Earnings call transcript: Zabka Group Q4 2024 sees strong growth amid stable market

Zabka Group SA (ZAB) reported its fourth-quarter earnings for 2024, meeting analyst expectations with an earnings per share (EPS) of $0.30, matching forecasts. The company also reported revenue of $6.03 billion, slightly surpassing the anticipated $6 billion. The stock reacted positively, with a 1.72% increase during market hours, closing at $23.10. According to InvestingPro, Zabka maintains a "GOOD" overall financial health score, with particularly strong marks in profitability metrics.

Key Takeaways

• Zabka’s revenue exceeded forecasts, reaching $6.03 billion.
• The company opened 1,166 new stores, expanding its presence in Poland and Romania.
• Free cash flow tripled from the previous year, reaching PLN 1.5 billion.
• Zabka achieved a 24% year-over-year increase in adjusted EBITDA.

Company Performance

Zabka Group demonstrated robust performance in Q4 2024, with significant growth across key financial metrics. The company capitalized on a stable consumer environment in Poland, increasing its market share by 1.2 percentage points. The expansion of its digital customer offering to 11.7 million users and the opening of over 1,100 new stores underpinned its strong results. InvestingPro data reveals the company’s impressive EBITDA of $638.08M and a strong free cash flow yield, suggesting efficient capital management. Get access to 8 more exclusive ProTips and comprehensive financial analysis with an InvestingPro subscription.

Financial Highlights

• Revenue: $6.03 billion, slightly above the forecast of $6 billion.
• Earnings per share: $0.30, in line with expectations.
• Adjusted EBITDA: PLN 3.5 billion, up 24% year-over-year.
• Free cash flow: PLN 1.5 billion, three times higher than the previous year.

Earnings vs. Forecast

Zabka’s earnings per share met analyst expectations at $0.30, while revenue slightly surpassed forecasts, coming in at $6.03 billion against the expected $6 billion. This performance aligns with the company’s historical trend of meeting or exceeding earnings projections.

Market Reaction

Following the earnings announcement, Zabka’s stock rose by 1.72%, closing at $23.10. This positive market reaction reflects investor confidence in the company’s strong financial results and strategic initiatives. The stock remains within its 52-week range, with a high of $25 and a low of $17.71. Analyst consensus is notably bullish with a 1.7 rating, while InvestingPro’s Fair Value analysis suggests the stock is currently trading near its fair value. Discover detailed valuation metrics and expert analysis in the comprehensive Pro Research Report, available for over 1,400 stocks.

Outlook & Guidance

Looking ahead, Zabka plans to open over 1,100 stores in 2025 and is targeting mid to high single-digit like-for-like growth. The company expects to maintain a stable EBITDA margin in the 12-13% range and aims to improve its net income margin towards 3% in the near term. Additionally, Zabka is exploring the bond market for potential refinancing opportunities. InvestingPro analysis indicates expected net income growth this year, supporting management’s optimistic outlook. The company’s current ratio of 0.65 suggests careful monitoring of short-term obligations may be warranted.

Executive Commentary

Tomasz Zuhanski, CEO, stated, "JAPCA continues to deliver consistently strong results," highlighting the company’s strategic focus on convenience. Marta Vrofna, CFO, emphasized the company’s growth trajectory, saying, "We are planning to continue the growth of the top line in 2025." Tomasz Blicharski, Chief Strategy Officer, noted, "We have separated ourselves from everyone else by focusing on convenience."

Risks and Challenges

• Potential impact of tobacco/e-cigarette excise tax could affect sales.
• Macroeconomic pressures may influence consumer spending patterns.
• Increased competition in the convenience retail sector could pressure margins.
• Supply chain disruptions could impact product availability and costs.

Q&A

During the earnings call, analysts inquired about potential bond issuance plans, which the company clarified would not increase total debt. Discussions also covered the impact of working capital calendar effects and the amortization increase due to one-time factors.

Full transcript - Zabka Group SA (ZAB) Q4 2024:

Conference Moderator: Good afternoon, and welcome to the Full Year twenty twenty four Financial Results of JAKOB Conference Call. After the speakers’ remarks, there will be a question and answer session. This webcast will be recorded and an archive of the webcast will be posted on the company’s website. I would now like to hand the call over to Toras Suhanski.

Tomasz Zuhanski, CEO, Zabka Group: Good afternoon, and welcome at our meeting with Zbka Group, where we intend to talk about 2024 results. My name is Tomasz Zuhanski, and I’m CEO of Zbka Group. And I’m joined today with two colleagues from the board, and I will ask them to present themselves. Marta?

