LPP SA

WSE:LPP

Earnings Call Transcript 2020-Q1

[Magdalena Kopaczewska, executive]

Welcome, ladies and gentlemen. My name is Magdalena Kopaczewska, and I'm responsible for Investor Relations in LPP. And today, I'm with Vice President Przemyslaw Lutkiewicz. We have an immense pleasure today to welcome you to our video conference devoted to the results for the first quarter of 2020. And here, I would like to mention that the first quarter does not cover exactly the calendar quarter. The shifted fiscal year covers the months of February, March and April. Our results and the events in this quarter, as you could expect, were strongly affected by the COVID-19 pandemic, which will be discussed further in the presentation. We will also discuss our plans and challenges facing us.

In the second part, in turn, we will, as usual, move on to the Q&A session, and we strongly encourage you to ask the questions during the conference via chat. This is the agenda for today.

And now Przemyslaw, you have the floor.

[Przemyslaw Lutkiewicz, executive]

Welcome, ladies and gentlemen. The results of the first quarter, strongly affected by the COVID-19. So they are not very good, as you well know. But let's take a look at the details. Our stores, stationary stores and online stores, are available in 40 countries. The traditional stores at the end of the quarter, 1,700. They were not in operation. Loss in like-for-like is considerable from the half of March until the entire April. The stores were close minus 57% like-for-like. We were trying for the online sales to keep up with this gap caused by the stationary sales, but we haven't managed entirely. Despite the considerable growth, the increase in sales is 120%, but overall, minus 35% year-on-year.

Let's quickly remind you the schedule that happened in the recent months. In February 2020, the outbreak of the pandemic in China caused uncertainty as far as supply chains are concerned. Then the situation started to become more normal. But in the EU, in turn, in Europe, generally, the problems started. The government of particular countries introduced quarantine. In Poland, on the 14th of March, all the shopping malls were closed, and our stores ceased operation.

At that moment, we tried as much as we could to increase online sales. And until today, it's been the most important channels of sales for us in contact with customers. In May, the situation started to recover as far as the economy is concerned.

From the 4th of May, the shopping malls were opened in Poland, but in other countries, it's still varied. LPP has decided to start negotiating more strongly as far as the rent terms are concerned because we know and we see, but the return of the customers is not the same. The whole trade has been changed, and many customers will stay in the online channel.

The sale in shopping malls and the results caused our fight for lower rents. Therefore, not all of our stores have been reopened. We are still in the middle of negotiations of some of the landlords. But looking at the progress, we see that it's going in a good direction. And by the end of July, all of the stores will have been reopened from the foreign markets. We see that Russia hasn't reopened all the stores, different regions of the country. We're opening a different space. But we are counting on all the shops to be reopened in July.

Let's move on now to discussing the results. Let's start with the map. Let me remind you that the green areas are both online and off-line stores. The gray areas are the countries where only stationary stores are present; and the blue area, with only online stores.

Let me just mention here. Some of you will probably notice that on the map where we have Belarus, we have the number of stores missing. This is caused by the fact that the franchise model is to function in this country. We closed the franchise stores. Our own company has been a subject there, and soon, we will come back with our own stores.

On the left, in the chart, you can see the number of stores. So 1,731 stores at the end of the quarter, but of course, a lot less opened. At the end of the quarter, only several dozen were operational.

As at the 23rd of June, 2 days ago, 77% of all stores were operational. And as you can see, Russia, Ukraine, half of the stores operational in Poland, 81% of the stores are in operation now.

Another important fact, in Poland, we have year-on-year less stores by -- and this means that we have been working on the optimization of the sales channel, and the development is mostly present abroad.

What Magda mentioned, we would like to remind that this is the first year of the shifted fiscal year. It started in February, and it will end in the -- in January 2021. And this quarter has been covering the period from February to April.

