Welcome to Sonae's 2017 Results Conference Call, hosted by Mr. Luís Reis, Sonae's Chief Corporate Center Officer. During the introduction, all participants will be on listen-only mode . After the introduction, there will be an opportunity to ask questions. If any participant has difficulty in hearing the conference at any time, please press star followed by the zero on your telephone for appropriate assistance. I will now hand the call over to your speaker, Mr. Luís Reis. Thank you. Please go ahead.
Hi, hello to all of you, and good afternoon. Thank you for attending our annual results conference call. Together with me, I have Rui Almeida, who is CFO of Sonae MC; Miguel Alves, CFO of Worten and Sports and Fashion; João Dolores, from our Central Planning and Management Control and Strategy team, as well as our IR team. I will start by, as usual, presenting the key landmarks we believe we've achieved during the year, and then I will make some highlights of our figures. Finally, as usual, both myself and the team will be available to take any questions. Edmundo Figueiredo, unfortunately, the CFO of Sonae Sierra, had a last-minute delay, but if you have any questions on Sierra, I will gladly take them myself. Starting with an overall perspective of 2017, it was once again a very positive, a very strong year for Sonae.
We are particularly proud of the achievements of Continente and Worten. They both reinforced their leadership positions, their profitability, so we are quite happy with those two achievements. Regarding the three levers of our strategy, we are also confident that we did some quite interesting moves. The first one has to do with strengthening and leveraging our key assets and competencies. To start, obviously, with MC, that I've already mentioned, Continente. We've managed to continue to expand our proximity store network. We've opened 19 Bom Dia stores, which are convenient city center stores. Overall, Sonae MC's different brands have opened 144 stores, including in that, almost half of those are Meu Super, which are franchising stores, very small stores in the really dense central urban areas. Also in the health and wellness segment, we made important progress, both on the development of our biofood and organic food bet.
We are now the leading distributor of this type of food in Portugal, and that has materialized after the acquisition of Go Natural and Brio Supermarkets, together with the expansion of these formats inside and outside all our stores. A landmark is the beginning of a bet on light medical care, with Dr. Wells having opened three clinics during last year, targeting dental, aesthetic medicine, nutrition, and, as I said, light medical care. Another example of leveraging our competencies is Cartão Universo , who has surpassed, at the end of the year, more than 600,000 subscribers. Regarding our expansion in international terms, there are a couple of important landmarks also there. The gross direct sales in international markets was around 12%. We have opened 36 new stores of the different formats of our different brands outside Portugal.
I think that is also worthwhile mentioning the quite good pipeline of Sierra on different markets. The beginning of construction in Spain of McArthur Glen Designer Outlet in Málaga, the beginning of the development or the construction of Jardin Plaza in Cúcuta, in Colombia, and a couple more projects that we have mostly in Europe and also in Colombia that will continue to be developed. Also announced the fact that Sierra has acquired, together with Bankinter, a joint venture to create another SOCIMI fund, 16 assets in Iberia. Regarding the first strategic pillar, which is the diversification of business models and investment approaches, it's worthwhile mentioning the agreement that we reached with JD Group for the creation of the second largest Iberian sports group, and that led already this year to the implementation of that partnership after having received the clearance from all authorities.
Also there, in the diversification of business models, we've been acquiring strategic positions in different tech-based companies under the Sonae IM team, and we have now a portfolio of 20-plus companies in those tech sectors, mostly related with telecoms, retail, and cybersecurity, and performing quite well. Going more into the figures, Sonae consolidated results. I'm sure you've looked at them, but just to stress a couple of points. The first one being 7.1% growth in turnover. The second consecutive year with more than 7% growth in turnover. Underlying EBITDA growing in line with the growth of turnover, 6.9%. A strong contribution from Sonae Sierra that we consolidated through the equity method, EUR 57 million, an increase of 39%. Our recurrent EBITDA increasing because of the combination of those two effects, 10.7 percentage points. Obviously, our EBITDA is not comparable with last year's EBITDA.
