Ladies and gentlemen, welcome to Eurocash first quarter 2022 results presentation. As speakers today, we have our CEO, Mr. Paweł Surówka, and Jacek Owczarek, our CFO.
Hello.
Gentlemen, please start.
Thank you very much, Jan. Welcome everybody, also from my side, and it's a pleasure to welcome you again on the investors' conference for Eurocash, discussing our first quarter 2022. I'll be presenting the executive summary. Sorry for that. After that, Jacek will take you through the different segments, after which I will sum it up very briefly and say a couple of words about the strategy, the upcoming strategy, and obviously, we're more than happy to take questions. Jumping into the executive summary right away, I think, you know, as we've already said, this was a very good first quarter in our view for two.
For the Eurocash Group, we have improved pretty much every single line of business, bringing sales up on a group overall level by 12.3%. What is important, that was also translating into a higher overall margin, increasing it from 12.8%- 13.9%. We like to stress that this is not only impacted by inflation. This is also a clear continuation of the trend that we've also discussed on the last management discussion concerning the second half of 2021, where we already said we can see a reversal of the trend that was impacting the relatively weak quarters we had during COVID, impacted mostly on changing consumer behavior, which was obviously a consequence of COVID.
We have seen during COVID, customers going for the discounters more than the small format stores that are mostly part of our universe and that are more dependent on impulse buying. I think that the best reflection on that reversal of the trend we've already also shown in the executive summary can be shown in the like-for-like evolution of our cash and carry stores, which are, to some extent, the backbone mostly of the ABC stores that are those small format stores that, you know, profit both from people's behavior. Here we can see a swing from -12 like-for-like in the first quarter last year to 14% this year. This shows to a certain extent the amplitude on that impact that has shaped our entire group.
As already mentioned, what is important for us is there was not only growth in sales, it was also in profitability. We brought EBITDA up, and the EBITDA margin from 2%- 2.3% to PLN 151 million for this first quarter. Not only beating last year, but also really coming back and even being bigger than pre-COVID. A short look, you know, on the overall on the different segments. As already mentioned, much higher group sales, 12.3%, you know, outpaced by EBITDA by 30% growing year-on-year. In the different segments, obviously, first of all, very strong quarter in the entire wholesale unit, cash and carry with 14% like-for-like I already mentioned.
11.5% overall year-on-year sales, which shows that the independent market and particularly the franchise market that we are working together with has fared very well during the quarter. They've shown healthy like-for-like levels, and they've been also able to fare the inflationary environment that not only is positive, obviously there's also an impact on people's purchasing power. They need to adapt pricing, they need to adapt promotions, they need to adapt assortments. They've done that all very well, and that has yielded not only higher sales, but a 26.5% higher EBITDA in the overall segment on wholesale. Retail here, obviously sales growth impacted strongly also by the incorporation of Arhelan stores that we've taken over, and obviously the store closures that you all know all too well about.
Having said that, you know, we have on the like-for-like level, healthy growth, comparable to the ones that we've seen in our franchise and the more loose franchise stores. On the partner level and the franchise level, still, there is things to be done on the own store level here, like-for-like, you know, a lot of room to improvement, both to their peers and to our expectations. Having said that, you know, and having in mind the results that own stores have been showing us in the past quarters, we still believe that there's a certain stabilization of results. They're impacted by, you know, a real focus by management, now under Dariusz Stolarczyk, to get on top of things.
We believe to see this already in operations particularly also translating into higher profitability on that segment. EBITDA of that segment up by 44.8%, which obviously is a very healthy growth. Last but not least, our project segment. Here we would like to stress mostly our two driving forces, which is Frisco having a very dynamic geographic expansion to the big cities in Poland and showing over 40% sales growth that quarter, which is remarkable given that, you know, we have come out of COVID, which was extremely beneficial to Frisco. Even coming out of a relatively strong period, Frisco is still upping the ante with that strong geographical expansion and Duży Ben, which also adds more stores and keeps growing.
Obviously, that growth needs investment. We have shown -64% EBITDA compared to the last year, and this is mostly linked to higher investment in that segment. I will conclude on this part and hand over the word to Jacek Owczarek, and more than happy to answer questions at the end. Jacek.
Thank you, Paweł.
Thank you very much.
Before we go into the details of each individual segment, let me start with the macroeconomic environment. Of course, as you know, a big part of our competitors already invested, so we can only confirm the trends which they reported, but we also see them in our performance. Of course, inflation is a reality in Poland, so it's somehow picking up in our segment a little bit later than in segments of discounters, for example, but it started to be visible at the end of the quarter as well. Of course, we have the connected with this monetary policy of central bank, which is changing towards being more tightened. Somehow it's also reflected in the cost of the debt.
