Sonae - SGPS SA
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Thank you very much. Hi, everyone, and good afternoon, and welcome to Sonae Q1 '22 Results Conference Call. As usual, besides myself from the Investor Relations team, we have on the call, Rui Almeida from MC; Paulo Simões from Worten; Martinez from Zeitreel; Luís Mota Duarte from Sierra; and Cristina Novais from Bright Pixel.
Just before we dive into the results, I would like to give you a quick note on the portfolio management activity in the quarter. So first, as you know, Sonae acquired an additional 10% stake in Sierra for EUR 83.5 million following the exercise of a put option by Grosvenor, and we now hold 90% of the company. This acquisition was done at a 10% discount versus NAV at the end of 2021.
On the other hand, Bright Pixel continues to actively manage its portfolio with 2 exits, SaphetyPay and ciValue, which represented a total of around EUR 40 million of cash proceeds, and also 2 new minority investments apart from some follow-on investments on its portfolio companies, and I will touch upon this a bit later in the presentation.
I would also like to highlight the deal that was announced earlier this week by Bright Pixel to sell Maxive, its cybersecurity group, to Thales for a total EV of EUR 120 million and an estimated capital gain for Sonae of EUR 63 million. The completion of this transaction is expected to occur during the second half of the year as it -- it's still subject to the fulfillment of customary conditions and regulatory approvals.
Now let's go through the performances of each one of our companies in the first quarter of this year. So starting with MC. For MC, this was a demanding quarter but with a very positive performance, especially given the last 2 years in which the company had a remarkable track record. Turnover reached EUR 1.3 billion, up by 3.8% year-on-year and a 2.2% like-for-like growth, especially driven by the strong recovery of nonfood formats that grew 30% like-for-like versus last year.
In what regards Continente, we registered a flat like-for-like, which was actually quite positive, given the comparable Q1 with pandemic restrictions and also an earlier Easter. This top line performance led to yet another reinforcement of Continente's market share, which we estimated to be around 40 basis points year-on-year.
Online sales decreased 14% versus last year, an expected evolution given the extraordinary circumstances that we had in 2021, but remains at twice the level of 2019 as Continente retained its clear market leadership.
Regarding profitability, underlying EBITDA remained broadly stable in terms of margin and increased EUR 2 million year-on-year to EUR 108 million in spite of significantly higher energy costs, which represented a delta of EUR 60 million versus Q1 last year. Net profit reached EUR 20 million at the end of Q1, a EUR 10 million year-on-year increase.
In terms of free cash flow, MC generated EUR 227 million in the last 12 months, which drove net debt down to EUR 466 million. And overall, MC maintained a solid balance sheet structure with total net debt to underlying EBITDA, just about 3x, 2.9x to be more precise.
Moving on to Worten. For Worten, Q1 was a challenging one given the overall market context, after 2 consecutive years of significant growth on the back of the pandemic context that strongly benefited the online channel and pushed for IT-related product sales. The electronics market in Portugal decreased in the first quarter of this year. This drop was also impacted by a milder winter that limited demand for seasonal categories.
This unfavorable electronics market context, combined with the effect of closing stores in Spain Mainland by the end of Q1 last year, contributed to a top line decrease of 4% to EUR 261 million in Q1 this year, and the like-for-like decrease of 3.4% which contracts with a 29% like-for-like growth that we reported last year. In any case, the company maintained its solid leadership position in Portugal with leading market shares, both offline and online, and saw a very positive sales performance of all new product categories in the marketplace and also in services such as repairs, extended warranties and insurances. Overall, and despite the challenging context, Worten demonstrated the strength of its value proposition as an omnichannel player in the Iberian market, and we remain quite positive for the coming months.
Regarding profitability. Underlying EBITDA decreased year-on-year to EUR 13 million, reflecting not only the top line evolution but also the company's investment in its digital transformation as well as the high energy costs, which also impacted this business. At the end of the quarter, underlying EBITDA margin decreased by 1.3 percentage points to 5.1%, still significantly above pre-pandemic levels.
