JERÓNIMO MARTINS SGPS SA (JMT) Q2 2026 Earnings Call Transcript

Good morning, ladies and gentlemen, and thank you for joining this call to present our first half results. As a reminder, in our corporate website, you can find the results release, a slide presentation, and a fact sheet for the period. The first half of 2026 proved more demanding than we initially anticipated, particularly with regard to strong pressure on food prices and fuel-related costs. Heighted geopolitical uncertainty kept consumers cautious and focused on low prices and promotions in what food is concerned and competition did not ease in the sector. Against this backdrop, all our banners delivered solid sales and EBTA by protecting price competitiveness, strengthening their value propositions and executing efficiently. Volume-led growth combined with careful margin mix and reinforced focus on efficiency drove group sales up by 5.1%, or 4.5% at constant exchange rates, to 18.3 billion euros, and EBTA to increase 7.6%, reaching 1.2 billion euros, with margin at 6.8%, 16 basis points ahead of the same period last year. Every business expanded EBTA margin, contributing to this solid delivery. Excluding IFRS 16, the group closed June with a net cash position of 11 million euros after having paid 409 million euros to its shareholders. Starting with the income statement, the group delivered strong operational performance. Despite substantial basket deflation at Piedronka and also at Hebe, and low basket inflation in Ara, Pingo Doce and Recheio, sales grew 5.1 percent, driven by strong volumes in every banner. ABTA grew 7.6 percent ahead of sales, and margin rose 16 basis points to 6.8 percent, reflecting better mix, scale, and strict cost control. Higher financial costs mainly result from the execution of the expansion program and its impact on interest from capitalized leases. While in other profit and losses, we've included the 40 million euros contribution out of the 2025 results to the Geronimo Martins Foundation. This heading also incorporates write-offs resulting from remodeling initiatives and provisions net of compensations received for legal proceedings. Cash flow before dividends was negative at 332 million euros. Basket deflation at Piedronka impacted sales growth and trade payables and weighted on cash generation. Despite the increased pressure, the balance sheet remained solid. The half-year position reflects capital investment of 412 million euros and the payment of 409 million euros in dividends. Investment remained aligned with our strategic priorities. The H1 CAPEX focused on expansion of our store network, store remodellings and logistics improvements. Throughout the period, the group opened 124 stores and remodeled 115. On logistics, ARA opened a new distribution center in Medellin early in the year, and Biedronka inaugurated its 18th distribution center in southeastern Poland in late June. This latter facility is expected to reduce annual travel by almost 1 million kilometers, further improving an already very efficient operation. Focusing now on group sales. Volume growth across all banners drove H1 sales, reflecting competitive pricing, output assortments, and discipline execution. Group like-for-like in the period was at 1.4%. Turning to sales performance by banner, I will start with Biedronka. The Polish food retail market remained extremely challenging, with sub-due demands, price-sensitive and promotions-driven consumers, intense competition between the players, and a fast slowdown of food inflation, which turned negative in June. In this context, Biadronka consolidated its price leadership while continued to optimize assortment and to further enhance its value-for-money proposition to Polish consumers. Sales grew 1.7% to €12.6 billion, or 1.9% in local currency, with like-for-like up 0.2% despite significant basket deflation. H1 volumes rose by around 5%, offsetting the impact of like-for-like from deflation and preserving our main banner's market share. Deflation accelerated markedly in Q2, resulting in sales slightly below Q2.25 and in a like-for-like of minus 1.6%, while like-for-like volumes grew by more than 4%. Turning now to Hebe, despite intense competition leading to greater basket deflation, Hebe fine-tuned its assortment and strengthened its value proposition across online and offline channels. Sales rose 5% to 312 million euros, or 5.3% in local currency, with like-to-like up 2.4%. Portuguese consumers continue to look for savings, with price and promotions driving most purchasing decisions. Pingdose remained highly competitive while strengthening its value propositions throughout a ready-meals offer that combines convenience, quality, and differentiation. Total sales grew 5.3% to €2.7 billion, and