Jerónimo Martins Group (JMG), the Portuguese retail company, has reported its first-half results of 2024, revealing a mix of growth and challenges amid a complex economic landscape. The company experienced a 12.3% increase in total sales, with like-for-like growth at 1.1%. However, the EBITDA margin declined due to basket deflation and significant cost inflation, including rising salaries and intense competition.
Despite these pressures, JMG has maintained a strong net cash position of EUR394 million and paid dividends of EUR411.6 million. The company remains focused on strategic priorities such as market share expansion, sales volume growth, and a substantial investment of EUR1.2 billion in their CapEx program to enhance competitiveness and efficiency.
Key Takeaways
- Jerónimo Martins Group reported a 12.3% increase in total sales, with like-for-like growth at 1.1%.
- The EBITDA margin declined due to basket deflation and significant cost inflation.
- Net cash position remained strong at EUR394 million, with dividends of EUR411.6 million paid out.
- Strategic priorities include market share expansion, sales volume growth, and a EUR1.2 billion investment in CapEx.
- Plans to open 130 to 150 new stores in Poland, despite market challenges like cautious consumer spending and geopolitical uncertainties.
- CFO Ana Luisa Virginia emphasized significant price investments and cost-saving initiatives, particularly in energy consumption.
- The company expects continued margin pressure and deflation in the second half of the year.
Company Outlook
- Jerónimo Martins Group plans to open 130 to 150 new stores in Poland, maintaining a normal closure rate.
- The company is focused on maintaining price leadership through further price investments.
- Management anticipates more margin pressure and deflation in the second half of the year.
Bearish Highlights
- Challenging operating conditions with a sharp drop in food inflation and significant cost inflation.
- EBITDA margin decrease due to basket deflation and cost inflation.
- Weak volume growth in the market attributed to cautious consumers and external factors like energy price increases.
Bullish Highlights
- Strong net cash position and the ability to pay substantial dividends.
- Resilient gross margins despite lower sales and higher costs.
- Strategic investments in price to drive sales and strong volume growth.
Misses
- Volume growth did not meet expectations due to market conditions.
- Gross margin faced pressure from lower sales and higher costs, with expectations of continued margin pressure.
Q&A Highlights
- Volumes were down 4% in the market; Biedronka's basket deflation was slightly below 6%.
- In Q2, volumes were up around 1.5% with mix effects.
- The company is focused on saving costs in areas such as energy consumption.
- Like-for-like sales growth reported excludes VAT impact.
- The company is one of the most efficient in terms of cost per square meter.
In conclusion, Jerónimo Martins Group is navigating a challenging economic environment with a strategic focus on price leadership and efficiency. While the company faces headwinds such as cost inflation and competitive pressures, their commitment to growth and market share expansion remains undeterred.
The outlook for the second half of the year indicates continued challenges, but Jerónimo Martins Group's proactive measures may position them to withstand market fluctuations and maintain their competitive edge.
Full transcript - Jeronimo Martins (JRONF) Q2 2024:
Operator: Good day, and welcome to the Jerónimo Martins First Half 2024 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.
Ana Luisa Virginia: Thank you, Nadia. Good morning ladies and gentlemen and thank you for joining this call to present our first half results. As a reminder in our corporate website, you can find the results release, a slide presentation and factsheet for the period. In-line with our expectations, the operating circumstances in 2024, so far have been extremely challenging with a sharp drop of food inflation after the exceptionally high values registered in the last two years. Significant cost inflation mainly driven by rising salaries and fierce competition. Also in our main markets Poland consumer behavior has been unresponsive to the real wage increases, which is somewhat surprising considering the current macroeconomic environment. In these challenging conditions, our banners continue to strengthen their competitiveness, investing strongly in price to push for sales without neglecting the overall quality of their offer to consumers. As a result, and despite the headwind from basket deflation, like-for-like performance was resilient driven by strong volume growth. Throughout the period, all our banners increased their client base and gained market share. As expected, EBITDA margin went down, reflecting the negative effects of basket deflation and substantial cost inflation. Our net cash position excluding IFRS 16 stood at EUR394 million by the end of June after paying in May EUR411.6 million in dividends. In the first six months of the year food inflation declined significantly in all three countries, while cost inflation rose mainly driven by wages increases. In Poland despite the growth in household income and the improvement of consumer confidence, food retail volumes are still muted. The cautious behavior from consumers is further contributing to stir up intense competition. In Portugal consumers remain promotions driven, and in Colombia, families struggled with massive pressure in face of food prices that today are on average 67% higher than in the beginning of 2021. The first half results reflect the imbalance created by the combination of low basket inflation and high cost inflation. The significant fall in growth, particularly in Biedronka and Pingo Doce, was not enough to compensate for basket deflation in a way to fully allow cost dilution. And hence, EBITDA margin and EBITDA growth were affected by the operational deleverage in the period. All-in-all, EBITDA in euros increased 3.5% a decline of 3% at constant exchange rates, with a margin pressure of 54 basis points. The evolution of