Moving on to Zeitreel. For our fashion businesses, Q1 was marked by a clear recovery after 2 very difficult years for the fashion industry, given the strong restrictions which were associated with COVID-19. Turnover increased 57% year-on-year to EUR 96 million, with the recovery of the offline channel and a natural slowdown of the online channel when compared to the lockdown periods from the past 2 years.
This top line performance was particularly positive, given the postponement of the sales period in Portugal, coupled with still some pandemic control measures, also some supply chain pressures due to the strike of the Spanish professional truck drivers following the increase in fuel prices and also a significant drop in consumer confidence since the last week of February with the beginning of the war in Ukraine. Still, the company did quite well in terms of top line, and we are very happy with the performance of Zeitreel.
In terms of profitability, Zeitreel delivered an underlying EBITDA of EUR 6 million in Q1, a significant improvement of EUR 10 million from last year, mainly driven by the top line performance. This recovery in operational results was achieved across all the banners in the portfolio.
Moving to ISRG. So our Sports business, the last quarter showed another very strong display across all brands and channels. Over the last 3 months of the company's fiscal year, store sales improved 50% year-on-year, 5-0, which together with the contribution from the new businesses which were acquired during '21, led total sales to grow 66% year-on-year to EUR 366 million. The online channel increased its contribution from 16% to 21% of total revenues largely driven by the acquisition of Deporvillage.
In what regards profitability, EBITDA increased 8.5% year-on-year to EUR 34 million in the same period. This was mainly fueled by the sales performance, which more than offset some negative impacts in the cost base. Overall, ISRG achieved an important milestone by reaching EUR 1 billion of consolidated revenues in the fiscal year ending in January '22, an increase of 61% year-on-year and EBITDA surpassed EUR 100 million. These milestones were achieved well ahead of time and under a very challenging backdrop. All in all, ISRG's improved performance allowed for a higher equity method contribution to Sonae's results with a positive value in the quarter of EUR 7 million and EUR 19 million in the last 12 months.
Moving on to Sierra. Sierra has had a good start to the year across all fronts. Sierra's European shopping center portfolio maintained high occupancy rates, on average, around 97%, and total like-for-like tenant sales increased more than 90% year-on-year, showing a significant recovery in all countries and ending the quarter just 3% below the first quarter of 2019, and this despite the restrictions that were still in place at the beginning of the year, also the later Easter and some decrease in consumer confidence that I mentioned before on the back of the war in Ukraine. So overall, quite encouraging results this quarter. During Q1, Sierra also made significant progress in the execution of its strategy, namely by signing new contracts in property and condominium management in new locations, making new investments in the development of mixed-use assets and building a pipeline of new investment vehicles.
On a proportional accounting basis, direct results reached EUR 11 million in Q1, EUR 6 million above last year, on the back of improved performance of both the shopping center activity and the Services segment. This positive performance led net result to EUR 10 million, EUR 7 million above '21. This, coupled with a favorable FX evolution, led Sierra's NAV to increase 5.1% versus the end of the year to EUR 972 million.
In what concerns the company's leverage profile, Sierra's gross LTV stood at 45.3% at the end of Q1, a 50-basis point decrease versus the end of the year, once again, in line with it's stock targets. And all assets and vehicles remain with healthy financial situations.
A quick note for Brazil, where the merger of Allianz Sonae with BR Malls was approved by both Board of Directors, a major milestone in the path to develop the largest operator in Brazil and one of the largest in South America with Sierra as a part of the controlling shareholder group.
In what regard to Universo, Q1, I would say, met our expectations in terms of ramping up our results and the partnership with Banco CTT. During the quarter, the macroeconomic recovery, backed by the favorable evolution of the pandemic and despite the beginning of the conflict in Ukraine, enabled Universo's production volume to increase by 23% year-on-year to EUR 257 million, with a positive contribution from several business lines, in particular, purchases, wire transfers and also personal loans. The customer base also continued to grow with an increase of 96,000 customers versus last year, reaching 989,000 at the end of Q1 and with digital clients already representing 63% of the total customer base. And finally, the company's turnover surpassed last year's results reaching EUR 8 million at the end of Q1. And underlying EBITDA continued to show an upward performance with a year-on-year improvement of EUR 2 million.