At the end, we are benefiting from the number of people migrating from the Ukrainian war and coming to Poland. Of course, statistically speaking, they are also buying in stores connected with Eurocash Group. More details about segments and some data. If you are looking, those of you who are really our long-term followers could recognize that this quarter is really the quarter when we are coming back to normality, what we are trying to pass to you. In reality, small format was growing 5.4%. Below, of course, the segment of discounters who is winning right now at the Polish market, but much faster than the hypermarkets and supermarkets.
Even double-clicking into the details of our addressable market, except really the smallest stores who are, you know, continuously losing market share, the other sub-segments are growing quite nicely. Just to remind all of you that 70% of ABCs are really convenience store segment, so 4,100 square meters. Then the rest are even a little bit bigger because that's one of the questions which somehow is not playing a part for you with like-for-like performance of cash and carry. From the group level, just pointing out what already Paweł was delivering to you. That was the quarter when we delivered the results really at the levels of 2019, so before COVID. Then the fact is that we are growing in all segments from the size perspective.
The strongest size growth was recorded in wholesale and then of course, it's partly also due to consolidation of Arhelan. That's our new joint venture we started to consolidate in November. From the base perspective, it's not sitting in 2021, parent performance of 2021, but it's consolidated with the group from the last quarter, started to be consolidated two quarters ago. From the cash flow perspective, of course, we have some seasonality. Again, for the long-term followers, it shouldn't be a big surprise. The Q1 is the weakest one in the performance of Eurocash, both from the perspective of profitability and cash flow generation. Simply the size of Q1 is lower than size of Q2. Of course, it's influencing very directly our both abilities and especially from the cash flow perspective.
That's the quarter when we are giving back trade payables or paying back trade payables from the highs of December. What's maybe worth to mention, it's 22 days in receivables turnover of receivables. In reality, as I said, we started to record higher sales on the wholesale side to independent guys in the second half of February and March. The part of this is not converted at the end of the quarter into cash. Of course, it's converted in Q2. All in all, the cycle of rotation is quite stable, taking out this one-off effect of receivables. Other items, I mean, stock and payables more or less are stable if you are looking into the trends between previous quarters.
Net debt again, for the long-term followers, nothing new. Usually Q1, again, due to seasonality, it's higher net debt. However, if those of you would like to compare the performance, if you are comparing the previous years, nominal difference between Q4 and Q1, it's even a little bit below the average of the previous years. We are far from the bank covenants, so the financial situation of the group is quite secure. Let me go segment by segment to give you a little bit more light. First of all, you know, our partner franchise system or software franchise systems who are cooperating with us, we're growing quite nicely in Q1. As you can see, a big part of them were recording double-digit growth rates.
This Lewiatan G9 are Lewiatan regional companies who are directly connected with Eurocash Group. Lewiatan others are independent Lewiatans. On the other hand, if you are looking into the number of the stores, it's quite stable year-on-year basis. Part of you may recall, usually in Q1, there's a period when we are cleaning up the database of ABC, so we have usually temporarily dropping in number of stores cooperating under ABC brand. Going into the numbers, I think, what I'd like to stress out for you is the fact that if you are looking at the right-hand side graph, the fact is that we are growing in all segments. It's very balanced. It's not like, you know, one category, but really we're growing across all other categories.
From the perspective of cash flow generation, the diversification of receivables, that's quite healthy from our perspective because it's really going into the full spectrum of sales rather than being concentrated on one article, which sometimes it's driven, for example, by excise tax. It's not the issue here. Generally speaking, you know, the profitability growth is driven, as we're talking very many times due to further digitalization. On the other hand, of course, we're utilizing our logistical network better, so the fixed costs are also somehow spread over the better bigger volumes.
It's not visible maybe on this presentation, but I'd like to draw also attention to you that the fact is that the inflation in the cost is fully covered by the growth in margin of the top line. That's also visible if you're a little bit more spend time in interpreting our financial statements. On the retail side, same information like we are giving till now in tabular form, so we decided to illustrate it maybe a little bit easier for you as leaders. We divide the delicatessen stores into three different groups, own stores, partnership stores, and franchise stores. Still, we are excluding Arhelan because, you know, they are consolidated from November, so they are not part of like-for-like discussions.
On the top of that, you have performance of Arhelan, which is very similar to other partnership stores. If you are looking at the like-for-like, let me concentrate on like-for-like. The fact is growing core partnership stores, I think that's really in direct connection with the inflation. Franchise stores were performing also very nicely, and of course, we stabilized the situation in own stores. Just a reminder to you for the quarters. Unfortunately, we had negative trend here, so starting from the middle of last year, we changed the trend into positive ones, which we are repeating in Q1 as well.
