Good afternoon and welcome to all of you attending this audio webcast of Logista first half results of fiscal y ear 2020. My name is Manuel Suárez, CFO of the company, and with me is Gloria Martín, Investor Relations Director. To follow the results, I will go through the presentation using your screens, and in the meanwhile, we will continue receiving your questions that, together with those received during the morning, will be answered at the end. I invite you to read the disclaimer included in the second slide of the presentation regarding forecasts, estimates, and forward-looking statements. There are three main topics I would like to highlight in our results. First, there is a recurring activity performing in line with what was expected.
Second, a negative impact of the tobacco taxes and retail sales prices that brought a negative result this year to be compared with a positive one in the first semester of 2019. And third, the impact in the month of March of the coronavirus crisis. All this together caused that, in the period, revenues have grown in all regions, while economic sales did it in Italy and Spain, offsetting the negative ones in France. Altogether, adjusted EBIT decreased by 11%, a percentage that practically goes to the net income as a consequence of lower restructuring expenses and a higher tax rate. Let me give you now a brief overview of the performance by geography that I will detail later.
Iberia evolution in the period is marked by a pretty good trend in our convenience and pharma business, while transport has kept growing in parcel and courier, being more stable in the part of the business more related to tobacco. The COVID-19 crisis is impacting the most to book distribution and transport, while tobacco taxes and prices have not played any role in none of both periods. In France, tobacco volumes continued showing a steady decreasing trend, in line with what we saw in previous periods, a consequence of retail sales prices increases, offsetting tax ones. Most of the tax increase this year has already passed to prices, except the last movements that are still pending, causing, at the end of the period, a negative impact in results. There is a clear weaker activity in the convenience distribution to other channels with the anti-COVID measures.
In Italy, the impact of these measures has been of lower importance. Convenience business has kept its rhythm of double-digit growth, and tobacco volumes have been stable. All this masked by the delay of tobacco manufacturers, passing tax increases to the retail sales prices of their products, causing a negative impact. Going into a deeper analysis by country now, in Iberia, Tobacco and related has shown a 5.7% growth, a consequence of the positive tobacco volumes evolution in Spain, growing market share in Portugal, a very good trend in convenience, and stable tobacco prices and tax scenarios in both periods. COVID-19 affected in March mainly a decrease in consumption and a switch of vending channels in Portugal from vending machines to petrol stations.
In transport, economic sales grew 3%, being stable in long haul and showing growth in the other two, which is a different pattern of what was observed after the lockdown began, when both parcel and courier have started to show a slower activity. In the other businesses, where we report the activity of pharma and editorial distribution, economic sales have decreased by 2 million EUR, a consequence of the continuous growth of pharma activity, double-digit in revenues masked by the ceasing of a service to a customer relevant in economic sales terms but not in results, and the difficult evolution of the publications sector. Here, the impact of the lockdown measures is important in the case of the editorial sector, unless in the case of pharma.
Also, there are still some track and trace agreements pending to be finalized, while the services are being fully provided, allowing room for improvement in the second semester. In total, the impact of lockdown measures can be estimated in EUR 3 million in Iberia, while there were no one-offs due to tobacco retail sales price changes. EBIT in France has been reduced in one-third, a consequence of a continuous decrease in tobacco volumes derived from the steady tax increases that have required this year a retail sales price increase of EUR 1 to offset it, EUR 0.50 in November and EUR 0.50 in March. This year, there has been also the transformation of the Contribution Sociale into excise taxes, which would require an additional increase of EUR 0.20.
At the end of the period, not all manufacturers had passed all these tax increases to selling prices, and this compares to the previous year when tobacco manufacturers increased the retail sales prices of their products more than the tax increases in the period, having in H1 2019 a positive impact from this issue. In contrast, both e-transaction and convenience sales in this channel had a positive evolution. In the other businesses, where the underlying trend was already weak, the lockdown measures have impacted in an estimated 35% in the period, a consequence mainly of the closing of points of sale. Cost had, in general, a normal trend affected by inflationary pressure in transport and insurance, while providing room for improvement in track and trace timing differences. COVID-19 measures have had a negative impact, estimated in EUR 1.5 million in our businesses in France.