Moving on to Bright Pixel. Q1 was another important quarter in terms of transactions and portfolio management as the company completed the sale of its stakes in SaphetyPay and ciValue, as I mentioned at the beginning, for EUR 40 million of cash proceeds. Expanded -- the company continued to expand the portfolio with 2 new minority investments, Xperify, which is a platform that enables an authentic product review experience by connecting prospective buyers with purchasers; and Acuity, an attack prevention cybersecurity target. The company also continued to invest in some of its portfolio companies, namely Cybersixgill in the financing round of USD 35 million. All in all, at the end of Q1, cash invested in the active portfolio reached EUR 159 million, and NAV stood at EUR 378 million.
As I mentioned before, the sale of Maxive to Thales announced already in Q2 is a key milestone in the company's portfolio management strategy and will represent important cash proceeds and capital gains as we believe it is also the best solution for the company and its people going forward.
Finally, NOS. NOS already published its results in the beginning of this month. In Q1, it continued its strong recovery path after the lifting of pandemic restrictions and kept its focus on leading 5G adoption in Portugal. Turnover posted an 11% year-on-year increase fueled by both the telco and the Audiovisuals and Cinema segment to EUR 373 million, and EBITDA increased 5% year-on-year benefiting from this top line performance with a margin standing at 43%.
Net income increased 35% year-on-year to EUR 41 million at the end of the quarter, leading to a higher equity method contribution to Sonae's results of EUR 9 million versus EUR 7 million last year. Free cash flow totaled EUR 4 million. And in terms of capital structure, net financial debt to EBITDA after lease payments stood at a conservative level of just below 2x.
A quick note also for a transaction that was announced in April. The company announced the agreement with Cellnex to sell an additional portfolio of up to 350 mobile sites, a transaction which should imply an additional EUR 155 million of proceeds and significant capital gains for the company.
Finally, the consolidated view of our Q1 results. Turnover stood at EUR 1.7 million in total at the end of the quarter, an increase of 5% year-on-year, mainly fueled by the growth of MC and also the recovery of our fashion banners. EBITDA reached EUR 149 million, 17% versus Q1 last year. This was driven by both the increase in underlying EBITDA and the strong recovery of all businesses, which consolidate to the equity method. And this is despite the significant additional year-on-year increase in energy costs which amounted to around EUR 20 million in total this year. These were obviously fully offset by higher sales and also by significant operational efficiency gains.
Sonae's net results surpassed last year's level by quite an amount, reaching EUR 42 million. And over the last 12 months, Sonae generated EUR 627 million of free cash flow, once again supported by the solid operational results of all businesses, combined with the value-accretive portfolio management operations in the period, namely the sale of the 25% stake in MC, the 50% stake in Maxmat and the several portfolio movements, which were completed under Bright Pixel.
As a consequence, net debt decreased year-on-year by almost EUR 600 million to EUR 931 million as we maintained a low cost of debt, which is now less than 1% and an average maturity profile of almost 5 years.
Finally, and most importantly, NAV reached EUR 4.1 billion, which represents an increase of EUR 65 million versus the end of '21, mainly due to the evolution of Sierra's NAV, the growth in the NOS share price and the improved operational performance of MC.
Going forward, the overall macro context remains volatile. We are obviously witnessing high levels of inflation, high energy costs still and also a lot of uncertainty in financial markets, but we are confident in our ability to navigate this environment. And as always, we will remain focused on serving our customers across all markets and on future-proofing our portfolio of investments.
Thank you, everyone. You can now open the session to Q&A.
[Operator Instructions] We have a question from José Rito of Caixabank.
So my first question on Sonae MC. We have seen inflation picking up and reached double digit in April for the inflation. Any sign of trading down in recent weeks or in April? I know that we have [ recently ] -- eventually a little bit more difficult to compare year-on-year, but any comment on this will be great. And also I would like to confirm that if the company continues to see EBITDA growing in euro terms this year. So this was something that we have discussed in the full year results conference call. Just to confirm that post Q1 and actually EBITDA slightly increase if you continue to see this increasing this year?
Second question on fashion and Sierra. Some retailers call the attention to the impacts from the war and this inflationary environment that we are seeing -- the impact in discretionary consumption. Any effect in fashion and/or in the shopping mall business recently? Any comments will be nice.