Going into the total segment performance, all of this translates into the growth of sales, which again is mostly driven by the Lewiatan stores, and partly, as you can see by the own stores' performance and franchise business was quite flat here on year basis. The profitability of the segment, on the other hand, grew quite nicely. Again, last year we had the very poor performance, and also the second half of last year was poorer from the third quarter. We are exactly in the same trend like you can see on the slide presented by me right now. The projects like Paweł said, the big discussion points are two or three. The first one is really Frisco.
Frisco reached a very big penetration of the households in the three cities which were opened in last year. We are just giving you these ones who are mature enough to show you, but then we'll share the rest in the next quarters. The fact is that the annualized quarterly size of Frisco is PLN 97 million, and it's growing 43% year-on-year basis. Like Paweł said, of course, that's very nice result, which we are very happy about because we are growing over the Covid period, which somehow was really convenient for the e-commerce performance in Poland. Duży Ben, our growth stores, so we are opening the stores, and right now we reach 226.
The size in Q1 was PLN 53 million like-for-likes 9%. Half of the network is already profitable stores. As we said last time, you know, we are close to this break-even point. IPH is our POS system. We just increased the number of POSs or doubled the number of POSs over the year. That's one of the strategic projects which we are running right now, which also we have communicated to you in the past. All of this, like Paweł said, translates into bigger investment. EBITDA of this segment is lower than last year, but on the other hand, the penetration reach to consumers is much bigger than in previous quarters, and the sales grew 42%. Let me go back to Paweł to summarize, and we open for Q&A.
Thank you very much, Jacek. I think there's not really a lot to add. Again, it was a good quarter, 12% up, 40% like-for-like in cash and carry. The consolidation of the Arhelan stores have now been consumed, is showing in the numbers. Frisco, very strong sales, even though coming up from an already very strong period, and as you see, strong growth and profitability. We would like to continue this, I would say, return to a path of profitable growth. That will be, I believe, a trend that we will want to continue over the next quarter. The next quarter is, you know, helping the independent market that we are a platform of, particularly due on the one hand side to Easter, which has fallen onto the second quarter this year.
The good weather that we've been experiencing, people are outside, this is really benefiting smaller stores, and this is something that we see as well. Inflation is still kicking up. We see our partner stores and franchise stores really learning to live and to work with the inflation. I think they are faring better here, and we will obviously do everything we can to also improve results on the own stores. All in all, being quite helpful that we can continue this operating and overall improvement in results in Eurocash and continue the trend that has started already last year is now clearly showing the first quarter and hopefully we will be able to show you all throughout the year.
That will already be obviously this path to profitable growth and how we wanna see it and where we see the full potential of the Eurocash Group going forward. That was definitely the subject of our updated strategy that I would just like to remind we will publish at the very end of Q2. We will reach out to all of you independently to invite you to a dedicated session for investors to walk you through our strategy. We've all come now out from, you know, yet another workshop, including more than 150 of key managers of Eurocash Group, looking through every single business unit, thinking about aspects, how we can improve growth, but then also really focus on profitability.
I think we will want to show as concretely as we can, how this is going to come about very soon. Hopefully we will then be able to stretch that line even further beyond this year and showing how we imagine Eurocash growing and how we imagine also delivering on those promises. I'd say maybe we should close the presentation part for now, and I see the question ticker has been buzzing, so maybe handing over to Jan.
Yes. Thank you very much. We are getting a number of questions right now as we speak. Starting from the first one, increasing EBITDA loss in projects. Could you specify other projects than Duży Ben and Kontigo contributing to this, or is it mainly the two of them?
Okay. The fact is that, you know, the most contributing negatively to this segment are exactly the ones which we are presenting here. Just to remind all of you that our decision a long time ago in creating this project was really to show you transparently the number of investment we are doing. The fact is that till the certain project is negative, we are keeping this as a project. The biggest contributor, negative contributor to the number is Frisco, with which is covering more or less, let me only check the number. Which is covering something like half, a little bit more than half of the investment in the project segment. That's in reality the biggest contributor, then the second one, I think it's IPH.
The third one, probably Duży Ben, and the rest of the project has more or less.
Okay, thank you. We have already a series of further questions. The next one relates to the Arhelan. What was the contribution of Arhelan both on top line and EBITDA level in the retail segment?
Okay. At the top line, it's PLN 141 million. At the EBITDA level, it's around PLN 2 million.
Okay. Next one, same person. Please give us more color on gross margin evolution, year on year. To which extent improvement comes from wholesale or retail segment? What are the main factors behind the improvement?
Okay, just coming back to our presentation for all of us to look at the numbers together. The fact is that the profitability of wholesale increasing by 26% at EBITDA level. At the end, profitability of retail, it's increasing 45%. At the gross profit, which we don't have here, but we are presenting in our directors' report, I guess, the more data regarding this. Improvement in retail was faster. The fact is that the Q1 last year was weak, so we're improving faster in the retail. You have the segment analysis in all of the reports.
