Jerónimo Martins, SGPS, S.A. (JRONF) CEO Pedro Soares dos Santos on Q4 2020 Results - Earnings Call Transcript

Jerónimo Martins, SGPS, S.A. (OTCPK:JRONF) Q4 2020 Earnings Conference Call March 4, 2021 4:00 AM ET

Company Participants

Ana Virgínia - CFO

Pedro Soares dos Santos - Chairman and CEO

Conference Call Participants

Rob Joyce - Goldman Sachs

Xavier Le Mene - BofA

Andrew Gwynn - Exane BNP Paribas

James Grzinic - Jefferies International

José Rito - CaixaBank BPI

Joao Pinto - JB Capital

Cedric Lecasble - Stifel

Nicolas Champ - Barclays Capital

Nick Coulter - Citi Group

Antonio Seladas - AS Independent Research

Ana Virgínia

Good morning, ladies and gentlemen, and thank you for joining this call. Before I invite you to go through the Jeronimo Martins' 2020 full year results, I will give the floor to our Chairman and CEO, Pedro Soares dos Santos. Mr. Pedro, the floor is yours.

Pedro Soares dos Santos

2020 was a very tough year for everyone, everywhere and also for Jeronimo. The COVID-19 pandemic hit hard all the countries where we have operations. However, it was for in Portugal that the damage to the business was more material. In fact, Portugal is, in our portfolio, the country with the highest dependence on tourism and where restaurants, café and food service are strategic pillars of our business.

Therefore, and despite all the efforts made by Pingo Doce, it was not possible severe impact on sales of lockdowns and sharp drop in the people circulation.

Driving mostly by 2 digits growth of Biedronka turnover in local currency, Jeronimo posted a 3.5% increase in consolidated sales. At the same time, costs discipline and focus on efficiency allowed the group to decrease EBITDA only slight by 1%, even after incorporating 41.3 million of pandemic related extra costs and also increasing minimum salaries and bonus in the 3 countries. All the teams, regardless of the company's respective results, fought hard and live up to the circumstance. And I cannot thank enough our people in the stores and distribution centers who stood strong at the frontline, making sure that visiting customers would like nothing is issue in such difficult times.

Never before the social relevance of the food distribution business was more recognized by everyone everywhere. The different evolution, the pandemic had in each of the countries and also the different actions and reactions, the government and authorities adopt [indiscernible] our business to very different performance. With no

surprise, Biedronka remained our core growth engine, both at the sales and profitability levels. Pingo Doce were the mostly [indiscernible] impact business with later having 2020 a [bitter] year.

In a year when the lockdown lasted 5 consecutive months in Colombia, Ara managed to grow sales by over 24% in local currency and also decreased loss at the EBITDA level at €20 million. As for our health and beauty company have suffered a lot from the sharp decrease in social interaction from the restrictions imposed on the people circulation and also from the close of shopping centers at half of the stores allocated in malls. Levering on its e-commerce channel was reinforced through out to the year. HeBe was able to mitigate the impact, even if it was not possible to fully compensate the lost [indiscernible]

With all the uncertainty, constraints and limitations that the pandemic brought as a group, we were still capable of executing a €470 million investment program. In the year, we opened 220 stores, and we've [indiscernible] 291. Biedronka absorbed nearly 2/3 of the total investment, representing around 70% of the consolidated sales and posting 88% of the group's EBITDA. Due mainly to Biedronka strengths, we ended the year with a very robust balance sheet, which I personally consider and must have in all times and more so in foggy times.

As we look at what maybe ahead of us in 2020 and predictably, is all around. My personal view is that the pandemic will still grow until the year-end, and therefore, we cannot easy yet the prudent approach we adopt 1 year ago. We will guide ourselves by 2 very important goals to keep the relevance of our banners in the marketplace and to protect our profitability as a shield against headwinds. Only by being strong and profitable, can we aspire to continue to make a positive difference to our people and in the world around us.

In 2020, we contribute material to the relief effort relating -- fighting the pandemic in the 3 countries, and we strongly reinforced our social investment in Poland by launching the Biedronka Foundation with an initiative budget of 50 million. At the end of 2020, we were leasing more than 90 sustainability index. This is a recognition of our efforts to contribute to the shared vision for the amenity that is embody the sustainable development goals and [indiscernible]. Our companies are engaged and committed to be responsible corporate citizens in the countries where they operate in. They will fighting in the marketplace to always reinforce their leadership position and brand equities.

As I told you one year ago and the pandemic hasn't changed the vision, we will continue to to go for growth that is profitable and sustainable. Having in the year with a cash net position that exceeds €500 million, the Board will propose to the general shareholders' meeting the payment of a dividend in line with the paid out ratio defined in the company's existing policies. I will now give the floor to Ana Luisa. Thank you for your attention, and please keep safety.

Ana Virgínia

Thank you, Chairman. As a reminder, the set of materials, including the release and a slide presentation, are available in our corporate website. Entering 2020, we never imagined we would summon as we were to be at our best on all fronts. We had to adapt fast to an environment that became totally unpredictable, supporting our banners to manage the short-term turbulence without losing sight of our long-term vision. The challenges of 2020 impacted all our stakeholders to live up to our values meant to be there for our consumers, our teams, our suppliers and our communities.

The focus on the long-term is also about guaranteeing the delivery of our corporate responsibility agenda, and we progressed well in all 5 pillars: Promoting health through food, respecting the environment, sourcing responsibly, supporting our communities and being a benchmark employer. This strategic clarity and good execution at all levels enabled us to deliver a good set of numbers, reinforcing the value propositions of our banners that are now better prepared to manage the challenges ahead and ending the year with a stronger cash position.

Consolidated sales were at €19.3 billion, 3.5% ahead of 2019 or a 6.7% growth at constant exchange rates. EBITDA was at €1.4 billion, having declined by 1%. Constant exchange rates, EBITDA increased by 1.9%. The strong impact from currency devaluations in the year is clear. Net profits attributable to Jeronimo Martins was at €312 million, a decrease of 19.9% on the prior year or minus 12.6% if other profits and losses are excluded. Excluding capitalized operating leases, the group ended the period with a net cash position of €509 million, a substantial increase from the €196 million registered by the end of 2019.