Last year, we had an amount of real estate capital gains in excess of EUR 70 million. This year, we had around EUR 11 million of that type of capital gain. There is a huge difference that more than explains our underperformance at the EBITDA level. Good performance on financial results. Indirect results, obviously, below last year also because of non-recurrent effects, mostly the fact that last year we had Park Lake in Romania opening with the and we were forced, or we recognized the positive contribution of that opening, together with the valuation of the assets that did not occur to the same extent in Sonae Sierra this year. As a result, our net income reached EUR 174 million, below last year, but still very strong.
The only reasons why it's not higher have to do with the export asset and life gain related with indirect income and capital gains on real estate sales. A very, very positive note on our capital structure continues to be very robust. Our debt is diminishing 8.4%. We managed during the year to refinance almost half of the debt, extending maturities, lowering the cost of debt. We have now a maturity profile that is slightly above four years, and we keep, as a policy, being fully financed to more than one year and a half. Entering into the details of the business performance, I'm starting with food retail. Very good results that you already knew, both in terms of like-for-like growth in the year, in the quarter. Total growth in the year, in the quarter, 5.4% growth in turnover during the year, 6.8% in the quarter.
I think that the most important piece of news in Sonae food retail is underlying EBITDA. For the year, we've reached 5.5%, 20 basis points below last year, despite the very demanding competitive environment. Also, despite the fact that we are protecting our price leadership image, that we are expanding our store network with significant impact in profitability, in short-term profitability, but also the fact that we are making progressively and growing the investments in health and wellness growth target. It is worthwhile mentioning, and I think that this is a particularly important note, the fact that in the Q1 of this year, our EBITDA grew in percentage time terms when compared to the Q4 last year. This has happened for the first time in 12 quarters in a row.
This is a very positive note that I think goes along with what I've been saying, that our EBITDAs are stabilizing and our value proposition is still being maintained and being very strong because all of this performance has been coupled with significant gains in market share. Worten, one year before what we expected, has achieved what we've considered to be the two most significant targets for consolidating its position. Worten has surpassed EUR 1 billion of sales and 3 percentage points of EBITDA margin, actually doing 3.4 percentage points of EBITDA margin. We are very, very happy with those two figures, but we are even more happy with the growth in e-commerce, which exceeded 60% on a year-on-year basis.
We are now, in Portugal, almost reaching our market share in online, the same market share we have in offline, which is, as you know, very significant, slightly below 40 percentage points. In Sonae Sports and Fashion, all businesses grew with the exception of Sport Zone, as you know, has lived a particular year where we were already in anticipation for the merger with JD Group. The total turnover of Sports and Fashion has grown 11.7 percentage points, and the underlying EBITDA stood at EUR 20 million, influenced by significant improvements in profitability from our all-original portfolio businesses. This is very important to notice because we are seeing very positive signs of turning around in all our fashion businesses. Regarding Sonae RP, two small notes. The first one is to state that the net book value is EUR 903 million, the gross book value EUR 1.266 billion.
We've completed two sell-and-lease-back transactions, again posting capital gains, EUR 11 million of capital gains. That shows how conservative we are, I always say this, how conservative we are registering the book value of our assets under Sonae RP. Regarding Sonae Sierra, again, a very, very positive year. As I said, we have seven new projects in the pipeline for either expansions or greenfield developments: Nuremberg in Germany, the McArthur Glen Designer Outlet in Málaga, Norte Shopping and Colombo expansions in Portugal, Jardin Plaza in Cúcuta, Zenata in Morocco. We've already started in 2018 a new project. We've started building a new project in Parma, in Italy. Quite an impressive pipeline of opportunities in Sonae Sierra. That happens at the same time that we pursue our capital retiring strategy, at the same time that we are refinancing our activity in Sonae Sierra.
Sonae Sierra has closed financing of EUR 729 million during the year, showing the strength of its balance sheet and the quality of its assets. In operational terms, operation is very positive with strong occupancy rates above 96% and an increase of turnover of 7 percentage points. NOS, for those of you that do not follow NOS, just a brief glimpse on what was also a very, very impressive year. Grossing turnover in a flattish to declining market in Portugal, 3.1 percentage points in total turnover growth. All the segments under NOS, positive growth. That, together with an improvement of EBITDA of EUR 24 million, an increase of 47 percentage points on net income, and a strong growth in free cash flow. All of that with a very conservative balance sheet.
