our operational teams in Poland and Portugal, of which €23 million approximately half paid in Q4. In recognition of their commitment and dedication in earmarked by high inflation and in the case of BiedronkaBiedronca, also by the significant additional efforts to respond to the effects of war in Ukraine.
This heading also includes €11 million channel to support initiatives for Ukrainian refugees and other donations as well as indemnities and provisions increases for various contingencies.
As previously said, cash flow was €706 million, reflecting strong revenue generation from the operations and including a working capital inflow as a result of the strong sales growth. This performance more than offset the increase in CapEx payments.
As a consequence of all banners execution, we closed the year in a solid financial position, especially under the current volatile circumstances, the strength of the balance sheet is of critical importance to us. In fact, it supports the implementation of our long-term vision by guaranteeing the execution of the investment plan and the proper flexibility to capture growth opportunities as well as it allows us to step in to support our partners if they need it.
In 2022, investments amounted to €1 billion, with increase on 2021, reflecting: first, an acceleration in the number of store openings, particularly in Colombia; secondly, the investment in increasing logistics capacity to support the expansion; and thirdly, the high inflation rates in construction materials and equipment.
Expansion accounted for 37% of the CapEx in the year with the opening of a total of 473 new stores, 451 [indiscernible] across all our banners. Biedronka ended 2022 with 145 more stores than in the previous year and opened 1 micro fulfillment center to support its DX operation, bringing the total figure of micro fulfillment centers to 15.
Regarding its investment in logistics, Biedronka completed the refurbishment and modernization of 1 of its distribution centers, which began in 2021 and also open a new distribution center to add to the 16 already in operation. Ara added 274 new locations to its network.
Expansion helped to build sales. And when looking at the top line performance, the strength of delivery from all companies is clear. All our banners acted as an anti-inflation force by absorbing in their margins, part of the increase in the prices of the goods sold, not to pass them all on to consumers. The work done to leave us every day to the low price promise led sales to grow 23.9% at constant exchange rate. It is worth highlighting that Biedronka added €3.5 billion to its top line, and Ara added almost €700 million.
Moreover, the impact of currency volatility was evident and it reduced the year's sales by almost €0.5 billion. Group like-for-like was 19.6%. While inflation contributed to the growth rate, it is also true that our banners invested in margins to limit the increase in food shelf prices, protecting volumes and leading to market share gains.
Biedronka maintained its basket inflation consistently below the inflation registered in the country, securing price leadership while continuing to improve its offer and the buying experience in its store network. Reinforced consumer preference in 2022, drove sales to grow by 24.1% in local currency and market share to increase by almost 1 percentage points according to GSK.
As for HeBe, sales grew well in the year, also recovering against previous years, which were impacted by the restrictions imposed during the pandemic. In the fourth quarter, the banner launch is international online operations in Czech and Slovakia.
In Portugal, being those absorbed part of the inflation registered in the market and created strong and relevant campaigns to generate saving opportunities for family. Consumers recognition as a consistency of low price positioning led sales to grow by 11.2% despite the heavy impact of trading down. As a result, market share was reinforced in the year.
The sales benefited from an improving redo sector and capitalized on the favorable tourism activity, growing strongly against the comparative that was still impacted by COVID-19-related restrictions. Sales increased 27.7% in the year in which the company celebrated its 50th anniversary.
In Colombia, Ara continued investing in the lowest price as possible and in strong promotions in a market context that was extremely tough for families. As a result, sales grew in local currency, 62.1%, and the banner is building its position as a top player in the Colombian market.
The strong sales growth in the year drove operational leverage and the increase in the absolute level of EBITDA. Consolidated EBITDA reached €1.9 billion, 17% up on 2021. Biedronka was as expected, the main driver of this EBITDA growth, while added positive contribution also being worthy of a highlight.
As already mentioned, and following the decision to limit price increases, EBITDA margin was down nearly 30 basis points. Biedronka was the group company that faced the highest pressure from cost inflation. In Portugal, in dose and particularly shine are still recovering from the impact on profitability of the restrictions imposed to manage dynamic.
