Sonae - SGPS SA
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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to Sonae's First Quarter 2019 Results. [Operator Instructions] I must advise you this webcast is being recorded today, Thursday, the 16th of May, 2019. I'd now like to hand the webcast over to your presenter today, João Dolores. Please go ahead.
Hello, good afternoon, everyone. First of all, apologies for this delay, but there seems to be having a technical problem. And thank you all for attending Sonae's Q1 '19 Results Conference Call. Together with me today, we have the following CFOs of our businesses: Rui Almeida from Sonae MC; Miguel Águas from Worten; Miguel Mota Freitas from Sonae Fashion; Carlos Silva from Sonae Investment Management and also our Investor Relations team.As always and before the results of the review, I would like to make a couple of remarks. First of all, as you know, from this quarter onwards, our reporting structure includes the new Sonae MC segment, which is comprised of the historical Sonae MC segment, Maxmat and Sonae RP's operational arm.Also the former Sonae Sports & Fashion segment was split into Sonae's Fashion and ISRG, given the different nature and independent management teams of both businesses.Additionally, this will be the first full year of line-by-line consolidation of Sonae Sierra's accounts. So we will have Sonae Sierra's first quarter statutory accounts consolidated into Sonae's accounts for the first time. At innovation, and as you already know, 2019 also marked the adoption of the IFRS 16 accounting standard. All in all, and for comparable reasons, historical figures were restated to include all the above-mentioned changes and with the exception of Sonae Sierra's consolidation as we only acquired the additional 20% in September last year.Given these initial notes, I will now make an overview of our results for Q1, starting with the highlights from the individual businesses and then finally covering Sonae's consolidated figures.Starting with Sonae MC. Sonae MC had a good start of the year and outperforming once again the market with top line growth of 7.4% with the like-for-like growth of 1.1% despite the negative seasonal effect of Easter and thus it reached a total revenue figure of EUR 1.048 billion.During this quarter, Sonae MC continued expanding its store network with 14 new company-operated stores, including 3 Continente Bom Dia stores, our proximity format.In addition, Sonae MC completed the acquisition of a 60% stake in Arenal in Spain, reinforcing its position in the Health & Wellness segments, one of its main strategic development pillars.In terms of profitability, underlying EBITDA grew by 8.1% year-on-year to EUR 81 million, implying a stable margin of 7.7%. You can see more detailed information, which was published by Sonae MC and is available on our website.And at Worten, Worten's -- the first few months of the year as the business were impacted by the effects of a later Easter and also atypical weather conditions, both having a significant impact on total market growth in the quarter. Worten also had a challenging comparable with like-for-like growth stood at 9% last year. All these effects played a role in the year-on-year decrease in sales of 2%.This top line performance, coupled with both the store expansion in the last 12 months and also continued efforts towards digital transformation, led to an underlying EBITDA of EUR 8.1 million, EUR 1.8 million below last year. Still in Portugal, Worten has further reinforced its market share, and the online channel continues to report strong growth.Moving on to Sonae Fashion. After challenging year of 2018, the first 2 months of 2019 showed a resilient performance with Sonae Fashion growing above market references. Despite the calendar effects of a later Easter, like-for-like growth stood at 4.4% and total turnover increased 1% year-on-year, reaching EUR 98 million at the end of Q1. This was mainly fueled by a strong omni-channel performance that compensated lower wholesale and franchising sales.In terms of profitability, the adverse calendar effect had a slightly negative impact on underlying EBITDA, having decreased 1.9% to EUR 8.2 million in the quarter.As in all retail businesses, the first half results will provide a better picture of the performance of the business.Regarding ISRG, our partnership in the sports retail sector, the last quarter of the company's fiscal year produced a very positive performance and with sales growing 12% year-on-year and EBITDA improving 2.9 percentage points to 10.3% at the end of Q4.For Sonae, these results are accounted for through the equity method, and in our P&L, we had a EUR 4.6 million positive impact when compared to Q1 2018.In our financial services division, we continue to have a positive evolution. Turnover increased by 17% year-on-year to EUR 8.1 million in Q1 and underlying EBITDA almost doubled to EUR 2 million, which