Yesterday, NOS has received a rating, investor-grade rating by Standard & Poor's and Fitch, which we believe is a very strong sign of the quality of NOS' balance sheet. We believe that this company is particularly well posted to continue to deliver these sorts of figures. Sonae Investment Management has posted a turnover growth of 7.9 percentage points to EUR 126 million. Underlying EBITDA stood at EUR 5 million, small margin of 3.7 percentage points. We are quite confident that we are generating a lot of value. The re-evaluation of our portfolio shows positive figures here. As I said, we had 24 or slightly above 20 technological assets here with participations ranging from 20-plus percentage points to 90 percentage points. We have a combination of very interesting companies under this portfolio, all showing, or the vast majority of them showing very, very positive signs.
To conclude, a note on financial services. The total production reached EUR 819 million, a 23% growth over last year. Turnover increased 49 percentage points. Positive underlying EBITDA, EUR 3.4 million. I recall you that this is an operation that was launched two years ago. As I've already said, our more important product, Cartão Universo , has surpassed 600,000 subscribers and has reached on December 13.2 percentage points of market share in all credit card transactions in Portugal, which we think is quite interesting and positive. Last but not least, and according to our dividend policy, the Board of Directors will propose to the General Meeting the payment of a gross dividend of EUR 0.42, exactly 5% above the last dividend per share that Sonae has paid. That originates a payout ratio of 64%.
What is important here is to stress again our long-term policy of growing our dividend by 5% every year unless any very unexpected thing, negative event, happens. We restate again our long-term policy of keeping increasing dividends by 5% every year. Many thanks for your time. I'm looking forward to talk to you in Sonae's Q1 2018 results. All the team now is here and open to your Q&A.
Thank you. For the participants over the phone line, if you wish to ask a question, please press star and the number one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, you may press the hash key. Once again, that's star and one for asking questions. The first question, it's from the line of José Rito. You may ask your question.
Yes. Good afternoon. I have two quick ones related with this potential retail IPO. The first one is, which business are you considering or are being considered to be included in this potential IPO? The second, what is the rationale behind this deal and what should be the main use of the proceeds from this IPO? Is it to cut debt or for new potential acquisitions at a consolidated level? I think that some highlights will be welcome in terms of the strategy. I have two questions on the food retail business. I assume this potential IPO should also include the food retail business. Can we also assume that you have a positive view regarding the competition environment in Portugal and therefore on the margins in the near future?
The second question related to the fact that other players have been making relevant investments in agriculture-related business. How do you plan to improve your fresh offer, namely if you also expect similar investments in the future, or do you think that the current supply offer is enough to sustain the industry's salary growth? Thank you.
Thank you, José, for helping with a question on our disclosure regarding a very preliminary situation that we have announced to the market. I will try to answer you, and I will try that I will be clear enough not to have to go back to these points again. Under the new market regulations that are more strict than they were in the past, listed companies have to disclose an event like this one at the starting point of starting to study the possibility of doing any kind of market capital operations. The only thing we have to say regarding this operation at this stage is that the board of directors at Sonae has decided to start a project to study, and I reinforce the word to study, the possibility of an IPO of a portfolio of businesses in our retail businesses. A couple of notes on these things.
Starting, it's not anything regarding rationale, but starting with why are we taking such a decision. It's indeed a fact that over the last years, and even more on the more recent years, we have Sonae investors asking us that eventually they would see as a positive move for Sonae to list or to give access to some of these retail or to all or some of these retail assets directly. Since you all know, we've been giving more autonomy, more flexibility to our retail businesses. We have now focused on independent management teams in each one of those businesses.
It might be we are studying, again, the possibility of listing them because we also believe that not only will we be reinforcing that focus on that autonomy, we will also be able to probably introduce if we decide to go along those lines external challenges from non-independent directors, from challenging boards. We will also have the benefit of having those businesses under the scrutiny of capital markets. We will also probably have the benefit of having those assets valued in a way that creates no doubt about their value to other shareholders. Having all this in mind, we've decided to see if there is or there is not an opportunity to go forward with an operation such as this. Regarding the only decision that we've taken is that Sonae will retain a controlling position in any operation that, if any, will be announced.