In the three countries where we operate, the year started with a positive macroeconomic context that soon deteriorated with the COVID-19 outbreak. Poland showed the most resilient behavior, while Portugal, due to its exposure to tourism, saw strong negative impact over major economic variables from the start of the pandemic. In Colombia, the lockdown period was long and strict. It had an immediate and far-reaching impact on day-to-day family life, which will likely weigh on the economy for [indiscernible]. The strong devaluation of the zloty and of the Colombian peso throughout the year also impacted our performance in Europe.

Each country, as you know, implemented different measures to manage the evolution of the pandemic. I will briefly go through a summary of Q4 restrictions in each market. In Poland, new restrictions were established in fourth quarter, including reinstating limits to the number of consumers inside stores, closure of shopping centers in November. And from December 28 onwards, closure restaurants and schools operating with remote teaching. In Portugal, adding to consumers in-store limits and to the ban on sales of alcoholic beverages after APM from the second week of November in most of the country's municipalities, a mandatory curfew was imposed at 1:00 p.m. on weekends and on holidays with a mandatory closure also of food stores with more than 200 square meters.

In Colombia, restrictions were gradually lifted throughout September. And in the fourth quarter, the country focused on reopening economic activities. Nonetheless, at the end of the year, measures to control the pandemic were introduced, particularly in the Bogotá region. As soon as the COVID-19 outbreak hit Europe, we set 2 key targets: The protection of the business, starting with the physical safety of our people and our clients; and cash preservation. To protect our people and the consumers who visit us, it was necessary, among other actions, to reinforce cleaning and disinfection procedures to provide protective equipment to the teams and to invest in in-store communication and in training across the three geographies. To manage the complexity brought by a fast-changing overall context under the health prices, the group incurred extra direct costs of €64 million.

To preserve cash, in a moment of total lack of visibility over the future was our second priority. On the one hand, all banners rapidly adopted several cost control initiatives, identifying ways to adapt to the new circumstances and to limit the impact of the extra costs generated by the pandemic. On the other hand, we acted directly over our capital allocation priorities. Firstly, we put on hold our CapEx program until we have a clearer understanding of each market's condition. Biedronka was quick in resuming its CapEx execution. And secondly, out of prudence, we decided to reduce the dividend payout to 30%, reserving the possibility to pay the remainder to the 50% payout defined in our policy, if conditions allow it, which happened in December.

The need to manage difficult, the transitory circumstances goes hand-in-hand with our commitment to remain true to our promises to consumers. Good quality, innovative products at the best prices. All banners kept investing in price and promotions without hesitation, which in the case of Biedronka, was pivotal to maintaining consumers' preference from the very beginning. Through the year, we pushed ahead with plans for innovation in the offer, supporting the performance and preparing for the future.

Remaining true to our values meant giving concrete responses to the needs and supporting our people, our consumers, our suppliers and the communities that our banners serve. Our people are always our first priority. And besides the measures to physically protect them through the pandemic, we also guarantee support for emergency situations arising in the families of those working for us. We prepared our stores for consumers to visit us safely while ensuring that even in difficult times, our offer of quality at the best price would be available. In the early stage of the pandemic, we focused on guaranteeing products availability despite high demand, and we're soon able to continue to offer at the best price, all the healthy fresh and innovative food solutions that we believe will become more and more relevant for our consumers.

Our resilience also comes from the strength of our suppliers to whom we made available financial options to reduce payment terms and avoid treasury constraints.

Our banners also reinforce and created new initiatives in each market to help local production. As part of the communities that our stores serve, besides providing financial support to acquire protective materials and funds research works to fight the pandemic, we also launched specific actions supporting medical teams at hospitals and elderly people living alone. In fact, preserving our long-term strategy vision also means delivering today on our corporate responsibility agenda besides the pandemic emergency. The social component, for obvious reasons, gain increased relevance throughout 2020. Also worth mentioning that we created 2,782 new jobs, not because of the pandemic, but because we continue to grow and prepare for the future.

We continue to fight for healthy diets and introduced innovation to our private brand assortment while delivering on these targets. Conscious that there is still a long way to go, we reduced the group's carbon footprint in line with the target set and continued reducing packaging material, while increasing the proportion of recycled plastic in our packaging. In earmarked by short-term emergencies, we are proud of having responded to each of these initiatives while delivering on our values and our mission.

Going now into the numbers and starting with Q4 P&L. Group sales grew by 2.4% to reach €5.1 billion. At constant currencies, sales were up by 6.8%. Biedronla Canada did very well in the quarter and Pingo and Recheio that faced our restrictions, registered a very resilient sales performance. The impact of COVID-19 related costs of €9 million in the quarter were limited by the cost control initiatives in all banners. EBITDA grew 1.6% with respective margin at 7.7% from 7.8% in Q4 '19. At constant exchange rates, EBITDA increased 6.2%.

Two comments to the headings below operating results. Other profits and losses at €29 million, include €19 million granted at the end of the year to our teams in the front line in recognition for their commitment and sense of mission. It also incorporates restructuring costs such as indemnities and write-offs. Effective tax rate was higher than in the previous year. On the one hand, in the last quarter of 2019, we benefited from a one-off tax reimbursement related to a double taxation dispute that was ruled in our favor. On the other hand, the reduction in taxable income in Portugal led to an increase in wave of the new businesses losses that, for now, do not generate deferred taxes. These two lines below EBIT weights on performance, and as a result, net earnings were down 24.6% to reach €93 million.

On the full year performance, sales were up 3.5% or 6.7% at constant exchange rates. EBITDA was at €1.4 billion, 1% down from previous year or 1.9% up at constant exchange rates. EBITDA included €41 million of direct additional costs related to COVID-19 and €11 million of contribution to the Biedronka Foundation booked in Q1. The net earnings were €312 million, a decline of 19.9%. Between the EBITDA performance and at earnings, there are two effects I would like to highlight: The first effect is a noncash item and relates to the strong devaluation of the zloty in 2020, which resulted in additional financial costs of €21 million from foreign exchange translation losses related to the capitalization of euro-denominated lease agreements in Poland.