like-for-like, excluding fuel, reached 3.7%, supported by strong volume growth in a context of low basket inflation. In the second quarter, sales increased 3.3%, with like-for-like, excluding fuel, at 1.9%, again reflecting solid underlying performance and the competitiveness of the offer. After a first quarter affected by severe storms in Portugal's central region, the Eureka sector entered the summer season less dynamic than in the same period of 2025. Despite a more challenging backdrop, Rechei continued to demonstrate resilience and competitiveness in both Eureka and traditional retail segments. Sales increased 2.5%, 673 million euros, with like-for-like at 1.3%. In the second quarter, in a softer trading environment, sales grew 1.8% and like-for-like reached 0.3%. Finally, ARA. In Colombia, despite stronger demand and improved consumer confidence, market environments remain challenging, with strong promotional intensity across the food retail sector. AIDA continued to strengthen its brand awareness and consumer traction through disciplined execution of its expansion program and a value proposition tailored to local needs. This approach boosted another period of strong sales growth. Sales increased 30.2% in euros and 21.1% in local currency, reaching 2 billion euros. Like for Like was 6.8%, driven primarily by volume growth, as I'd operated with very low basket inflation. In the second quarter, sales increased 21% in local currency, while Like for Like accelerated to 7.5%. In Euros, sales increased 36.9%. Looking now at profitability at margins. Across the group, our businesses remain focused on protecting price competitiveness while continuously improving efficiency and effective cost management. Therefore, despite significant basket deflation at Piazón Canhebe and low inflation across the remaining businesses, EBTA reached 1.2 billion euros, an increase of 7.6% ahead of sales growth. As referred, this performance was supported by rigorous management of every profitability driver, namely volume growth, sales mix, and efficiency. Zooming in at margins by banner, every business improved its EBTA margin in the first half. At the Adronka, the margin increase translates the continuous efforts to optimize assortment and improve store layouts, leading to enhanced sales mix. Also contributing to this performance was a discipline focused on cost control and efficiency gains. At Hebe, margin improved, supported by the work carried out on sales mix optimization, differentiation, and strict cost management. In Portugal, ongoing work on margin mix, operational discipline, and efficiency measures leverage margin progression at both Ping2 and Recheio. At ARA, a BTA margin benefited from strong like-for-like performance, growing scale and assertive cost management. Overall, the group margin increased from 6.6 to 6.8 in the first six months of 2026. Let me conclude with a few final remarks. The context in the first half of 2026 proved harder than we expected. Nonetheless, this set of results proved the resilience of our businesses and the quality of execution across banners, especially in light of the significant deflationary pressures faced particularly by our Polish operations and the continued impact of higher labor, rental, and fuel-related costs. This performance was only possible because our teams continued to execute with determination, focused on serving consumers, protecting price competitiveness, and improving the offer. These actions drove strong volume growth in all our banners and reinforced consumer preference. Across the group, better mix, operational discipline, efficiency gains, and rigorous cost control leveraged profitability and enabled every banner to improve its ABTA margin. These results reinforce our confidence in the competitive strength of our banners, in the quality of their value propositions and in their ability to create sustainable long-term value. Regarding the outlook, we remain vigilant about the operating environment. Based on the information currently available, we do not anticipate any material improvement in market conditions during the second half. Geopolitical uncertainty, limited visibility, and pressure on consumer confidence should persist and therefore consumers are very likely to keep focused on low prices and promotions fueling market competition. Our priorities therefore remain unchanged, protecting competitiveness, ensuring consumer preference and improving efficiency. The investment program for the year is capped at around 1.2 billion euros focused on growth, store modernization, and logistics. Our teams will continue to closely monitor the context, keeping the flexibility to adjust our execution if deemed necessary. Thank you for your attention. Operator, I am now ready to take questions.

