Good day, welcome to the Jerónimo Martins full year results 2022 conference call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Miss Ana Luísa Virgínia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.
Many thanks, Nadia. Good morning, ladies and gentlemen, and thank you for joining this call. Before I invite you to go through the Jerónimo Martins 2022 full year results, I will give the floor to our Chairman and CEO, Mr. Pedro Soares dos Santos. Mr. Pedro Santos, the floor is yours.
Thank you, Ana. Good morning, ladies and gentlemen. We are here today to talk about Jerónimo Martins' performance in the year we celebrate 230 years of activity. Ana Luísa will guide you through all the details in a couple of minutes. I just want to very briefly share with you my personal view on what we as a group have been able to accomplish in these times we are living, and how we are looking at what may be ahead of us. I told you one year ago, two weeks after the invasion of Ukraine, that uncertainty was at a record high levels. Unfortunately, I don't think that has significantly changed.
Going forward, we will still have to cope with uncertainty and with much higher inflation rates than we look as we would like in the countries where we operate, at least in the first half of 2023. 2022 was a year of extremely uncertainty and high pressure. The war added to the disruption in international supply chain caused by the COVID-19 pandemic and led to a global food and energy crisis and persistent high inflation. The last three years have been tremendously hard on our business and our people. That stood strong in face of the adversity. We kept delivering solid results, posting consistent growth and expansion on all fronts year-over-year, while always being a responsible corporate citizen and preparing for the future.
Between 2020 and the end of 2022, in the three countries we opened more than 1,000 stores, created over 5,500 jobs, and invested more than EUR 2 billion in our business. In these three years period, marked by the led multiplication of simultaneous sources of pressure, we dedicated nearly EUR 700 million to acknowledging and awarding our employees for their commitment, their sense of mission, and their effectiveness contribution to the business. Our proximity, mindset, and positioning also allow us high visibility on the growing needs of the communities surrounding our operation. As such, in the last three years, and including the activities of the Biedronka Foundation, we have donated to charities and nonprofit organizations the equivalent to more than EUR 200 million in food and financial support.
Of course, these three years of severe constraints raised costs and high pressure have left their mark and the low net profit ratio to sales is a good evidence of that, is 2.3% in 2022. Even so, because of the operational discipline and efficiency that set us apart, we almost doubled the net earnings that multiplied by 1.9 times, EUR 278 million more in 2022 than in 2020. Last year I told you that all our banners, starting with Biedronka, would keep price leadership in a context of mounting inflation and extra social and economic challenges, even at the cost of sacrificing profitability. They did it. We think this not only as the right thing to do for our customers, especially in tough times, but also for our business in the medium and long term.
We will keep doing it while we make progress toward our sustainability targets. I'm proud that in 2022, for the third consecutive year, we are assessed by the CDP as the best performing food retailer in the world in the fight against deforestation. As for the second consecutive year, CDP includes Jerónimo Martins at A List for the top performing companies in the climate action and managing water as critical natural resource. These achievements, because of the underlying collective effort that they present, show how deep sustainability is invested in our business. We have many reasons to remember 2022 as an extraordinary year in our long history. Personally, I will recall as the year when we surpassed the EUR 25 billion milestones in sales and EUR 1 billion in investments.
When out of EBITDA, excluding IFRS 16, was for the first time positive in the full year. We accomplished all this while keeping and change the strength of our balance sheet. This is our best shield and weapon to keep us safe and winning in the tough times we see ahead of us. Ana Luísa will now take to the full year results. Thank you for your attention. Ana, the floor is yours.
Thank you, Chairman. As a reminder, and as usual, in our corporate website, a set of materials is available comprising the release, a slide presentation, a fact sheet, and also including a couple of videos that give an idea of the look and feel of our Biedronka and Ara store, and add a bit of color on our activities. 2022 was a very tough year on several fronts. The war in Ukraine added to the already high overall uncertainty and the accumulated impacts of COVID-19 on global supply chains, driving a food and energy crisis that led to mounting inflation throughout the year. Against this backdrop, all our banners kept faithful to their commitment to keep prices low and to invest to offer the best saving opportunities to increasingly pressured consumers.