The second effect is of nonrecurrent nature. Other profits and losses amounted to €50 million. And besides restructuring costs, it also includes the closure of [indiscernible] pharmacies and €22 million related to COVID-19, which includes the previously mentioned award paid to employees and provisions for trade receivables due to the risk in credit -- credit risk, advise on credit risk associated to the pandemic. Cash flow reached €516 million. This solid delivery was driven by good execution at all levels. Good delivery from funds from operations despite all the challenges and extra costs faced by the banners and strict management of working capital. Lower CapEx execution was also a feature of this performance.

The balance sheet closed the year with a positive net cash position without the capitalized operating leases of €509 million, including the dividends and free reserves paid in the year of €217 million. The group ended 2020 well prepared, combining a sound balance sheet with strong competitive positions. Therefore, the Board of Directors will propose to the Annual General Shareholders Meeting the distribution of €181 million in dividends, in line with the defined policy, corresponding to a gross dividend of $0.288 per share, excluding the 859,000 owned shares in the portfolio.

The investment program plays a central role in the group's capital allocation priorities. Given the extreme uncertainty and constraints that also had an impact on the construction projects, the group reduced the initial investment program it had designed for the year and invested €470 million. Biedronka absorbed 64% of the group's CapEx program [indiscernible] in the opening of 129 new stores, 46 of which were part of the smaller store concept project, in 267 refurbishments and also in the regular maintenance of the operation. In Colombia, Ara invested €30 million after opening 56 stores despite the restrictions imposed. It should also be noted that in Colombia, the two distribution centers that had been under construction in 2019 were fully operational in early 2020 and were incorporated into the company's logistics structure.

Moving now to the operating performance and starting with the topline. Biedronka performed strongly across the entire period, more than compensating for the pressure in Portugal and offsetting the almost €600 million impact of currency devaluation. The continued improvement from Q2 reflects the increasing ability of Pingo Doce and Recheio to limit the impact of the restrictions on sales and the fast recovery in Ara's like-for-like as soon as the lockdown was live in September. Q4 delivery was strong in Poland and in Colombia and resilient in Portugal, where the restrictions were reinforced from November.

In 2020, Biedronka sales increased 10.4% in local currency with like-for-like at 7.1%. Food inflation decelerated through the year. And in our basket, it was 2%, almost 0 in Q4. The banner acted swiftly by extending opening hours and changing commercial dynamics, aiming at being more effective in the current circumstances. While maintaining the short-term challenges, Biedronka continue investing to strengthen the value proposition through innovation in the private brand offer, improved service to consumers with self-checkout and a partnership in online business and expanding and upgrading its store network with 129 new stores and 267 renovations, enhancing the quality of the shopping experience. In 2020, market share increased 1.6 percentage points.

Habit sales declined 2.2% in local currency and 5.4% in euros. The banner was impacted by the closure of shopping malls. You see the impact in Q2 and Q4 and by the overall reduction in socialization. The company saw a good response each time restrictions were eased and the strong growth in the online operation reflected a solid value proposition. HeBe is prepared to get back to growth as soon as the circumstances allow it.

Pingo Doce sales declined by 1.9% to €3.9 billion, with a like-for-like of minus 2.2%, excluding fuel. This like-for-like included negative inflation of 1%. Due to its high-traffic locations and the nature of the offer, which includes restaurants, cafés, takeaway and fresh, the banner was very exposed to the impacts of the confinement measures and to the lack of tourists. Despite this, the investment in the value proposition was maintained by keeping a strong promotional dynamic throughout the year, which intensified in Q4 to compete in an even more restricted operating context; by maintaining the investment in innovation in private brands; by reinforcing its online partnership to reach national level and introducing a click and collection option; by investing in the network with 20 renovations and 13 new stores.

Recheio saw its activity greatly affected by the dramatic drop in the [indiscernible] channel and sales reduced to 15.9%. The company fought to ensure its competitiveness in all segments with traditional retail recording a positive performance. In Ara, the long-lasting confinement impacted consumer demand and imposed a challenging operating context in Q2 and Q3 that combined numerous and different trading band days with curfew rules in each municipality. In September, the confinement measures will lift and the operating context returned to some normality. Ara, which focused on protecting the competitiveness of its value proposition over the long period of confinement, saw its Q4 like-for-like react immediately to the progressive normalization of consumers' daily life.

In the year, sales were up 24.4% in local currency and 8.9% in euros to reach €854 million. Group EBITDA at €1.4 billion was 1% below the previous year, a growth of 1.9% at constant exchange rates. Despite the positive impact of cost containment programs in all banners, EBITDA in the year reflects the pressure of additional COVID-19 related costs and operational deleverage in Portugal that was particularly strong in Q2. In Q4, Biedronka's outstanding performance, combined with added solid delivery from cost restructuring and optimization initiatives and from improved sales, allowed group EBITDA to grow by 1.6% in euros, a solid 6.2% growth at constant exchange rates. Group EBITDA margin was 7.4%, down from the 7.7% in 2019. Biedronka margin was 9.3% versus 9.4%. This good performance is the result of impressive sales growth, effective management of the sales mix and increased cost discipline that, altogether, almost offset the pressure from the higher COVID costs.

In Portugal, the margin decline was driven by negative sales performance, not allowing for cost dilution with the month of April being particularly difficult. Ara recorded a reduction in EBITDA losses from €28 million in 2019 to €20 million in 2020, benefiting from the 18.9% reduction in losses in local currency and also from the depreciation of the Colombian peso. In Q4, group EBITDA increased 1.6% plus 6.2% at constant exchange rates with a 7.7% margin versus 7.8% in Q4 '19. This good performance was a result of good sales growth and cost containment programs in our company. With a stable margin in the quarter, Biedronka grew EBITDA by 5.6% or plus 10.9% in local currency. Ara registered an EBITDA of €2 million improving from losses of €3 million registered in Q4 '19.

In Portugal, in Q4, the banner stepped up margin investment to operate in a more challenging environment and protect its value proposition. We responded to the challenges faced by the banners during the year while maintaining intact our long-term ambitions. The businesses were impacted in different ways by the health crisis and the measures implemented to contain it. It is our belief that investing in competitiveness in difficult times reinforces the trusted consumers, and this drove us to end 2020 with a solid performance, with enhanced value propositions, and ultimately, with a strong cash position.