That's the bigger contributor if trying to answer to the question very precisely. They're almost half, so in the percentage. On the wholesale side, I think it's mostly driven by sales growth, but also by the mix. As I said, we are growing in all categories. As you may remember, the gross margin on cigarettes is the lowest one. In fact, the sales of cigarettes as a percentage of total growth this quarter, it's lower. It's also contributing from the mix perspective.
Okay. Next one. Could you comment on profitability trends in coming quarters?
It's a tough one as it relates to the future, and basically, we are not giving guidance on this. Basically, what we can say is clearly, we expect the improvement shown in first quarter will be also shown in the next quarters, but the situation in the market is dynamic. No, please don't treat it as a guidance. Officially, we are not providing any forecasts.
Yes. On the other hand, I think as we are presenting during our call, the fact is that in the last three quarters we're improving the results, so they are, you know, much stronger performance than in past. I think somehow, you know, these kind of trends are not changing on day-to-day basis.
Another one is. Could you give us an update on the strategic options analysis process?
With this, basically, you know, any updates on the process, we will be providing to everybody in form of the current reports. Basically it's nothing new we can say on this front so far.
Next question also, you know, a little bit more technical. What was presented in other operating income in first quarter?
I'm not sure whether we will be able to answer, you know, all the details with here, but clearly we will note that and.
Yes. Also, I don't have these details with us, but if you could be so nice and send directly to Jan the question, we'll answer accordingly. Of course.
Next question is regarding the dividend policy and your expectations regarding this one.
I understand that we've already given a soft guidance that Jacek has given in terms of you know his expectation that the suggestion of the management to the AGM will be not to pay dividends for the last year. I think we will tend to uphold this guidance that Jacek has given.
Okay. Next question is, regarding explanation, why most of our retail like-for-likes are below food CPI.
The fact is that, here we are coming a little bit from the history. The fact is that a big part of this like-for-like are below CPI, mostly in their own stores. If you are taking this from a little bit longer perspective and take into consideration that the starting point in Q1 last year was negative in their own stores, I think it only proves what we are communicating, that for the last three quarters we are stabilizing situation in their own stores. Of course, they are not performing, all of them are not performing yet at the level we are expecting. I think here the ongoing inflation should somehow help us as well. The fact is that in Q1, this effect of inflation in our segment was not fully visible yet.
If I may add also, that's clearly depending on the mix. Small stores are overweighted with alcohol beverages and the inflation here was below 5%, 4.6%. Significantly below the non-alcoholic beverages and food, which was roughly 9%. Depending on the mix, you will see that actually the like-for-likes are in line with the market shown in the market growth of small format in the first quarter, which was 5.4%. Clearly it's, let's say, below the overall CPI, but you can see that it's in line with the trends of respective categories relevant for this market.
We wanted to point out both our partners, self-franchised stores like our partner stores, have shown numbers like-for-likes well above inflation. That shows that, you know, they are faring comparable to even some of their big discount peers that have reported numbers. As Jacek already pointed out, a clear gap that we know that we need to address. That is an ongoing theme that you know well, too well, is the own stores that we are working on, but that have already come a far way from the situation that they were. The 9%, for example, in ABC, that's exactly the impact of alcohol that Jan has pointed out.
Okay. Any further questions? Yes, we have one coming right now. A little bit more from the political front. Recently, Polski Holding Spożywczy was established in the opinion of the president. Does the holding have a future and are you wondering if it can be affecting our business?
You know, I wouldn't really want to comment any part on the politics and on the prospects of that holding. To be honest, I don't think I know well enough about that platform to be able to really comment on it. Will it impact us? To be honest, again, I know too little about it to be able to say in which extent it will impact us. For that matter, we do not see any direct impact on our business and certainly not on us as a group.
Maybe I can add, Paweł. I agree that, you know, regardless it's new or old, competitor, of course, we respect them, but of course, we want to beat them on commercial basis.
Amen. Absolutely, yes.
We do not see any further questions. I believe that concludes our call. To pass to Paweł, you know, for the final comment.
Yes. Once again, I just wanted to conclude by saying that we will want to invite all of you to our strategy update, which will be our next possibility to meet. That will be in the very last days of June. We are now specifying the location and whereabouts. We very much hope that it will be, you know, something of a festive, maybe not festive, but still big event. I hope to be able to meet and see some of you also, directly in a physical way. Maybe a way for you to update your knowledge about us, what we're doing.
Maybe we can even give you a little bit more exposure to not only the persons who are presenting normally, but also to all the management board members and directors, to give a little bit more color on operations, on what we are doing. Then definitely, once again, as I said, showing the full potential of the group and how we envisage our path forward on profitable growth. Again, you can expect us reaching out to you very soon with the respective invitations. Very much hoping to see as many of you as possible very soon. Thank you very much.
Thank you.
Thank you very much. That concludes our conference.