Even if we acknowledge the effect of inflation on sales, at least on the first moment, it was indeed this highly competitive mindset, the key factor behind the strong delivery registered in 2022. With very hard work and an absolute focus on building sales momentum, all our companies were able to not pass on to consumers all the rising costs, and partially limit the price increases on store shelves while continuing to invest in the overall quality of their value propositions. As a result of this strategic decision to further invest in price leadership, group sales grew by 21.5%, surpassing the EUR 25 billion mark, and EBITDA margins declined nearly 30 basis points to 7.3%. The good sales performance led EBITDA to grow by 17% to reach EUR 1.9 billion.
The commitment to growth is also reflected in the 473 stores opened, and in the more than 400 remodelings concluded in 2022. Both had a decisive contribution to top line delivery. Cash flow generation reached EUR 706 million, further reinforcing our strong balance sheet. By the December 31st, net cash position, excluding capitalized operating lease liabilities, was at EUR 1.2 billion. Profitability measured through pre-tax ROIC was of 27%, with increase versus 2021 being fueled mainly by sales performance. In line with our dividend policy, the board of directors will propose to the AGM the payment of EUR 345.6 million in dividends. Despite all the pressure and challenges faced by our businesses in 2022, all companies continue to make relevant progress on our corporate responsibility targets.
First things first, starting with what concerns promoting good health through food, which is at the core of our mission, we continue to reduce the amount of sugar, fat, and salt in our products, improving the intrinsic quality of our private brand offer. As mentioned by the Chairman, we also gave important steps in our commitment to develop our activity while respecting the environment. Particularly important for us in the current circumstances, is to support our people and the surrounding community to our operations through direct support measures. As we now move to look into the detail of the performance, allow me to stress that all the countries in which we operate experience challenging landscapes, even if different levels of consumer resilience were evident. Food inflation and cost inflation, which were on the rise throughout the year, pressured consumers and also our cost structure.
In Poland, this pressure was more visible towards the year end, the food market having been supported early on by the influx of Ukrainian refugees who stayed in Poland, enlarging the consumer base, and by the government measures to limit the impact of inflation and high interest rates on consumers' purchasing power. In Portugal, and even more in Colombia, the fragility of consumer demands in face of persistent high inflation led to an immediate negative impact on food retail sales with relevant trade-down trends. Price investment and consumer trading down effects are reflected in the gross margin decline from 21.5% to 21%. This focus on reinforcing competitiveness resulted in good sales performance across the banners and limited the impact of cost inflation.
Other profits and losses at EUR 95 million includes, amongst others, the payment of EUR 45 million of exceptional bonuses to our operational teams in Poland and Portugal, of which EUR 23 million, approximately half, paid in Q4, in recognition of their commitment and dedication in a year marked by high inflation, and in the case of Biedronka, also by the significant additional effort to respond to the effects of war in the neighboring Ukraine. This heading also includes EUR 11 million channeled to support initiatives for Ukrainian refugees and other donations, as well as indemnities and provisions increases for various contingencies. As previously said, cash flow was EUR 706 million, reflecting strong revenue generation from the operations and including a working capital inflow as a result of the strong sales growth. This performance more than offsets the increase in CapEx payments.
As a consequence of all banners execution, we close the year in a solid financial position. Especially under the current volatile circumstances, the strength of the balance sheet is of critical importance to us. In fact, it supports the implementation of our long-term vision by guaranteeing the execution of the investment plans and the proper flexibility to capture growth opportunities as well as it allows us to step in to support our partners if they need it. In 2022, invested amount, investment amounted to EUR 1 billion, with increase on 2021 reflecting, first, an acceleration in the number of store openings, particularly in Colombia. Secondly, the investment in increasing logistics capacity to support the expansion. Thirdly, the high inflation rates in construction materials and equipment.