Looking now at 2021. The year started, on the one hand, under a new wave of COVID-19 cases and on the other with good news on the takeoff of vaccination programs. Economic recovery in the three countries, where we operate, will depend on the evolution of the pandemic and any potential confinement measures to manage its development. Therefore, visibility remains reduced, particularly in H1. Poland, again, in 2021, should be the economy with the strongest base to support domestic private consumption, while the recovery in Portugal will depend heavily on the recovery of tourism. And in Colombia, some recovery is expected despite the fragile consumer demand.

Our banners enter 2021 with clear strategic priorities: To grow sales by focusing on consumers and their needs; to invest in their value propositions to defend and further build competitive advantages; to protect profitability through cost discipline and continuous improvement in operational processes; and to maintain a long-term perspective that ensures we will continue to follow a responsible path with our consumers, our people, our suppliers and the communities in which we operate. We will continue to put the consumer at the center of all our decisions. Biedronka is working to guarantee a strong and innovative offer in areas where growth potential is identified and will continue to fine-tune its assortment to offer the right mix to consumers. HeBe will focus on continuing to grow its online operation, which has shown potential and will allow the banner to enter new markets. For Pingo Doce and Recheio, any change in the restrictions to in-store capacity, restaurant operations and tourism will have an immediate positive impact on sales. The banners are ready to react and continue to reinforce their competitive advantages.

Ara will focus on improving its offer, particularly in private brands, while carefully assessing consumer demand to enhance competitiveness in an economic environment that is expected to remain fragile in the short term. Price competitiveness will remain key to all value propositions, and we will not put this at risk in any of the banners. The investment program, our #1 priority in capital allocation, will be accelerated, and we expect to invest around €700 million, provided that market conditions do not restrict its execution. Biedronka will add around 100 net locations to -- of which 50% will be in the smaller format. Ara expects to open more than 100 new stores continue to gain scale. Remodeling plans at Biedronka and Pingo Doce move forward with 250 to 300 stores planned at Biedronka and around 15 at Pingo Doce.

Operational efficiency is also fundamental to protect profitability, and our program for 2021 gives us confidence in our ability to deliver profitable growth. At Biedronka projects to improve efficiency in-store and across logistic operation are advancing. These projects, together with enhanced sales mix, sales growth and creative margin management of in&out, will help counter retail tax pressure. Ara has an improved cost structure and is expected to significantly improve its EBITDA. Finally, we will continue to follow a responsible path, delivering on our corporate responsibility agenda. We are now setting clear targets for the next 3 years. We will continue promoting health through foods, where formulations and special dietary needs will be areas of innovation. We have clear targets for reducing our carbon footprint and our energy and water consumptions and materials consumption on packaging. We will continue to prefer local on our sourcing, continue to enhance our supply chain. And we will always be there for our people, ensuring that by providing opportunities for progression, training and development of leadership skills, we will secure the future of the group. Thank you for your attention. Operator, I am now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we have a couple of questions that came through. The first question comes from the line of Rob Joyce.

Rob Joyce

So three from me. So first one, I think a lot of focus into the results has been on the profitability outlook for Poland. You mentioned the actions you've taken to defend it in the face of retail tax pressure. As it stands, do you think your usual comments around looking to maintain Poland margins in 2021 stand still? And then do you think you can do flat margins in Poland this year? Secondly, in terms of Ara, any comments on the likely breakeven point for Ara now at that EBITDA level? Can that minus 20 get close to flat in 2021? And then the final one, just overall thoughts. I mean you mentioned a lot of the actions you've taken to take cost out of the business across your regions in 2020. As it stands, if we return to a normalized demand environment, be that in the second half of 2021 or even into 2022? Do you think there is now more operating leverage in this business with the costs you've taken out?

Ana Virgínia

Thank you, Rob. So on the first question, so as you know, retail tax is not a novelty. I have been flagging it in all my previous conferences, even when it was not in force. So what the company has been doing, and including also HeBe, is really to prepare and being very much focused in managing in details, the sales mix and the margin mix to be prepared to cope with the retail tax. This being said, of course, we know that the first priority will be not to lose competitiveness in any way and while protecting the profitability. And what I think is that we have the tools that the team to do it. And in this case, if possible, and this, of course, will depend on the dynamic of the market. Because, as I said, if we have to invest, continue to be the most competitive to our consumers, I think it's a possibility to stay and to protect the profitability. This is on Biedronka.

In Ara, if it was not for the pandemic, I would be surely confirming the EBITDA breakeven, excluding IFRS 16 today for this year. Of course, with the pandemic, one thing is for sure, I believe that the company will reach breakeven at EBITDA level, including IFRS, but that was not our prior guidance. So what I think is depending on how the pandemic will evolve. It's still a possibility, but probably there will be some delay because the pandemic is still there. On the normal -- or when we return to normal, if the cost initiatives will somehow help us to leverage the businesses. I believe one thing will help, of course, is the fact that we are now prepared in terms of our operations to cope with the pandemic scenario that we think will stay during the whole year in 2021.

As you can imagine, with all the changes that happened throughout 2020, it was very difficult for our operations and introduced a lot of complexity and this is not accounted in the €41 million that we say affected our EBITDA. All the complexities we plan the offers, to plan the demand of the consumer in the different countries was really vary or hit the efficiency of our operations, which will be, of course, something that will help on the operational leverage in 2021 because we are now prepared to cope with this complexity. This being said, what I believe is that the countries and the economies, particularly Colombia and Portugal, are much more fragile, and we will probably have to continue to invest to be more competitive. So we do not think that considering all the different moving parts that we may assume that the cost reduction will be leveraging our EBITDA margins at different countries. But it will, of course, help to be or to cope with a more competitive scenario.

Rob Joyce

Okay. I guess just longer term, I'm thinking structurally, do you think you have a lower cost business now you found a way to run this business at a lower cost?

Ana Virgínia

Different from each business. But for instance, for Ara, definitely, I think that we are starting from a lower cost base, and this will help the business for the future.

Operator

And the next question comes from the line of Xavier Le Mene.