Marta Vrofna, Chief Financial Officer, Zabka Group: Marta Vrofna, Wostowska Group Chief Financial Officer. Very nice to be here.

Tomasz Blicharski, Chief Strategy and Development Officer, Zabka Group: Tomasz Blicharski, Group Chief Strategy and Development Officer. Great to meet you again.

Tomasz Zuhanski, CEO, Zabka Group: And Filip? Filip Poschka, IR Director. Nice to be here. Thank you. So in 2024, JAKKER Group experienced a remarkable year filled with significant milestones.

One of the most important and actually the reason why we are here today is our successful debut on the Warsaw Stock Exchange in October, unlocking new growth opportunities on the public market. Second milestone, equally important, is our strategic move into Romanian market, which began with the acquisition of Dream Daniel and the opening of the first Fruh store in June. In the end of last year, we already had 60 new stores in Romania. In the fourth quarter, the upgraded Jabca app was launched and we achieved EBITDA breakeven in the digital customer ecosystem. Furthermore, Zabka Group was honored as the retailer of the year, and I can add it’s a sixth time in the row.

And we were the second most loved workplace globally, being the most engaged organization in Poland according to Gallup Institute. All All of these activities and milestones were supported by excellent financial results. So I’m pleased to confirm that in 2024, Zabka delivered on guidance shared during the IPO. Sales to add customers increased by 20% year over year to PLN 27,300,000,000.0, driven by the expansion and consistent performance with like for like growth of 8.3%. The store network expanded to eleven sixty nine locations across Poland and Romania with eleven sixty six gross opening year over year highlighting the proven rollout model that we have.

Adjusted EBITDA saw a remarkable 24% increase reaching billion while adjusted net profit surged by 66% year over year to million, underscoring the company financial strength and strategic execution. Additionally, leverage decreased by 0.8 times year over year, achieving 1.5 times at the end of Q4. By way of a quick recap on this slide, you can see key elements of the convenience ecosystem we have created for our customers. In 2024, Zabka continued to grow its convenience proposition in both physical and digital channels With 90% brand awareness and 4,100,000 average daily transactions in the physical channel, Zabka is synonymous of ultimate convenience in Poland today. The digital customer offering user base grew to 11,700,000 with 33% increase in active shoppers demonstrating our digital leadership.

The ultra modern physical convenience stores and leading customer application are redefining the shopping experience for millions of posts today. Zabka remained focused on fulfilling its long term strategy with tangible objectives being met. The company delivered on each IPO guidance objective, including a 20% increase in sales to end customers in 2024, putting the goal of doubling sales between ’23 and ’28 on track. With eleven sixty six stores opened in 2024, ZAPCA exceeded its promise of approximately 1,100 openings for last year. The like for like growth of 8.3% was within the guidance range and the 32% growth in DCEO sales.

DCEO sales is on the track with the guidance that we get for the whole five years ending in 2028. Japka’s strategic execution thrived, supported by favorable market tailwinds and consumer confidence. Against this positive backdrop, the company executed its strategies strongly with each pillar including network expansion, like for like growth initiatives and focus on new growth engines. The company also saw good initial traction with consumer in Romania and achieved the promised target of EBITDA breakeven in DCO with 32% of sales growth year over year. The supportive consumer environment and market tailwinds aligned with JAKA strategic initiatives positioning the company for sustained growth and market leadership.

Looking ahead, some degree of uncertainty remains due to geopolitical issues and the challenges consumer faced in preceding few years. I will now hand over to Tomek, who will guide you through the market environment in 2024 as well as the details of our strategy execution. Tomas?

Tomasz Blicharski, Chief Strategy and Development Officer, Zabka Group: Thanks, Tomas. So hello again. Last time we met here was after Q3 results. And since then until the end of twenty twenty four, the market sentiment remained pretty much the same stable way. So the rail wages were increasing.

The customer confidence was pretty much flat, and the customer’s perception of their financial situation was up and down, but pretty much in line with prior periods. If you look at the entire market, the trends that we have seen prior in 2024, we’re continuing at the end of twenty twenty four with different channels exhibiting similar dynamics to prior periods as well. On that backdrop, our performance, 18% as perceived here. Growth was very positive. We increased market share in ’24 overall by 1.2 percentage points and continue to increase it in every single quarter.

Looking at how we executed on our strategy, let’s remind ourselves a little bit what the strategy is. So we wanna double our footprint, double our sales within the midterm until ’28. And in 02/2024, as Tomas mentioned, we have executed well on all the key parameters. So the store openings, the like for likes, as well as the growth of digital businesses. And let’s spend a bit more time on each of these underlying growth pillars in the next few slides.