Another important thing is that the year-on-year dynamics -- I'll present it for the shifted periods as well. Let's start with LFLs. The recent period, as we know, the stores were closed so there's been a considerable drop, 57.3% fall in like-for-like. On the right, you can see online sales chart, very good increases in the first quarter comparable to very good or record quarter fourth quarter last year. The share of online sale in the whole of group revenues from 10% until the 32% increase this year. What is interesting, the share of the Polish market constitutes 50% of the whole revenues despite the considerable dynamic increase in online stores in all the countries where we are present. The share in Poland has not been diminishing, so the pace of increase is considerable -- as considerable as in other countries.

Here in the chart, you can see what's been happening in our business in the recent months since the beginning of the fiscal year in February. Let me remind you, at the bottom, the green line means the dynamics in stationary traditional stores; the blue line on top is the dynamics in online channel; and the gray in the middle is the overall LFL dynamics, off-line and online.

February started well. We had a 14% increase in the overall revenues; stationary stores, 10% increase; a 72% increase in online store. In March, everything started to change. We recorded a fall in stationary stores by over 40%. Online stores have been still recording double-digit increases, 60-plus percent. And from April on, with the complete lockdown of stores, you can see that there's been a very dynamic increase in -- over 250% increase and almost 70% drop year-on-year. In May, as you can see, where particular countries started to reopen their stationary stores, we recorded a 77% of fall in stationary stores. And very dynamic increase in online sales, 364% of increase; and the whole, almost 40% of overall fall. The 3 weeks of June, as you can see, we've been ticking up in stationary stores; however, 40% less year-on-year. The online stores have been recording triple-digit growth. And overall, the revenues, slightly more than 20% fall.

We see that, on the one hand, finishing some negotiation periods, we've been reopening more and more traditional stores, also abroad. We've been observing that more and more customers have been returning to the customers, although the polarization is observable. In smaller towns there, the fall in traffic is less noticeable, and more customers visit the stores in comparison to bigger cities like diaspora, so Krakow. In those bigger cities, customers transitioned to the online sales.

We believe that in the coming periods, coming weeks, the situation will improve, but we certainly face a huge uncertainty as far as the fall period is concerned, how the customer shopping habits will change, whether we will experience the second wave of the pandemic. This is the unknown. So looking forward, a lot of question marks as far as the sales and revenues and fall.

Let me also give you some more details on the online sales. In the recent period, in the first quarter, we recorded an increase in the traffic on our website by over 60%, which translates into over 120% increase in the sales online. The important thing also is the fact that more and more persons use their smartphones, their mobile devices while shopping. So in the first quarter, 80% of traffic took place via mobile devices, which generated 60% of the whole revenues generated.

At the last conference, someone asked how many new customers we have acquired because of the COVID-19 pandemic and the lockdown of stores. I checked the data, about 45% of the overall customer base is the new customer base that decided to buy our goods during the COVID-19 pandemic.

Let's move on now to the detailed sales data. On the left, you can see the chart with revenues by brand. And a comment, so far, we've been presenting you separately online sales and stationary sales. This year, we have actually included everything. On this chart, you see the revenues by brand. It's accumulated online and off-line sales. Sinsay is definitely the brand to watch because with the increase in the floor space, it has been recorded a 3% increase year-on-year. The remaining brands, because of the lockdown of stationary stores, the brands have recorded 40% falls year-on-year. And you can see some regularity here in the stores with less online activity, like Cropp and House. They have recorded over 40% falls year-on-year. But the brands that sell a lot online, like Mohito and Reserved, the falls are less than 40%.

The next slide concerns the revenues by regions. All the regions have recorded considerable fall, Poland, minus 40%; Europe, in terms of European Union and eastern markets, 30% falls year-on-year. So as you can see, everywhere, we've been experiencing the same problem, and everywhere, we have been trying to develop online channel.

The floor space increased by 1% in Poland despite the fact that the number of stores dropped by 60. The most floor space that's increased is the CIS region, 25%; and the European Union, 22% increase year-on-year. But as I mentioned before, because of the COVID pandemic, the floor space didn't operate as it should.

