Good day, and welcome to the Jerónimo Martins First Quarter Results 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luísa Virgínia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.
Thank you, Sharon. Good morning, ladies and gentlemen, and thank you for joining this call. As a reminder, and as usual, in our corporate website, a set of materials is available, including the release, a slide presentation, and a fact sheet, adding a bit of color on our activities in the quarter. 2022 started with rising prices, particularly in food, transport, and energy due to bottlenecks in international supply chains following the pandemic. Despite increased pressure on disposable income, we operated in a resilient consumer environment in the quarter. The start of the war in Ukraine at the end of February had an immediate impact on consumer confidence, driving a sharp deterioration in the three countries where we operate, while inflationary pressures accelerated substantially.
In Poland, from March, on the one hand, consumer demand became more value-oriented, and on the other hand, there were incremental volumes related to some stockpiling, to food donations, and to the influx of Ukrainians into the country. In Portugal, despite disposable income being also under stress, Q1 benefited from the comparison with the same period of the previous year that was marked by strict restrictions due to the pandemic. In Colombia, global pressures over the prices of foods added to the still visible disruptions on the national supply chain provoked by strikes and social protests in 2021. Food inflation, which exceeded 20% in the quarter, is further hampering an already weakened consumer demand. Despite the challenges and fast-changing context in all markets, our banners performed strongly thanks to the consistent work carried out by the businesses over time to build price-leading positions and relevant value propositions.
Sales grew 15.2% to reach EUR 5.5 billion. At constant exchange rates, sales increased by 16.8%. Higher inflation in all banners and volume peaks in some categories in Poland due to the start of war also contributed to this performance. Following strong sales and margin mix resilience, EBITDA grew 15.5% to reach EUR 372 million. At constant exchange rates, EBITDA increased 17.3%. We closed March with a positive cash position of EUR 803 million, excluding liabilities from capitalized operating leases. Our first quarter P&L is shaped by the strong growth in top line. Three comments here.
Firstly, gross margin, gross profit margin benefited from a resilient margin mix, particularly in the first two months of the year, and also from easier comps against Q1 2021 that included the Easter season, which is typically more promotional. In March, in Poland and Portugal, we started to see some signs of trade down. This was heightened by, in Poland, by the increased weight on sales of basics and essential categories related to consumer reaction at the start of the war and to the influx of Ukrainian refugees into the country. The second comment is on costs. Cost inflation has been on the rise since the beginning of the year and further accelerated in March, pushed by the war.
At the group level, food inflation and resilient volumes growth, together with an outstanding improvement in Ara's and Recheio's operational leverage, offsets at the EBITDA margin level this inflationary pressure on costs in the quarter. The final comment is on other profits and losses that amounted to EUR 30 million and include EUR 9 million related to donations and solidarity measures towards Ukraine. These actions represented donations of products and money to NGOs working on the ground to assist Ukrainian refugees, support to our Ukrainian team members, and the removal of Russian and Belarusian products from our stores. Since the first moment of the military offensive, Biedronka stood side by side with the Poles in an impressive effort to help the refugees fleeing the war.
Cash flow was - EUR 196 million, reflecting the seasonality of the business as our year-end working capital position typically includes greater supplier debts due to the Christmas season. In addition to this, achieving our store opening ambitions by the end of 2021 resulted in a greater change in working capital and higher CapEx payments in Q1 2022. The balance sheet remains extremely solid and with the necessary flexibility to execute our planned EUR 850 million CapEx program and also to pay the EUR 493 million dividends that were approved at our last week AGM to be paid by May 18. These are still not reflected in Q1 balance sheet. In one more quarter driven by sales, all banners did well. The contributions from Biedronka and Ara stood out.
The consistent focus through the years on keeping prices low and permanently offering strong promotion has allowed our banners to continuously grow despite challenging circumstances. Group like- for- like was at 13%, and all banners increased market shares in the quarter. Biedronka maintained its strong sales momentum, continuing to leverage on price and quality of the value proposition. Sales grew by 15.4% in local currency, including a like- for- like of 12.2%. The banner maintains price competitiveness, having been able to contain price increases to its consumer on average 2.5-3 percentage points below the market. The banner opened 16 new stores, having closed 5 and remodeled 61 locations. Market share increased around 1 percentage point in the quarter. Hebe recovered strongly against a tough Q1 in 2021 that was significantly impacted by restrictive market context.