So starting with the expansion in Poland, we opened 1,100 stores in Poland in similar locations that, in, that were opened in a few prior years. So we opened in every every region of Poland. Warsaw, big cities, mid cities, small cities, similar kind of patterns that we have seen before. Close to 30% of the newly opened locations were direct conversions from mom and pop stores. And as I mentioned, there is still, during the the last presentation, there’s still 50,000 mom and pop stores, unorganized or organized under loose French wholesale banners, still in the marketplace.

We’re able to achieve this using the combination of AI and the people in the ground. So the machine men and the machine that I mentioned before. And we’re well on track to achieve in the long term our potential that we set at the 19 and a half thousand stores, in Poland. Looking at the quality of the expansion in Poland, and that that is a very important slide from our perspective, because it confirms that our strategy works well, is the, the quality of our expansion. So, looking on the left hand side, you’ll see, how the each of the vintages of the stores performed in the last twenty plus years, netted of inflation.

So it’s in in real terms. As you can see, the, the last few vintages were performing better than prior vintages. Having said that, all of the vintages continue to grow, even though, we still add additional stores in the marketplace. Furthermore, the last vintage, 02/2024, was among the top 10% per so the 90% of best vintages we’ve ever opened. And that is a confirmation that, we have a very well oiled machine to continue our expansion in Poland.

What I can add to it, we we maintain the same payback periods as we had be, before. You can see that on the right hand side. And additionally, the pipeline for the stores to be opened in 2025 is actually full, the highest ever. So we we now more or less focus on ’26. Twenty ’5 is, is pretty much, well, secured given that we have signed all the required contracts.

Looking at the other subset of this pillar, so Romania, we’ve told you during the last meetings that, we are we started the expansion and, that we’ll continue with testing and fine tuning the format for the for the next twelve months. So we’ll we are well underway with that test. At the end of twenty four, we had 60 stores operating in Romania under Fruh banner. And at the moment, we have close to 90 stores. We are testing the store format.

We’re testing these different store locations. We’re adjusting the product to the local customer needs. We can only confirm what we said before at the moment that the test is encouraging and especially the QEQ meal solutions and street food assortment is working very well. We’ll continue on this test as planned and we’ll come back with, prior with additional information about the expansion in Romania in the in the coming quarters. Moving on to the second pillar of growth, so like for likes.

Here, we have continued to invest in street food, both in terms of remodeling the stores to, to to the latest store format. So including the Merrychef equipment, including the digital screens, which enable additional product offering, including the one that I mentioned last time, which is pizza. Pizza turned out to be a great hit. We we sell up to 80,000 pizzas per day with which is, you know, based on our expectations, a very good result. And we’ll continue to effectively remodel the stores, this year to complete the entire remodeling by middle of this year.

At the same time, we’re still fine tuning the product, offering. We’re fine tuning, the promotional activities with respect to these products, and we’re working towards the, towards the goal that we have mentioned. Secondly, we’re expanding the services. I mentioned a few times that, Japka is like Swiss army knife for the customers. So not only the store, but also or quick service restaurant, but also the mini service center.

And we have to, more than 20 services now. We continue to test and add additional services, to attract the customers into the stores. And we have done that throughout the last, periods as well. Finally, we’re doing a few things that are more or less standard for any retailers. Having said that in a Japka way, so we’ve been innovating with the products.

We have launched last year 614 new products into the Japka stores, out of which 50 around 50 is on products under own brands. Additionally, we’ve been introducing new innovative promotional mechanisms, and close to 500,000,000 transactions last year with the use, where with the use of these innovative, promotional activities. A lot of that is with the use of the app that we have relaunched in a completely new redesigned version in q four, which increased the user base to close to 11,000,000 active users, as well as even more importantly for us at the moment, increase the time spent in the app by roughly 50%. And consumers in the app are using it also to browse products or promotional activities that we have exclusively for them in the app. And moving on to the third pillar of our growth strategy, which is the digital businesses.

Here we had really two goals in the year. One was to continue growing on the path to grow it at five times a few years down the road. And second one, very important for us, was to be breakeven or positive in terms of EBITDA contribution, and we have achieved both of these goals. All of these businesses, Marchfeed and Dietly, Yoush, Dalio, and Nano grew in last year. Marchfeed and Dietly, volume wise grew more than 20 between 2030%.