That is the only decision, or actually the second only decision, because the first one was to start studying the operation, start evaluating potential consultants to help us, start studying the operation. That is everything I have to say regarding this retail IPO. Regarding your questions on food retail, just before handing over to Rui Almeida, and because I was the one stressing that over the couple of quarters, I think that you've heard me, or all of you have heard me stating that we see or we were seeing a stabilization of margins. We are showing that once again, stability of our margins. We continue to expand. As you all know, the expansion, as always, introduces always a negative pressure in our EBITDA margins.
The amount of new expansion over the total portfolio is becoming smaller and smaller because we already have also the positive contribution of the older store that we've opened four years and three years ago. Overall, in terms of margins and being prudent when looking at margins, I believe that we've achieved the stability point at this stage. I will hand it over to Rui to talk about fresh value proposition and also the competitive environment.
Hi, there. [audio distortion] Cipolano speaking. Regarding fresh products, yes, fresh products for us is a very important front, work front. We have several streams today that we are building to improve the good levels of perception that we are having in our stores. For instance, we are assuming that, in fact, we started to get some very good results on the investment we started last year in a partnership with Hilton Foods. In order to improve levels of quality of our meat category, we have today a partnership with Hilton Foods in order to process meat in a different way that we were processing in the past. The results are appearing, good results. For instance, the type of investment that we are doing today in Hilton Foods, we would love to continue to other categories in our stores.
Yes, we are dealing today with improving, trying to improve, or we are improving levels of quality as well perceived today in fruits and vegetables. We are very keen to continue to do that for the other categories in order to be better perceived by our customers in those very important categories in the food retailer. Because today, fresh products is very important for the value proposition of any retailer. We are doing that very seriously and taking that decision very seriously in order to continue to be very well perceived by our customers.
Okay. Thank you. Regarding those.
Yes. Regarding the competitive landscape, yes, it is still rising. Yeah, there are two or three players that are announcing that they will be achieving or will be investing in the Portuguese arena. Yes, it's true. We are seeing some stabilization in terms of growing in these markets. We feel that the number of competitors in terms of, as I mentioned, we could see in terms of the offer being growing in these markets will be more or less the same compared to the demand, real demand we will have in Portugal. It will be more or less flat compared to the previous year.
Okay. Thank you. Just to follow up, you mentioned that the investments in this fresh offer are critical. As I was saying at the beginning, other players have been making huge investments. Do you also see high CapEx levels related to this, or is it a more lighter approach, namely with JVs, with players such as Hilton, as you mentioned? How do you see this CapEx evolving in this fresh offer? If you can quantify, that will be a follow-up question. Also related to the IPO, just to be clear, if you are in the initial stage of the process, could you still consider a spin-off and not necessarily an IPO?
Two very quick answers to you. First, to tell you that as a shareholder, from an old perspective, we are not considering any investment on the vertical integration of our food business. A second, no, we are not considering any form of spin-off. We've made clear that we are only considering at this stage the possibility of listing as a subsidiary of Sonae S GPS.
In terms of fresh products, this is not very interesting in terms of capital. It is more interesting in terms of usage of resources, human resources that we are having today. Because we need to rethink procedures, processes, but we are not considering a very huge number of or a huge amount of CapEx for this type of investment and investment that we are working on to improve the quality perceived of our fresh products.
Okay. Thank you.
Thank you. The next question is from the line of Filipe Rosa from Haitong Bank. Please ask your question.
Hi. Good afternoon to everyone. A follow-up on the IPO. I was just on the potential IPO. I was just wondering, one of the things that you probably will consider when you are analyzing this potential deal should be the alternatives that you might have to invest the proceeds that you would get from a potential IPO. As of now, as a holding company, do you come across a lot of interesting opportunities to invest? Do you think that it makes more sense to allocate more money inside Portugal? I think that your strategy is to invest outside Portugal, a bigger portion of your capital. Could you just elaborate a little bit if you had money? Okay.