Now the overall growth, and we see the fall in the first quarter. Online sales, 1/3 of the whole revenues. The stationary stores managed to sell anything in February until the beginning of March.

On the right, you can see the chart with the data concerning the revenues per square meter. Huge falls here, the biggest in Poland and Europe, slightly less in the eastern countries only because of the fact that the Russian and Ukrainian market stayed open longer than those in the EU. At the bottom, you can see the information that the share of online sale was 10% last year, but now, it's over 32%.

Now the gross margin, of course, was affected by COVID-19. We were forced to do some promotions and sales offers for the customers buying online. It was not like mass offers. They were targeted promotional actions directed at increasing the sales in the online channel. But on the other hand, we've been taking care of the profit margin.

Looking at the second quarter, how we organize the promotional actions. What is important for us is to keep the margin -- we don't -- we are not overstocked. The quantities are sufficient to carry out regular promotional actions. Some goods were moved to the autumn/winter collection. So we don't have any problems with selling the goods. We are not planning huge pricing wars. We would like to implement sound promotional policies. And since the -- from the second half on, we've been -- I think that we will pay attention more on the profit margin to generate profit.

On the right, you can also see the foreign exchange rates of U.S. dollar and zloty. We've been buying a lot in Asia, so this FX has been affecting our margins. The increase of the foreign exchange of dollar has not affected the spring/summer collection. The collection was bought with the lower foreign exchange rates. It will affect the margins in the second half of the year.

The questions have been asked, how much this change in the foreign exchange rates that translate into our profit margins. Simplifying that, we can say that the increase of the foreign exchange rate by 10% causes the drop of the margin by 1% point.

Let's now move on to cost. The closed stores, of course, translate into considerably less costs. As you can see on the left, in the chart, the fall in the first quarter year-on-year is minus 26%. All the elements have dropped significantly. As far as rents are concerned, rent in Poland, because of the COVID act of the Polish government, have been suspended for the lockdown period. So when the shopping malls were closed, we didn't have to pay any rent, therefore, huge fall on Polish side. And in the remaining countries, we have been recording the invoices for rent, but we've been talking to the landlords about the discounts, and a lot has been acquired. And if we will record everything in the second quarter, and the full picture will be available then. Personnel costs also dropped year-on-year because of the fact that we decreased the salaries in all companies, for all employees in the head office and in the stores. And this translates in turn into lower costs, and the remaining costs also fall year-on-year. These stores have not been in operation, so less energy use, less material use, everything translates into a considerable fall in costs.

On the right, you can see the overall SG&A costs. So the logistics, the stores, the head office, they were less by 22% year-on-year in the first quarter.

Let's now have a look at the overall results. Revenues less -- 35.3% less year-on-year. The gross profit margin, minus 6.7 percentage points; SG&A costs, minus 10.6%; a PLN 260 million fall in operating profit.

Within the framework of IFRS 16, we calculated the value of our FX contracts in terms of dollars. So a lot of negative FX differences, almost PLN 100 million in negative FX. The whole FX differences, over PLN 100,000, so PLN 300 million overall.

So far, we've been obtaining some support from the authorities of -- governments from other countries, mainly in terms of salary subsidies. In the first quarter, we recorded what we actually received, about PLN 5 million. Those governments which gave us support for the business were the U.K. government, Slovakia and Croatia. In the next quarter, the support will increase. And looking at what we've gained so far, both in Poland and abroad, the support will exceed in the second quarter. It will exceed PLN 60 million.

I think that in the presentation we will present to you for the second quarter, it will be presented in more details as far as the support from the government authorities.

Because of the COVID pandemic, the results are really poor. We compared the results with the old standard, IAS 17. Similar loss but less negative FX differences. The similar results in terms of net, it will be the same as operational level, PLN 260 million.