Sales grew by 28% in local currency, including a like- for- like of 20.8%. The omni-channel approach continued to deliver well, and e-commerce sales represented 16% of total sales. For Pingo Doce, commercial actions remain at the center of the strategy as consumers pressured by the effects of inflation are increasingly price sensitive. Therefore, we see already the weight of private brands over total sales increasing. Sales grew 6% to reach EUR 985 million with like- for- like of 3.5%, excluding fuel, and the banner reinforced its market share. With no restrictions on the HoReCa channels activity and resuming tourism, Recheio recovered strongly and grew sales by 31.6% to EUR 228 million.
The work done on price competitiveness during the last two years positions Recheio as a key player in HoReCa recovery. Moving on to Colombia now. Ara started 2022 from a position of strength with the right offer and the right commercial dynamics in a fragile consumer context. The severe acceleration of food inflation in the country is putting extra pressure on households' disposable income. Against this backdrop, Ara remains committed to mitigate negative impacts on consumption as much as possible through strong promotional action. The banner again won the recognition of the Colombian consumers in the neighborhoods where it is present and delivered an outstanding sales growth of 65% in local currency, including like- for- like at 39.5%. Basket inflation, despite being below the market, also contributed to this performance. The banner opened 14 stores in the quarter, having closed one location.
Group EBITDA reached EUR 372 million, 15.5% up on Q1 2021. This corresponds to a 17.3% increase at constant exchange rates. All businesses contributed to this overall performance, though Biedronka, as expected, was the main growth driver. Ara's improvement is also very much worthy of note. EBITDA margin for the group was at 6.7%, in line with the same period in the previous year. The strong cost inflation was offset by sales growing ahead of food inflation and strong EBITDA margin improvement at both Ara and Recheio. All in all, we have a strong start to the year, even if we know that the comps against Q1 2021 are not easy to read.
Our companies were able to protect volume growth despite mounting food inflation, and this was reinforced by the extra volumes generated by the influx of Ukrainians into Poland. The higher operational leverage mitigated the pressure of cost increases. The context is extremely uncertain, and since the beginning of the war, we have seen further pressure from generalized price increases, uptrend in interest rates, and consumers showing signs of caution. We trust we have the right business model and very clear priorities to continue to outperform in these challenging circumstances. Therefore, as stated slightly more than one month ago, at the time of our 2021 full- year results release, we will continue investing to maintain price leadership and grow volumes, even if cost inflation further strains the margin of the banners.
In our view, this is the right thing to do for all our stakeholders, not just for the longer term, but also to deliver cash margin growth in the short term. As such, we maintain all the guidance provided in the beginning of March and reiterated our confidence in the capacity of Biedronka to continue to grow and respond side by side with the Polish people to the pressure at the borders provoked by the war. In the strength of the Portuguese businesses to reinforce their relevance in the market, and in Ara's renewed energy and determination to focus on a strong value offer to improve sales and profitability. Thank you for your attention. Operator, I am now ready to take questions.
Thank you. As a reminder, to ask a question you will need to press star one on your telephone. To withdraw your question, press the pound hash key. Once again, please press star one if you would like to ask a question. Your first question today comes from the line of William Woods from Bernstein. Please go ahead, your line is open.
Hi. Good morning. A couple of questions from me. Could you just talk us through the kind of peaks and troughs of Q1 trading and how you exited into Q2? In Poland, would you be able to comment on the impact and obviously the news on gas supply into Poland, how much is that affecting you? Obviously the store openings were a little bit low versus kind of the run rate or the phased run rate that happened last year. Are you experiencing any material delays there or is it all kind of on track but we should see it phased towards H2? Thanks.