In Pingo, the pressure of price investment added to trading down effects while the company implemented efficiency measures that mitigated the impact of margin investment. [indiscernible] benefited from the strong improvement of Curis Portugal.
In the fourth quarter, our main retail banners, Biedronka and Pingo, made an extra effort on price competitiveness. In the case of HeBe, Q4 margin was impacted by the cost to launch the international operations, while Ara was able to register EBITDA margin improvement despite the substantial effect of trading down and the weight on cost of the opening of 189 stores in the quarter.
All in all, we ended 2022 with stronger business models, improved price competitiveness, enhanced assortments, better store network and undeniable good sales momentum across our banners and a solid balance sheet that allows us to deliver on capital allocation priorities, not losing market opportunities to grow and having the flexibility to step in to support our partners if needed.
So far, in 2023, high inflation is more persistent than expected at the end of 2022. Consumer sentiment remains very, very low and will reduce purchasing power, consumers are now even more cautious. In January, there were minimum national wage revisions in the 3 countries where we operate and unemployment rates have been relatedly under control.
Looking ahead, it is still difficult to predict the impact of critical macro variables on our performance. Although with this inflation scenario is expected in 2023, it is not clear what level of this inflation we will see as comparables start to incorporate the high prices registered in 2022. Volatility still exceeds for key production and operational costs such as gas and fuel.
Also interest rates that increased fast in 2022 remain high. Consumer resilience should have some support from an evolution and low unemployment rates but will depend on the pressures that may result from enduring high inflation and interest rates. As we did in 2022, in 2023, we will invest to be competitive and to protect volumes to guarantee the preference of consumers. Sales delivery will help us to protect profitability, the focus remaining on growing EBITDA in value.
We believe we have a strategic vision and the right models to operate in the current circumstances. We also have a solid balance sheet that will allow us to advance our expansion plan while preserving the ability not to lose opportunities to grow.
In Poland, the consumer turned more cautious towards the end of 2022, and we believe that we will continue to see this defensive trend as high inflation perceive. Therefore, Biedronka will work relentlessly to deliver on its low price promise to protect volumes and limit trading down effect.
Our main banner will execute its expansion program, opening 130 to 150 net stores capturing market opportunities in the neighborhood and getting even closer to its customers. The remodeling program will progress at its ambition rhythm of 350 stores per annum guaranteeing that the store model copes with the offer development and the efficiency standards of the company.
In Portugal, we continue to expect to face fragile consumer demand while trading down impacting the food basket. Pingo will continue to invest to maintain its low price strategy. The banner will also be focused in spending up -- speeding up store renovation to 60 locations to roll out the store model that reflects the strategic vision for perishables, private brands and new solutions.
Roche expects to continue to benefit from tourism in its sales to area, while expansion of the Minske Partners network, which has now more than 500 stores will be the focus to grow in the traditional retail sector. In Colombia, consumers are currently under massive pressure. Therefore, Ara will keep its low price positioning at the center of its strategy to reinforce market position and grow EBITDA.
Expansion will also be a key by our priority in the year and the banner plans to open more than 200 new stores in a market where the potential opportunity for us to add capacity remains unchanged. We'll also invest in logistic capacity to underline future expansion.
In 2020, we set our 3-year targets for our corporate responsibility pillars. We are now entering in the last year of this plan, and we will continue to work hard and to take the right steps to deliver on each of these goals. Despite the challenging and extremely uncertain context, we are confident of our company's ability to continue to grow, while at the same time, improving efficiency to protect profitability.
Because of cost inflation, the focus on growing sales and EBITDA will pressure EBITDA margin as a percentage of sales. We've tainted to our long-term goals, taking the investment plan as a priority. Our CapEx program is expected to stand at around €1 billion.
Thank you for your attention. Operator, I am now ready to take questions.
[Operator Instructions] And the first question comes from the line of José Rito from Caixabank.
Yes, so my first question on the Polish food retail sales. The data that we have, it seems that volumes were negative in January and February, just to confirm that if you are also seeing the same trends in the country in Poland.