Let's move on now to the balance sheet data. What is the most important here is inventory. As you can see, this is the slightly higher level than in the previous quarter year-on-year. They are higher by 31%, particularly calculated per square meters, thousand and hundred square meter. So I believe that as far as this is concerned, we've been doing a good job. The inventory that we ordered for the autumn and winter have been reduced, and we managed also to reduce the inventory or the purchases for the summer season. So in general, we are not overstocked. Everything is under control. So let me repeat, we are not going to organize excessive promotional actions. We will try to work on the profit margins.

On the right, you can see the working capital in the chart. Our long-term target is equalizing trade liabilities with inventory. This has been realized also in the first quarter of this year.

The situation for net cash on the balance sheet, on the level of net debt, cash net, we've still been having the cash. The decrease is by PLN 500 million.

On the right, you can see CapEx chart. They were lower by 18% year-on-year. Here, of course, we were trying to slow down the outlays in terms of costs and investments.

Summarizing the first quarter, of course, it was strongly impacted by the COVID-19 pandemic. A lot of stationary stores were closed. What was positive is -- was the fast development of the online channel and very well received collections. In the online sales, triple-digit increases, which have been continuing. Sizable costs and CapEx reduction, both in terms of salaries and other costs, we were trying to minimize the costs. We cut the salaries in all the companies for all the employees. But this, in turn, allowed us to transition through this difficult period. We still have net cash, and we managed to keep a safe situation to meet the liabilities that we have.

Let's move on now to key corporate events of the last quarter, what was happening from the February to May. First, finalizing the expansion of the distribution center in Pruszcz Gdanski, where we increased the capacity, and the storage capacity is also -- we doubled the capacities. At the same time, we had to -- after panning over the new part, we had to change its use from the stationary sales. It was a considerable change of the model into e-commerce. So this warehouse has been a considerable support to the increased e-commerce.

The second important event, we've been continuing the increase of the Eco Aware collections of all our brands. What is important is that despite the pandemic, we haven't changed our long-term goals. We've been operating within the framework of our sustainable development strategy.

New offices in Krakow. We have recently handed over a new office in Krakow for House and Mohito brands. In May 2020, we also started new technological solutions for e-commerce. We chose Google and its cloud solutions to support our online stores. We will now elaborate on each of these events.

On the map, you can see the network of our warehouses. The black dots are the e-commerce dedicated ones. In Poland, Stryków and Gdansk; and also, the changed warehousing, Pruszcz Gdanski, has been serving this purpose; and 3 foreign warehouses in Slovakia, Romania and Russia. Of course, Pruszcz Gdanski has also the standard warehouse from which we are sending the goods to the stationary stores, and the warehouse in Moscow and the planned Brzesc Kujawski plants to be built.

I think it was mentioned that in the difficult pandemic times, we were able to quickly adopt the existing warehouses, logistics warehouses to -- for the purpose of online sales. And those dedicated to e-commerce, we're able to considerably increase their capacity to serve the increased demand and traffic that increased by 300% or 400% in some weeks.

Eco Aware collections now. The COVID era has changed the customers' outlook. We realize that Eco collections will gain in popularity, and we have been working on continuing the sustainable development strategy and increase the share of the Eco models, from ecological materials subject to, of course, the special production regime. For the next 5 years, our plan is to have 50% of the Reserved collection as Eco Aware collections.

The new office building in Krakow, as you know, our design centers and sales centers for Mohito and House are present there. We decided to upgrade and improve the conditions of work in the Krakow campus. So from this year on, a new building was handed over. Four-story, new technology, of course, energy-saving solutions were implemented, ensuring better working conditions. We can now enjoy the new office center. And it was opened from May.

So the cloud solutions, the state-of-the-art technologies. At the moment, 2 online stores, Mohito and Cropp, have been operating in the cloud solution by Google. This allows us, on the one hand, to increase the capacities in terms of agile reaction to increase traffic that we've been experiencing because of the COVID pandemic. So more scalability, more flexibility of e-commerce solutions, and of course, more reliability. So we're planning to transition more and more actions or stores, our software to the Google Cloud solution.

One more important thing. We have communicated that there's been restructuring going on in the German company. It's our sixth market, sixth largest market in terms of revenues, PLN 350 million per year. The company employs about 500 people and runs e-commerce and 19 stationary stores all over the country.