Good morning, William. Many thanks for your question. In terms of trading, I think that you saw the growth in all banners. We are quite happy with what happened particularly because the banners maintained their competitiveness and all banners in fact grew ahead, of course, of their internal growth in terms of inflation, internal basket inflation. Basically what we see in the trading and particularly in March, as we mentioned, is some change in the mix coming apart and that's why we cannot still predict what this totally means. We see some stockpiling in the basic products. That's happening particularly in Poland but also in Portugal, in Pingo Doce.
People tending to buy more of the basic products that where they are seeing the higher inflation, flour, oils. These kind of products have increased in the mix. The other sign of course that we tend to read carefully, because it usually tends to point to some trade down, is the fact that people start to move from A brands unless they are in promotion, to private brands, which although being of quality, have a lower price. These were some of the signs that make us to be cautious also on our outlook in terms of consumer behavior.
In Poland, the gas supply, of course the country says that they are working on alternatives, and they will be able to provide the gas that will not come from Russia. Of course, what we tend to anticipate is some further pressure on the cost of energy. This is basically what we tend to incorporate, and that's why we flagged that at this point it's still difficult to predict the total inflation on all the cost headings. Basically because some of these cost increases will only or will go through the supply chain. Firstly, and usually, the inflation in fertilizers, in seeds are going firstly to the commodity prices.
Of course to the industry prices that and as we are seeing increases in all headings, from paper, from packaging to the energy to the transport. This will tend to pass through the supply chain and some of these effects we think that they will only come up from May onwards, even. That's for that scenario that we are preparing. On the openings. No delay. I think it's the usual cycle of openings. We opened a lot of stores in Q4. That reflected, as we mentioned, on the working capital, the year-end working capital position, and on the CapEx and working capital change this quarter.
In this first quarter, so no sign of delay. Although we know that of course there are some challenges even on the prices of equipment, et cetera, but that we are as much as possible incorporating in our own operations.
Great. Thank you.
Thank you, William.
Thank you. Your next question comes from the line of Rob Joyce from Goldman Sachs. Please go ahead. Your line is open.
Hi. Good morning. Thanks very much for taking my questions. I've got three. First one, apologies if I missed it, but did you say what your like-for-like volume growth was in Poland? And can you say if you're trending above or below that in the first month? Second one, you did mention the potential or you've seen some of the shift into private label. Can you just remind us how that impacts your P&L? Obviously it's a lower unit selling price, but is it a lower unit profit per item when people shift from A brands into private label, or is it broadly the same? Finally, can you give us an insight into any wage inflation you're seeing in Poland? I'm seeing some reports that wage inflation is stepping up.
Are you seeing that in your business? Is that any concern into the back half of the year? Thank you.
Hi, Rob. On the like-for-like volumes, yes, we grew. Part of the inflation, or of the growth in the like-for-like, is of course, the impact of the cost price. But we grew volumes around 4.5% in our Polish banner. In terms of private label, usually our gross margin for private label is slightly lower, so we tend to be really very competitive for the kind of quality that we provide to the consumer. This has been part of our strategy in terms of differentiation. Provide really good quality products with the best price possible. This puts pressure, of course, on our gross margins. It's true that we have different mixes.
Essentials usually also have a lower margin. For instance, in Portugal, the meal solutions, which is a category where we are betting, it doesn't mean, of course, it has all the costs of preparation, et cetera, but it has a higher gross margin. We tend, of course, and the way that we craft the promotions is then, of course, to comply and try to also defend our profits at the gross margin level. This tends also to put some pressure as we flag. In terms of wage inflation in Poland, we did our salaries review and considering at the beginning of the year that there would be an increase in inflation.
We reviewed all salaries since the 1st January. Now, of course, what we are seeing is inflation picking up slightly more than we expected. But at this point, the way that we see is that we remain quite competitive in terms of wages. We don't exclude, of course, having to review, but we continue even in terms of bonus. There was quite a significant increase for our people in Poland together with Portugal and with Colombia.
Okay. Thank you very much. Just quickly on the volumes, are you seeing any change in those volume trends in more recent trading?