And the second question on the trading down intensity. If you can basically highlight how this has been evolving across your geographies, basically Portugal, Colombia and Poland, so these early months versus what was Q3, Q4. So how this has been evolving. And finally, just a question on the bonus, extraordinary bonus that you paid in Q4. I noticed that you also paid around €20 million, so basically the same -- broadly the same value over the last 2 years. So this is the third year in a row of this ex-bonus payments.
Any view on the Polish labor market how this should evolve and why you're going to see these payment sales recurrence.
Thank you, Jose. So as you can imagine, we will not be commenting on the current trading, considering that we will present our first quarter results in 1 month. Nonetheless, yes, so it's true that the numbers from the Polish retail market assume and have increased a low volume, particularly in February.
And we think that the Polish consumer is now more cautious considering the different pressures that we mentioned from high interest rates that, of course, put pressure on the mortgages. And of course, also the persistent high inflation on all headings. And it's true that we are now entering from February on the comparable will also take out the effect that was very important in February last year of lowering inflation in the basic products. So it's now comparable from February on. So it's more visible, the impact.
This being said, we think that Biedronka is the player with the best prices in the market. So is the ones that we are sure that the Polish consumer will prefer under these tough times. And the company is preparing and has been working this month to really protect volumes and therefore, also protect their profitability.
In terms of the trading down effects, I would say that these are happening in all the geographies. It's more evidence. And this is, of course, a consequence of the type of economy or the differences -- the structural differences in the economies. But it's -- we are seeing this being more tough in Colombia, where, of course, you have relevant number of people living in poverty and the COVID didn't help the country recovery from that.
So as inflation continues to stand on top of price to the double digits, as inflation continues on the above 20% we are noticing that people reduce volumes and tend to buy the cheaper product. This is increasing. In Portugal, the same. I would say that we noticed more not only the way that our private brands weigh on sales decreases, but also on the fresh products.
As you know, inflation was higher in the more basic products for different circumstances on fresh and on the food products due to the strict and then the constraints on the supply chain, not only from the Covid-19 impact, but also from the war and from the weather conditions in some of the countries that had a very dry summarized year.
So what we are seeing is people buying cheaper fresh products and also buying the cheaper meats or not or refraining from buying fish. And because, of course, this -- they feel that they have less purchasing out in Poland, we are sensing a little bit that, but we also have more clients going through our stores and not only the Ukrainians but also the Polish families. And we think that this is because Biedronka has the best follow proposition in the market.
On the extraordinary bonuses, they were different, Jose. So the group decides and despite the increases in the salaries and keeping its competitiveness in the labor market, the groups decide that sometimes it has to activate exceptional mechanisms whenever it feels that it should reward or recognize its employees, particularly the ones in the operations and in the frontline.
In the first 2 years, it was the COVID-19. And I think that nobody can deny the rules that the teams that were in the front lines took, and so we decided to implement and to activate that mechanism and pay an extortion to ITs at end. This time, we think -- we thought that considering the very sudden hike that was even aggravated throughout the year in inflation on one hand.
And on the other hand, the fact that in Poland, our teams were really pressured throughout the year with the fact that they have a war in the neighbor country that they have to receive an influx of refugee we thought that this should be, again, a reason to activate these exceptional mechanisms and paying a bonus to our teams. And these decisions were taken at corporate level, of course, sometimes by proposition even of the local team. And that's why we put them in exceptional items.
We have another extraordinary awards, which we pay -- we are going to pay basically in April and in May to our team, but this is a decision from the Board also. That has to do with -- if the group presents a good performance. They are entitled or not to a certain amount paid to each employee that is a nonmanager, and that was the 1 that we referred that have increased more than 30% this year because we thought that with the current performance, we should also reward against our people in spite of being a decision, a discretionary decision taken at the Board level by proposition of our channel.
And so it's not [indiscernible] markets, I should say. And particularly, I would say, from the labor perspective, we are seeing a labor market that has an issue of supply in Poland and in Portugal also in Poland, even harder. But this is not the reason why we pay exceptional bonds. It's really to be work our people and is a sign of recognition.