So these are the d two c meals and d two c marketplace businesses. Our, cucumbers rapid delivery businesses, Yush and Dalio, have grown by 60% becoming the leader in, in Warsaw and in Poland in the services. And importantly, they became operationally profitable with, with, in in q four. Now now we have continue relocating stores to specialized locations as we call them. So factories, offices, as well as student dormitories and few others.

And lastly, we have mentioned that many times with we operate in three megatrends, consumer megatrends, and responsibility is one of them. So let’s not forget about that. And, here, we last year, we continued a role, executing on our ESG strategy, which consists of four pillars. And, we have achieved majority of, of our goals here in this respect. What we are particularly proud of is increase of NPS of the franchisees to last reading was plus 11, being, one of the most engaged in terms of employees organization in the world, as confirmed by Gallup, increasing the sales of health healthy products as well as continuing on decrease of our carbon footprint.

And how all of that that I just mentioned translated into numbers, that will be delivered to you by Martha. Thank you.

Marta Vrofna, Chief Financial Officer, Zabka Group: Thank you, Tamak. I will go through the key financial highlights. Then afterwards, I will share with you the key drivers for our sales and EBITDA. I will share a snapshot of our non financial results. And finally, as the last point, I will share the near term guidance.

So starting with the financial highlights, I’m really pleased to report that we had excellent results for 2024, and we delivered all the targets which we discussed at the time of IPO. It reflects the strength and resilience of our business model. As mentioned already by Tomas, sales to end customer reached 27,300,000,000.0 Polish in 2024, a 20% year on year increase, driven by a balanced mix of like for like growth, store network expansion, dynamic growth in sales of digital convenience offering and launch of our operation on the new Romanian market. Adjusted EBITDA reached SEK 3,500,000,000.0, a 24% increase year on year with 12.8% margin at the upper end of 12%, thirteen % target range. The adjusted net profit increased to EUR $714,000,000 with a 2.6% margin ahead of our near term guidance of 2.5%.

Strong business momentum, working capital release and disciplined CapEx translated into robust cash flow generation of $1,500,000,000 leading to reduction in the leverage profile to 1.5 times EBITDA from 2.3 times EBITDA last year. We have also achieved a significant milestone in development of our renewed digital businesses. As Tomac mentioned, in line with our plan, our digital convenience offering segment has achieved a breakeven of the EBITDA level in 2024 and delivered positive EBITDA in 2024. Looking at the profit and sales. Japka robust sales to end customer growth in 2024 was driven by a healthy mix of organic growth supported by improved customer sentiment and unique differentiated product offering as well as store expansion and increased contribution from new growth engines, so DCO and Romania.

The company recorded 40 basis point margin expansion in terms of adjusted EBITDA, benefiting from our cost conscious approach, greater efficiency in internal processes and a decline in energy prices. The adjusted net profit margin increased by 70 basis points to 2.6%, supported by strong operating performance, lower financial costs as a percentage of sales and an improved effective tax rate from 30% in 2023 to 26% in 2024. When we look on the growth in sales to end customers, it was delivered by a balanced mix of like for like growth, the new stores opening and the contribution from new growth engines. The new stores opening accounted for 4846% of total growth supported by eleven sixty six gross openings. Like for like growth contributed 40% to the total growth, underscoring the strength and resilience of our existing store base.

Our like for like growth of 8.2% in 2024 was evenly balanced between volume and price. We observed increased store traffic and the growing number growing volume as well as growing number of customers opting for more premium products. The strongest like for like performance came from our strategic categories, particularly beverages and QMS, boosted by launch of our new street offering. Looking at new growth engines, it consists of digital convenience offering and Romania. It represents 16% of the total growth in sales and reflect the sustained momentum in our digital convenience offering with 32% year on year increase in sales and acquisition of the business in Romania as well as early success of the first stores which we opened in the new market in 2024.

Looking at our sales on the quarter by quarter basis. As you may recall, our sales demonstrate seasonality. The first quarter is usually the weakest and the summer months contribute a disproportionately high share of annual results. As we have highlighted to you in the past, there is a clear correlation between warmer, better weather and increased store traffic and increased sales. In 2024, like for like performance followed the trend of declining inflation, reaching 7.1% in the last quarter of twenty twenty four.

Weather also played a role in 2024 when we look on the differences between quarters. As you may recall, we had a mild winter and an unusually warm March, which had a positive impact on the like for like in the first quarter of twenty twenty four. Moving to the franchisee margin. As you may recall, supporting our franchisees remains at the core of Shopka business model. In 2024, average franchisee margin per store increased by 8%, so ahead of the inflation in Poland of 3.5%.