Rob, of course, I cannot give you information on ongoing trading, on April trading, but of course, we will have Easter, or we'll have all the effects of Easter, to be honest. Last year it was on the first weekend of April. Part of the growth was already in the last weeks of March. Now we'll have it in April, so it's a little bit difficult to see. We see other kinds of signs, but at this point, I think it's difficult to say. What we flagged is that with these levels of food inflation, so even with the reduction of VAT, the fact is that inflation is on the high single digits, almost 10%. 8% .
It's above 8% now in Poland. We see a lot of pressure and the tendency for the consumer to try to anticipate this and be more cautious on the way that they buy. That's why the company not only have and launch a campaign that is our Anti-inflation Shield, but really to show to the consumer that they can continue to buy the more value-added products with very competitive prices. This will be very important, as we said, to maintain the volumes and to protect margins in percentage points.
Okay. Thank you very much.
Thank you, Rob.
Thank you. Your next question comes from the line of José Rito from CaixaBank. Please go ahead. Your line is open.
Yes. Hi, good morning. So I have three questions. On the stockpiling effect in Poland in Q1, how much was this, if you can isolate the effect, and if you are still seeing this effect in April? The second question on the trading down in Poland and Portugal that started in March. Has this intensified in April or the trends in April are broadly similar when compared to March? I know that we have Easter and it's a little bit difficult to isolate, but if you can provide some reference in terms of the evolution of this trading down effect. Thirdly, the Anti-inflation Shield in Poland should have some impact on the gross margin. Can you share some references for this? Thank you.
Thank you, José. It is very difficult, of course, to isolate all the stockpiling effects. We know that there were increases in some of the categories that had to do with, of course, the fear of the war. The question is that this puts, of course, as we said, this also helped volumes, but we don't expect it, of course, to be the majority of the 4.5% that we mentioned, that I mentioned answering to Rob. I would say that yes, it did have some effects, but it would not be the majority of the 4.5%. In terms of the trading down effect.
What we said is in March, we see the first effects. This is of course still difficult to completely measure, why we say this, one, of course, is what I mentioned, the fact when people start to buy more private label, and I'm talking particularly in Portugal, where we saw that, this means of course they tend to keep the same quality but at a lower price, or otherwise. This will mean that, the A brands will have to be in promotion to keep selling most of the time. This is a first sign.
Another sign of course of trading down or the way that we see the trading down is measuring or taking a look of our loyalty cards that point to some decrease in the average tickets of some of the clients. These are the only two signs at this point that we can really measure to take the first conclusions that people are tending to buy less or trying to somehow make some further savings. On the Anti-inflation Shield, of course, this will tend to put pressure as we anticipate and as we flag because José, the way that and what I said is that we are seeing, and we were anticipating inflation pressure on the supply chain. We planned for that.
What is happening is that this inflation pressure is above what we expected initially. Some of these effects, as you know, are not immediately reflected in the prices of retailers because they tend not to be the last ones to want to increase prices to consumers. This is something we will see probably in terms of further pressure down the line and within the next months. By anticipating a pressure on the cost of goods sold, because of course our suppliers will have not only the costs of production prices going up, and I'm talking about packaging with the increase in prices in paper. I'm talking about paper and plastic of course. I'm talking about the commodities.
Even the wage increases, all that, will put further pressure on all our producers and then yet even the industry suppliers to, of course, want to increase prices. This means if we are taking the stand that we will maintain the prices of the most relevant products in Biedronka for the consumer, the more essential ones, of course, this will put pressure on our gross margin. That can be offset of course with other kind of actions that the company is considering in order to mitigate this. Not increasing prices, but making sure that people continue to have access, as I said, to the more value-added products that usually have higher margins. I don't know if I.
José?
Thank you. Just a follow-up. On the trading down, my understanding from your answer was that the effect is still not that relevant, right? Both in Portugal and in.
No. The first signs, as we mentioned, José.
Okay.
It's
Yeah. Okay.
You know, the small signs that we are seeing.
Okay. Understood. Thank you.
Thank you.
Thank you. Your next question comes from the line of Xavier Le Mené from Bank of America Securities. Please go ahead. Your line is open.