Italy had, in the period, an Adjusted EBIT increase of 1.4%, even having this year an important negative effect of tobacco tax price movements, a consequence of tobacco manufacturers not translating into prices all tax movements. Moreover, this compares to the previous year, when the effect of this phenomenon was clearly positive. Tobacco volumes were rather stable, and the trend in services rendered to manufacturers and in convenience products has been clearly a growing one. Cost has behaved in line with Economic Sales evolution out of the extra cost due to COVID-19 impact, whose whole effect can be estimated in this country in EUR one million. The P&L of the period reflects what we have commented at the beginning: slow growth in recurring operations masked by the lockdown and tobacco tax price movements.
Revenues grew in all geographies, while the economic sales growth in Spain and Italy has been offset by the decrease in France. Let me remark here that without the EUR 11 million negative difference because of inventory valuation and not making any estimation of lockdown measures, the economic sales would have grown by 2%. Total cost comparison is still influenced by track and trace implementation, transport cost in France, insurance, and the ones associated to COVID-19 crisis. The lower amount of restructuring costs, partially offset by the absence of capital gains, makes profit from operation to be EUR 85 million, nine less than in 2019.
Cash position has stood around EUR 230 million higher than last year, average of the period, causing the increase in financial revenues, while the increase in financial expenses is totally due to the implementation this year of IFRS 16, being this one the total difference caused by it, as the increase in EBITDA is fully offset by the increase in depreciation. Corporate income tax increases in 2.5 full percentage points are due mainly to the extinguishing of some deductions related to double taxation. Net income finally decreases because of the impact of measures to fight COVID-19 and the impact of tobacco retail sales price, movements that more than offset the increase in recurring operations. As advised before, the investment figure is returning to levels more in line with the normal needs of Logista.
You know that Logista normally dedicates between one-third and 50% of its investments every year to IT, with the aim to keep its infrastructure and technology updated, to be able to keep on developing services to its customers and to improve its operations. Last two years, our investments were higher than the average to support the effort needed to implement track and trace services and to tackle some renewal of general IT infrastructures. Now that it is fundamentally done, the figure shown is in the range of what we normally be seeing in the coming future. There is nothing special to remark in terms of normalized cash flow. The EBITDA is moving in the same line than the EBIT, once it is adjusted by the rentals payments that had a different treatment in both periods as a consequence of the adoption of IFRS 16 in 2020.
Normalized taxes respond to the evolution of results and effective tax rates, while the CAPEX figure improvement is driven by what was commented in the previous slide, adjusted by the normal timing differences. Working capital is normally lower this part of the year, being this year especially affected because of COVID-19 measures in part, and last, the cut-off effect in the payment of taxes is opposite in direction in each of the two periods, just reflecting timing differences that tend to stabilize over time. To briefly summarize which are the financial conclusions of this period, the resilience of Logista's business model is again proved in this situation when the vast majority of the points of sale we distribute products to remain open among a lockdown general status, although there is no doubt the general situation of consumption is also affecting us in our results.
The actual results of this semester are also marked by the impact of the one-offs due to tobacco prices movements. Last part to remark is the solid cash flow profile of the company compared to operating results or to net income. But even considering all this, and in view of the current circumstances in which our business has been executed in the last month of the semester and the circumstances in which it is being executed now, the guidance communicated to the market for the closing of this fiscal year cannot be kept. There are, on top of that, uncertainties about how this situation is going to evolve in the coming future and how the present lockdown is going to be progressively abandoned. This makes it impossible to provide a new guidance at the moment.
However, what we can say is that the fact that most of our operations are working normally in terms of providing services and distributing products to points of sales that remain open and the resilience of our business model makes us expect that the reduction of profit versus previous fiscal year will not be too relevant. And that's all on my side so far. I pass now the word to Gloria Martín to organize the Q&A section. Gloria?
Thank you, Manuel. I will read now the questions received until now, but I remind you that you can continue sending questions until the end of the webcast or contacting Investor Relations later through the usual channels, sending an email or just giving a call. First question is Pedro Alves from CaixaBank.
Outlook for second half 2020, could you provide us a fair range of underlying EBIT growth in second half 2020, excluding COVID-19 effects? Could you make sense to extrapolate the circa 2% achieved in first half 2020, or should we expect an acceleration from the billing of traceability tariffs to manufacturers? Second question, underlying EBIT in Iberia, excluding the impacts of COVID-19, the EBIT in Iberia is only slightly positive in the first half, below our usual mid-single-digit performance. Can you please explain the reasons? Third question, inflationary pressures in France. Could you give more details on what is happening with your transport and insurance costs in France, and if this inflationary pressure is expected to continue in the next quarters?