Xavier Le Mené

Two, if I may. The first one, just on the COVID related costs, as you said, they may actually continue at least in H1 2021. So any sense of how big the amount could be? So if you've got an average per quarter for the COVID related cost, that will be quite helpful. The second one, just looking at the future growth, not just for 2021, but more longer term. You said already that Poland in particular economically fragile country. So but do you see still further opportunity for you to really grow, especially in Poland? And do you have any target in mind in terms of number of tools? And linked to that, too, you already mentioned a few times that you would be considering entering in a new country. Is it still on the agenda? And when should we expect potentially some news on that front?

Ana Virgínia

So on the COVID-19 related costs. So on the direct costs, of course, we are assuming that this will be kept, but I believe that they will be incorporated in our operations. An example is, for instance, the extra cleaning and disinfection procedures that we had to put in place. And these are now incorporated in the costs. The other costs, that, of course, pressured the companies in the beginning, as I said, was even the complexity, and it was not computed in the number that we provided. That one, I think, it will help, as I said, on the remaining, we don't exclude, of course, that nevertheless, there would be some extra costs. I don't think they will be higher than the ones from 2020.

On the future growth. So it's true that I said, Portugal and Colombia are more fragile economies. Nonetheless, we continue in Colombia, we still believe on the opportunity of the market. It's intact. So in this sense, we will continue to invest, and we will accelerate the number of openings for sure, if there is no major setback in the execution of our CapEx program. As we said, at least 100 stores will be opened, and we expect to further accelerate if allowed it.

In terms of Portugal, of course, it's much more limited. And particularly, as we said, we think that the consumer demand will be hard. Of course, we will have -- I wouldn't call it an easier comp, but of course, it's a different way to run from. So we do not expect, of course, to -- or we expect still to continue to grow in Portugal. In Poland, we flagged already, [indiscernible] and we maintain it, that for the next years, we still expect to open around 100 stores per year. 50% of those are in the smaller concept formats, where we see a lot of opportunities also. Unfortunately, it's not only us. So others also see that opportunity and trying to seize it. And so it's not Biedronka just growing, but we think that at least 2.5% of our growth will come from new stores. And again, we continue to push with our sales mix to increase also the like-for-like.

So for next year, for now and considering even the economic context in Poland and the economic situation, where, of course, we have a setback, for instance, with wage increases, but this is also a tailwind because, of course, people have more available income.

On a new country, it's still on our radar. We don't exclude it. What I said in our last conference call, and I think I will have to reiterate it is, of course, the fact that you have constraints to travel and to go into the countries, being a very hands-on group. I think I mentioned that we want to grow, and this is a priority. But I think that in short term, this will not be happening because of this constraint in going to the countries and knowing how the fundamentals are playing and how the retail -- the food retail sector is planned.

Xavier Le Mené

Okay. And just maybe one last one. Just a clarification on the Polish outlook. So you mean protecting profitability and back to Rob's question, but do you mean margin? Or do you mean cash profit is quite important here to understand? So are you thinking you can maintain the flat margin Poland or cash profit flat year-on-year?

Ana Virgínia

When we talked about profitability was assuming EBITDA margin.

Operator

And the next question we have here, it comes from the line of Andrew Gwynn.

Andrew Gwynn

Apologies if I'm going to come back to Poland and the turnover tax. So just to clarify, I mean, I guess there could be some timing differentials. So obviously, the tax introduced in Q1, but maybe some of the cost saving plans and so forth are a little bit more tail-end loaded. So could we expect quite a significant step down in margins in Q1 and then hopefully recovers through the year? So that's the first question. The second one just comes back to the kind of exceptional payment that you made to staff.

Can you just clarify what that is? I think we've heard some suggestion that essentially vouchers issue [indiscernible]. So could you just clarify the accounting on that?

Ana Virgínia

Thank you, Andrew. So on margins in Poland and the retail tax. As I said, this will -- there will be a lot of moving parts over the year. And also in Q1, where we had a spike on costs, even COVID cost, as you may remember. So this will, of course, all depend on how the things work. We believe that we have -- as I said, we have sources of pressure, not only the retail tax, but lower food inflation than compared with last year. But on the other hand, we also have a higher cost basis as you also referred. And again, we have a much more fine-tuned sales mix and margin mix and other innovations that we have introduced in the offer, that will play and will help on the commercial margins. And so, yes, pressure, if it's possible or not, to accommodate.

We'll see because it will depend also on how things will play on the level of our sales. But again, I will repeat without giving any sight in terms of competitiveness. And so this will be paramount for us. So all in all, and again, just to repeat, not excluding some pressure, but the idea is really to protect profitability at EBITDA level, and we think it's possible.

On the exceptional payments, yes, our -- part of our exceptional payment was paid in vouchers. This was a decision took at our Board level. So it was the Board that decided that our teams in the frontline should be granted an award as recognition. This was given as a voucher, but it's already a cost that we have to recognize. And so we booked it as operating costs, but as a nonusual item because it was not a decision from the company, but from the Board of the group, only in that sense. Andrew?

Andrew Gwynn

Yes. I maybe clarify it Claudia just in terms of the sort of double entry. But just coming back to the more important point on Poland, I mean, is it your view that all else equal, the market will be quite rational. And in the end, this turnover tax will sort of gradually find its way into price. Is that part of your thinking as well?

Ana Virgínia

I think it will have it's gradual way in the whole economy, for sure. And as this is, of course, something that has, as I've always said, a systematic effect. What I think is that there are different. This is not an immediate. This is not a VAT. And of course, the companies partly probably will have to increase prices, but our idea is to manage it in a much more balanced way. And that's why with the other measures that we're implementing and with the other tools that we have been developing because, again, this tax is no surprise for any of the players. It has been in the laws since 2016. We knew that sooner or later, being this on another tax, the Polish government would have to increase the tax burden. And so we had to adjust progressively our operations to cope with it.

Operator

And the next question comes from the line of James Grzinic.

James Grzinic

I had two questions. The first one, in terms of -- I guess it would be helpful if you tell us what your relative value position was in Poland, as you ended 2020? And I think in the past, you quoted relative price this, it will be very interesting. I'm curious to hear how your relative price competition -- competitiveness has developed in 2020? And secondly, you talked to new restrictions in Colombia, particularly in the Bogotá area.