Yes. Good morning. Thank you for taking my question. One, actually, just to understand, you are still cautious outlook. I know you already answer about cost of goods sold and the pressure you've got, you know, on your cost side. I just want to understand, is your cautiousness more driven by the flexibility you want to retain in order to reduce prices? Or is it more actually due to the anticipation of higher costs? I'm a bit lost there because it's not like you talking about, you know, both impact, but I just want to see, you know, what is really driving the cautiousness.
Thank you, Xavier. Good morning. It's both. Although the way that we see it is we think that we are confident that in terms of relative position in the market, we are the best position to deal with inflation because of this position of leading in price continues to provide quality. In relative terms, we feel quite comfortable in our approach to consumers.
The question is, of course, from the top line, that if consumers started to see that they are paying much more for foods, and of course we cannot retain the total price increases that we are seeing on costs, on the cost of goods sold, we tend to fear that, of course, this will happen as we said, the volumes, and this will mean higher trade downs, which of course will put pressure on the gross margin in percentage points. The other thing, of course, is the fact that we don't see at this point or we don't have total clarity on where the growth in terms of inflation on costs, and I'm talking about all headings, in fact.
This time we are not talking of a particular situation in energy or transport. We see this in all headings, in fact. We fear that the volume somehow cannot compensate totally in terms of the operating leverage for the increase that may happen and we are not totally being able to predict on the cost side. We know that our costs are growing double digits together with sales. But we see very strong increases and very strong pushes for these increases. That's why we are mentioning that we consider, of course, that our results will grow in cash terms, but in percentage terms, there may be pressure. This is not just in Biedronka.
The margin of Ara or of Recheio or Pingo Doce could be better if it would be not for this extra pressure on costs. That's what we mean with pressure in the margins in percentage points.
Okay. Just quick follow-up on that. Does that mean that so far you have not seen the market to be irrational and the competition or your competitors being more aggressive?
No, no. Currently, from all the data that we gather, and of course, we measure quite carefully even the price gaps, in all businesses and in all countries, we keep in relative terms, or in some cases, even slightly increase the gap versus what was happening at the year- end.
Okay. That's very helpful.
Thank you, Xavier.
Thank you. Your next question comes from João Pinto from JB Capital. Please go ahead. Your line is open.
Hi. Good morning, everyone. Thanks for taking my questions. My first one on Q1 consolidated gross margin was flat for the group. Is it fair to assume that it was also flat in case of Poland? Second question also on gross margin. You already said that higher share of private label could affect gross margin. However, is there any changes to the in and out promotions? Are you seeing lower demand for these type of products? Or do you expect these type of products to still play an important role for the margin mix? Finally, what was the increase in the footfall in March after the war versus before the war? Thank you.
Good morning, João. On the growth margins, of course, Biedronka is the one that weighs the more in our P&L. We can conclude that in terms of total margins, there was more or less the same trends. What we have to take into consideration in this case, João, is that until the end of February, what we were seeing is basically the same kind of pattern. There were salary increases. The people had available income. There were some signs, of course, and inflation was picking up. Interest rates were already growing.
We weren't seeing at least from people would take advantage of the opportunities to buy the more value-added products, et cetera. There was no effect even in terms of gross margin. That was important to keep. As I said, this also depends on the total mix. Sometimes, even, it is the case of Portugal, as we said, private brands is increasing in Portugal. This effect is really compensated by other products that have higher gross margin. It doesn't mean that they don't have, of course, then a bigger contribution also to costs, which is the case, as I mentioned, of all the meal solution categories.
The takeaway and the restaurant, they usually have a higher gross margin because we only account for the cost of goods sold. Of course, we would have to put all the other costs that are related with these businesses to help prove that feasibility. At this point, we were able to maintain the margin due to this, because of this kind of sales and margin mix. On the footfall, what we see is, as we mentioned, people trying to buy more of the essentials. And also, of course, they tend to, as I also mentioned, be a little bit more cautious on the choice of the products.