the depreciation heading reflects the execution of our ambitious CapEx program while financial charges increased due to higher average net debt and more funding in Colombian pesos at higher interest rates. Other profit and losses that were at minus EUR62 million, include the initial endowment of EUR40 million to the Jerónimo Martins Foundation. It also includes the write-offs resulting from renovation works and some restructuring costs. Net earnings per share excluding other profit and losses of non-recurrent nature fell by 17.6%. Besides the combined effects of the current context, Q2 P&L was unsurprisingly also impacted by the reverse of Q1 positive calendar due to an early Easter season this year versus 2023. Cash flow generated in the period was minus EUR383 million. There are a few things I would like to flag here. Firstly, while EBITDA adjusted for rent payments was slightly up, we incurred a larger interest charge from higher average net debt and increased exposure to Colombia interest rates. Secondly, the tax payments in the period were substantially higher. In Poland, the advanced tax payments we make throughout the year are calculated based on our taxable income from two years ago. In April, when we make the final tax payments, the amount is adjusted to match the actual earnings of the prior year. So in Q2 2024, we paid the remaining due, the difference in the corporate income tax of 2023 results, a very strong year of performance, versus advanced payments based on 2021 results. At the same time, we are now advancing payments on 2022 results, another very strong year. Finally, we saw lower generation of funds from working capital, mainly reflecting diminished sales growth caused by a steep drop in inflation. We ended June with a positive cash position of EUR394 million. Dividends in the amount of EUR411.6 million were paid in May. The capital expenditure in the first half of the year amounted to EUR396 million. The investments focused on Biedronka and Ara's expansion as well as on the refurbishment programs that will enable Biedronka to maintain its high standards and in those to implement the new All About Food store concept, as a way to further grow their respective businesses. I’ll now guide you through our sales performance. Total sales grew by 12.3%, 5.5% at constant exchange rates. Group like-for-like was at 1.1%. The quality of the like-for-like is well reflected in the strong volume growth registered in Biedronka and Pingo Doce. All banners did well against the respective markets having increased their customers' base and gained share. Q2 like-for-like was impacted by the negative calendar effects of an early Easter compared with 2023. In a market still losing volumes and in face of an increased competition Biedronka remained firm in its commitment to provide the best prices to the Polish families having intensified its commercial actions and registering substantial basket deflation in these six months. As a result of having a positioning that is well-perceived and valued by consumers, our main banner strengthened its customer base, grew volumes throughout the period and increased its market share by 0.5 percentage points in the six months. On top of higher deflation, Q2 was impacted by the expected negative calendar effect. As a note, even including this impact the volumes were positive in the quarter. I need to flag here that at constant prices, the best proxy for volumes, food retail sales were down close to 4% in Q2. There are also a sound contribution to top-line growth from new space of 4.7 percentage points. Total sales increased 11.9%, plus 4.5% in local currency to reach EUR11.5 billion. Hebe delivered a solid sales performance with sales growing by 22% in local currency, including a like-for-like of 12.4%. The good delivery reflects an improved value proposition and the consistent e-commerce development that represented around 19% of sales over the six months. Pingo Doce grew sales by 5.9% to reach EUR2.4 billion, including a 6.1% like-for-like without fuel, even though it faced deflation during the period. The continuous promotional campaigns and the increased contribution from the banner strategic pillars, fresh products, private brands and new solutions in the All About Food stores drove significant volume growth and allowed Pingo Doce to outperform the market. In the period, 41 stores were refurbished to the new concept that is now the standard in almost 25% of the network. Recheio delivered a solid performance with sales increasing by 2.1% to reach EUR645 million. The HoReCa in Portugal has been impacted by weak domestic out-of-home consumption. However, and against the strong performance of previous years Recheio grew customers in all segments of the operation and extended its partnership in Amanhecer stores ending the period with 651 locations. Ara maintained an intense commercial activity continuing to create relevant saving opportunities for the struggling Colombian families by combining a strong promotional dynamic with a consistent low price policy. Allow me to remind you here that in Q2, Ara faced a particularly tough comparison as in Q2 '23 sales, benefited from a massive price campaign on the occasion of its 10th anniversary in Colombia. In the 6 months, sales increased by 13.3% in local currency, a 32.1% growth in euros to reach EUR1.4 billion. Consolidated EBITDA grew by 3.5% in euros, a reduction of 3% at constant exchange rates, reaching EUR1 billion. The basket deflation registered in our main businesses combined with the high cost inflation led to operational deleverage. Group EBITDA margin fell to 6.4% from 6.9% in H1 '23. At Biedronka, the pressure on margin was mainly driven by increased weight of costs essentially coming from high wage inflation and lower sales growth due to basket deflation. Hebe's margin improved following good sales performance. In Portugal, the margin evolution reflects the execution of the intense promotional dynamics together with cost inflation. And finally, in Colombia, Ara was able to improve EBITDA margin by 109 basis points in H1. Excluding the effect of IFRS 16, Ara's EBITDA is now back to positive