Can you perhaps clarify if consumer mobility is still stronger? Is it closer to the Q4 2020 position rather than Q2, Q3 so far this year? If you could shed some light on that, that would be very helpful as well.

Ana Virgínia

So on the relative position in 2020, Biedronka continued to maintain the price gap. That increased in Q2. So anticipating a little bit what could happen in the market. And of course, trying to -- and probably you remember that the market at a certain point in April lost 9%. And nevertheless, Biedronka was able to increase sales. So -- and this was really -- because it increased also the gap and was much more active and assertive in the initiatives that put in place. So in terms of relative price position in 2020, that was really capped a little bit -- as I said, a little bit more notorious in Q2.

And of course, then the other players also reacted to these adjustments in prices. And I think this translated really in the market share growth that the company has also. But so really making sure that we are the lower-priced player without compromising also on the quality of the offer.

On new restrictions in Colombia, we saw it -- so new restrictions coming [indiscernible] at year-end. Now they have been progressively lift. So they continue to be on the municipal level, but there has been an ease in this mobility restrictions. And so this -- we think it will help also in Ara.

James Grzinic

Understood. So essentially, mobility so far this year is more like Q4 last year rather than Q2, Q3 last year?

Ana Virgínia

Yes, yes, definitely, definitely.

Operator

The next question comes from the line of José Rito.

José Rito

I have two questions. The first one related to this extra cost in [indiscernible] [Q4] the €90 million accounted below the operating line. So considering how the pandemic has evolved and further restrictions has been imposed in this quarter, are you expecting for the payment grants to employees in Q1? I think you mentioned that for this year, you expect further costs. So what should be the departing point for 2021? Is the €90 million that you paid in Q4? Or should we consider other departing point? And then the second question related with the retail tax, sorry to come back to this. So my question is, if your confidence on this is the same versus 3 months ago regarding eventually offsetting the potential burden in terms of impact on the margin. I'm asking this because we have already two months of tax. And also add some reference from [indiscernible] that it cut prices in Poland. So I'm not sure if [indiscernible] have been more aggressive now that shopping malls are open. So the question is on the confidence and looking back, considering that we had already 2 months of the retail tax, if you were able to fully mitigate the retail tax in these 2 months.

Ana Virgínia

So on the extra costs, as I said, I don't believe they will be higher in annual terms, so not on the quarters. Because sometimes you have specific in each quarter, when you go back to 2020, you had different lines affecting the cost. For instance, one of the items that is affecting this €9 million, is the contributions that we gave to research here in Portugal, not only in the EU global response to COVID, but also we sponsored research -- serological research on COVID to really see if science can fight the pandemic as fast as possible. So there are different headings along the quarters. So I believe that the best way probably is to assume an average of these costs. As we don't expect, as I said, for them to be higher. I really what I expect is on the part that is not shown in the numbers of the extra costs. So as I mentioned, the further complexity that it was introduced in the businesses to cope with all the changes, the countless opening times that we had to deal with, the curfews, et cetera. On this, I think that we are better to prepare. So this will be an efficiency on the -- for the companies.

But so to assume the fourth quarter, I think it's even better to assume an average of the costs that took place. On a further payment to our employees. Of course, we never exclude depending on how things progress. I think that we cannot exclude anything. As you know, we had several moments where we paid exceptional bonus. We also have a [indiscernible] bonus, exceptional bonus that we pay our employees when we have profits. So this will be maintained for sure. On the exceptional -- so regarding COVID-19, it will depend on how things evolve. On the retail tax, of course, I will not provide any number on how we are performing and how we are coping with the tax. I can confirm that -- and I think that this is already public, inflation continued to -- food inflation continued to be very low in Poland. The numbers from January has already went out, although there is a difference from the numbers that were published previously.

But so I assume it will be in below 1% in terms of food inflation. And this -- if this is because the hypers are moving more aggressively, I think that they have no alternative. This is something that we were already expecting. They lost market share again in 2020. But I don't think they have been more aggressive and more assertive than Biedronka. I think that we even increased the gap for the hypermarket.

José Rito

Okay. So for inflation, I think that this was also no news, right? We were already expecting a decline in food inflation?

Ana Virgínia

Of course. Taking into account not only the comparable but also the progression throughout the year that you know. This being said, and again, I imagine that no one will ask me again. But again, for -- it's not just the retail tax, it's, of course, that we were expecting. We were expecting already low inflation, and we flagged that previously. What we have really do is have a really detailed management in terms of sales and in terms of margin mix. And we have several tools to deal with this. And of course, we have also the Polish consumer that continues to react to our commercial dynamic.

Operator

And the next question we have here, it comes from the line of Joao Pinto.

João Pinto

They have been answered already, but a couple of questions more. When you say that HeBe could explore new markets, which ones could it target? And the other question, following the COVID-19, do you plan to invest in an e-commerce platform or the market size is not there yet? And following this, do you have any estimates about how much e-commerce represents as the Polish food retail market following the pandemic?

Ana Virgínia

So the new market is in online. And the idea is to start selling also and delivering in the countries that are neighbors to Poland. So starting with Germany, Czech Republic, Slovakia. So the countries that are in the vicinity of Poland. It's a way even test the -- how the brand and the products are received. We have our own e-commerce platform in HeBe for the food retails. For now, we have partnerships and I don't think that, for now, and of course, I can confirm it's not just the market, but even our banners. This represents less than 1% of sales. And so basically, at this point, it doesn't justify. So overall, the market is less than 1%. And of course, in Biedronka, and it's -- and in Pingo Doce lower than that. So for now, we will keep our partnerships with [indiscernible], in this case, in -- respectively, in Portugal and in Poland.

Operator

And the next question, it comes from the line of Cedric Lecasble.

Cedric Lecasble

Sorry to come back on Poland, but I have a few housekeeping clarification questions for you. On the retail tax itself -- on this accountability of the tax, would it be above the EBITDA line? And if so, is the impact like 130 basis points growth sales. And in an environment of low inflation, even if you have positive mix impact, how can you offset such a negative impact in 2021 to keep the EBITDA margin stable? And maybe just on your market share, you said it was up 160 basis points last year. Maybe you could give it to us and maybe share what the number two position is? And the second question is on working capital and more precisely on supplier payables. How sustainable is this high level that you have on your balance sheet? [indiscernible] well in many countries, you have more and more pressure to shorten the delay of payments to suppliers. So how do you see things evolve on your payables?