And finally, on Sierra. If you can share the percentage of rentals that are CPI linked. If there is any cap? And when contracts -- when are these contracts adjusted for the CPI?
Thank you, Jose. So maybe I can quickly comment on your second question. And so yes, the goal continues to be -- to reach the end of the year with an increase in EBITDA at MC in euro terms in absolute terms. We have managed to do it in Q1 under a very difficult backdrop. Obviously, there's a lot of uncertainty. It all depends on how the market is going to evolve. If we are going to continue to see pressure in energy costs as we saw in the first quarter, but yes, the goal is still to increase our EBITDA level at the end of the year in absolute terms.
I will hand it over to Rui to touch upon the inflation question in food, and then to Luis to tackle the Sierra questions, and maybe also give [indiscernible] to comment on discretionary spending in the fashion business. But Rui, you can start.
Jose, well, thank you for your questions. First of all, I think it's too soon yet to say to give you a precise figure regarding the trading down and the impact of the inflation in the consumption in our portfolio of just U.S.
Yes, yes. We have recently been noticing some signs of changes in customer behavior, such as trading down in some of the categories that are more expensive to consumers. While they are increasing their preference for private label brands, yes, it's true. And reduction of purchasing frequency in some goods, but it's important to mention that this is first -- first now that we performed are over the first quarter. But we are also seeing some signs during the second quarter that they are not reinforcing this trend.
So yes, yes. It's too soon to give you a proper figure regarding this trend. But we feel that private level are increasing its weight in our portfolio of brands, meaning slightly, yes, meaning that probably since there are some signs of trading down due to this inflation surge that we are witnessing in the market. Thank you.
Just a follow-up on these -- sorry. Just to confirm if in percent terms, if the private labels have higher margin than a brand because it depends on the retailer. I think that in most of the retailers, the private label has -- well, in euro terms, it has a lower EBITDA because of the lower sales, but in margin terms, it has a positive accretion to the margin. Can you share?
Well, exactly. It depends on the categories. There are some categories where our private label has a percent margin, a percent margin higher. And there are other categories where our positioning in terms of price and in terms of reaction to our competitors doesn't allow us to have the same percent margin that we are having in the products. So it depends.
But again, what we are basically saying is that the weight is varying slightly. And it is not clear for us because we are having a total different first quarter comparing to the first quarter we had last year.
As João said, we mentioned in the very beginning, yes. We are -- yes, the impact is not -- it's different because due to the listing that we are having in terms of the initiatives in order to prevent the spread of COVID, yes, and we know that we are looking at those measures. But more important than that is that the fact that Easter last year occurred in the first quarter, and this year, it occurred in the second quarter. So it's too soon to give you a proper figure regarding the trading bump, but we feel that probably the increase of the weight of our private label will occur in the months to come.
Okay. Luis, do you want to take the one on discretionary spending and the one -- that specific one on Sierra?
Sure. The answer is actually quite easy to the question. We are, at the moment, not witnessing any impact of the war on Ukraine or any reduction in income across our shopping centers. We had a very good February. We had a slight decline in March, but we have seen a very good April. And even in May, things seem to be trading very well.
To give you a sense, in April, we were at very high single digits of growth compared to 2019, and we are seeing similar levels in May, although a bit below the high single digit, but still very comfortable levels above 2019. Occupancy rates are stable. Collection rates are stable. So at the moment, we're not seeing any impact at our centers.
In terms of your question around inflation in contracts, the vast, vast majority is inflation linked. There might be a few, if any, exceptions with few, if any, caps. So the standard rule and the default rule in our contract is that they are inflation-linked with no caps at all. So yes, I think that -- those were your questions on Sonae.
Yes. I don't know if you want to -- yes, go ahead...
Yes. Sorry, on Sierra, because it's different if the contract and the CPI is, let's say, reset, the prices are reflecting in January or in April, because in April, CPI was much higher than at the beginning of the year. So just to confirm that, when is this adjustment, the CPI adjustment made? It depends on the [ IMO ] and the contract?