Expansion accounted for 37% of the CapEx in the year, with the opening of a total of 473 new stores, 451 at acquisition across all our banners. Biedronka ended 2022 with 145 more stores than in the previous year, and opened one micro-fulfillment center to support its direct operation, bringing the total figure of micro-fulfillment centers to 15. Regarding its investment in logistics, Biedronka completed the refurbishment and modernization of one of its distribution centers, which began in 2021, and also opened a new distribution center to add to the 16 already in operation. Ara added 274 new locations to its network. Expansion helps to build sales, and when looking at the top line performance, the strength of delivery from all companies is clear.
All our banners acted as an anti-inflation force by absorbing in their margins part of the increase in the prices of goods sold, not to pass them all on to consumers. The work done to live up every day to the low price promise led sales to grow 23.9% at constant exchange rates. It is worth highlighting that Biedronka added EUR 3.5 billion to its top line, and Ara added almost EUR 700 million. The impact of currency volatility was evident as it reduced the year's sales by almost half a billion euros. Group like-for-like was 19.6%. While inflation contributed to the growth rates, it is also true that our banners invested in margin to limit the increase in food shelf prices, protecting volumes and leading to market share gains.
Biedronka maintained its basket inflation consistently below the inflation registered in the country, securing price leadership while continuing to improve its offer and the buying experience in its store network. Reinforced consumer preference in 2022 drove sales to grow by 24.1% in local currency and market share to increase by almost 1 percentage point according to GfK. As for Hebe, sales grew well in the year, also recovering against previous years, which were impacted by restrictions imposed during the pandemic. In the fourth quarter, the banner launched its international online operations in Czechia and Slovakia. In Portugal, Pingo Doce absorbed part of the inflation registered in the market and created strong and relevant campaigns to generate saving opportunities for families. Consumers' recognition of the consistency of low price positioning led sales to grow by 11.2% despite the heavy impact of trading down.
market share was reinforced in the year. Recheio benefited from an improving HoReCa sector and capitalized on the favorable tourism activity, growing strongly against the comparatives that was still impacted by COVID-19 related restrictions. Sales increased 27.7% in the year in which the company celebrated its 50th anniversary. In Colombia, Ara continued investing in the lowest prices possible and in strong promotions in a market context that was extremely tough for families. As a result, sale grew in local currency 62.1%, and the banner is building its position as a top player in the Colombian market. The strong sales growth in the year drove operational leverage and the increase in the absolute level of EBITDA. Consolidated EBITDA reached EUR 1.9 billion, 17% up on 2021.
Biedronka was, as expected, the main driver of this EBITDA growth, while Ara's positive contribution also being worthy of a highlight. As already mentioned, following the decision to limit price increases, EBITDA margin was down nearly 30 basis points. Biedronka was the group company that faced the highest pressure from cost inflation. In Portugal, Pingo Doce and particularly Recheio are still recovering from the impact on profitability of the restrictions imposed to manage the pandemic. In Pingo Doce, the pressure of price investment added to trading down effects, while the company implemented efficiency measures that mitigated the impact of margin investment. Recheio benefited from the strong improvement of tourism in Portugal. In the fourth quarter, our main retail banners, Biedronka and Pingo Doce, made an extra effort on price competitiveness.
In the case of Hebe, Q4 margin was impacted by the cost to launch the international operations, while Ara was able to register EBITDA margin improvement despite the substantial effect of trading down and the weight on cost of the opening of 189 stores in the quarter. All in all, we ended 2022 with stronger business models, improved price competitiveness, enhanced assortments, better store networks, an undeniable good sales momentum across all banners, and a solid balance sheet that allows us to deliver on capital allocation priorities, not losing market opportunities to grow, and having the flexibility to step in to support our partners if needed. So far in 2023, high inflation is more persistent than expected at the end of 2022. Consumer sentiment remains very low, and with reduced purchasing power, consumers are now even more cautious.
In January, there were minimum national wage revisions in the three countries where we operate and unemployment rates have been relatively under control. Looking ahead, it is still difficult to predict the impact of critical macro variables on our performance. Although a disinflation scenario is expected in 2023, it is not clear what level of disinflation we will see as comparables start to incorporate the high prices registered in 2022. Volatility still exists for key production and operational costs such as gas and fuel. Interest rates that increased fast in 2022 remain high. Consumer resilience should have some support from wage evolution and low unemployment rates, but will depend on the pressures that may result from enduring high inflation and interest rates.