Okay. Understood. Just a follow-up. So basically, you mentioned that you are basically gaining new clients. But the Polish as a whole, you mentioned that people in Portugal and in Colombia are buying less. Is also a case in Poland at this point or not necessarily yet?
Jose, can you repeat?
Is it better now? Just I was asking you mentioned that basically you are gaining new clients. My question is for the overall consumer in Poland, if consumer is already spending or buying less volumes or not? So that's basically 2 moving parts. One you are paying your clients, but then if the clients are buying less volumes.
Jose? [indiscernible] Apologies. So for Poland, Jose, what we are seeing, as I mentioned, is an increase in the number of clients from the -- from our [indiscernible] cards and what we can track on the consumers. It's -- we are seeing a mix. So some clients, we see that they tend to now be trading down, particularly more pressure on that front, and buying less quantities.
Others, we don't see still that. And so it's a mix effect in Portugal and in Colombia. So we also gained clients I think that this comes with the fact that we have -- in terms of competitive position, we are quite well placed with the prices and quality and value proposition that we give -- but we are seeing more trade down and pressure on volumes in both countries.
And the next question comes from line of Nick Coulter from Citi.
Sorry for background noise. I have 2, please. Firstly, just to come back on that theme. If we look to the Polish grocery market for 4Q last year, if inflation was broadly 20%, what was volume and what was mix piece, just to kind of clarify the whole debate around the shape of the Polish market on a historical basis for the grocery market, please?
And then secondly, on own label and branded trends, it would be useful to get your thoughts there. And specifically, if you think there'll be greater supplier support as this inflation appears through this year?
Nick. So on the fourth quarter, as we mentioned, Biedronka and sometimes it's difficult to check that probably for you as we have a technical issue with the inflation in Poland to do VAT difference. The CPI is measured within -- but as you can see, we increased volume because if you take into consideration that Biedronka on average was 2 percentage points below the country's inflation, and it to more than its owned basket inflation, we are talking about an increase in volume.
Okay. But there's no mix impact for you. So I presume the old thought it'd be a negative mix impact of, I don't know, 500 basis points of that sort of order, but you're not calling that out?
Well, we are not really giving a lot of detail on that because I think that we are probably the only player that does that. But I think it's easy to do the math. So yes, we have increasing volumes in Biedronka in the fourth quarter and quite significant.
Okay, because you have that differential and then you have a mix impact as well. And you don't have a view on the market just that you're probably outperforming by a couple of hundred basis points on those measures?
We continue -- what we seek, and it's very important to us, we continue to be the most competitive and to maintain a quite significant gap for the food inflation. So we are really absorbing it, but this is very important to keep and to protect the volumes even in the beginning of the year.
As we probably mentioned, Robin. And I can, of course, advance on that is that point we think that it's going to be a little bit tougher on the second half. We don't hide that because the comparables will start to be tougher.
And then just on branded versus own label, how those book volumes are trending and what that might mean for supplier support, and I guess your promotions and your in and out and driving value into your proposition?
Okay. So Nick, in this particular, what we are doing really, of course, this was a very tough year for our commercial teams because – we want product availability, but we don’t want to – the price increases that we did wanted to limit really the part of pricing that we pass to the consumers. So these were very plus negotiations, but we also know that we have to rely on our partners, and particularly on the fresh and private label ones.
So what we are really doing is, of course, whenever possible, we really have – or try to maintain the prices in these categories, but it’s difficult. What we are seeing in the different geographies is – and this happens in Poland and Portugal and in Colombia is, of course, the private brands as having a lower price and a very good quality proposition, gaining share in the total sales.
And the next question comes from the line of James Grzinic from Jefferies.
I had a couple of questions. First one, I guess, really coming down to the dividend payment, you cut the payout significantly despite net cash balances being higher, €200 million higher year-on-year. And I presume a year ago, we were in the immediate aftermath of the [indiscernible] over the thought that more broadly there would have been greater uncertainty back then.
So why do you feel the need to be more cautious now? So if you can spell that out not clearly for us in terms of do you think that suppliers may need more support et cetera, et cetera, et cetera. Is it the deflationary risk you're thinking about?