Because of the COVID pandemic, of course, the customer traffic has dropped by 20% to 30% in the German stores. This is the main reason why we decided to take this step. Within the framework of the recovery -- corrective actions, which are very well-structured with the participation of the German court, we've been running a 3-month creditor protection program, which is aimed at renegotiating the rent terms with the owners of the shopping malls where we operate in Germany. And we aim at renegotiating better conditions, lower rents, so that the German company is viable again. Of course, it's still uncertain how these actions will end. It's been the first phase. Of course, our goal is to continue the German operations. Maybe we will limit the number of stores. It's still uncertain. I will be able to inform you about that during our next conference.

Let's now move on to the outlook and plans for the coming year, starting, of course, with the fact that trends have changed and customer habits have changed as well. What we've been observing is moving -- shifting away from very fashion, elegant collection in favor of more universal or simply comfortable collections. So homewear has been preferred. We know that a lot of people have been working remotely. So we are preparing our collections, taking into account the new demand and new trends observed on the market, on the one hand, the Eco collections and affordable prices. These 2 conditions need to be met to be successful in the new post-COVID reality.

Floorspace now. In the stationary clause, the floorspace have been developing. This year, we announced during our previous conference that the increase will be 8% and majority rolled out in the first half of the 2020. In the second half, we will finish the started construction. We will continue to obtain good terms in terms of rents. So rent, based on the turnover, we will fight to get -- fit out financing as well.

This year, our CapEx will be PLN 400 million, out of which PLN 300 million will be devoted to the construction of new stores.

Now the online sales growth, we have a very ambitious goal. We would like to reach over PLN 2 billion e-commerce revenues. Everything suggested it is quite feasible in the first and second quarter. We see that the increases have been considerable, and it seems that we are able to maintain the triple-digit increase by the end of the year.

Let's not forget, of course, that what is important to us is the omnichannel development. Online and off-line merged together. We do not believe that stationary stores will completely disappear, and 100% of sales will transition online. We believe that both distribution channel must cooperate and coexist. Thanks to new technologies, thanks to RFID, we are able to considerably improve, on the one hand, the performance of the stationary stores, and on the other hand, provide a customer with comfort, with return policies friendly to the customers and viewing the collections. So we will be continuing the omnichannel development strategy. We have been testing. We even started in some brands so that it sends the clothes to the online customer from the closest stationary store. All of these actions will continue in other brands as well, and we believe that both channels can coexist. And thanks to the use of online and off-line, we will gain the synergy effect.

Let me remind you that from the beginning of the COVID crisis, our key aim was to run the company through this difficult time. In the lockdown of the stationary stores, we were not certain how long it will last. We see that the stores have been reopening. More and more markets have been selling better and better. For us, we focused on the 3 pillars. First, inventory, on the one hand, decreasing the inventory, decreasing the orders. And on the other hand, right now, we need to have a sound -- a sale of collections and manage the goods that we already have so as to improve the gross profit margin. Second pillar is lower cash outflows, reduction of costs and investment outlays or shifting the -- transferring them to further years, like in the case of our outlays. So we've been working on adapting the operating costs to the changed reality that we've been experiencing. This mainly affects the rental costs. We want rental costs to be based on the turnover, but also in terms of salaries and personnel costs. A lot have been achieved, thanks to the efforts of our employees and thanks to the fact that our employees were working more than usual. We can see the light in the tunnel. Of course, there are still a lot of question marks and uncertainty as far as the autumn operation and the whole market situation. But what we have been observing in recent weeks, the increased sales give us hope. And I would like to thank all of the employees and all of the suppliers that have been supporting us in these difficult times.

When it comes to capital, capital management, we decided -- as the Management Board, we will recommend for the -- for no dividend distribution. On the other hand, we tried to manage our capital to -- not to have to issue any bond or shares. I would like to thank 2 banks, HSBC and Santander banks, that helped us considerably by providing additional funding. We managed -- because of the increased credit financing, we managed to go through these difficult times, and it seems that we will return to normal. We will be repaying the debts and working on cash.