Thank you so much. Dear participants, Ezra Majlach, if you wish to ask a question, please press star 1-1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star, one and one again. Please stand by, we'll compile your QNRO studies. We'll take a few moments. And now we're going to take our first question. And it comes line of Will Woods from Bernstein. Your line is open. Please ask your question.

Hello, good morning. When you look at Poland, when do you think food inflation will turn in the Polish market? Do you think food PPI could turn positive in Q3? And then the second one is when you look at the Polish margin expansion, You've obviously done a great job controlling the cost there. But can you give a little bit more detail on what you're exactly doing? You mentioned store processes, assortment mix, and store layout. How has that fed into gross margin expansion?

Hi, Wills. Good morning. So, as we mentioned, so I think that we flagged this in the results release because, as you probably remembered, I mentioned in the first quarter call that we were expecting somehow, depending on the cycle of production, that the cost pressure would come in and turn probably into inflation in the second half of the year. At this point, and as we already left the second quarter, we don't see that happening, at least in some of the main categories of our banners, and particularly on Poland. And that's why we are flagging that currently, we do not see in terms of the deflationary pressure, any change in the context. This is mainly the big difference versus is what I referred in Q1. So for us, it's now very difficult to say. It's true that we will have some better comparables, particularly from September onwards, as we also mentioned. But what we are seeing is several sources of pressure on prices. We do not see, for instance, on the supply part, as I referred in some of our most important categories, our suppliers are also operating in deflation. And this has to do with several dynamics of the market. I will give you the example of meat, which is a quite important category, or even dairy or fruits and vegetables, for instance, in Portugal, where as you have good harvests or good productions, or you have some constraints in the demand, then this puts pressure because you have to put the product in the market. And this, of course, to have the consumers to buy more leads to further price decreases. Then, of course, you have the consumer environment or the consumption environment and also the competition dynamics because every player, and it's not only in Poland, but it's particularly harsher in Poland, is pushing for volumes to somehow compensate for the deflation that is happening in the market. So currently, I'm being totally blind with you and totally honest. We do not see at this point when the turning point will take place. So it's probably getting easier in the fourth quarter. In the third quarter, I think it's going to be difficult from what we are seeing currently, as I said, in the dynamics, even in the first month of the third quarter. For Polish margins, yes, they did a great job. I think that, of course, as the company ended the year already in deflation, it's true that it did really a remarkable work on one hand in the offer and also the fact that it had worked on its layouts in terms of the stores to keep it more efficient, to help the operations and our colleagues in the stores to be able to replenish and to do all the executions in a more efficient way. And I think that pays off. Of course, there may be a kind of a seasonal effect here. Easter is usually a season where you have a harder execution. and this also happens in Christmas and in some periods in summer. Q2 didn't have the whole period of Easter so either in terms of the gross margin and also in terms of the cost pressure it eased a little bit because it tends to be more competitive also during these more peaks in terms of sales. And of course what we saw also So better mix, also some ease from the comps in Easter, both in costs and in margins. And, of course, also some processes that are now more linear for our operations. And I give you the example of the VR system that started, as you know, in the third quarter last year. that is now a big burden to our colleagues in the stores to take care of the return of the bottles. But it's already somehow in a cruise mode, which also helps. And it's more noticeable in quarters where, of course, the sales tend to be slightly more pressured as it happens in the second quarter. So I think really, as you mentioned, really, and I agree, it was really a great job from our colleagues in Poland.

Understood. Thank you. That's very clear.

Thank you, Will. Thank you. Now we're going to take our next question. And the question comes line of Frederick Wild from Jeffree. If your line is open, please ask the question.

Good morning, Anneliese. Thank you for taking my question. They're all about Poland, please. So first of all, I don't expect you to comment on exit rates for Beardronco in current trading, whether there's been any shift in the consumer environment there. Second, if we take a sort of bit of a step back, it seems, you know, a very surprising, very impressive margin beat in Q2. Would you ordinarily be looking to reinvest a little bit more of that margin in the, can we see that as one of the limiting factors for half two? And finally, the volume picture in terms of how you're reporting remains, you know, incredibly positive. Could you just give us a sense of the breakdown of how much of this was market share, how much of this was mixed, how much of this was, you know, the underlying Polish consumer? Thank you.

Hi, Fred. I have to say it was very hard to hear you, but I will try to address your questions. If there is anything that I do not answer, please come back, because it was really slightly harder to listen to you. So in terms of consumer environment, in fact, we are not seeing any major change in the consumer environment, I think, or at least in what food is concerned. From the numbers and even the official figures that we have access, the savings continue to increase. So I believe it's not really an issue regarding the available income of the Polish consumer. I think he tries to save whenever it is possible. So in what food is concerned, at least, it remains quite cautious. And of course, as the rest of that dynamic allows to also decrease prices, because part of this, we have to say, part is, as I said, supplier-driven, and part is still a correction of some of the higher priced commodities, even from last year. So there is here a dynamic regarding commodities, regarding harvests, particularly on the fresh products and on the groceries, and some other dynamics that are pushing also deflation from the supplier side, as I said. And I think that if the consumer can buy at better prices, of course, Because it is, at least in some categories, slightly, I wouldn't call it probably trading up, but it's willing to buy, and that helps buy some categories that are a little bit more value-added and contribute positively to the mix, and that happens. But overall, we are not seeing a change in the consumer environment in Poland. Of course, the competitive environment is also quite difficult. It is, on the contrary, I have to say. I think that more players are now also playing, of course, with the promotions. And so we are seeing all the players in the market trying to drive volumes, also to try to compensate what they are seeing, which is apparently, at least from some of our competitors' declarations, they have been saying that they are still operating in deflation, and we believe so from the numbers that we see. So if we are going to invest part of this margin in competitiveness, one thing is for sure. Biadronka will want to provide the best prices and the best opportunities to the consumer, the Polish consumer, and that's what it has been doing. if i think all the levers that justify the the margin increase in the second quarter will apply in the in the second half probably not but we will do everything to protect margin not losing competitiveness so if we if we have to invest a little bit of these margins as you said probably we will if that compensates in terms of sales. Of course, it's a difficult balance. It implies really hard work from our teams, but I'm sure that it's what they will try to do. So be the most competitive. And if they will have to, of course, invest a little bit more of margin, they will do it. On the volume and on the market share, from the information that we got on JFK until May, our market share was more or less stable. But from the numbers that we got in June, I think that it even increased slightly in the whole period. This is the information that I can provide you. And I think that really Biedronka was able not only to craft the promotion but to give really good opportunities that justify the fact that even in June it really delivered a very good performance in terms of volume growth.