And secondly, on the inflation point, does your guidance for margin compression this year assume that you go into deflation in Poland in the second half of this year.
Thank you, James. So on the dividend payment, -- in fact, it's true that the exceptional payment of 100% payout last year, assume that we would not be betting so much or we were being assuming that we would probably have to refrain even on the CapEx front, which ended not to be the case. But it was considering the different alternatives that we have.
We came back to our dividend policy of paying the 50% of our ordinary net earnings without the effect of IFRS 16 because we think that -- it's true that probably we are even a little bit more cautious because, first of all, we are seeing inflation being more persistently high than probably everyone expected 1 year ago.
We think that this will pressure not only our consumers, but also our suppliers. We don't have any doubts about that. So when we look at the product or the cost of production increases that happened, we think that probably we will have also to invest on that.
It's not that -- as we said, it's if needed, we think it will be needed. And although we already pay in the case of Portugal and in the case of Poland, we really anticipate the payment terms usually for the small producers. So in Portugal, we have 10 days. And in Poland, we have 21. But we know that with the hikes in interest rates and all the production costs going up, we think that this may be also a way to allocate our money.
The second one, of course, is as you see, we want to keep growing and seize the opportunities. And this happens in all fronts, including in Portugal, where we think that we are in a better position. And I think that's currently, we don't -- we know that there are pressures even on the financial side. So we want to keep the balance sheet strong, not to depend on any fragility even in other sectors. So we prefer to invest and to really make sure that we have the leadership in all the countries.
On the guidance on Poland, to be honest, we are not expecting deflation this year. We are expecting this inflation. So a lower level of inflation towards the year-end as comparables start to be stronger. And we think that even the supply side may adjust partially because there were really a lot of disruptions in some of our main products from fresh to private label and even to the A brands that put pressure. And even there were some constraints in the beginning of last year in terms of product availability.
This being said, as supply adjusts, we think that there will be probably less pressure for high inflation, but we are only assuming this inflation, not deflation.
Understood. And can I just ask perhaps a follow-up on that. What sort of provisions do you have in your cost lines in Poland to basically scale back the impact of inflation, I'm thinking particularly wage growth and rental inflation.
On that, James, usually, our auditors don't allow us to do provisions that -- we can only book it when they materialize. But we were excited and suppose.
Sorry, just to clarify on that, meaning how quickly can you move around contracts and particularly on rental negotiations if you -- if the top line required it to?
So it's tough because -- so we are assuming and we have prepared the companies in the countries to cope, of course, with the review on the terms of the leases. And we are also increasing our salaries to maintain the competitiveness in terms of salaries versus the other competitors. So we are doing that.
I would say that on that, we don't have many much flexibility on where we have some more flexibility is on really making sure that we maintain competitiveness to get the sales and dilute the costs. In this case, usually -- in this sector, if we want to very rapidly reduce costs, it needs restructuring, James. We don't hire.
And the next question comes from the line of Michal Potyra from UBS.
I have two questions, please -- 3 questions, sorry. One is a technical one about the impact of noncontrolling interest? Do I understand correctly that Pingo Doce generated a loss in the fourth quarter? That's question number one.
Question number 2 is on capital allocation. Looking at your CapEx breakdown, it seems a great amount. It's actually allocated to Portugal, practically limiting any free cash flow from this market. And this is a mature market. I'm wondering what sort of return do you expect to generate on those investments in Portugal?
And the third question is if you could give more color on the drop in HeBe margin in the fourth quarter.
Michal, so on the controlling interest, it's true that there is -- we made some review and particularly on the tax liabilities here in Portugal. And that has had an impact on the controlling interest, but -- and we also have some more pressure on the operational side, and we invested a little bit more on margin in Portugal, but it's a one-off that happens in the fourth quarter.
So nothing that we foresee. So it continues to be technical, as you mentioned. And but there was an adjustment in the result that translated into a positive contribution for the controlling interest.
On the CapEx, in Portugal. Here, you have a big mixture. So it's true that we invested more in Pinos and in [indiscernible] where we open a big store also. So you have not only the investment, which accounts more or less for 2/3 of that in the distribution businesses, but you also have the investment in some projects in the -- at the holding level and in the agri business.