I know that it's the second derivative, but for a holding company, as of today, if you have EUR 700 million-EUR 800 million in cash, do you see interesting investment alternatives and probably either in Portugal or outside Portugal? That would be my first question. You are talking about hypothetical scenarios, not from your perspective today, okay? It is not something that you need to find a deal, to close a deal in terms of IPO to be able to answer to this, okay? My second question relates to Worten. Very good performance over the past couple of years, a significant improvement in the sales per square meter, a significant improvement in margins. Could this lead to a change in your strategy regarding organic growth? Okay.
Could this EBITDA margin of 3.4% trigger any changes on your plans regarding store openings in Spain, where you are still very small and could benefit from a bigger scale? That is my second question. My third question relates to Sonae MC. You mentioned that you already have stores which are three years old and four years old in the proximity segment. Could you update us on the performance of those stores, whether they are already performing in line with the average of the business in terms of sales per square meter, in terms of margins, or do you think that they need more time to reach the same levels?
Associated with that, do you think that in 2018 could be the first year where this expansion into proximity could lead to a more neutral impact on the margins due to the balance effect between older stores and new stores? Thank you very much.
Okay. Wow. Regarding the potential IPO, I was almost tempted to invite you to come to the team because exactly what you've asked are second derivatives, and we have not yet used or achieved the first derivative, which is to start studying these operations. As I said, we will start the study of this potential operation, and we will keep the market and all the markets at the same time updated if and when we reach any positive or non-positive evolution of the study that we are going to start. Now I will hand it over to Miguel for Worten and then to Rui to comment on MC.
Hello to you. Good afternoon. Thank you for the compliments on the performance in Worten. It was indeed a very good year. These results will not change in any material way what we have been doing and communicating. We will continue investing in optimizing our store portfolio as we have done in the last few years. This entails having, in general, a smaller average store, both in Portugal as well as in Spain, a store concept which is far more prepared for what our customers demand and far more interlinked with what is our digital offer. This has been the focus of where we have been investing in terms of organic growth, both in Portugal as well as in Spain, when we are optimizing our store portfolio.
Specifically on any movements towards accelerating our dimension in Spain, we are focused, as we have been in the last few quarters, in improving the economics of the Spanish operation, which, as you know, are still below the ones we have in Portugal. That's our key focus in Spain. To achieve that, we know that scale will be important at some point, but we need first to continue this movement of aligning profitability in Spain with the one we have in Portugal. That will continue being our focus.
Thank you.
This is Rui Almeida speaking. You're trying to answer to all your questions regarding Sonae MC. First question, stores with more than three to four years of activity, yes, they are being profitable. In fact, profitability, there is a direct regression in terms of profitability and time. The older stores are, the more profitable they are. In fact, stores with three to four years are becoming very profitable. Stores with more than five years are more profitable. The stores that we launched last year and in 2016 are not yet, they don't have yet the same level of profitability that the other stores have. Yes, it's true. We knew that. We are continuing to invest. We are very keen to continue to invest in proximity stores during the next year.
We are assuming that those stores, because when we are investing in those stores, we assume that those stores will have, we need to have some time to get the levels of profitability that we are having in the other stores. Meaning that, for instance, during 2016, during 2017, we launched several stores. Those stores have, as we said a while ago, had an impact in terms of our profitability. We are continuing to be keen to invest in 2018 in those type of stores. Meaning that we will get some profitability from the older stores. We assume that the levels of profitability are continuing to grow in the stores that we launched in 2015, 2016, and 2017, yes, but with lower levels of profitability compared to the other stores we are having.
Meaning we are assuming, at least maintaining the levels of profitability considering all those stores in our portfolio.
No question. Basically, you believe that the impact from the expansion into proximity in terms of EBITDA margin from 2017 to 2018 should be more neutral, this impact. That's basically what I may conclude.
Yes. That's what I was trying to say.
Okay. Okay. No, no. That's quite interesting. Just to follow up, and I have you there, in terms of the JV with IFA in Spain, have you already started to see any material improvement in terms of your purchasing power? Is this already at full steam, or it's still early days in this JV for purchasing?