growth. In summary, in the first half, we operated in an extremely challenging context, marked by basket deflation, high cost inflation, subdued consumer demand and more intense competition. Although, we anticipated and flagged most of these challenges from the start, we acknowledge that the higher than expected consumer demand in Poland drove heavier price investment across the industry leading to a more competitive context in our main markets. As a group, our strategic focus has always been clear to reinforce price positions in order to grow volumes and invest in the overall quality of our value propositions including the execution of our CapEx program to expand and revamp our stores also as a way to sustain growth. Our banners are therefore delivering accordingly. As a result, in competitive context, we reinforced our market positions, delivered solid volume growth and strengthened our client base, which is the best possible confirmation of effective consumer preference. This execution in the current circumstances pressured margins, and H1 figures reflect exactly that. Nonetheless, we do believe we are following the right path and that our banners have the competitive strength to continue outperforming their respective markets. For the year, our strategic priorities remain unchanged; make our stores the first choice of consumers and grow sales in volume. This strategy will allow us to keep our competitiveness, increase our customer bases and reinforce market shares. Entering H2, a period of more demanding comparative in terms of volumes, Biedronka will increase its price investments, reinforcing its competitive position and creating further sizing and value opportunities for Polish consumers. Having in mind that our main banner is expecting basket deflation to continue in H2, the execution of this strategy may even put further pressure on EBITDA margins versus the 85 basis points registered in H1. We reiterate our commitment to our CapEx program that in 2024 we'll reach EUR1.2 billion of investment, mostly in the expansion and revamping of our infrastructure. Finally, we continue to foresee an increased investment in working capital versus prior years considering the deflationary scenario and the current context that will also continue to pressure our local commercial partners, particularly in private brand and fresh categories. We are conscious that the sharp reduction in food inflation will affect the top-line in our balance sheet, and that together with the already high cost, will hamper earnings for the year. As such, we will keep improving competitiveness and efficiency, as a way to protect our business fundamentals. Thank you for your attention. Operator, I am now ready to take questions.
Operator: Thank you. [Operator Instructions] And now we're going to take our first question, and it comes from line of João Pinto from JB Capital. Your line is open. Please ask your question.
João Pinto: Hi, good morning everyone. Thanks for taking my question. The first one is on the number of openings in Poland. We have seen that Biedronka plans gross openings of 230 stores. And in order to reach the net opening target that you shared, we have to assume a record number of closings at between 80 and 100. My question is 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? Many thanks.
Ana Luisa Virginia: Thank you, João. On the expansion in Biedronka, so what we have in our guidance is 130 and 150 stores to be opened and we keep that guidance from the beginning. It's true and it was mentioned in the annual report, 330 locations, but this included an ambition and also the plot that do not represent new openings. So what we are expecting is not to do a massive closure of stores, but to keep at least the 130 to 150 stores net of closures and replacements, but not with -- so with a normal level of closures, particularly when the stores do not allow for a proper expansion or for a proper customer experience. On the lower volume in the market, of course for us, it is also a little bit surprising that we keep with a very neutral or negative volume growth at the retail sector. We don't hide that. Of course, we knew that part of the performance would depend on how things would evolve, and we flagged that in the outlook of the full year results as you know. I think that it has to do with multiple things. Our colleagues in Poland refer that consumers continue to be very cautious, that they are expecting that energy prices to go up with the end of the subsidies to that. They were expecting the VP reintroduction. Germany in the West border, which is the main country with which Poland has its commercial relations, is not doing well as you know. That has affected some industries in Poland. You continue with the war in the East border. So I think that is -- basically the consumer is increasing the savings and it is a little bit on the wait and see mode considering all the uncertainty that goes -- even we think that I believe can be or look a little bit far away like the US election. So whatever the thing is, this will affect the way that the Polish see particularly what is going to happen in their different borders and in Ukraine. So I think that the consumer remains quite cautious. And so they will look for the best value for money. Of course, all the rent has to do with a very intense competition for this decrease in volumes. So the market has decreased and the costs are increasing. As we also mentioned in our release from the beginning, competition tends to increase under the circumstances, and that's what happened. As for the gross margins, in fact, as you know, we don't give a lot of detail on gross margin. But I can tell you that it was quite resilient with a big effort from our teams in Poland. But that doesn't mean that we didn't do a big effort really to invest in prices. We did. And of course, unfortunately, part of this, we were accompanied by our suppliers, particularly the ones that were losing volumes and that do want also to recover part of those volumes. So we have quite resilient margins. But of course with lower sales and higher costs, the operational deleverage was unavoidable.