Ana Virgínia

Thank you, Cedric. So on the retail tax, it's going to be above EBITDA. This is an item that will vary with sales. So in terms of the way that we will publish it, it will be affecting the total margin. As, for instance, the commissions on the electric payment cards. So this is something that we account for, together, of course, with the cost of goods sold on our margin. So I don't think it will affect 1.4% in sales, of course. This is the value of the tax that Biedronka will pay because we are at the higher range. But as I said, currently, we have different ways to mitigate the retail tax, not only at the level of the margin mix, but also at the level of the cost efficiency programs and initiatives that we have put in place. And so that's why we believe that it will be possible at least to strive to offset the impact of the tax. This being said, of course, we don't tie that it's a headwind, together with the lower inflation, as I already said. But it was something that we were accounting for, and we prepared the company to manage under this retail tax.

On the margin progression. So basically, the second player is the short [indiscernible] in terms of market share in Poland, so Lidl and Kaufland. The 1 that we believe gained also share, not in the level, of course, of Biedronka was Lidl, not [indiscernible], it was more or less stable, the market share according to the number that we have.

Cedric Lecasble

And what was your market share, if I may, and end with us?

Ana Virgínia

It was 25.7%. On payables, so first of all, Cedric, of course, you knowing how retail works. It's always a little bit as looking at the numbers at year-end. Because they don't translate when you look to payables. They do not translate our payment terms for several reasons. It's because, of course, sales are already there, and we usually happen to end the year. We, of course, still -- with all the purchases for Christmas and the New Year's Eve season, which is the strongest in the year to be paid in the beginning of January. So it's -- let's say, it's a picture, a year-end picture that does not really translate when you do the accounts just at year-end, does not translate any payment terms. That being said, we already have a very different approach in terms of payment terms, when it comes the fresh producers or the ones that are smaller producers. And this is along the lines of the -- not only the regulations that assumes 30 days or, in some cases, maximum 60 days. But in some cases, it's even a voluntary and a proactive decision from the company, in the case in Portugal and in Poland. We have been anticipating already, and this is incorporated in our payment terms already. So I believe, of course, we have to look, and we have -- and it's another heading that we have to manage. But I don't see it at least looking at just the picture part, but even on average, I don't see it at this point as not being sustainable. But of course, it's something that we have to actively manage as we do with stocks and all the other working capital headings that are quite dear to us because, of course, this is quite important to finance the business.

Cedric Lecasble

And then [indiscernible], on average, if you take the whole year, if you take the not the picture year-end, but the whole year, you would say your payables represent how many days?

Ana Virgínia

Probably around 45% -- sorry, 45 days sales.

Operator

And the next question comes from the line of Nicolas Champ.

Nicolas Champ

First one, I mean, just a clarification regarding the [indiscernible] and the bonus granted to employees. I mean to what expect -- to what extent it did it impact your sales growth in Q4? Or is it more likely to benefit your Q1 sales? I mean, just checking the validity of these [indiscernible] shares. The second question is about the central cost that increased last year. We know the reason. But could you guide us regarding the level of some costs we should expect for this year? Should we expect a stabilization or maybe a further increase? The third question is about Portugal because you said you invested in prices, especially at the end of last year I think. Did it gain some traction among Portuguese customers? I mean, how did your market share evolve in Portugal last year and maybe it's possible in Q4? And the last question, if I may. And this is the last one. Could you update on the different investigation in Poland and the different legal procedures, I think, against the local antitrust authority?

Ana Virgínia

So on the vouchers, it's true that -- okay, so on the vouchers, I would imagine that they haven't changed anything in Q4 or Q1. Besides, of course, being granted as an extra remuneration to our employees because, of course, this basically meant that they had availability to continue and to buy at our stores, but they already do that. So the only question is, in this case, they didn't have to pay for it. So it's a substitution of money, in fact. So I don't think that it will have any impact or different material impact even if we didn't have to granted them. On central costs, of course, this -- as you know, the big bulk on the increase is the support to communities and particularly the Biedronka Foundation contribution. So the €11 million, but also other contributions that we made at corporate level. As, for instance, all the research that we financed and was more than €1.5 million. I would think that you should assume it's flat for this year. I don't see -- there is already a decision that there will be a similar contribution at the foundation level. And so I think that it's a good basis to work from this level of central costs, probably with some minor inflation. But it's a good starting or good proxy for 2021.

In Portugal, we invested in prices. But of course, as we mentioned, the banners are suffering. I would say that, at this point, are suffering from the fact that the restrictions are still in place. We are -- in the case of Recheio, of course, heavily affected by the fact that the hotels, restaurants and cafés also worked with a lot of restrictions in the fourth quarter, and this even increased in the beginning of the year.

And in the case of Pingo Doce, we are a player that has the highest sales per square meter, so the higher sales density. And with the restrictions in place, depending on the number of square meters, this, of course, has a big impact in Pingo Doce. So if you go and shop in Pingo Doce, you will continue to see queues in all the weekends if someone wants to shop in Pingo Doce. And of course, this affected the market share, although we don't have country to Poland. We don't have a credible basis in terms of market share at this point because most of the players, namely the discounters, do not supply the numbers -- their numbers. But I would presume, of course, that this was pressured, and I don't exclude to have lost some market share, considering this. And of course, considering that we are also, let's say, in a different market because we have a big chunk of our sales on the [indiscernible] solutions, on the restaurants, as I said, which most of the other players do not have.

On the investigation procedures. So no novelty on that we have been noticing, and we are appealing from the decisions of the antitrust authorities, both in Portugal and in Poland. We believe that we have strong cases. And this being said, we are not accounting for any provisions in our statutory accounts. We just flagged it in our contingencies heading. But at this point, we think that we have a strong position in both cases in Portugal and in Poland.

Operator

And the next question comes from the line of Nick Coulter.