Thank you. Now we're going to take our next question. And the question comes line of Manjarid Har from RBC.

Your line is open. please ask your question good morning thank you for taking my questions um i also had two if i may uh i think you mentioned that not all the cost levers will apply in the second half i just wondered if you could give some more color on so what might fall away what's been done and and where you still see some incremental benefits uh and then my second question is i just wondered if you could give us an update on how performance in Slovakia is going. Thank you.

Hi, Manjari. So what I mentioned, of course, is we are, at this point, we are not or we do not have visibility on how or what will be the level of price pressure. So the information that we got is at least in some of the categories. This is not just a question of the competition and of the cautious consumer is really supplier driven. The part of the deflation, as I said, is the correction move. So we don't know how this will play. It can play on the positive side, but we are not still seeing these signs at this point. In terms of the things that can put a little bit more of pressure, of course, the comparables are also different. We also had good volumes last year. So it really depends on the dynamic of the market and on how even our competitors will react. As I said, Biedronka will make sure that it will continue to be the price leader. It will continue to offer the Polish consumer good opportunities. and this is something that it's really the signature of the brand and what we have been doing, we think that the consumer will stay very cautious. At least we don't see even from the, as we said, from the geopolitical point of view and on the fuel-related costs, et cetera. So that part will definitely not improve in principle. At least we are not seeing that happening currently, which will add further pressure, for instance, on the transportation costs that we have seen already increased and will further increase as we have more volumes in the second half of the year. So in Q2, as I said, it was not particularly so hard in terms, it was hard in terms of the execution of the volumes, but it's also in terms of the execution, you tend to, it tends to be harder when you have the peaks of sales and certain periods where even the competition tends to be harder. So Christmas, the way that Christmas will play, and even the summer, may put some extra pressure on our operational costs and on the competition. But at this point, as I said, it's difficult to say. What I can tell you is that we will protect and try to protect margins as it was done really in the first half, which is more comparable than just the first or the second half versus last year. On Slovakia, so we are currently operating 17 stores. As we mentioned, the licensing process takes longer than in Poland, but we expect to still open the level of stores that we have in our outlook. and of course as we introduce scale it also improves some of the kpis and that includes of course not only the the gross margin the the inventory losses etc and it helps dilute the costs that we also have in logistics and head office so the aim is of course to progress and progress on a positive way it's still a bta dilutive but it's uh it's it's normal at this

of the business in the country that's great thank you thank you now we're going to take our next question and the question comes line of Luis Calaco from GP Capital your line is open please ask a question thank you very much and congrats for the good set of results two or three questions if i may uh the first one if you could give us a breakdown of your sales growth in um pollen mainly the like for like in terms of volume basket deflation and easter effect well my second question is regarding your working capital i noticed some deterioration slight deterioration working capital probably the the cash conversion cycle um just wanted to understand the the rationale or the drivers behind this and if if this is something that we can try to relate with the gross margin expansion third of course also related with the gross margin if you think that going forward can we expect this gross margin expansion to be sustainable in the next quarters. And the fourth question, if I may, if you can give us some more color on the non-recurrent cost breakdown. Thank you very much.