Okay, thank you, Pedro.
In terms of the outlook for the second half of the year 2020 out of this COVID-19, I would say it's too conservative to think on the circa 2% increase achieved in the first half. Since you are absolutely right, the track and trace tariff should have taken this increase, better to say, to what was given as the guidance of the company as of the end of the first quarter. The second part, the underlying EBIT in Iberia, is exactly the same question. Once you make the adjustment, just take into account that, generally speaking, the track and trace agreements are more or less closed, or practically closed, in Italy and are lagging still a bit in France and Spain. So yeah, if you take the figure for Iberia, you will see a more normal path of growth in this area.
In terms of what is happening in France, where there has been some insurance of safety issues there for transport, especially shown in the south of France with a high level of incidents, so the insurance costs there have increased, reflecting that fact. In terms of the pressure on the transport costs that we already mentioned in the first quarter, the actions are already taken to reorganize the transport there, and I think for the second half of the year, you should take a lower impact, a much lower impact of this pressure.
Okay, second participant is João Safara, Banco Santander. I will read now only the questions that have not been repeated or answered so far, okay?
So first question, can you give us some color on trends and impacts in your business during the month of April, or part of April, or the combined trends with March and April? Just any figure that could help us determine the impact, at least during the lockdown period. Second question, what was the incremental impact on costs linked to the COVID-19 in March 2020? Can you quantify? Is that the number that you should be extrapolated for the rest of the months of the lockdown, or even also for Q4 2020?
Okay, so first, Joao, in terms of the trends for the month of April, I would say the month of March was characterized first for first reaction, so in some respects can be extrapolated in some note.
I would say in terms of tobacco, what is characterized mainly is the cancellation of all movements of tourism and cross-border sales. So you should assume that decreases close to 10% could be normal in volume consumption in Spain and in Italy, and much lower in France. Just keep in mind, please, that one out of four tobacco packs in France were estimated before this that were not paying taxes there, and this is canceled now. That's why basically consumption there tends to be flat. In terms of transport, transport is an activity which is correlated to GDP, so you should assume a decrease in volumes in what is happening in the economy. In terms of courier, it should be modified or modulated by the fact that there is a movement towards growing in e-commerce. It's still at lower margins, and that's it.
In terms of retail business, it was suffering in the month of April also. In Italy, the situation, as I mentioned, is just the tobacco part, or to mention that both in Italy and in Spain, convenience and tobacco is behaving very well. I mean, when the rest of the points of sale, or vast majority of them, are closed, what happens basically is that the tobacco trade benefits from this lack of competition of another network. In the part of wholesale to another network in France is suffering because of the closing of points of sale, basically. That's it. In the incremental costs in the month of March due to COVID-19, we talked, remember, of a total impact of 5.5 million EUR. We could assume something like 40%, 2 million EUR could come from the cost part and the remaining from the sales part.
Okay, next question from Carlos Gutiérrez, Dunas Capital. Could you give us further details on how can convenience business decrease in France while keep on growing in Italy, where lockdown has been much stronger and durable at the moment?
Okay, well, clearly what we commented before, Joao's question is that, I mean, now the tobacco needs is a very strong point of sale, given the absence of another point while in the convenience business in France, a high component of it are precisely the rest of the networks. That's why it's weaker there.
Okay, next question from Pablo Cuadrado, Kepler Cheuvreux. Could you share if you expect some recovery in losses in tobacco inventories during Q3 from recent prices movements from tobacco producers? Shall we expect a recovery of some of the almost six million losses accounted during first half?
Okay, so Pablo, then talking about the recovery of prices, there has already been positive movements both in Italy and in France during the month of April, and there is still one part, I mean, this is of the will of tobacco manufacturers, but it's the case in Spain, prices have not moved in the last two years, so at some point they must increase. Obviously, it's their will, but it's one point that is there on top of that. COVID-19 costs. You have stated almost EUR 5.5 million costs for March. Can we assume this has been a one-off cost, or would you expect that the negative effect could be enhanced during April and May due to state of emergency measures in the key countries? Well, the EUR 5.5 million, sorry for the very harsh conclusion, is the total impact of COVID-19.