João Pinto: That’s very clear. Thank you very much.
Operator: Thank you. Now we are going to take our next question, and the next question comes from the line of Jose Rito from CaixaBank. Please ask your question.
José Rito: Yes, good morning to all. So my first question on Poland. So if you can provide the baseline between basket inflation and volumes and the cost of impact. You mentioned the volumes were positive in Poland. I'm not sure if you mentioned how much worse the breakdown between the basket inflation and volumes. Then also in Poland in terms of competition, you mentioned that this competition has been increasing. Can you compare the competition level as of today versus 10 years ago when Tesco (OTC:TSCDY) decided to be more aggressive? And finally, in terms of working capital suppliers in terms of basal sales, how much do you expect to invest this year? Any reference that you can provide? Thank you.
Ana Luisa Virginia: Jose, I will just ask you because the line was not very clear. Can you repeat the end of your second question? You said to compare the competition with, and I didn't hear it.
José Rito: Versus 10 years ago when Tesco was more aggressive in the market. Is the level of competition is similar to what we saw when Tesco decided to be more aggressive or if it is not the case?
Ana Luisa Virginia: Okay, okay. Perfect. So thank you, Jose, for your questions. As for basket inflation in Biedronka, as we mentioned, was negative. And in the first half was almost 6% negative. And basically, that if we infer as a proxy, the growth in like-for-like versus the inflation that we registered, of course we are talking about a level of volumes that will be more or less that. So slightly less than 6%. As for competition I think the circumstances are different. It's true that 10 years ago, we had deflation but a different one. And it was not simultaneous with the big increase that we are having in cost. So the deflation came from very circumstantial situation that has to do with the Russian ban and the different macroeconomic at that time. And I think that Biedronka, of course, offer was not fully adjusted to deal with deflation because we were having, as you remember, a very limited assortment much more basic than it is today. It was also true that we were not prepared or fully prepared in our operations to deal with the big promotions that were introduced in the market. So we have to react to the market at that time. Now it is a little bit different. So we think that, first of all, Biedronka is very -- has been performing very strongly in the last years. We were -- and we didn't hide never, that the two last years were exceptional in the sense that we have very high inflation. And although costs were increasing, in fact, with deflation and the fact that Biedronka maintain its competitiveness, led us to grow volumes and to be able to dilute the costs. Now what we see, of course, is a cost increase that is quite significant. And at the same time, as the market is not growing which was not the case back in 2014, I think that this tends to leverage a little bit on the other players that have to protect their margins they have to protect also their profitability. So they have to like us, fight for sales. As for the working capital, on the estimates, I cannot tell you, Jose. Because, in fact this will depend on sales on one side and on the level of also inflation or deflation on our purchases. And of course, on how things evolve. We think that we have to invest a little bit more on our working capital, particularly for the smaller suppliers. We didn't reflect that. And this is mainly even in Portugal, where they are struggling a little bit with the interest rates and with the context because they also have high costs and pressure on sales. But regarding that, of course, as I said, it really will depend on days of sales, particularly on how the performance goes for the second half of the year.
José Rito: Okay. Thank you. And so just a clarification or a follow-up on the adjustments that you did 10 years ago in terms of the number of SKUs. This time do you think that the company needs to check with anything in terms of business model or that is not the case?
Ana Luisa Virginia: At this time, I don't think Jose, that we have reasons to change the business model. So we are not even losing customers. So we are gaining share. So I think that's – it is not a question of evolving the business model. Of course we can do. And as you know, we are always fine-tuning the model. But at this point, I don't think that the model has to evolve at least the way or with the magnitude that it happened back in 2014 and the years that followed.