As we did in 2022, in 2023 we will invest to be competitive and to protect volumes to guarantee the preference of consumers. Sales delivery will help us to protect profitability, the focus remaining on growing EBITDA in value. We believe we have a strategic vision and the right models to operate in the current circumstances. We also have a solid balance sheet that will allow us to advance our expansion plans while preserving the ability not to lose opportunities to grow. In Poland, the consumer turned more cautious towards the end of 2022. We believe that we will continue to see this defensive trend as high inflation persists. Therefore, Biedronka will work relentlessly to deliver on its low price promise to protect volumes and limit trading down effects.
Our main banner will execute its expansion program, opening 130-150 net stores, capturing market opportunities in the neighborhoods and getting even closer to its customers. The remodeling program will progress at its ambition rhythm of 350 stores per annum, guaranteeing that the store model copes with the offer development and efficiency standards of the company. In Portugal, we continue to expect to face fragile consumer demand while trading down, impacting the food basket. Pingo Doce will continue to invest to maintain its low price strategy. The banner will also be focused in speeding up store renovation to 60 locations to roll out the store model that reflects its strategic vision for perishables, private brands, and new solutions.
Recheio expects to continue to benefit from tourism in its sales to HoReCa, while expansion of the Ministra Partners network, which has now more than 500 stores, will be the focus to grow in the traditional retail sector. In Colombia, consumers are currently under massive pressure. Therefore, Ara will keep its low price positioning at the center of its strategy to reinforce market position and grow EBITDA. Expansion will also be a key priority in the year, and the banner plans to open more than 200 new stores in a market where the potential opportunity for us to add capacity remains unchanged. Ara will also invest in logistic capacity to underpin future expansion. In 2020, we set out, we set our three-year targets for our corporate responsibility pillars.
We are now entering in the last year of this plan. We will continue to work hard and to take the right steps to deliver on each of these goals. Despite the challenging and extremely uncertain context, we are confident of our company's ability to continue to grow, while at the same time improving efficiency to protect profitability. Because of cost inflation, the focus on growing sales and EBITDA will pressure EBITDA margin as a percentage of sales. We stay committed to our long-term goals, taking the investment plan as a priority. Our CapEx program is expected to stand at around EUR 1 billion. Thank you for your attention. Operator, I am now ready to take questions.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone and wait for a name to be announced.
To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. This will take a few moments. We're going to take our first question. The first question comes from the line of José Rito from CaixaBank. Your line is open. Please ask your question.
Yes. Hi, good morning to all. My first question on the Polish food retail sales, the data that we have, it seems that volumes were negative in January and February. Just to confirm that, if you are also seeing the same trends in the country in Poland. The second question on the trading down intensity, if you can basically highlight how this has been evolving across your geographies, but basically Portugal, Colombia and Poland. These early months versus what was Q3, Q4, how this has been evolving. Finally just a question on the bonus, extraordinary bonus that you paid in Q4. I noticed that you also paid around EUR 20 million, broadly the same value over the last two years.
This is the third year in a row, of these extra bonus payments. Any view on the Polish labor market, how this should evolve and why you don't see these payments as recurrent? Thank you.
Thank you, José. As you can imagine, we will not be commenting on the current trading considering that we will present our first quarter results in one month. Nonetheless, yes, it's true that the numbers from the Polish retail market assume and have implicit a low volume, particularly in February. We think that the Polish consumer is now more cautious considering the different pressures that we mentioned from high interest rates that of course put pressure on the mortgages and also the persistent high inflation on all headings.
It's true that we are now entering from February on, the comparable will also take out the effect that was very important in February last year of lowering inflation in the basic products. It's now comparable from February on, so it's more visible, the impact. This being said, we think that Biedronka is the player with the best prices in the market. Is the one that we are sure that the Polish consumer will prefer under these tough times. The company is preparing and has been working these months to really protect volumes and therefore also protect their profitability. In terms of the trading down effects, I would say that these are happening in all the geographies.