It depends on the contract. It depends on when the contract is signed. But again, I would say as a default rule is done based on the previous year's inflation, and there are different rules by country, where in some countries actually average inflation of the year and some others, it's the end of the year month-on-month inflation. But overall, that will be just a very minor impact in terms of timing. The overall conclusion that I mean we are contractually well protected against inflation than many.
[indiscernible] do you want to give some color on our fashion business and how it's -- what you see, the impact of the war?
So for the impact of the war, I cannot make my own words of Luis. So not much of an impact there. We had a very strong April as Luis was saying as well for the shopping centers. So the performance of, I would say, all of the vendors is pretty good.
In terms of the impact of the inflation, I would say that they are mostly at the transversal level, so not specific to fashion, so in terms of energy and the type of supplier costs.
In terms of fashion-specific costs, we were already expecting part of the rise in cost of some of the raw materials. So we've been preparing for that, I would say, for 2 seasons now. So the impact is also, at the moment, not relevant.
Our next question comes from Antonio Seladas of A|S Independent Research.
I have 3. First one is related with your balance sheet. It's now less leverage than probably than ever. So it's something that we should get to be used to this kind of risk profile or just a temporary situation and we will change again if you believe there's an opportunity? So if you can share with us what are your thoughts about it?
Second question is related with Sonae MC market like-for-like. I think it was minus 2 or minus 2.1. Do you mean that -- does it mean -- it will be a base effect? It was just a one-off effect? Or is something that is related with your expansion plan and maybe there's a saturation on your expansion plan? So do you think that you should slow down your expansion plan on supermarket is the second question.
And the last one is related to Universo. You mentioned that the performance was according to your expectations. Nevertheless, since still a poor performance and taking into consideration that everything was more or less in place, I don't know if you can share what we should expect for the coming quarters in terms of Universo.
Okay. Thank you, Antonio. I'll take the initial questions, and then I'll hand it over to Rui to comment on your questions around the supermarkets and the expansion.
So on the balance sheet. Yes, we do have a low level of leverage right now. This is a result, as I said, of the very good cash flow generation profile of our businesses and also some transactions that we completed over the last couple of years. Obviously, some asset disposals, which translated into a very hefty cash proceeds. This obviously gives us a lot of confidence looking into the future. And actually in scenarios of more uncertainty and volatility, we are very well protected given the level of liquidity and also the maturity of debt that we have.
If this is something that we should expect going forward. I think the answer to that is it depends. It depends on the opportunities that we might find to deploy capital. And so we do not have -- we do not have a goal of having this level of leverage. We do have a cap, and so we would always like to remain with a conservative level of leverage, which we would not like. We will not like our LTV to surpass 15%. But currently, it is around 8%, 8.5%. And so we have room to deploy capital if we so wish to do, and maintain our conservative level of average.
And so this is what we will always do is try to find interesting investment opportunities that we feel are value accretive for Sonae, where we feel that we can play a role in adding value to those investments. And we can do it across all our sectors and even in other adjacent sectors, that might be interesting for Sonae.
And we keep always an eye open. We're always in the market looking for interesting opportunities that comply with those criteria. And so the answer to that is not necessarily maintaining this level of leverage in the future, but it depends on being able to find the right investment opportunity.
Regarding Universo, I would just dispute the poor performance label that you gave to the business because when we changed the business model from our partner, BNP to Banco CTT, we changed the way in which -- we changed the way in which we were going to register revenues in this business.
So previously, we were paid a commission on every contract that we opened with any new customer. And now basically, we have a split of the interest rates with Banco CTT. And that means we need to have a ramp-up period to reach a level of credit stock, which will enable us to have a steady-state level of profitability in this business.
And so when we signed the contract, this valley which we are crawling out of right now, it's something that was well expected. And so we started with a relatively low level of profitability because we were ramping up that credit stock. Right now, this is very much in line with our forecast. We expect to reach the end of this year, the last quarter will probably be a quarter of breakeven. And we expect the business to have sustainable, profitable levels from next year onwards.
And so this is a bit how we see the business, and we see the business progressing still well with a lot of take-up in credit, a lot of take-up in a number of credit cards. And so we see it going in the right direction.
Regarding the question on supermarkets and MC, I will let Rui answer. Rui, do you want to take this one?