No. Sorry. Regarding IFA, those types of improvements in margins, yes, we had a marginal impact last year. We are assuming that this year, namely on the margin that we are getting on private label, definitely will get a huge impact, huge impact, well, an impact, positive impact during 2018. Yet, those levels of profitability will increase in our portfolio are not they will not have a huge impact in our level of profitability of the whole portfolio that we are having today. It's too soon to get you to give you an update on that front.
Okay. Thank you very much.
Thank you. The next question, it's from the line of José Martins Soares . Please ask your question.
Hi there. Hope everyone's well. Congratulations on a very bold decision to study this project. I definitely can vouch that you will have a lot of investor interest on this, not only for Sonae but for the whole entire equity capital markets in Portugal. That's going to be great news. Having said that, it's probably not the first time that you've looked at this opportunity. My question on that is, have you set yourself a deadline to decide whether to go ahead or not? Is it going to be before the summer that you're going to decide on whether you're going to go ahead or not? That's my first question. The second question is, you are clearly on the food retail business. You are clearly the, I would say, the undisputed online leader on food retail in Portugal.
Could you share with us what you see in terms of progression of sales and in terms of profitability, which probably has been more of a tougher decision? What's the profitability of that share of food retail sales and then the profitability and how you see that progressing this year and the following year? Thank you.
Thank you, José, for your questions and for your very positive comments on the potential IPO. We have only took the decision to start studying, so we do not even know what calendar we are going to face. As I have been saying, we were forced by not forced, and we think it is a good legislation, but we have to disclose this type of initiative even before starting to study it. We cannot answer any of those questions without having started to look at the opportunity in detail. We will look at the opportunity in detail, and we will obviously be back on contact with the market if and when we reach any significant decision on the process. We will see if we take those decisions. Immediately after taking those decisions, we will be back to the market as a whole.
Regarding your previous question, Sonae has always been very active since its inception on capital markets. We believe in capital markets. We believe in the visibility that capital markets give to the valuations of our company. We believe in the positive impact in our management teams having to be scrutinized by analysts, on having non-independent directors, on having to deal with investors from all around the world. Usually, we see that as being very positive to the development of our businesses, to the growth of our businesses, to the quality of the management. For Sonae, it's very natural to evaluate these opportunities. The fact is that we have Sonae S GPS, some Sonae S GPS shareholders telling us that it might be a good idea to show and to make visible in capital markets the value of some of our retail or the entire amount of our retail businesses.
We are looking, we will be looking at different alternatives and different options. Regarding your question on e-commerce, I think that for us, e-commerce is performing as a whole very, very, very well. Actually, leading the pack, as I intended to say, probably forgot, is Worten. We have an internal competition, and Worten and Continente are already fighting between each other to be the largest Sonae e-commerce player, and both are doing quite well and growing quite fast. Regarding your question specifically on food, we have one achievement that we believe is quite important in 2017 and one achievement that we believe can be possible in 2018. Regarding 2017, we have opened our first dark store in the Lisbon area, and that has led to an immediate significant increase on the service levels, and then it started to generate higher growth in demand.
Regarding 2018, as I think I've told already in one of these conferences, we are very strict allocating the costs to our e-commerce operation. We fully allocate all the costs, including space, rent, energy. We do not treat e-commerce as marginal. Having allocated all the operational and real estate and IT investment costs to our e-commerce operation in food retail, we believe that during 2018, we will achieve break-even.
That's very clear. Thank you very much.
Thank you. The next question, it's from the line of Tim Attenborough. Please ask your question.
Hi. Good afternoon. It's Tim from Santander. A couple, if I may. First of all, just sorry to go back to the IPO, but can I be clear that you would include property within those retail assets? So it wouldn't just be an Opco-Propco split. I mean, I greatly respect and welcome your long-term value creation heritage. Then just a couple of other small details. What's inflation? What are you seeing as food inflation in Portugal at the moment year to date? Where are you gaining market share from? Just as a last thing, what level, absolute level of debt would you be or are you happy with? Thanks. I'll leave it at that.
Thank you, Tim. Thank you very much. Sorry to have to repeat myself. We are starting the study. Obviously, we will be very open and very aware of all market concerns, and we will include in the study all concerns and all suggestions that we deem reasonable coming from the market. We will be studying this operation, bearing in mind the interests of our shareholders as always. What you've mentioned as an option, we will also consider it.