José Rito: Okay, thank you. Thank you very much.
Operator: Thank you. Now we are going to take our next question, and the question comes from an Frederick Wild from Jefferies. Your line is open. Please ask your question. Q - Frederick Wild Good morning Ana Luisa. Thanks for taking my question. The first, could I please clarify on the Biedronka basket inflation in Q2? How far below the market was that? I didn't think quite hear your previous answer. And then when I think about the food inflation outlook in Poland for the rest of the year, do you see it sort of still holding at current levels? Or is there perhaps some cost inflation, which could flow through and start picking that up? Secondly, the guidance for potentially more margin downside in half two in Poland than in half one. Where is that incremental pressure coming from? Is it from gross margin from these extra price investments? Or do you see extra challenges on the OpEx front? And then finally, just for clarity could you identify the VAT impact on margins in Q2, please? Thank you.
Ana Luisa Virginia: Thank you, Fred. So on Biedronka the gap for the market continues to be quite significant. And -- but the way that we see it, at least from the technical point of view, and I think I refer that, we struggle a little bit because we know that part of the prices that are computed at least the for food inflation, do not account for the full promotions that are given in the apps or in the loyalty programs of the consumers. Because these are not universal, let us say for the market. So you can have -- and particularly some vouchers that can be even personalized. So this is not really taken into consideration for the inflation. So I struggle a little bit to have a full comparison. Nonetheless, I think that Biedronka of course, keeps a significant end. It is striving for its leadership position in the market. So I think it continues to have a quite significant gap. As for the operational deleverage. So in -- as I mentioned, in Q2, price investments were significant and followed. Of course in Q2, you didn't have also the calendar effect. And this, together with the increase in costs that we had already done particularly on wages and on labor-related costs, which, excluding our cost of goods sold is basically the big part of our cost structure. Of course, this didn't allow and the operational deleverage was much more than in Q1. But this follows the part of sales basically. So it's not that we have increased our OpEx in percentage terms versus the Q1. It is really the fact that we have lower sales, and that reflects then on the margin investment. On the VAT, it's true that we have that impact. Of course, as all other players, we announced that we would not be passing the VP. And of course, with the deflation that we are having, as you can imagine, this is in fact, overall and on average -- I think that the consumer is not feeling in the case that they shop in Biedronka, they are not feeling the change in VAT in fact.
Frederick Wild: Perfect. Just if I could do a very quick follow-up to the second answer, please. So the dynamics on margin in Q2 with more upward leverage from the calendar impacted like-for-like. Do you see a similar sort of then carrying through into half two, where the output of the margin will really be determined by the progress of that like-for-like and the leverage over the OpEx rather than any big shifts on gross margin. Is that a fair way to characterize it?
Ana Luisa Virginia: Okay, Fred. So for the quarter, as I mentioned basically the -- when you look just at the numbers, the main pressure of course on the deleverage was coming from the increasing costs much more than from the gross margin that as I said previously was quite resilient. What we think is that for the second half of the year, as you may remember volumes were quite significant. So the comps in the second half of the year are much more challenging. And we are not seeing a pickup in the market. We are currently even in July, which the month has already passed and this is the only thing that I can tell you about the current trading, but we are not seeing a pickup in terms of the prices and not a pickup also in terms of consumption. So we are operating with deflation. We expect to operate under deflation in the second half now which is a novelty. We flagged that very clearly for the first half, but we now think that this will continue for the second half. Of course, if you are operating in deflation and you continue -- you have the cost increases that are already on your P&L, you will not decrease the wages, you will not adjust that. So what we think is that this will be -- or bring further pressure probably at that point coming from of course, the different moving parts. So we have the cost increasing more than sales probably because it will be difficult to have volumes to compensate for the deflation. So even if we have to invest more in price of course, this -- we'll see how resilient the margin is. But that's why we think that we are risk to have a higher pressure.
Frederick Wild: Got. Super helpful.
Operator: Thank you. And the next question comes from the line of Borja Olcese from JPMorgan (NYSE:JPM). Your line is open. Please ask your question.
Borja Olcese: Still a little bit unclear here. So simply put, how do we square flat gross margins with your comments of incremental price investments or incremental internal definition at Biedronka, i.e., the gross margin should have been down, no?