Hi, Luis. Many thanks. I believe that the congratulations are really for our operating teams and all our banners. So in terms of the breakdown effects, I don't know if it's for the first half or for the For the second quarter, I think that's the first quarter. Okay, okay. So in terms of the basket food deflation, we operated with around 6% deflation. And so in terms of volumes, it increased slightly more than 4%, as we had a negative like-for-like of 1.6% in the quarter. The calendar effect, of course, this is a little bit tricky, but we estimate to be around 1%, or slightly negative, around at least 1%, or slightly more than that. On the working capitals, yeah, so part, of course, is due to, if we look at the whole period, if we look at just the whole period is really the fact that we ended last year with a very good performance of Christmas, and that, of course, we had to pay for the trade payables, at least for the first half. When we compare just the second quarter, one has to do, of course, with the dynamics of sales and the dynamics of the market with deflation, as we mentioned. So if the level of growth in sales is lower, and particularly we have the Easter effect also, so part of the receivables of Easter were in the first quarter, not in the second quarter. and, of course, operating particularly in Biadronka with a high deflation that affects, of course, the dynamic, of course, because in the quarter the growth was slightly negative. And, of course, even the trade payables, the level is not the same when we are in deflation, also from the supply side part. We have slightly more days of sales in terms of stocks, But that is, it has to do with the dynamic of the business. We have one DC more, we have more stores that open by at the end of the quarter. So this may be just a temporary situation. It may not happen any compensation or in terms of the trade payables, because even the trade payables, I believe probably Claudia can give you that call later, but I believe it didn't deteriorate. And so despite some of the pressures in terms of days of sales, so which means that there was no compensation in terms of gross margin. The gross margin was really driven, which was your second question, third question, was really driven by the mix. And of course, As I said, as also the parts of the suppliers are operating in deflation, in terms of percentage, this translates also in the prices or we see also a cost deflation in what the cost of goods sold is concerned. And the rest, as I said, is mixed. If this is sustainable, I think that part of it will be, but it will also depend, again, on the consumer demand and on the competition moves. So we will want, as I mentioned, to continue to be the price leader in Poland, to provide really the best opportunities and to give all the reasons for the consumer to continue to visit stores and to prefer the Via Dronka stores. So this may, of course, imply a different dynamic and a different progression. As I also mentioned, we have a soft comp with the Easter effect. But so it's at this point, I cannot say, but I think that overall, as gross margin increased in all the banners, in fact, in all our banners, and particularly due to the mix and, as I said, to the market dynamic, I think this is a good performance and, in principle, part of it will be able to keep for the second half of the year. On the non-recurrence, so now we are a little bit careful and even say so. This is not really just non-recurrence. Unfortunately, as I mentioned earlier, here we have to book something that is even decided from the prior year results, which is the Gerani Martiz Foundation contribution. It's a decision of the shareholders at the AGM, but it has to be booked through the P&L. And so it doesn't depend or it doesn't affect the performance of the different banners. So we are putting here in what we call the other costs and losses. So these are either non-recurrent or things that can introduce some volatility in the performance, but are not directly linked to the performance of the companies and can being booked at this heading. So you have the 40 million of the foundation, which, of course, will be a cash item. Then you have some write-offs due to the remodeling of stores that we prefer not to keep it in the invested capital because the stores were totally refurbished and that's the way we think we should do. It's a non-cash item and probably, I think it was around 8 or 10 million euros. and then I believe this will be in our first house annual report details but then the other is of course the litigation so we do provisions although we do not disclose exactly to which cases because it has to do with our own position but I think it was around 4 million and then we have some indemnities and slight other donations that we may give on a discretionary basis, but it's basically that.

Okay, thank you very much. Can I just add an additional question on the gross margin? If I'm not mistaken, in the fourth quarter last year, you had a positive impact from a reversal of a provision related with inventories. Can we assume or should we assume that in the fourth quarter of this year we will see a reversal. I mean, 30 basis points, around 30 basis points drop in gross margin or else equal or we should think differently regarding the gross margin for the fourth quarter bearing in mind the impact that you had in the fourth quarter of 2025. Thank you very much.

Thank you, Luis. Absolutely right. Yes, there was this effect. I don't think it can be direct because, of course, I think that not all will be equal. But it's true that, of course, we will have some effects from that, from the comps, because, of course, we will not be expecting to be adjusting that, which was, as we mentioned, an accounting effect. Of course, this will all depend on how even the Christmas season will go. It's true that, for instance, Biedron cooperated already in deflation in December last year. So it may happen that, of course, there are a lot of moving parts also that may be affecting the gross margin. And that includes also the competition, et cetera, as I mentioned. But the rest, we should expect a little bit of pressure going to the comps because of this accounting adjustment, yes.

Thank you very much.

Thank you. And now we're going to take our next question. And the question comes to the line of Robert Joyce from BNP Paribas. Your line is open. Please ask your question.