Now some changes in CapEx. CapEx remains on PLN 400 million. The structure will change slightly, so less on logistics, more on offices, like in the Krakow office. In the next 2 years, the outlays related to the new logistics center will decrease. We are changing the concept, the approach to the logistics center in Brzesc Kujawski. Therefore, the -- less outlays by PLN 240 million.

Summing up, ladies and gentlemen, the whole period. And looking at the risks and opportunities, we can say that there are a lot of question marks: what the shopping model will look like, how many customers will stay online and how many of the customers will return to the stationary stores. This is the uncertain thing, but we can definitely see the new reality emerging.

The second wave of the pandemic is something to talk about. It will definitely considerably affect the whole economy and our revenues as well. The economy is also related to uncertain conditions of work as far as unemployment figures is concerned. And the household situation of our customers, this is still uncertain. And of course, what is -- what happens usually, people cut the spending on clothes. So we will watch very carefully how the labor market situation has been -- will be developing.

As far as rents are concerned, I can't say that we have finalized the negotiations. The negotiations are still ongoing. And it seems that by the end of July, the negotiations will be finalized, and then we will be able to tell you about the new realities in terms of rents.

Our targets, as we announced last month during the results conference, this has not changed. So we want revenue fall not exceeding 30% year-on-year, looking at May and June. Maybe this is a too conservative approach, but then we can say that the revenues shouldn't fall more than 20% year-on-year. Gross margin, we'd maintain this target of 47%, 48%, 49%, and the overarching role is maintaining financial liquidity and financial security of the company, of course.

We believe that the way we position our brands in terms of pricing, and on the other hand, how we change and adapt our collections to what the customer expects from us, it seems that we are well positioned, and price-to-quality ratio seems to be working well in the current situation. Of course, we will continue e-commerce development and omnichannel development. We will continue to invest in state-of-the-art technologies, which all must have nowadays to service the customer in the new reality to face and to combat the challenges.

This is all on our part when it comes to the results. Thank you. And of course, I invite you to ask some questions. Magda will read out the questions now.

[Magdalena Kopaczewska, executive]

Let's start with Mr. Michal Kuzawinski which -- who has been very active in terms of number of questions. Some of the questions, of course, you provided the answers to them. Let me just read out.

How long some of the Polish stores will remain closed?

[Przemyslaw Lutkiewicz, executive]

I'm happy that you actually listen to us because if you talk to the camera, you're never sure if someone is listening, but this is the reality that we have. So going back to the negotiations, it seems that by the end of July, all the negotiations will be finalized as we announced in the stock exchange announcement. It pertains to 30% of the floorspace. Negotiations are still ongoing in relation to the 10% and 11%.

In the coming quarters, I can't give you any answers to the results of negotiations. Please be patient to see the results of our actions in the coming quarters. Of course, these will be considerable decreases. Very often, it's temporary.

[Magdalena Kopaczewska, executive]

Will you calculate rent in Poland for the period of the negotiations? Will the rent be collected?

[Przemyslaw Lutkiewicz, executive]

Yes. During the negotiations or upon reopening of the stores, very often, rents are charged. But of course, we negotiate them with the landlords, the owners. So the talks have been going on about the amount.

[Magdalena Kopaczewska, executive]

During the 3-month period of restructuring in Germany, will the rents be charged?

[Przemyslaw Lutkiewicz, executive]

Yes. During the restructuring, the shopping mall owners and the store owners do charge the rent, but we do not pay the rent. We are within this protection program of the German court. So during the period of negotiations, we are not paying. We have to wait till they are finalized, the whole procedure is finalized. And then afterwards, we are able to know how much we have to pay for which month.

[Magdalena Kopaczewska, executive]

How much savings in costs can this be regenerate?