Ana Luisa Virginia: Borja, of course you have to consider all the different -- even the difference in mix that we had from one quarter to the other. So the fact is that if you are able on your cost of goods sold to compensate for the price investments that we do, which were relevant, I can assure you. And of course then we can of course compensate on the margin in percentage terms as for the gross margin. And that's what happened, in fact.
Borja Olcese: Okay. So you can price, but the problem was the higher crops.
Ana Luisa Virginia: Apologies. I didn't hear you.
Borja Olcese: No, that's okay. And then the second one is on the outlook. I'm still not very clear as to why there should be incremental OpEx deleverage in the second half if you are targeting positive volumes and the technical effects wash out.
Ana Luisa Virginia: Borja in fact, so it is true that our second half is usually stronger in terms of sales. But what we are flagging is that the cost are already computed for. So it is not that we expect to increase much the cost versus what has been happening. What we are flagging now is really, first of all, that we probably have to invest more in price, and that will also affect the gross margin. And in terms of comparables, it is going to be more hard to grow volumes versus last year. So in fact, this will depend a little bit on the sales growth in value and on the level of price investments that we have to do, so the pressure that we'll have now to add to our gross margin.
Borja Olcese: Okay, that’s helpful. Thank you.
Ana Luisa Virginia: Thank you Borja.
Operator: Thank you. Now we're going to take our next question, and the question comes from the line of António Seladas from AS Independent Research. Antonio, your line is open. Please ask your question.
António Seladas: Hi, good morning. Thank you for taking my question. My question is just one, specifically gross margin. You already mentioned the gross margin evolution in [indiscernible] is high. Nevertheless it seems that your costs, your input prices are coming down. So should we expect more the -- prices continue to come down and in some way to protect your gross margin or not? Thank you very much.
Ana Luisa Virginia: António, you are mentioning the purchase prices?
António Seladas: Yes, exactly. Sorry.
Ana Luisa Virginia: Okay, okay. So it is true that we are seeing -- so the PPA, at least the one that we mentioned and particularly in Poland is going down. Of course, this will depend also on the evolution. And there are, let's say, we don't hide there is a lot of uncertainty here also. So it's not just the parts -- and the parts particularly for the fresh, but also how things are going to evolve in the supply chain under some in certain circumstances. So we are counting a little bit on that also. And we believe that if things continue the way that they are and there is no major disruption. There, may be some decrease in the purchase prices as we are seeing from the macroeconomic numbers. But it will also depend on the evolution of the supply chain and of the market.
António Seladas: Okay, thank you very much.
Ana Luisa Virginia: Thank you Antonio.
Operator: Thank you. And the question comes from the line of William Woods from Bernstein. Your line is open. Please ask your question.
William Woods: All right. Good morning. Thanks for taking my questions. Firstly in Poland, are you pricing actions being forced by competitors? Or are you leading the market down to give good value to customers? I'm trying to understand why you say you have to invest more in price in the second half. The second one is obviously, when you talk about more pressure in H2 than in H1, obviously, that sounds now like that's your base case assumption. What do we need to see to see less pressure in H2? What are you looking for to make that happen? Thank you very much.
Ana Luisa Virginia: William, so in fact, I think it has really to do with the market dynamic. Biedronka as you know, it is value proposition and has a very good perception with the Polish markets on its leadership in price. And we want to keep that to happen. So we don't want to -- we know that the Polish consumer is very rational that you really look for the value for money and for price. And so we know that price is a must. And if we don't have price, we will lose the consumer. And if we lose the consumer from our license in the past, we know that we have to invest tons of money to get him back. So the fact is we think that all the dynamics in the market, and you have seen enough of the competition in the market, and that really has to do with if you see the consumer continue to be cautious. If you have your costs increasing, and most of your costs with the exception of cost of goods sold is fixed. You really have to strive for sales to be able to cope with -- not only with the cost increase but also to protect your margin for the future. And so what you are seeing really is of course, a much more aggressive competition. So sometimes we'll have even to react and we do it. But others, of course is us making sure that we provide, if we have the opportunity, the best opportunities to the Polish consumer. On the second half, so this is how we are seeing at this point. Of course, we also mentioned in our outlook that if the market, for some reason, and if the consumer which has more available income, and if there is any chance for the consumer to start to trade up or to pick up in terms of volumes I think that this will put or ease a little bit the market as of course it doesn't mean that it takes all the pressure. Because, of course, as I said there were big increases in the cost of all food retail players. And this leads to a much more pressure on the competition. But I think that of course, a market that is more consumption-driven that changes a little bit in terms of the caution and pick up the volumes will affect, I think everybody's performance in the market and particularly Biedronka, which is the best value proposition.