It's more evident and it is, of course, a consequence of the type of economy or the differences, the structural differences in the economies. It's, we are seeing this being more tough in Colombia, where of course you have a relevant number of people living in poverty, and the COVID didn't help the country recovering from that. As inflation continues to stand on top of prices of double digits, as inflation continues above 20%, we are noticing that people reduce volumes and tend to buy the cheaper products. This is increasing. In Portugal the same. I would say that we notice more, not only in the way that our private brands, weight on sales increases, but also on the fresh products.
As you know, inflation was higher in the more basic products for different circumstances on fresh and on the food products due to the restrictions and the constraints on the supply chain, not only from the COVID-19 impact, but also from the war and from the weather conditions in some of the countries that had a very dry summer last year. What we are seeing is people buying cheaper fresh products and also buying the cheaper meats or not, or refraining from buying fish. Because of course, this, they feel that they have less purchasing power.
In Poland, we are sensing a little bit that, but we also have more clients going through our stores, and not only the Ukrainians but also the Polish families. We think that this is because Biedronka has the best value proposition in the market. On the extraordinary bonuses, they were different, José. The group decides and, despite the increases in the salaries and keeping its competitiveness in the labor markets, the group decides that sometimes it has to activate exceptional mechanisms whenever it feels that it should reward or recognize its employees, particularly the ones in the operations and in the front line.
In the first two years it was the COVID-19, and I think that nobody can deny the roles that the teams that were in the front lines took. We decided to implement and to activate that mechanism and pay an extraordinary bonus to our teams at year-end. This time we thought that considering the very sudden hike that was even aggravated throughout the year in inflation on one hand, and on the other hand, the fact that in Poland our teams were really pressured throughout the year with the fact that they have a war in their neighbor country, that they had to receive an influx of refugees.
We thought that this should be, again, a reason to activate these exceptional mechanisms, and paying a bonus to our teams. These decisions were taken at corporate level. Of course, sometimes by proposition even of the local team. That's why we put them in exceptional items. We have another extraordinary award which we paid, we are going to pay, basically in April and in May to our teams, but this is a decision from the board also, that has to do with, if the group presents a good performance, they are entitled or not, to have a certain amount paid to each employee that is a non-manager.
That was the one that we referred that has increased more than 30% this year because we thought that with the current performance, we should also reward again our people in spite of being a discretionary decision taken at the board level by proposition of our chairman. It's not even that the markets are very tough, José, and particularly I would say from the labor perspective, we are seeing a labor market that has an issue of supply in Poland and in Portugal also. In Poland even harder. This is not the reason why we pay exceptional bonus. It's really to reward our people and as a sign of recognition.
Okay. Thank you. Understood. Just a follow-up. Basically, you mentioned that you are basically gaining new clients, but the Polish as a whole, you mentioned that people in Portugal and in Colombia are buying less. Is this also the case in Poland at this point or not necessarily yet?
José, can you repeat the in the back?
Is it better now? Just I was asking-
Yes.
You mentioned that basically you are gaining new clients. My question is for the overall consumer in Poland, if consumer is already spending or buying less volumes or not? There's basically two moving parts. One is you are paying new clients, but then if the clients are buying less volumes.
José?
Yes. Hello?
Hello, José?
Yes.
Can you hear me?
Yes. with some catch, but yes. [audio distortion] Thank you.
José, can you José? I can put it.
Yes. Yes, yes. I can then speak later with you.
Okay.
The team.
Sorry. Okay, perfect. Apologies. For Poland, José, we are seeing, as I mentioned, an increase in the number of clients. From our Moya cards and what we can track on the consumers, we are seeing a mix. Some clients we see that they tend to now be trading down, particularly more pressure on that front, and buying less quantities. Others we don't see still that. It's a mixed effect. In Portugal and in Colombia. We also gained clients. I think that this comes with the fact that we have in terms of competitive positions, we are quite well placed with the prices and quality and value proposition that we give.
We are seeing more trade-down and pressure on volumes in both countries.
