Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales grew by 12.3%, with a 5.5% increase at constant exchange rates.
- Group like-for-like sales were up by 1.1%, driven by strong volume growth.
- All banners increased their client base and gained market share.
- Net cash position stood at EUR394 million after paying EUR411.6 million in dividends.
- Consolidated EBITDA grew by 3.5% in euros, reaching EUR1 billion.
Negative Points
- EBITDA margin fell to 6.4% from 6.9% in H1 2023 due to basket deflation and high cost inflation.
- Net earnings per share, excluding non-recurrent items, fell by 17.6%.
- Cash flow generated in the period was negative EUR383 million.
- Significant cost inflation, mainly driven by rising salaries and fierce competition, impacted profitability.
- Operational deleverage due to lower sales growth and higher costs, particularly in Poland.
Q & A Highlights
Q: The first one is on the number of openings in Poland. We have seen that Biedronka plans gross openings of 230 stores. Do you see upside risk to the number of net openings this year? Or if not, is there any reason to expect an acceleration in the number of closings? My second question is on consumer backdrop. Do you find any explanation for volumes remaining weak despite the rising wages also in Poland? And finally, can you give us some color on the gross margin evolution in Poland in the second quarter?
A: On the expansion in Biedronka, we expect to open 130 to 150 stores net of closures and replacements, maintaining our guidance. Regarding the lower volume in the market, consumers continue to be very cautious, likely due to factors such as expected energy price increases and the ongoing war in Ukraine. As for gross margins, they were quite resilient despite significant price investments.
Q: Can you provide the breakdown between basket inflation and volumes in the cost impact? You mentioned volumes were positive in Poland. How much worse the breakdown between the basket inflation and volumes? Also, in terms of competition, can you compare the competition level as of today versus 10 years ago when Tesco decided to be more aggressive? And finally, in terms of working capital suppliers in terms of days of sales, how much do you expect to invest this year?
A: Basket inflation in Biedronka was almost 6% negative in the first half. The competition today is different from 10 years ago, with higher costs and more intense competition. Regarding working capital, it will depend on sales and inflation or deflation on our purchases. We expect to invest more in working capital, particularly for smaller suppliers.
Q: Could I please clarify on the Biedronka basket inflation in Q2? How far below the market was that? And then when I think about the food inflation outlook in Poland for the rest of the year, do you see it holding at current levels? Secondly, the guidance for potentially more margin downside in half two in Poland than in half one. Where is that incremental pressure coming from? And finally, could you identify the VAT impact on margins in Q2, please?
A: Biedronka's basket inflation gap with the market remains significant. We expect to operate under deflation in the second half, which will put further pressure on margins. The VAT impact was managed without passing it on to consumers, maintaining our competitive pricing.
Q: How do we square flat gross margins with your comments of incremental price investments or incremental internal definition of Biedronka?
A: We were able to compensate for price investments through cost of goods sold, maintaining resilient gross margins despite significant price investments.
Q: How do you expect the removal of household energy fuel subsidies to impact consumer demand and volumes in Poland?
A: The removal of subsidies is likely contributing to the cautious behavior of consumers, who are already anticipating higher energy costs and saving more as a result.
Q: Are your pricing actions being forced by competitors, or are you leading the market down to give good value to customers? Why do you say you have to invest more in price in the second half?
A: Biedronka aims to maintain its leadership in price, which is crucial for retaining consumers. The market dynamics and increased competition necessitate further price investments to ensure we provide the best value for money.
Q: Could you clarify the breakdown of like-for-like between basket inflation and volumes? What level of basket deflation are you assuming for the back half? And what self-help drivers do you have at your disposal to accelerate savings?
A: Basket deflation in Biedronka was slightly below 6%, with volumes up around 1.5% in Q2. We expect to continue operating under deflation in the second half. We are focused on saving on consumption and energy to compensate for increased costs.
Q: How do you expect the removal of household energy fuel subsidies to impact consumer demand and volumes in Poland?
A: The removal of subsidies is likely contributing to the cautious behavior of consumers, who are already anticipating higher energy costs and saving more as a result.
Q: Are your pricing actions being forced by competitors, or are you leading the market down to give good value to customers? Why do you say you have to invest more in price in the second half?
A: Biedronka aims to maintain its leadership in price, which is crucial for retaining consumers. The market dynamics and increased competition necessitate further price investments to ensure we provide the best value for money.
Q: Could you clarify the breakdown of like-for-like between basket inflation and volumes? What level of basket deflation are you assuming for the back half? And what self-help drivers do you have at your disposal to accelerate savings?
A: Basket deflation in Biedronka was slightly below 6%, with volumes up around 1.5% in Q2. We expect to continue operating under deflation in the second half. We are focused on saving on consumption and energy to compensate for increased costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