William Woods: Great. Thanks. Just a quick follow-up. Are you seeing the same deflation then as little in the market, do you think?
Ana Luisa Virginia: On that William, we don't have any -- as you know, we are quite transparent in our operation and we give a lot of details. But we don't have any visibility on Lidl's performance in terms of deflation. We know that they have been very vocal on their communication and striving for sale. But we don't -- we are not -- we don't have any information on their performance.
William Woods: Understood. Thank you.
Ana Luisa Virginia: Thank you. Operator Thank you. Now we're going to take our next question, and the next question comes from the line of Izabel Dobreva from Morgan Stanley (NYSE:MS). Your line is open. Please ask your question.
Izabel Dobreva: Hello, good morning. I have three questions. My first one is just a technical question on the breakdown of the like-for-like between the basket inflation and the volumes. Apologies if I missed it. I think earlier in your comments, you talked about volumes down 4%. But then I think one other point, there was a different number. So could you just clarify what was the basket deflation in the quarter and what was the volume performance for Biedronka in the quarter? Then my second question is what level of basket deflation are you assuming for the back half? Because if we step back a little bit, it appears that the reasons that the volumes are not picking up are not really driven by our relative price position. It sounds like it's external factors. So things like the war, the German production figures. So why is stepping up price investments the answer to activate the volumes, given the consumer is not really reacting so far? And then my third question is, could you talk a little bit about what self-help drivers you have at your disposal? Are you doing anything to accelerate savings? And if you are, have we seen any of the results in the first half numbers? Or maybe there is some self-help actions yet to come through the margin?
Ana Luisa Virginia: Okay. Thank you, Izabel. So for the volumes -- so the minus 4% that I mentioned was on the market, so for the -- for Q2 in the market. The like-for-like for Biedronka in terms of basket deflation, as I mentioned was slightly below 6%. And the volumes in the second quarter were up around 1.5% if we also include all the different mix effects. On the first half, as I mentioned, was also slightly below the 6%. On the price, and I think that we will want to continue to lead in price. And this for us and we expect to continue to lead in price that we will do further investment in price and for the second half. So for us, it's really very important to keep the consumer with us and to defend our price positioning. So we will keep leading in price and that will put further pressure and that's why we expect deflation. The level of deflation, of course, it will depend. As I mentioned, we think that the market will continue to be -- even with a pickup in consumption, we think that the market will continue to be very competitive because of the level of cost increases that all operators have following these two exceptional -- very exceptional years in terms of inflation that translated on wages and all the other costs and even in interest rates. As on the savings, so we have to acknowledge one thing here. Jerónimo Martins doesn't have its cost out of control. We increased the wages, it was deliberate. We knew that we would have that pressure. We flagged that pressure in our full year results. But in terms of our consumption, so we continue to do a lot of initiatives to save on the part not of the price, let's say on the cost price, but to save on all fronts. So we are talking about the energy, and which of course is benefiting from the photovoltaic panels and for SMEs in the energy price. So it's not -- it doesn't have to do with out of control. So what we are doing really is basically saving on consumption to compensate partly for the increase in cost prices.
Izabel Dobreva: Thank you very much. I just got one more follow-up. At one point during your remarks, you talked about the volumes being unable to compensate for deflation. So just to clarify, do you expect the like-for-like to remain negative in the second half of Biedronka?
Ana Luisa Virginia: On that, Izabel, so we've -- what I mentioned really was, in fact, that the volume growth was not enough to compensate to dilute the costs the way that we want it. So the pressure on the margin, EBITDA margin reflects that. So it's not -- in fact, the like-for-like was basically flat if we take out the calendar effects when we look at the first half. So I think that it's true that we will continue to see a lot of pressure. As we said, we will operate in deflation. And it will be difficult also to grow on volumes because the base is very strong. So it's not an impossible scenario. But we'll fight, of course, to have the best performance possible. Of course, if you tell me, will we have a very high single digit or even quite significant mid-single digits of -- I think it's very unlikely or even unreasonable to think about that considering the current context of the market. So it's -- the negative like-for-like, it's possible to happen. We will be working for that not to happen, in fact.
Izabel Dobreva: Thank you.
Operator: Thank you. [Operator Instructions] And now we're going to take our next question, and the question comes from the line of Elena [indiscernible] from JPMorgan. Your line is open. Please ask your question.
Unidentified Analyst: Hello. Thank you very much. I have a few questions. First and foremost, how do you expect the removal of the household energy steel to impact consumer demand and volumes in Poland?