Excuse me. José, do you have any further questions?
No, thank you. Can move on.
Thank you. Now we're going to take our next question. Please stand by. The next question comes from the line of Nick Coulter from Citi. Your line is open. Please ask your question.
Hi, good morning. Apologies for the background noise. I have two please. Firstly, just to come back on that theme. If we look to the Polish grocery market for 4Q last year, if inflation was broadly 20%, what was volume and what was mix please? Just to kind of clarify the whole debate around the shape of the Polish market on a historical basis for the grocery market, please. Secondly, on own label and branded trends, it'd be useful to get your thoughts there, and specifically if you think there'll be greater supplier support as disinflation appears through this year. Thank you.
Thank you, Nick. On the fourth quarter, as we mentioned, Biedronka, and sometimes it's difficult to check that, probably for you as we have a technical issue with inflation in Poland due to the VAT difference. The CPI is measured with VAT. As you can see, we increased volume, because if you take into consideration that Biedronka on average was 2 percentage points below the country's inflation and it grew more than its own basket inflation, we are talking about an increase in volume.
Okay. There's no mixed impact here. Presumably, I would have thought there'd be a negative mixed impact of, I don't know, 500 basis points of that sort of order, but you're not calling that out.
Well, we are not really giving a lot of detail on that because I think that we are probably the only player that does that. I think it's easy to do the math. Yes, we have increased volumes in Biedronka in the fourth quarter and quite significant.
Significant. Okay. Because you have that differential, and then you have a mixed impact, as well.
Yes.
Okay. You don't have a view on the market, just that you're probably outperforming by a couple of 100 basis points on those measures.
We continue what we seek and it's very important to us, we continue to be the most competitive and to maintain quite a significant gap for the food inflation. We are really absorbing it. This is very important to keep and to protect the volumes even in this beginning of the year.
Thank you.
As we probably mentioned, Rob, and I can of course advance on that, is that we think that it's going to be a little bit tougher on the second half. We don't hide that because the comparables will start to be tougher.
Okay, great.
...to the progression.
Thank you. Then just on branded versus own label, how those volumes are trending and what that might mean for supplier support and I guess your promotions and your in and outs and driving value into your proposition. Thank you.
Okay. Nick, in this particular, what we are doing really, of course, this was a very tough year for our commercial teams because we want product availability. We did wanted to limit really the parts price increase that we pass to the consumers. These were very tough negotiations, but we also know that we have to rely on our partners and particularly on the fresh and private label ones. What we are really doing is of course, whenever possible, we really have or try to maintain the prices in these categories, but it's difficult.
What we are seeing in the different geographies is, and this happens in Poland and Portugal and in Colombia, is of course the private brands as having a lower price and a very good, quality proposition, gaining share in the total sales.
It's cheaper. Thank you so much.
Thank you.
Thank you, Nick.
Now we're going to take our next question. Please stand by. The next question comes from the line of James Grzinic from Jefferies. Your line is open. Please ask your question.
Thank you and good morning, everybody. Hi, Ana Luísa. I had a couple questions. First one, I guess really coming down to the dividend payment, you cut the payout significantly despite net cash balances being higher, you know, EUR 200 million higher year-over-year. I presume a year ago we were in the immediate aftermath of the Ukrainian invasion. I would've thought that more broadly there would've been greater uncertainty back then. Why do you feel the need to be more cautious now? If you can, you know, spell that out more clearly for us in terms of do you think that suppliers may need more support, et cetera, et cetera, et cetera. Is it the deflationary risk you're thinking about?
Secondly, on the deflation point, does your guidance for margin compression this year assume that you're going to deflation in Poland in the second half of this year?
Thank you, James. On the dividend payments, in fact, it's true that the exceptional payment of 100% payout last year assumed that we would not be betting so much, or we were being assuming that we would probably have to refrain even on the CapEx front, which ended not to be the case. It was considering the different alternatives that we had. We came back to our dividend policy of paying the 50% of our ordinary net earnings without the effect of IFRS 16. We think that it's true that probably we are even a little bit more cautious because first of all, we are seeing inflation being more persistently high than probably everyone expected one year ago.