Nick Coulter

Three quick ones, if I may. Firstly, just to try and clarify your answer to -- I think at Cedric's question earlier. [indiscernible] for the sales tax that won't be within your net sales or revenues. And effectively, it's like a value-added tax and that you're just collecting that on behalf of the government. That's the first one.

Ana Virgínia

Want me to answer or do you want to...

Nick Coulter

Yes, probably easier for you.

Ana Virgínia

Okay. So on the sales tax, so it's not going to be deducted from sales. It's something that -- so it's paid like the VAT, the following months.

Nick Coulter

So it's in your gross sales, but it's not your net sales, effectively, it's not on your [indiscernible]

Ana Virgínia

No. So it's computed on the net sales, not on the gross sales with VAT. Imputed on net sales. And effect, so it doesn't affect the heading of turnover, but the heading of margin. We compute it as something that we put it in the total margin -- in the gross margin.

Nick Coulter

Okay. So the treatment is effective the same as at though?

Ana Virgínia

It said, sorry?

Nick Coulter

It's the same as VAT. Is it?

Ana Virgínia

No, no, no. VAT, it's not accounted because VAT, we are just computing it. So we deduct end pay VAT. So that is in the balance sheet. We just collect the VP on behalf of the consumer. In this case, it's a different thing. It's a charge directly. So it's not something that we pay on behalf of the consumer. It's something charged directly to the company based on their net sales. So it's a cost.

Nick Coulter

Yes. Okay. I think VAT is calculated on yourselves. Okay. I'll come back in that.

Ana Virgínia

Okay. It's calculated on sales, but it's not a cost because it's something that we have to pay on behalf of the client, to the government.

Nick Coulter

Right. I'll come back. And then secondly, on your working capital. If you look at the inflow this year, it seems to be markedly larger than in previous years. How much of that might be a kind of a COVID flip-flop and should we expect the working capital contribution to kind of free cash flow to normalize in future years?

Ana Virgínia

On working capital, the inflow usually comes from growth in sales.

Nick Coulter

So yes, it's a bigger proportion this year. It looks like it's €250 million versus the normalized rate in the range of 160 or something of that order. So it looks like it's meaningfully stepped up.

Ana Virgínia

Although comparing with 2019, it's very similar also. So it really depends on -- it has calendar effect also. So the fact that we posted that on December 31, is really important. And the way how the Christmas sales evolved, it's also important when it comes to the picture of the working capital at year-end. This being said, as we are -- or taking just the base as an average. While the group continues to grow, we will continue to see a cash inflow from the working capital.

Nick Coulter

Is there a timing impact in this -- yes, it sounds like there's a timing impact in this year. Is that correct?

Ana Virgínia

Not -- well, at least it's similar to the one in 2019. The thing is that we performed quite well again in Q4, as you probably noticed, particularly in Poland. And this, of course, helps also with the working capital numbers. But it doesn't have really to do with the COVID-19 dynamics. It really has to do with the business dynamic and if you manage to grow sales, of course, you went the period with lower stocks and more payables to suppliers because, of course, you had to buy more, to have more sales.

Nick Coulter

And then lastly, just on the Polish market share dynamic as the country begins to open up. Is there a process by which the hypermarkets have been penalized during COVID and take back some natural share? And will Biedronka be affected if there is? Or do you think you can mitigate that?

Ana Virgínia

Well, I would imagine that the hypermarkets and particularly the ones that are located in shopping centers, must have been also impacted by the lack of of people circulating or visiting the shopping centers. But I would say that the issue with hypermarkets is a little bit more structural one. It has been -- they have been losing market share. I believe the good thing here is that the market has been growing. So even losing market share, they have been able to grow also in some cases. In the case of COVID-19, as people have preferred or have reacted to the proximity formats dynamics and particularly the one of Biedronka because it was not just because of the lack of circulation, it was really because Biedronka made it available not only the offer, but even the opening hours, et cetera. So allowing for proximity to continue to play an important role. For instance, a little bit contrary to happen -- what happened in Portugal, where the distancing as we could not change the opening hours. The distancing played the role. And in some cases, the consumer-preferred larger formats.

I think this is not the case in Poland. But I do not foresee really a pickup of the -- in terms of market share. So in relative terms of the hypermarkets compared with the proximity formats. And inclusively, what you see in the market is all the proximity formats really pushing and adding more capacity. So not only Biedronka, but Stokrotka, Dino, Lidl, so all these formats. So this will tend to take more share out of the hypermarkets, I would imagine.

Operator

And the next question comes from the line of Antonio Seladas.

António Seladas

Congratulations for the figures. Just a short one. To know -- if you continue to talk about it before IFRS 16 for 2021? Or you just will talk about EBITDA after IFRS?

Ana Virgínia

Antonio, many thanks. I believe that all our teams are really worth congratulations. On the EBITA, this is an option, Antonio. I think that the idea is to continue to give at least or to have longer periods for people to really see how the performance progresses. I believe that 2 years probably is still a short period just to conclude on the progression of the business. So internally -- I must be totally clear that internally, our teams continue to manage without IFRS 16. So our store manager has to know how much rent it has to pay at the year -- at the end of the month with the sales that it generates, not really the capitalized leases for the period the rental agreements has been negotiated. So on the teams, the banners, management, it continues to be without IFRS 16. Even in Poland. Poland did not adopted on its statutory accounts, the IFRS 16. And on the consolidated levels, we will continue to provide the reconciliations and the numbers at least, I believe, for a while for people to get used to the new numbers and to have also the long-term perspective. In some cases, as you probably know, it is even mandatory to provide the 5-year period of KPIs in our annual report -- in parts of our annual reports. And this oblige us to be fully comparable to continue to have it also under IFRS 16 just for clarity reasons and for comparability.

Operator

No more questions have come through. Please continue.

Ana Virgínia

So thank you all for your questions and for attending this conference call. We are well prepared to face a year that we anticipate being at least as demanding as 2020. In the last 9 to 10 months, we prepared ourselves to deliver growth and efficiency in 2021 in order to guarantee our competitiveness and consumer preference while protecting our banners profitability. This should allow for another year of profitable and sustainable growth. Thank you once again, and I wish you all a nice day. Please stay safe.