equates to a margin of 25%.The Universo credit card continues to have an important role in the payments market in Portugal, with a number of cards subscribed reaching 775,000 at the end of March, an increase of 138,000 cards year-on-year. And this also means the reinforced market share in terms of the payments market that grew 1.3 percentage points over the last 12 months and reached 12.8% in March this year.Sonae Investment Management. During Q1, Sonae Investment Management reinforced its participation in some portfolio companies and sold 100% of Saphety to a management buyout and invested in CB4, a company based in Israel that provides a patented artificial intelligence software solution for brick-and-mortar retailers.Regarding its operational performance, Sonae Investment Management's turnover fueled by the integration of Nextel and Excellium recent acquisitions that increased by more than 40% year-on-year to EUR 44 million and even on a comparable basis, turnover increased by 19% with positive contributions across both companies. Underlying EBITDA decreased EUR 1.4 million or EUR 0.4 million on a comparable basis as to basically a flat level of EBITDA in the first quarter. And total EBITDA actually increased EUR 4 million to EUR 4.9 million, underpinned by the capital gain generated by the sale of Saphety, which also has an impact on Sonae's consolidated results.Regarding Sonae Sierra. The company once again showed a solid performance with the proportion of EBIT increasing 8.6% year-on-year to EUR 29 million and direct results reaching EUR 20 million at 16% year-on-year increase. This was fueled by both the European portfolio's performance and also by an increase -- an improved performance in the services division. At the end of March, NAV stood at EUR 1.48 billion, a slight growth of 1.6% compared to the value registered at the end of the year.During the first 3 months of 2019, Sonae Sierra continued the execution of its capital recycling strategy with the sale of Loop5 in Germany and opened its first shopping center in Colombia, Cucuta, which is an important milestone for the company's international development activity. And beyond that, it continues the development of several projects in Spain and Morocco and Portugal.Also on the services front, Sonae Sierra continued to accelerate its activity and acquired a 50% stake in Balmain, a Polish multiservice provider for retail and leisure assets.Regarding NOS. As you know, NOS already published its Q1 results. Just a couple of quick highlights here. Consolidated revenues reached EUR 385 million, a 0.6% year-on-year growth, driven by more robust growth in the telco business. EBITDA increased more than total revenues about 2% year-on-year, which reflects solid cost discipline and also operating leverage.Net results increased more than 20% from EUR 35 million last year to EUR 43 million this year, and the company's transformation program is on track and that is reflected also in some of the profitability. Q1 has a seen good free cash flow momentum and thus the important -- the company's solid capital structure.Finally, looking at our consolidated figures, I would say that despite the applicable calendar impact in Q1, which typically affects our retail businesses, total turnover posted a 9% year-on-year growth, surpassing EUR 1.4 billion in the quarter.Underlying EBITDA reached EUR 105 million, an increase of 16% year-on-year and this was mainly fueled by Sonae MC and also the full consolidation of Sonae Sierra.EBITDA reached EUR 136 million, EUR 34 million increase when compared to Q1 '18, and this was underpinned by the growth in underlying EBITDA and also by equity method results of EUR 26.5 million with a particularly positive note for Sonae Sierra and also ISRG. And also nonrecurring items of EUR 4.6 million, which are mostly related to the capital gain from the sale of Saphety by Sonae Investment Management.This good performance at the EBITDA level drove direct results to EUR 32.8 million, EUR 24 million above 2018 and therefore, net income group share increased 6.5% to EUR 18.3 million.Regarding our capital structure and on a like-for-like basis, Sonae net debt decreased by EUR 99 million year-on-year to EUR 1.167 billion. Total net debt stood at EUR 1.7 billion, driven by the acquisitions of the 20% stake in Sonae Sierra and also the 60% stake in Arenal. Both the cost of debt and our average maturity are quite comfortable level. And since the beginning of the year, we have already refinanced EUR 230 million in long-term facilities being currently financed for the next 18 months.Overall, I would say that we are quite pleased with this solid set of results and also quite confident for the rest of the year.I will now end this brief overview of our Q1 results, and I invite to ask your questions. You can please open the session to Q&A. Thank you.
[Operator Instructions] We will now take our first question. Filipe Rosa, your line is open.