Ana Luisa Virginia: On that line of course, I think it's part of the cautious, let's say, behavior of the consumer is that he is already anticipating that you will have to pay more for energy. And so they tend to save a little bit more. This -- I think, of course, I don't have the total -- we are performing in market research to try to understand the levels of consumption and the consumer behavior. But this of course, is something that I think that they are already incorporating and making them more cautious.
Unidentified Analyst: Yes, that's clear. Then a follow-up to Izabel's questions actually on like-for-like. So as I think about the trajectory of like-for-like from here and about Q3 expectations, is the logic right that basically you don't have the kind of the negative calendar effect of Q3? So just mathematically, your like-for-like in Q3 should really rebound from the Q2 levels. Is that logic correct, at least taking the calendar effect into account?
Ana Luisa Virginia: So if we take into account the seasonality of the market, you are right because, of course, usually it is a higher sales. We have some calendar effects of one or a couple of days, particularly in Poland. And that of course, will also affect the performance, but I think a positive one. So I've already -- as I already mentioned, what we see really is that the market is with the consumer maintaining quite cautious and with the level of cost on the -- now that the market will continue to be very competitive and very difficult to get the same level of volumes that we had last year. So we think that we will have to operate with deflation at this point is -- we don't have visibility on the level of that. But operating in deflation and having to invest further in price to lead the market will we think, adds further pressure on the P&L also.
Unidentified Analyst: That's clear and it actually leads me to one of the final questions. So what you say, feels like, that the problem you really have is competition. And when you also mentioned that if you don't have the lowest price, you don't have the customer, this feels a bit worrisome because that is like the only reason to shop in the store and there's no other competitive advantage. I know that's not the case, but this is just how it sounds. And in business models like that, when price is center, you really need to be very much focused on bringing down operating costs. So maybe you can talk a bit more about what you are doing strategically to be bringing down OpEx in the stores because as I see it, Poland is not going to get less competitive. And a related question to that is why should we even expect that operating margins ever recover from where they are right now, if the real answer is that competitive backdrop has really intensified become more complex? In that environment, margins don't go up.
Ana Luisa Virginia: Thank you, Elena. So it's of course competition and it's the market and also the inflection point from, let's say, a certain rebates. Because as we have to acknowledge, the double-digit like-for-like of the past was not really business as usual in a certain way. So the last years in terms of performance for all the players in the market was somehow eased by an exceptional level of inflation. So we are somehow also rebating on that. Of course, you are right that competition has become more intense as everybody is fighting for the consumer to have the sales to dilute the cost -- the extra costs. I think that Biedronka has a business model also to outperform on that. And we are not -- we know that the price is a must. But we are also not neglecting -- as we mentioned in the release, we are not neglecting the other drivers that leaves the consumers to our store. So we think that we'll have, of course to do and we are doing our homework in terms of OpEx, as I mentioned, and try to -- in terms of the different layers to do our homework. Of course, if you are having a mute market, this makes it more challenged to dilute the costs. But -- so it doesn't mean that the margins cannot pick up. But for the moment, of course, what we are saying is that until year-end that definitely will not happen.
Unidentified Analyst: Yes. That's very clear. Do you think that you are the cost leader in the market at the moment in Poland, if you think of the cost per square meter?
Ana Luisa Virginia: I probably -- as I said, we are -- we don't have any visibility with the exception, of course, of the peers that are listed. We don't have visibility on private companies that do not even deposit the accounts. But from what we -- the few that we know I think that probably we are one of the most efficient, I would say.
Unidentified Analyst: Okay. And sorry, final technical question. Just to be clear, the like-for-like sales growth you report is on net basis. So you exclude any VAT impact in it.
Ana Luisa Virginia: Yes, yes.
Unidentified Analyst: Thank you.
Operator: Thank you. [Operator Instructions] There are no further questions. I would now like to hand the conference over to your speaker, Ana Luisa Virginia, for any closing remarks.
Ana Luisa Virginia: Thank you, Nadia. These have been extremely challenging six months. Only the capabilities and the hard work of our teams allowed us to deliver what we consider a very good underlying performance. Although we lack visibility on how consumer behavior will evolve, we know that any improvement to the current muted context will positively impact the evolution of the market and our performance. For our part, we will keep fighting for continuous price leadership to guarantee that our consumers keep choosing our stores. We consider this to be the best way to preserve growth for the future. Thank you for your questions and for attending this conference call. I wish you all a nice day.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
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