Okay. I'd be very happy if you consider my question as a suggestion then.
Yeah. Not the question as a suggestion, but that optionality that you mentioned will be also considered during the process that we are going to initiate. What we've really announced is not a Propco-Opco kind of split. That would be a different announcement. What we've announced was an IPO of our retail businesses in a combination that we have not yet fully started even to analyze. Regarding market share, I'll just send it over to Rui, but just regarding market share, we don't comment on specific competitors of ours. I have to tell you, nevertheless, that we've gained this year market share, I'd say, to all players in the Portuguese market. Okay. Rui, please.
Trying to answer your question. The first question was, what was the inflation rate in 2017 for the tax rate that we have in our portfolio? It was roughly 1.5%. In terms of market share, how we achieved that market share and increased market share in 2017 was due to basically the growth, organic growth we have in terms of proximity stores.
Okay. What's the current rate of inflation, food inflation, you're seeing in your basket?
Today, pretty much the same, 1.5%, between 1% to 1.5%.
Okay. Thanks. That's fine.
That data has not yet been published by the National Institute of Statistics.
For the Q1.
For the Q1.
For the Q1. Yeah, that's as we are. The information that we have is for the very first two months of this year. For sure, it will be between 1% and 1.5%.
Lovely. Thanks. The debt level, you're happy with?
Oh, sorry. The debt level. We are very aware of the fact that in this context, and I've been always telling this in these conferences, that we think that our debt is already at a level of very respectful. Our balance sheet is very much on the conservative side. We have two-thirds of our balance financed by own capital. We might be reducing some of our debt. As you saw this year, we've reduced our debt 8%, and we are generating sufficient cash flow to continue to generate enough resources to even further reinforce our balance sheet. It is quite clear that, said with parables, our current performance is more than sufficient to allow us to keep our very important investment plan, either on refurbishing the stores and opening new stores, and at the same time, continuing to reduce our debt.
We are quite comfortable with our current capital structure situation.
Okay. Thank you.
Filipe Rosa wishes to ask a question again. Your line is now open.
Hi. Hi again. If I may, just two very quick ones. You mentioned in terms of CapEx going forward, could you just give us an idea whether CapEx could be in line with that one in 2017, or do you think that you would need to step up a little bit the CapEx to remodel your stores? That's the first one. My second question relates to the fashion business. You mentioned that there has been a significant improvement of the contribution from the legacy format. Could you just elaborate a little bit what you think will be the next steps for MO and Zippy, where I think that the contribution to EBITDA is still negative? Do you have a plan already in place, or do you think that this improvement in terms of profitability will continue? Thank you very much.
Regarding CapEx, I think that I have to be very clear on one thing. We don't need to increase the level of CapEx to remodel stores. We have quite aggressive remodeling CapEx investment being done over the last couple of years. Actually, today, we have in food and in non-food, by far, the more recent group of stores in Portugal when compared to our competitors, the best stores in terms of aging and quality of the space that we provide to our customers. We wouldn't be needing any kind of increases in CapEx to continue to remodel our stores as we've been doing. Any CapEx, we will only change to slightly more or slightly less based on our capacity to deliver more stores, mostly in Continente and related with the proximity expansion.
We do not give guidance, but I would not expect major changes in CapEx, mostly—I am speaking on CapEx related to retail operations. Regarding fashion, as you said, MO and Zippy were back in 2016 in quite a difficult situation, and in 2017, they recovered significantly and said a significant part of the improvement in EBITDA in sports and fashion came from those two formats, MO and Zippy. We do not see any reason for those formats not to continue to evolve positively in 2018.
Thank you very much.
You're welcome.
There are no further questions at this time. Please continue.
Thank you very much. I took good notice of your curiosity and interest in the possibility of doing an IPO, and I'm sure that as soon as we start the study and we have any kind of news regarding your questions, we'll be back in public terms to make sure that we clarify all your doubts and that we keep a very open and transparent communication line with the capital markets related to these projects. I hope to see you again, all of you, if not before, in our Q1 results in May. Thank you very much, and see you.
Thank you. That does conclude our conference for today. You may all disconnect. Thank you all for participating.