This being said, in- and- outs and promotions will play a very important role. Here, not only in Poland, but particularly here in Portugal and in Colombia, where people of course have even less available income, or saw less increases in their salaries and are, let's say, more dependent and have a more fragile context, I would say. Although the cost pressure in Poland and the pressure on the budgets is now accelerating this in Poland, the fact is that in Portugal, if you do not do promotions, the categories go immediately down. This is what we saw immediately from this also hike of inflation in Portugal, but also in Colombia and in Poland.
Okay. My third question was about the increase in the footfall in March versus before the war, the increase in number of clients.
We see that all the clients increased, João Pinto. The number of tickets, let's say, because the number of clients, we see from different research or looking at our cards. In terms of the number of tickets, they grew quite significantly in all months. You also have to take into consideration that last year with the pandemic, people would tend to concentrate part of their buying in less visits to the stores. Even taking this effect, what we see is an increase in the number of tickets beyond that.
Okay.
That hasn't changed dramatically, from after the war.
All right. Thank you.
Thank you. Your next question comes from the line of Andrew Gwynn from Exane BNP Paribas. Please go ahead. Your line is open.
Hey. Good morning, Ana Luísa Virgínia. 2 questions if I can. Firstly, if we went back to 2014, I mean, we saw a significant step-up in branded promotion in the Polish market. I think it's sort of really more in 2013, in fact. And it did cause some disruption to Biedronka. I mean, given what you've mentioned so far, is that a bit of a risk to contemplate as well beyond just consumption? Effectively some other supermarket and even hypermarket competition becoming really incredibly promotional. Second question, and this is gonna be quite difficult to answer, I suspect, but just help us out a little bit more in terms of our models. Obviously appreciate you've given some color, hoping to grow cash EBITDA. But what effectively are you solving for?
Are you looking to continue to gain market share? Is it just traffic trends? Is it an overall like- for- like? Just trying to help us build out our forecasts. Thank you very much.
Thank you, Andrew. No, I don't think that Biedronka takes any risk of having a similar situation to what happened in 2014. I think that Biedronka this time is ahead and proactively doing what it can in terms of to maintain and to protect its competitiveness. I think that in 2014 we overestimated or underestimated the situation and the drive of promotions in the market. We had to react to others that launched very significant and relevant promotional campaigns, particularly at the hypermarket level. At this point, taking our lessons from what happened, what we are doing is really to anticipate, as probably, and you noticed, we really.
It's much easier for us to have to prepare and plan and anticipate the campaigns than have to react to others. That's why we tend to be the first mover when it comes to really doing requesting not only promotional campaigns but even to do the price increases to make sure that we keep the competitiveness. I don't think that there is any risk of at this point of market disruption. We, as I mentioned, over time we have been consistently working on this to create not only the right price perception with the consumers but really to deliver because of course otherwise the price perception would tend to fade away.
I think that this will be quite important for the second question that you mentioned, which is we tend to see, excluding inflation, the market to shrink, the retail, the food retail markets. Because we think that under this context, with such a high inflation, food inflation, and not only food inflation, with the hike in interest rates that will affect the mortgages and it is not still totally reflected in the available income of consumers at this point, the families. The fact that other costs like energy, so households will be under pressure and the income of households will be definitely under pressure.
This will tend, of course, as we mentioned, to mean trade down or the trying to substitute or replace more value-added categories for others. The second thing, of course, is so we believe that we are, in a relative sense, we'll be the ones more prepared and that we will gain market share. Again, this is not a situation as we will see also a double-digit increase in our costs. This is not the ideal situation that we see.
We would prefer to have a market share increase, but in a market that would be growing, not only due to price inflation, but particularly because people are being able to buy other kinds of products and they are buying the ones that are more value-added. The market is more healthy in terms of growth. We expect to protect our position and be the ones that gain more share under these circumstances, yes.
I mean, when you decide to kind of dial up or dial down investment, what specifically are you monitoring? Is it simply just market share, maintain the market share or maintain customer satisfaction? Or is there something else in there that you're trying to hit?
It's really to maintain the competitiveness and, you know, making sure that the consumer, despite having a price increase, because we still see us as the one that has the best prices. Because this is not just a question of gaining share, but also not to deceive what is the promise of the banners in terms of what they are offering to the consumer. The best prices for a product with quality, which is something that under the current context it will also be something that we will tackle very carefully because of course, with so many pressures on the supply chain, there will be many other issues, not only in terms of food security, but food safety even.