So 3 questions for me, if I may. The first one probably on non-food retail. I was curious because you said that you managed to take share on Worten. And I was looking at the data for the electronics market in Portugal, and I believe it grew in the first quarter. So I would like to understand if your [ stores ] in Iberia have dropped, probably that would imply that performance this time was very negative and in Portugal was positive So just trying to understand between Portugal and Spain whether there has been a very different performance and why? Okay, I know that the comparable was tough, but we haven't seen in the market such a big effect from Easter. And -- okay, few related with that. If you could give us evolution of [ Sonae to others ] because I think that we didn't have a negative quarter for Worten in terms of sales growth for long time? That would be my first question. Also on Fashion. I was seeing that clothing sales in Iberia didn't grow much, but they also grew more than the coming sales of Sonae. So it seems like you continue to lag in that industry. And I would perhaps compare with the performance you have of the adjacent formats from Sonae MC, which have a high single digit like-for-like despite the Easter effect. So I would just like to understand those [ 2 items ]. And for fashion, why the top line performance has been so weak, taking into account the overall backdrop that we have seen in Iberia, which has been quite supportive, okay? The second question relates to Sonae MC. Whether you could try to expound on what has been the performance up to April? As far as do you have any idea what could be the impact from Easter? Then as of today, with the information we have, whether you could elaborate a little bit on the competitive backdrop and what is the outlook for the full year in terms of like-for-like because you are doing very well if you adjust for Easter? So just trying to understand whether you think that you could have a like-for-like, I don't know, higher something similar to what you have in Q1, but adjusting for the calendar effect?And in terms of margins, whether you think that the trend in Q1 could be replicated for the full year because the overall like-for-like should be better than in Q1, okay? And finally, my quick question relates to net debt. Net debt in Q1 is being above my forecast. Just trying to understand for the full year. Probably, it's better to put it this way. What you think it will be a reasonable evolution for the net debt? And taking into account that, of course, for the full year the impact of the acquisition of Sierra will no longer be there? And I think that in terms of the acquisition of Arenal, it should be the big change versus 2007 -- 2018? So if you could guide us for the expected evolution for net debt for the full year?
Okay. Thank you, Filipe, for your questions. I will first hand it over to Carlos to answer the question on Worten, then to Miguel to address the question on fashion, then to Rui for the one on MC and then finally, I will take the net debt one.
Thank you. Thank you, Filipe, for your questions. Regarding market behavior in Iberia, what we have seen from the data that we have and maybe we don't have exactly the same source, the market overall has been more or less flat in Iberia. So clearly, not showing the same kind of performance that it was showing last year.Regarding our performance. Well, we already gave you the main effects. The calendar effect of this did impact Worten. We also felt unfavorable weather conditions that negatively impacted sales of full season products like dried fruit -- fruit machines and [ mixes, ] for example.In addition to that, there were some aggressive promotional activities from some of our competitors in Spain, which decided not to sell. In fact, we lowered our promotional activity overall in the first quarter versus last year in Iberia and improved our commercial margin and percentage points. So it was a decision taken. So it is a fact that we are gaining market share in Portugal and in addition to that, also in some regions in Spain like the [ caramel apples ].Most recent performance on turnover has been more encouraging. So we are not really concerned going forward. And I think I've gone through your questions regarding Worten.
Regarding Sonae Fashion, we know that we only [ grew ] about 1% of our turnover and but we have to look into the sales to understand exactly the movement that we made because the performance that we have in our omni-channel operations was very positive and has their own staff and we reached more than 4% growth in this first quarter. And that compares positively to the market to the referentials that we have from the markets both in Portugal and in Spain, where we saw rates below. This grow in both markets according to the information that we have. That's why we said that we have been improving our market share. And on the other hand, we have some delays in our shipments in -- with our -- in our performances of franchising and wholesale that we are recovering in the months after the first quarter. So we really believe we are gaining market share in our operations.
Now it's my turn. Filipe, and thank you for question. This is Rui Almeida speaking. Well, the impact of seasonal effect in our first quarter in terms of sales has been more than 2 percentage points. Excluding this effect, we can say that also [ MC ] presenting positive like-for-like then growing in terms of volumes. Largest was -- were being more impacted by the Easter effects, but regaining momentum in April. So they are now presenting very good figures in the year-to-date -- in year-to-date.
Now it's my turn to take the net debt question. Regarding the net debt evolution, as you know, we don't provide guidance for the future. But what I can tell you is that on a comparable basis, we -- as I said before, decreased our net debt level by approximately EUR 100 million year-on-year, which is, in essence, the level of which we have been decreasing our net debt level in the last few years. And we remain confident that we will continue this same path going into the future, both due to operating cash flow generation and also due to further potential asset disposals evolutions in our [ Sonae portfolio ].
Okay. Can I just follow-up, just to try to understand in terms of the competitive backdrop, positives for the food business? Sorry, because I want just to -- whether there has been any change from when we've begun?
Sorry. Could you repeat the question, please?
On the competitive backdrop in the business.
That would be...
Okay. Whether have you seen any changes because there are -- it seems like the company is quite supportive of it?