And we also include on the CapEx, the financial investments that we made when we acquired part of the share capital of a Norwegian company, a salmon company where we spent almost €20 million. So we are accounting for all of that.
On the growth on the third question, as a -- so we continue to think that there is an opportunity to grow in Poland. What we think is that it makes sense as we are betting on online operations and on the omnichannel also to test, and we have done it, and we think that we have an opportunity to grow for the neighboring countries in Czech and Slovakia.
At this point, we are still seeing what the growth means. But we are seeing some growth on the online operations due to this move. So the idea is that now at this stage, HeBe will start to increase, of course, its profitability, and we will -- and it will move not only from breakeven as in the last years at EBITDA level, but really to become a profitable company at return on invested capital, which is our main profitability KPI.
And the next question comes from the line of Henrik Herbst from Morgan Stanley.
I had 2 questions, please. Firstly, I was just wondering if you could talk a little bit about competition in Poland as consumers get under increasing pressure. I see in the change in competition at all. I know it's always been a very tough market, but in you can highlight?
And then secondly, I wanted to ask about your EBITDA ex-IFRS 16. What what's going on with lease costs, it's been falling as a percentage of revenues as inflation picked up. How should we think about lease costs going forward?
Henrik, many things. So competition in Poland, I think that Poland has an advantage, I would say, versus Portugal or in this case because, yes, it's a very competitive market. But it's a market that has been quite resilient from the consumer parts. And as you know, also there were a lot of measures taken from the government to support the families. And this, of course, helps in this kind of context.
But this being said, what we see, of course, is all our competitors also adding capacity in the market. But when we look at our market shares, of course, we noticed that the donor the proximity and the retail format, the discount formats are the one that gained share.
This being said, I would say that Biedronka and other players like Dino that opened a lot of stores and legal, are the one doing better in the market. But this has to do with the business model. I think that's in the context of high inflation the low-priced proximity formats are really -- and the ones that provide us are the ones that gained.
But -- so I see a market that will continue to be very competitive because the consumer has lower purchasing power, but I also see an opportunity for our banner do to continue to attract and to even have the preference of more consumers as its value proposition continues to be the best in the market.
At EBITDA level, so rent solutions. We are assuming that they will grow double digits this year for the group, mainly with the impact of the highest CPI in Poland and of course, the waste of the rents in Poland. But we don't guide for the -- for any percentage of sales. So we think it will be a low double-digit increase.
And the next question comes from the line of Andrew Gwynn from Exane BNP Paribas.
Very quick clarification question. Just on the working capital point report, it sounds like you're sort of happy to even shorten those terms. Is that correct? May you expect a little bit of working capital outflow?
Andrew, so in terms of the -- we are talking about the payment terms. So it's not really just shorten the payment terms. I think that the idea is take the advantage to work with our suppliers because I think that this -- the challenging context affects the whole supply chain. So we know that our suppliers are being pressured on their costs also.
And if we can help some way, and it's not just through working capital, it's even trying to find new ways or helping them guaranteeing that they can supply -- continue to supply the group or increase their volumes, et cetera. So it's -- or that we can decrease the payment terms for not just these ones, but others that we can see that is crucial to defense. As I said, mainly on the private brand and on the fresh products, we want to have the flexibility to do that, yes.
Okay. That's great. And then the last clarify -- a clarification point, but maybe a bit cheeky. Would you anticipate more margin investment this year or less versus '22?
On that, Andrew, I think that we mentioned and are quite clear that we continue to see some pressure. This being said, if the capital turnover increases, again, we will be defending the profitability as the return on invested capital level.
But sorry, would that be more margin pressure or less?
More margin pressure.
speakers, there are no further questions at this time. I would now like to hand the conference over to Ana Luisa Virginia for any closing remarks.
Thank you all for your questions and for attending this conference call. We have started 2023 leveraging on what we see as our competitive advantages to perform and continue to ensure consumers' preference. It is very difficult to predict how the macro variables will evolve but we have a clear strategic focus and strong models to execute it. Thank you once again, and I wish you all a nice day.