We think that this will pressure not only our consumers but also our suppliers. We don't have any doubts about that. When we look at the product or the cost of productions increases that happened, we think that probably we'll have also to invest on that. It's not that as we said, it's if needed, we think it will be needed. Although we already pay in the case of Portugal and in the case of Poland, we really anticipate the payments, the payment terms, usually for the small producers. In Portugal, we have 10 days, and in Poland we have 21.
We know that with the hikes in interest rates and all the production costs going up, we think that this may be also a way to allocate our money. The second one, of course, is, as you see, we want to keep growing and seize the opportunities. This happens in all fronts, including in Portugal, where we think that we are in a better position. I think that currently we know that there are pressures even on the financial side. We want to keep the balance sheet strong, not to depend on any fragility even in other sectors. We prefer to invest and to really make sure that we have the leadership in all the countries.
Understood.
On the guidance on Poland. To be honest, we are not expecting deflation this year. We are expecting disinflation, so a lower level of inflation towards the year-end as comparables start to be stronger. We think that even the supply side may adjust partially because there were really a lot of disruptions in some of our main products, from fresh to private label and even to the A brands that put pressure. Even there were some constraints in the beginning of last year in terms of product availability. This being said, as supply adjusts, we think that there will be probably less pressure for high inflation, but we are only assuming disinflation, not deflation.
Understood. Can I just ask perhaps a follow-up on that? What sort of provisions do you have in your big cost lines in Poland, to basically scale back the impact of inflation? I'm thinking particularly wage growth and rental inflation.
On that, James, usually our auditors don't allow us to do provisions, that we can only book it when they materialize. We were expecting and suppose-.
Oh, sorry. Just to clarify on that, meaning, you know, how quickly can you move around contracts and particularly on rental, negotiations if you're if the top line required it to?
It's tough because so we are assuming, and we have prepared the companies in the countries to cope, of course, with the review on the terms of the leases. We are also increasing our salaries to maintain the competitiveness in terms of salaries versus the other competitors. We are doing that. I would say that on that we don't have many much flexibility on, or where we have some more flexibility is on really making sure that we maintain competitiveness to get the sales and dilute the costs. In this case, usually or in this sector, if we want to very rapidly reduce costs, it needs a restructuring, James. We don't hire.
Thank you. Thank you, Ana Luísa.
Thank you.
Thank you. Now we're going to take our next question. Please stand by. The next question comes from the line of Michal Potyra from UBS. Your line is open. Please ask your question.
Hi. Good morning, everyone. Thanks for taking my questions. I have two questions, please. Three questions, sorry. One is a technical one about the impact of non-controlling interest. Do I understand correctly that Pingo Doce generated a loss in the fourth quarter? That's question number one. Question number two is on capital allocation. You know, looking at your CapEx breakdown, it seems a great amount is actually allocated to Portugal, practically limiting any free cash flow from this, from this market. You know, this is a mature market. I'm wondering what sort of return do you expect to generate on those investments in Portugal? The third question is if you could give more color on the big drop in Hebe margin in the fourth quarter. Thank you.
Thank you, Michal. On the controlling interest, it's true that we made some review, and particularly on the tax liabilities here in Portugal, and that had an impact on the controlling interests. We also had some more pressure on the operational side, and we invested a little bit more on margin in Portugal. It's a one-off that happens in the fourth quarter, so nothing that we foresee. It continues to be technical as you mentioned. There was an adjustment in the result that translated into a positive contribution for the controlling interest. On the CapEx in Portugal, here you have a big mixture.
It, it's true that we invested more in Pingo Doce and in Recheio, where we open a big store also. You have not only the investment which accounts more or less for 2/3 of that, in the, in the distributions, businesses, but you also have the investment in some projects at the holding level and in the agribusiness. We also include on the CapEx, the financial investment that we made, when we acquired part of the share capital of a Norvision company, a salmon company, where we spent almost EUR 20 million . We are accounting for all of that. On the growth, on the third question, at Hebe. We continue to think that there is an opportunity to grow in Poland.