Hey, morning. Thanks very much for taking the questions. I'll do them one by one if that's all right. Just trying to understand a bit more specifics on the numbers. I mean, as we're seeing it, are we expecting to be a Dronka like-for-like to be negative now in the second half of the year? Probably the third quarter, I'm guessing. What do you think on that?

Robert, I will ask you if you could do, everybody's doing the questions in batches.

So if you don't mind, I would prefer not to be going back and forth with the questions. can you put the whole batch of questions and I will answer each one of them no problem I guess so I'm just quite number specific so I guess first one would be yeah should we be thinking of deflation and sorry negative night like for likes that be a drunker in the second half and second one would be just specifically trying to understand the margin dynamics and how you expect them to play out would be a drunker are we are we thinking margin expansion will be less than the first half we take the first half number at 25 bips is it going to be around there in the second half or should we be thinking less than that um and then the third and the fourth on just eps i guess flat in the first half do we think that's a reasonable number for the second half and then free cash flow again what are we thinking there should we expect that kind of decline in the first half to continue um in the full year year over year or should we expect to make some of that back in the second half. Thank you.

Thank you, Rob. So, like-for-like for Biedronka. Of course, if the pressure on the prices will continue, and as I mentioned, even from the supply side, we are not seeing an inflection point on there. It will put pressure, of course, on the like-for-like. But again, this will depend on the dynamics, on the volumes that the company can also grow, and the rest of the dynamics in the market. So this, of course, the second half has a tricky situation because it has two seasons that are quite important. The first one, of course, is Christmas. And the second one is the summer period. I remember that everybody was complaining of the weather last year, and that affected some of the categories, particularly in some of our peers. So these kind of dynamics may, of course, also help. So I think that we cannot assume it will be negative. We can assume only that it will have further pressure, more than we anticipated. So we were, I have to say, and I personally was expecting that what happened already or what had happened with the commodities, considering the fertilizers and the fuel prices, etc., would lead to faster inflation coming into the market, particularly in food. But, as I said, we are not seeing that, and that will put pressure. If it will be negative, I would not assume that as the base scenario. It is possible, but I think that the company will do everything in its power not to happen. But it will really depend on all the dynamics. On the margin, the 25 basic points EBTA for Biedronka. As I said, I think that we had some effect here that really helped. They may not happen or they may be a little bit more challenged in the second half. But again, it will depend on how things progress. The most important thing will be, of course, sales and the gross margin. And so the competitiveness of the market, the pressure on deflation will be important. important. We will have probably more fuel-related costs, the transports. At the moment, we are not seeing this, at least in percentage of sales, to affect the utilities, which is good, but it really will depend on the competitiveness of the market, how competitive and how much we have to invest from our side. The rest, I think it will really depend on the market. But at this point, again, our base case is not to drop the EBPA margins versus the second half last year. On EPS, a challenging one, of course, this has to do, or part of this is even translation. It's true that and sometimes we are a little bit criticized by the fact that we are financing our Colombian operations with Colombian pesos. It's appreciated. So when we translate, it's not cash, but it tends to increase. But in terms of as we are expanding, we should expect to have more interest coming from the capitalization of the leases. So on that, it will not help. I would say it will not be different from the second. It will not help. It will not be different from the first half of the year. On the non-recurrence, it will depend on several things. So, of course, in the second half, we will not have the foundation. It will depend on the rhythm of refurbishment and if we do some restructuring and if from the litigations we will need to make any other provision. So it's the main, I think will be the main addings where we may have some difference. But at this point, I cannot say if it will be the same as in terms of the progression on the net earnings. On the free cash flow and on the working capital. I expect an improvement in principle. Of course, again, we have a very tough comp at your end. So the portrait that we had in 31st December 2025 is very challenging because it was really a terrific Christmas period for our banners. The comparison will be important, But in principle, the free cash flow in the second half should be positive, of course, and play a role in terms of the improvement.

Okay.

Thank you. Thank you.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on the telephone keypad and wait for your name to be announced. And now we're going to take our next question. And the question comes from Matthew Clements from Buckley's. Your line is open. Please ask your question.

Yeah, good morning, Anna. Hopefully you can hear me. Thanks for taking the questions. Three, if that's okay. Firstly, could you give some indication of how much of your deflation in the first half was passing on those lower costs from suppliers and how much was incremental investment on Beardronka's behalf? Secondly, if deflation is driven predominantly by lower supply costs, that is implicitly neutral from a gross profit and operating leverage perspective for the retailers. I mean, your margins have improved and we've heard from another competitor recently who reported better operating profit year-on-year, despite severely negative like-for-likes. So my question is, why would this form of deflationary environment lead retailers, as you say, to go for volume to compensate deflation to protect leverage? And finally, 5% volume growth in a low-growth market is remarkable. Can you give a sense of the market share gains you've seen in the first half on both a volume and value basis?