No, no, no. We didn't see -- we have taken same situation that we were taking in last year. The competitiveness of this market has been basically the same. In fact, prices in terms of promotional activity, commercial activity increased slightly by almost 1.0 percentage point, and we are basically seeing same situation into this first [ Q ] and this first quarter of this year [ very same, ] was pretty much similar to the situation we find in the last quarter of 2018 is pretty much the same. Okay?
We will now take our next question. José Rito, your line is open.
I got some follow-up questions on Filipe's main points. So first, on the debt evolution, [ Jean Malodovich ] just mentioned that decline on a comparable basis by [ EUR 90 million ] in Q1. And the company is not seeing any change that should lead to any different evolution going forward. So -- but the fact is that the seasonality in [ full in all ] in Q1 was a little bit stronger than usual, and I think it was related to the Easter. So my first question is if up until April, the seasonality because of the Easter is most? So that will be my first question. Second also on this net debt evolution. It shows that the EUR 90 million you had referenced before, you had no consolidation or contribution from Sierra. Now you are consolidating Sierra and Sierra also increased EUR 100 million net debt versus the year-end? So should this EUR 90 million be a reference going forward now that Sierra is included or could eventually could Sierra lead to some additional seasonality going forward?Then, on fourth final question also on the margin side. It was slightly up in Q1. Was this due to lower promotions due to the fact that we had no Easter in the quarter? And how do you see this evolving? And also if Arenal is accretive on margins? I know that it is a small operation, but just to understand if this is accretive for the business margins?
Okay. Thank you. On the debt question, as you said, it's normal for this time of year to have some seasonality in terms of working capital management, that is the case also this year. This year, we had slightly higher impact in terms of seasonality also because of a lower level of sales at Worten, which also played a role and -- but we expect this to normalize in the future. So might Sierra also have an impact? Obviously, it was the first time in the first quarter, in which we consolidated the [ Sierra's ] net debt. And here, we have also some typical behavior of debt at this current year, driven by distribution of the dividends to the partners we have at the fund or our asset level. And this year, in particular, also due to the efforts done in a number of our development projects, mainly expansions of our current shopping centers. But I think those are the main drivers at explaining the deviations that you mentioned. Now I will hand it over to Rui.
Thank you for your questions. Yes, Arenal is accretive in terms of our margins. And again, as you said, you are totally right. Third quarter of this year is little bit -- is not typical. And we were suffering by -- in terms of sales, but particularly in terms of we were not having the same calendar effect that we have last year, in terms of sales that impact obviously the margin. But, again, margins are being kept at level that we were having in last year and they're moving accordingly with sales.
Okay. So just a follow up on the net debt for us basically to forecast the debt evolution in Sierra. It was slightly more than EUR 100 million in full year '18, the net debt that the company reported. How this will be evolving going forward? So it increased in Q1? Should we assume that it will maintain roughly stable when you compare it with 2018? Or what should be our expectation for this business going forward? And then also -- yes?
Yes, go ahead, go ahead.
And then in terms of margins. So what you are saying that, for instance, in Q2 because you have the Easter eventually, the margin evolution in the year could even be slightly higher than it was in Q1. Because I remember that last year, it increased slightly in Q1 and that was not the case in Q2. So theoretically, eventually, the comp price will be a little bit easier for the full -- for FY '19? Could you just clarify this?
Okay. It's a bit hard to give you guidance on the net debt for Sonae Sierra, given at the moment that Sonae Sierra is really in terms of its strategic execution, mainly given the number of acquisitions that the company has done, also a number of development projects that are underway, and also the capital recycling strategy that has been implemented by the business. So there is a number of factors that will probably significantly influence Sonae Sierra's net debt going forward. What I can tell you that on a like-for-like basis, yes, there is some seasonality at Sonae Sierra's as well, and we would expect this seasonality to play a role, particularly in the third quarter.
Regarding margins in the second quarter, as I said earlier to Filipe, the market is being a little bit more aggressive in terms of promotional activity. Yes, first of all, we need to consider that. We are in May just to give you some guidance this quarter, but we are very confident to maintain margins and continue [ grow ] to because we are focused in continuing to grow our market share in our sales and keeping the margins at the same level that we were having last year.
[Operator Instructions] There are no further questions coming through on the line, sir.
Okay. Thank you very much everyone, and looking forward to talking to you again for the Q2 results.
Thank you. Now this concludes this webcast for today. Thank you all for participating. You may all disconnect.