I clarified in the previous question that we could assume something like 2 or 2 costs, and then there will be impacts also in April, obviously minimized by the fact that we now have reacted and some corrective measures are put in place, but the impact will continue as far as measures will continue.
Sorry, I'm trying to discriminate which question has been already answered. Just give me a minute. Is there any change in the dividend profile for 2020 at the moment, or do you rate it your minimum 90% payout this year?
Well, as far as things are, the policy of the company is to pay at least 90% of its net income as dividend every year. This has not changed. Obviously, we are in a very, I mean, uncertain environment, so we have to see, but the policy as such is that, and that's what we are.
Next question from Oriana Bastianelli, Kairos. Can you kindly comment on the evolution of M&A activities? Second, I know it is early time, but ideally, despite an expected drop on net income in 2020, would you expect to be in a position to at least confirm what we have answered, absolute dividend in line of the impact of goodwill amortization and availability of reserves?
Well, in terms of M&A activities, you know, we've already commented, Oriana, that there is a good chance of doing some operations because of track and trace mainly, both in Portugal and in Poland, where there would be good possibilities, plus any other country where the manufacturers decide we could be interested for them to be there. There is nothing more to comment at the moment. There is nothing precise on the table at these days.
Second, the policy on dividends is what I said to you before. It stays at 90% of net income, and the strength of our balance sheet is clear, and this is one thing that the board will have to decide once the things are being cleared, once this sort of uncertainties we are in are being solved of a clear nature.
Okay, next question from Miguel Medina, JB Capital . Has Logista met with the new CEO at Imperial? I am not sure what his starting date is. If you have any change in existing commitment to retain a 50% stake in Logista?
Well, the first question is no. The CEO has not, the CEO of Imperial has not joined Imperial, and it's a matter that you should comment with Imperial, but there is no commitment for them to have any certain percentage in Logista.
It's just their will to do that.
Okay, next question from Patrick Folan, Redburn. With the stricter measures with the lockdowns, have you seen a reduction in illicit trade, particularly in France?
Yes, yes, that's the case. And that's the case, particularly in France, where I commented before. It was very high because of the price differential and the geographical situation of the country. And in particular, we have seen a high increase in sales in particular areas where normally the illicit trade should have been higher.
Next question from Carlos Gutierrez, Dunas Capital. Have you got any estimation of normalized percentage of economic sales in Spain coming from tourism, tobacco consumption related?
Well, yeah, it's normally estimated the impact of smuggling or illegal trade in tobacco in Spain between 10% and 15%.
Obviously, it's a difficult figure to obtain, but that's the normal estimation is done in the market, assuming the market.
Next question from Carlos Gutierrez as well. Do you expect any impact from the Imperial Brands sale of Altadis Cigar business?
No. Our distribution contract is with Tabacalera. We are distributing their products, and it's a matter of changing of the proprietary, but all our contracts are done at market prices and are on sale, so there is no change on that.
Sorry. Next question from Pedro Alves, CaixaBank. In France, given that wholesale convenience outside tobacco in each channel has been weak for a couple of years, could you share if this business is loss-making? And if you are eventually planning to divest from this business?
Well, you know we do not disclose the result by business in any country, but what I can tell you is that we are very closely following the performance and the possibilities with the business of wholesale to other networks and tobacco in France.
Okay, I'm just looking if we have any question that has not been answered. Let me check. I think we have one. Okay. It was Pablo Cuadrado from Kepler. Tax rate has increased to about 27% during first half. Shall we expect a similar reference for second half?
Yeah, that's the point, Pablo. In fact, that's the way of booking the corporate income tax is through a global year approach. It is made global every semester.
Okay, let me check. Joao Safara, Banco Santander. Can this 15 million CAPEX in first half 2020 be extrapolated for the second half?
The 20, well, it's already answered the tax rate. Okay, so it's the investment.
Well, in that range, yes. Maybe the same figure, maybe a bit higher, but that's the range of figure you should assume.
Well, I think we have already answered all the questions, but those that were repeated. But in any case, as I explained to you before, if you want to request or contact us for any other reason, please use the usual channel, so send me an email or just give me a call.
Okay, thanks to all of you for your attendance to this virtual presentation.