Hi, Matt. So, as I mentioned, yes, and particularly in the main categories, and I gave the example of dairy and meat, because this is really, these sectors have a particular situation currently, for instance, and particularly in pork meat. the the supply didn't adjust the fact that that china didn't bought pork from from europe and and that of course means more available product in the market and this pressures a lot the price downward of course you're right as part i i cannot tell you exactly what is the part of the deflation that that is supplier driven competition driven and uh and price investment to catch the volume and to have the consumers with us. But I can tell you that, of course, a big part is, and as you mentioned, this reflects also in the improvement in the gross margin. So part is mixed, as I said, and part is because, as you mentioned, if my cost price is also in deflation, of course, my margin is not affected. but my cash margin is so and that's what drives me to get the volume to compensate in terms of cash margin um if this completely compensates or not what is the the downward on that is that if to have more volume i have to transport more boxes uh i might my uh my people in the store have to replenish more often. So this implies usually a big pressure on cost. And I think that the terrific job that was done really was somehow also anticipating a little bit this dynamic in the market. It really helped the layout change that Viadronca has been doing. It really helped the fact that some of the processes are now operational processes are a little bit more, as I said in the beginning, in a cruise mode to really protect the cost base also, because this is really pressured from the deflationary situation. On the market share, as I mentioned, the information that we got from JFK is just until May. And according to JFK, we basically were flat. So we protected the market share. According to the market numbers, for June, we think that we increased market share in June, particularly in the month of June. So it should have, for the first half, gone slightly up.

And that's on a value basis, isn't it?

Value basis. Value basis, Mark. We don't have the volume. Yes.

Your volume share gains must be very impressive.

I would assume, yes.

Thank you very much.

Thank you. Now we're going to take our next question. And the question comes line of Isabel Dobreva from Morgan Stanley. Your line is open. Please ask your question.

Hello. Good morning. I had a couple of questions. Firstly, starting with Biedranca. Could you give us a sense of what level of deflation you're planning for as we go towards the third quarter? I guess your results this morning imply deflation of just over 5% in 2Q. Do you think that's the sort of number we should have in mind for the third quarter? And then perhaps assuming a small improvement from the fourth quarter. And then linked to this, how should we think about your relative price position versus the peer group, would you say that is strengthened over the quarter? And the reason I'm asking this is because typically when there is a common source of deflation in the market from the supply chain, a lot of the peers will, of course, give that back to consumers. So I'm trying to understand whether your deflation is also symptomatic of price investments you made out of your own self-funded initiatives. And then my final question is just on Slovakia. If there was an asset available for sale in the market, which was a way to gain a faster route to scale, would you be open to M&A in Slovakia, or is your preference to build up the presence in the market?

Hi, Isabel. So for Biedronka, of course, at this point, we don't know of course what will be the level of deflation will be operating as I mentioned it will really depend what what I can tell you that we started the quarter and that's why we are flagging that we are not seeing still an inflection inflection point in in prices overall not from the PPI nor from some of the categories in the suppliers Even in Portugal, we are having deflation, for instance, in fruits and vegetables, because there were good harvests. So there is this kind of dynamic. But so there is a part that may be temporary in terms of the deflation. I would assume probably that in the everything else constant, and because of the comparison, and we mentioned that on our release from September, we would in principle have a lower, If still operating in deflation, we could expect a lower deflation versus Q3, but we don't know exactly if, in fact, if we are going to be operating in deflation or not. As I said, this really depends on the dynamics of the market. One thing, of course, or one driver of the deflation is it has to do, of course, with our price positioning. As I said, we want to keep being the leaders in terms of price. We think that the consumer will value this. Price is, of course, together with promotion, but promotion is price, ultimately, and is also accounted for, they are also accounted for in our price, our basket inflation, or our basket inflation computation. So I think that, as I said, part of the margin was, gross margin was protected because it was also supplier-driven. but we don't hide it, we also did price investments because of the consumer environment and we did even price investments in some of the, let's say, more value-added categories because this contributed to the mix although being in promotions or being the idea, of course if you have a slightly more value-added product that you can help even if you decrease the price it can help through the mix So we did price investments. And in terms of the price positioning, I wouldn't say that there is a big increase in the gaps, but the gaps were maintained. Drunkha made sure of that. And I think that is what justifies the increase in volume and the performance in terms of market share. That, as I priorly mentioned, in terms of volumes must be a quite significant increase even in Q2. For Slovakia, yes, there are some rumors in the markets. Of course, and Isabel, as it is our position always, we will not comment that. We didn't like when we were some years ago having to sell our own businesses, so we will not do that to our peers. We will not comment. There are these rumors. Of course, we will monitor closely, as we usually do, all the opportunities. And, of course, we don't exclude, of course, to do M&A in the countries where we operate, and particularly in one where we have just entered. But we wouldn't comment much more than that. Thank you.