What we think is that it makes sense as we are betting on online operations and on the omni-channel also to test and we have done it and we think that we have an opportunity to grow for the neighboring countries in Czechia and Slovakia. At this point, we are still seeing what the growth mean. We are seeing some growth on the online operations due to this move. The idea is that now at this stage, Hebe will start to increase, of course, its profitability.
It will move not only from breakevens, as in the last years at the EBITDA level, but really to become a profitable company at return on invested capital, which is our main profitability, KPI.
Thank you.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from the line of Henrik Herbst from Morgan Stanley. Your line is open. Please ask your question.
Yeah, thanks very much. I have two questions, please. Firstly, I was just wondering if you could talk a little bit about the competition in Poland as consumers get under increasing pressure. Are you seeing any change in competition at all? I know it's always been a very tough market, but anything you can highlight. Secondly, I wanted to ask about your EBITDA ex IFRS 16. What's going on with lease costs? It's been falling as percentage of revenues as inflation picked up. How should we think about lease costs that's going forward? Thanks very much.
Hi, Henrik. Many thanks. Competition in Poland. I think that Poland has an advantage, I would say, versus Portugal or in this case, because yes, it's a very competitive market, but it's a market that has been quite resilient from the consumer parts. As you know, also there were a lot of measures taken from the government to support the families. This of course, helps in this kind of context. This being said, what we see of course is all our competitors also adding capacity in the market.
When we look at our market shares, of course we notice that Biedronka, so the proximity and the retail formats, the discount formats are the one that gains share. This being said, I would say that Biedronka and other players like Dino have that opens a lot of stores and Lidl are the one doing better in the market. But this has to do with the business model. I think that in a context of high inflation, the low price proximity formats are really and the ones that provide that are the ones that gain. But I see a market that will continue to be very competitive because the consumer has lower purchasing power.
I also see an opportunity for our banner of Biedronka to continue to attract and to even have the preference of more consumers as its value propositions continues to be the best in the market. At EBIT level, so rents evolutions, we are assuming that they will grow double digits this year for the group, mainly with the impact of the highest CPI in Poland, and of course the weight of the rents in Poland. But we don't guide for any percentage of sales. We think it will be a low double digits increase.
Got it. Thank you. Thanks so much.
Thank you, Henrik.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. Now we're going to take our next question. The next question comes from the line of Andrew Gwynn from Exane BNP Paribas. Your line is open. Please ask your question.
Hi there. Sorry, very quick clarification question. Just on the working capital point before, it sounds like you're sort of happy to even shorten those terms. Is that correct? We may expect a little bit of working capital outflow. Thank you.
Thank you, Andrew. In terms of the, we are talking about the payment terms. It's not really just shorten the term, the payment terms. I think that the idea is to take the advantage to work with our suppliers because I think that the challenging context affects the whole supply chain. We know that our suppliers are being pressured on their costs also. And if we can help some way, and it's not just through working capital, it's even trying to find new ways or helping them guaranteeing that they can supply continue to supply the group or increase their volumes, et cetera. It's or that we can decrease the payment terms for not just these ones, but others that we consider that is crucial to defend.
as I said, mainly on the private brand and on the fresh products, we want to have the flexibility to do that. Yes.
Okay. That's great. Just a very last clarification point, but maybe a bit cheeky. Would you anticipate more margin investment this year or less versus 22? Thank you.
On that, Andrew, I think that we mentioned and are quite clear that we continue to see some pressure. This being said, if the capital turnover increases, again, we will be defending the profitability at the return on invested capital level.
Sorry, would that be more margin pressure or less?
More margin pressure.
Thank you very much. Have a good day.
Thank you. Dear speakers, there are no further questions at this time. I would now like to hand the conference over to Ana Luísa Virgínia for any closing remarks.
Thank you all for your questions and for attending this conference call. We have started 2023 leveraging on what we see as our competitive advantages to perform and continue to ensure consumers preference. It is very difficult to predict how the macro variables will evolve, but we have a clear strategic focus and strong models to execute it. Thank you once again, I wish you all a nice day.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.