This is something that we monitor very carefully, and we don't want to deceive the consumer in terms of this, two very important levers that really drive the sales not only for the short term but for the longer term.
Okay, that's all very clear. Then just one very quick point of clarification. When you gave the update in March, I think you spoke about investment in Poland, and now it's really just investment across the banners. I guess that's just, you know, recognizing practicalities rather than anything more significant. Just wanted to double-check.
Andrew, in the full year, in fact, usually we don't, as you know we don't give guidance for our margins. But the market tends to assume at least, for Biedronka that will be a stable margin without IFRS 16. As we noted, this due to the weight of Biedronka, we flag that on the full year release. That doesn't mean that we are not seeing the pressure all over. What we see is that all the others were recovering from, quite, let's say, very difficult situation, particularly in Colombia and in Portugal. With the cash and carry business suffering from the lack of tourism, et cetera. There was a very positive progression. There is a very positive progression in both margins.
The fact is that we would probably have a better improvement even if it would not be for the pressure in inflation. That's what we mean by having pressure in all business areas.
Yeah, that's all very clear. Thank you very much and have a great weekend. Thank you.
Thank you.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from James Grzinic from Jefferies. Please go ahead. Your line is open.
Good morning Ana Luísa, Claudia, and Hugo. Just two quick questions, Ana Luísa. I guess the first one, are you saying that the shape of the margin in Biedronka was worse in March relative to January, February, given the timing of the acceleration in cost pressures, the trading down that you started seeing? I guess that's the first question. The second one, can you perhaps help us understand the building blocks so that really quite nice, I think it's almost 200 basis points build in the Ara margin year-on-year. I'm just wondering how much of that may be bought in gross margin, maybe volumes helping buying conditions with suppliers and their own economics, or how much is fixed cost leverage, how much is sales densities builds?
If you can help as much as you can on that'd be very helpful. Thank you.
Thank you, James. The shaping in the margin in Biedronka, you have to take into consideration several situations. It's very difficult, and that's why we are saying that there hasn't been a very significant change in the number, but in the composition, yes. What do I mean by that? For instance, last year, we were in a situation of pandemic, with even the idea of having the. We were with Easter in March. This tended to even have higher promotional campaigns and really to put some pressure also in last year in the margin in March.
I think that this without having to give much more details, because I don't think we really manage the total margin and not only the total margin, but even the way that we act depending on the kind of cost structure that we get and the kind of operational leverage that we get. That's why it is so important to get the volumes. Because for us, James Grzinic, I think that I would like really to make this clear. For us, the important thing is to get the volumes in order to get the cash margin, regardless of putting some pressure in terms of the margin in percentage points.
It is much more important for us to keep the top line and to keep the volumes going up, enabling for us to then dilute the cost structure. This is why probably it helps also to justify the progression in Ara's EBITDA margin, because the fact is that without having increased its total margin, Ara is investing or is having. Just for you to have, of course, a proxy, we are in Ara with four percentage points difference for the food inflation in the country, in our own basket inflation. As you may imagine, this is basically essential due to the structure of the market. It's a low- income market, so people are quite price-sensitive.
Ara is really not passing all its cost inflation in the cost of goods sold to the consumer. And despite of this, of course, all the increase in terms of volumes and these gains comes from the fact that you have much more clients going up and buying Ara. This is allowing to strongly dilute the costs and is responsible for the big increase and the shift in the EBITDA margin of Ara. Great. Thank you. Thank you, James.
Thank you. There are currently no further questions. I will hand the call back to yourself.
Thank you all for your questions and for attending this conference call. We realize how challenging and uncertain the operating context is right now. The results of the work being done by our teams to reinforce their competitive positions and the strong financial situation of the group reassures us that we will be able to continue to build a profitable and sustainable business. At the same time, we will not fail our social responsibilities, namely in what concerns doing our part to relieve the humanitarian crisis in Ukraine. Thank you again, and I wish you all a nice day and a nice weekend. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.