Thank you so much. and now we're going to take up a final question for today and it comes line of Vladimir Shkurapat from Kepler Chevrolet your line is open please ask your question hi three questions from my side looking at your gross margin improvement of almost 40 basis points in the first half and almost 50 basis points in the second quarter could you give us an idea of how much came from better assortment mix is for example one-third or more of the improvement second question is specifically on the assortment mix especially in Poland could you be more specific about which categories of products are gaining share and drive this positive mix contribution to gross margin and third question on the food PPI and when this food PPI returns do the current assortment and the procurement changes that you made at Bedronka, would it make you structurally less exposed to margin pressure than in the last inflation cycle?

So on gross margins, as I mentioned, at the group level, all our banners increase gross margins. And so, and I have to say that I would probably, all of that would come from mix mainly. And of course, in some cases, the fact that also the suppliers want, particularly on, let's say, the more fresh categories, also want to increase their volumes to get rid of their stock and of their productions and invest it with us. But I would say that most of the increase would come from the assortment mix and the way that we craft promotions to drive that change in mix. And the fact that in the second quarter is slightly ahead of the first one, it has to do usually with the fact that the peak periods in terms of sales are a little bit more dynamic in terms of the having to do price investments. and as Easter calendar changed, I think it had also to do with this different dynamic. But most of it was better mixed. On the categories in Poland, I tend to be... So we have, of course, some categories where we have or we have using in the different categories products that, as I said, are a little bit more value-added or have better margins to contribute to the sales mix and the margin mix. I would not detail much because usually I don't think that our competitors do that, so I would prefer to reframe. But there are some categories in, of course, the different ones, more value-added yogurts with protein or more. So these kind of examples where you have some, I wouldn't call it a premium product, but a product that is perceived as more value-added to the consumer. We, of course, craft and do our assortment review, taking into consideration these kinds of trends in the market and things that the consumer may value and buy, even if they are slightly more expensive than the basic product. on the food ppi i would say that in some categories we will not see that change in the short term as i said in the meat categories in in fruits and vegetables due to the season that is and due to a particular situation in in pork meat i i think that this will take a little more time to change. If it changes, of course, this will put pressure on prices, but then it will depend on the dynamic of the market. So in principle, of course, we will maintain, as I said, price competitiveness. If we'll pass that to the consumer, it will depend also on the competitive environment, on competition. And so it's not immediate that we can conclude that the positive PPI will drive deflation down. Probably not immediate. We are very fast in decreasing the price to get the volume, probably a little bit slower passing it to the consumer. Although, as I said, it's not an issue from the available income point of view. So I think that we'll have to be very smart in crafting, again, the promotions, the way we put the products to to make sure that we protect the margin. In terms of procurements, I think that we have, of course, we have our private label and this is very stable for our suppliers. So I think that in principle, of course, there are other dynamics, but I wouldn't say that this will come a lot from a change in the procurement. I think that we will have, if we want the suppliers with us, it has to be a win-win situation. Of course, Biadronka is in a very good position because it can provide the way, of course, to have the volumes sold to the Polish consumers. But I don't think that there will be a change in terms of procurement. And I don't know if there was any other questions, Volodom. Did I answer all these questions?

Yes, you did.

No, thank you.

Thank you. Dear speaker, I have no further questions for today. I would now like to hand the conference over to your speaker, Ana Luisa Virginia, for any close remarks.

In the first six months of the year, our teams kept consumers at the heart of the strategy while maintaining a strong focus on the overall quality of value propositions and on profitability. This allowed for a solid and resilient delivery. As market conditions are not expected to improve and recognizing that price and promotion continue to be the main drivers of customers purchasing decisions, we will stay focused on execution and on preserving price leadership aiming to ensure profitable sales growth. Thank you for your questions and for joining today's conference call. I wish you all a pleasant day in a smooth summer period. Many thanks.