Sure. Thank you. Antonio, thank you for your question. Regarding the figures in terms of like-for-likes from supermarkets during the first quarter. As João said in the very beginning, we'll need to take into consideration that the first quarter last year was to be different comparing to this year due to the Easter being in the first quarter compared to the -- this year, it was -- the Easter was in the second quarter and the seasonal effect plays a very important role in terms of comparisons when we do this year comparing to last year. Yes, it's true.
But more important than that, for instance, in a year-to-date basis and up to the second week of May, we are having already positive figures in terms of like-for-like in supermarket. So we feel that we continue to provide you with sound performance in supermarkets.
And regarding the CapEx plan, well, we are keeping our CapEx plan going forward for this year and maintaining all [ figures ], the figures that we provide you in the last 2 years. So we feel very confident with this format. The format is delivering very good results. And we feel that we could enlarge our footprint in important market with this model.
Our next question comes from João Pinto of JB Capital.
Four questions, if I may, João, on Sonae MC. The first one, the margin decline in the first quarter was lower than in the fourth quarter of last year despite the rising energy cost pressures. What were the main drivers for such a resilience? Is this only explained by the recovery of adjacent formats? Or are there any other effects?
Also on Sonae MC, can you tell us about the margin evolution in the beginning of the Q2? Are you seeing declines similar to Q1? Or are they accelerating?
My third question on capital allocation. Is there anything that you can tell us about potential new investments? Have you already defined the sector that you want to target? Or should we not -- shouldn't we expect anything major in the short term?
And finally, also on capital allocation. Would it make sense to revisit the possibility of acquiring Sonaecom minorities, especially taking into account the value at Sonae Bright Pixel?
Okay. Thank you, João. So I will answer the capital allocation questions first, and then I'll hand it over to Rui to answer the couple of questions you asked on MC.
So on potential new investments. We keep investing in several areas. We keep investing in our current businesses, as you know, and we have, in the last couple of years, invested a lot in our current businesses, be it within the businesses and also in reinforcing stakes in some of our businesses. And so that's some -- that's part of the investments that we have done. And we will continue to look for those opportunities. So there might be opportunities to continue to invest significantly in some growth areas within our business that will certainly be, and we will continue to invest there.
And for potential new areas of investment, there's not anything in particular that I can disclose at this point in time. What I can tell you is that we keep looking in the market for opportunities that somehow relate to who we are and where we can feel that we can add value. And that's what we have done throughout our history, and that's what we will continue to do.
On the Sonaecom question. And to be quite direct, we have no plans on revisiting that topic right now. Luckily, we have a very happy shareholder base, both Sonae and also the minority shareholders. Sonaecom shown a very strong track record. That is obviously -- but we have probably other areas to deploy capital. We are luckily 90% exposed to the upside that we see in Sonaecom,and we have other areas to deploy capital beyond that. And so we have no -- that is not on the table right now.
So Rui, can you take the MC questions, please?
Yes, João. Well, starting by the drivers that allowed us to be revealing in terms of EBITDA margins regarding the first quarter. Yes, as you mentioned a while ago, the outperformance was tremendously impacted by the increase of the prices -- the energy prices increase. That represent more or less -- well, represented a lot of money in our P&L. But those costs were positively impact -- counterbalanced by the robust top line delivery that we have, namely in health and wellness.
Well, there is another fact that is important to mention is the fact that we had pandemic sites, the lower impact of COVID-19 related to expenses and the absence of rent discounts that we have in the past allowed us to counterbalance those effects as well, as you may imagine. The -- our efforts to continue to be efficient throughout the format that we are having. And this allows us to be -- continuously to be very resilient in terms of admission of margin.
Regarding the second quarter, as I mentioned well again, we -- it's important to see and to understand that the we have -- the calendar effect this year is more favorable to our performance as we had the Easter effect during the second quarter. And yes, okay. In fact, we have very good like-for-likes up to now during the second quarter in our [ categories ]. We feel very positive and confident regarding the rest of the quarter.
There are no further questions from the participants' lines. I hand the floor over to Mr. João Dolores.
Okay. Thank you very much, and thank you, everyone, for listening, and thank you for all the questions. And see you in our Q2 results conference call in July. Thank you very much. Bye-bye.