[Przemyslaw Lutkiewicz, executive]

We are not able to answer this question because negotiations are still ongoing, and our foreign companies get some subsidies and cofinancing. So cost-cutting actions have been going on. Generally, we can say that the changes that we observed in the post-COVID reality should translate into a decrease of cost per square meters by more than 5%.

[Magdalena Kopaczewska, executive]

Next question, different person now, Piotr Bogusz. At what levels EBIT e-commerce was observed in May and June period?

[Przemyslaw Lutkiewicz, executive]

This is a very often asked question. The viability in the COVID months in e-commerce increased, and it was 15%.

[Magdalena Kopaczewska, executive]

What about the e-commerce sales by geographical region?

[Przemyslaw Lutkiewicz, executive]

Poland was over 53%.

[Magdalena Kopaczewska, executive]

Please provide 3 or 4 more countries.

[Przemyslaw Lutkiewicz, executive]

The key countries after Poland are Russia and Romania. These are the countries that have been recorded considerable -- considerably high sales, but the share is less than Poland's share. Poland constitutes half. And the next country is Russia or Romania. They constitute about 10% of the overall result.

[Magdalena Kopaczewska, executive]

As far as the information on the German company is concerned, concerning the corrective actions, are you expecting similar procedures to be initiated in relation to other companies?

[Przemyslaw Lutkiewicz, executive]

No. We are not planning any actions like that in other companies.

[Magdalena Kopaczewska, executive]

How much reductions of winter collections orders have been decreased?

[Przemyslaw Lutkiewicz, executive]

As we announced, by 20%, autumn/winter collection, $100 million. That was at the beginning of the pandemic. The decision was made at the beginning of the pandemic. So looking at the demand for the collections, we will adapt.

[Magdalena Kopaczewska, executive]

What about the gross profit margin in the second quarter and the realization of the yearly targets?

[Przemyslaw Lutkiewicz, executive]

It's a difficult question because the sales period has started. We will try to manage the stores as well as we can and to maximize the profit margin for the moment. But of course, it's the beginning of the sales offers. They are higher than last year.

[Magdalena Kopaczewska, executive]

Can we expect some write-off reserves in Germany? And if so, what about the numbers here?

[Przemyslaw Lutkiewicz, executive]

This is a huge issue for the next conference, for the second quarter results. If we do write-offs in the German market, they will be included in the second quarter. They may be considerable PLN 200 million even.

[Magdalena Kopaczewska, executive]

Does the company observe the bank pressures on the increase of credit margins?

[Przemyslaw Lutkiewicz, executive]

Yes. We have been observing a huge pressure for increasing trade margins. Of course, every company in Poland has been facing that, especially given the drop in percentage rate.

[Magdalena Kopaczewska, executive]

Basing on the sales from the beginning of pandemic, have you observed any changes in the pricing segment and quality?

[Przemyslaw Lutkiewicz, executive]

We've been observing a situation that the customers transition to the lower-priced goods, especially in the online sector. The customers are very sensitive to pricing if we provide more discounts, additional offers, sales increases. Without these offers, we would probably increase less revenues. The customers are seeking cheaper goods.

[Magdalena Kopaczewska, executive]

What about the online sales in the key markets, in Germany and the U.K.?

[Przemyslaw Lutkiewicz, executive]

During the pandemic, we observed that e-commerce sales has been increasing in all the markets. Certainly, we can say that when we opened the local warehouses, like Romania, Czech Republic, Slovakia, the opening of the warehouse, so in turn, making faster deliveries also contributes to the increased sales. So the next business day -- delivery is very, very important to online customers, and we will try to accelerate the delivery time to increase sales in turn.

[Magdalena Kopaczewska, executive]

Let's maybe wait for some more questions. Do you have any more questions, ladies and gentlemen? No more questions?

[Przemyslaw Lutkiewicz, executive]

Okay. Great. So it means that we have managed to answer all your questions.

Ladies and gentlemen, thank you very much for your time. Thank you for your attention. And please join us on the next conference in October. Thank you very much. Thank you. Goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]