Zabka continued to deliver stable and attractive franchisee margin. The increase in franchisee related costs as a percentage of sales in 2024 reflects a better product mix and impact of the higher minimum wage in Poland driving up franchisee’s labor cost. It was partially offset by in store process automation, including increased adoption of self checkout solution in JAP customers. In 2024, we welcomed over 2,400 new franchisees to the network. We maintained low and stable churn level.

And as Tomac already mentioned, we had double digit positive NPS of our franchisees in 2024. Looking at the EBITDA bridge, so our EBITDA drivers. The adjusted EBITDA, as I already mentioned, increased by 24%, rising from PLN 2,800,000,000.0 in 2023 to PLN 3,500,000,000.0 in 2024. This strong growth was driven by incremental sales as well as efficiency gains. Operating and other costs were reduced thanks to improvements in logistics operations such as more efficient pallet usage as well as lower store costs supported by declining energy prices and optimized energy consumption driven by use of more energy efficient store equipment.

This positive effect, as you see on the bridge, were partially offset by higher franchisee related costs. When you look at the SG and A expenses, excluding the one off items relating to the IPO, IPO bonus and Altip as well as Dream acquisition, the SG and A costs remained stable as a percentage of sales at the level of 1.4% of sales in both 2023 and 2024. Looking at the bridge, a new growth engine includes digital convenience offering and Romania. Our DCO segment reached EBITDA breakeven in 2024, as I already mentioned, impacting positively our profitability dynamics. As shown on the bridge, the gain was offset by investment related to the development of the Romania business and throwout of the new stores.

Looking on the at the net profit margin. We achieved net profit of SEK $740,000,000 with a net profit margin adjusted net profit margin of SEK 2,600,000.0, exceeding our near term target of SEK 2,500,000.0. This strong result was driven by lower interest cost and improved tax efficiency. Financial costs declined as a percentage of sales from 3.8 in 2023 to 3.2 in 2024, And it was supported by a lower reference in Poland, lower Wibor, in 2024 compared to 2023 and improved margin on our main loan facility, which was driven by two factors: lower leverage in line with the margin ratchet in our agreement and 100 basis point margin improvement negotiated with our syndicate post IPO. As the margin improvements was implemented only in December, the full impact of that will be visible only in 2025.

These savings on the margins were partially offset by an increase in lease related interest costs due to new stores opening due to the stores expansion. As indicated in our IPO guidance, our goal is to further increase our net profit. To that end, as announced this morning, we are actively exploring the bond market. Given that our strong business profile and financial track record, we believe we will be able to further diversify and optimize our funding structure. The process has been launched and is expected to advance in the first half of this year.

Important to mention that we do not plan to increase our total net debt. In line with our expectation and in line with what we shared with you during the IPO, we have also delivered the improved tax efficiency. Our effective tax rate decreased from 30% in 2023 to 26% in 2024. And it was mainly driven by repayment of tax nondeductible debt facilities as well as recognition of a tax benefit related to new distribution center located in the in a special economic zones. Now moving to CapEx.

CapEx spend reached SEK 1,500,000,000.0 and was below the expectation, which we shared with you within the prospectus of 1,800,000,000.0 for 2024. It was higher than last year. And similarly, as in the previous years, it was discretional and growth oriented. Maintenance CapEx was similarly at the level as a percentage of sales similar to 2023 of 1.3% of sales to end customers. In 2024, ultimate convenience CapEx focused on business growth with major spending on new stores openings, store remodeling, including implementation of Merrychef to a number of Zabka stores in 2024 and logistics.

CapEx per store remained stable in 2024 at the level similar to the CapEx we spent per store in 2023. New growth engine CapEx included enhancement for our digital convenience offering, primarily development of our new customer app and its integration with our entire convenience ecosystem. It also was related to international expansion and opening the new stores in, through new through stores in Romania. Corporate and strategic leadership CapEx covered IT licenses in technology projects as well as AI, advanced analytics and the data projects. Now moving to the cash flow generation.

Zabka financial performance in 2024 was marked by robust cash flow profile, a key indicator for both operational efficiency and the financial half. The company generated free cash flow of PLN 1,500,000,000.0, which was more than three times higher than in the previous year. This resulted in a strong cash conversion ratio of more than 60%, as we see, and was driven primarily by significant growth in sales and profitability, disciplined CapEx expenditure, proceeds from sale and leaseback transaction involving selected Zabka stores and improved network capital networking capital position, partially supported by a timing shift in cash flows between 2023 and 2024. As mentioned during our previous meetings, there was a calendar effect between December or as the day of December 2023 and the beginning of twenty twenty four. We improved finally, we improved also our balance sheet.

Japka robust free cash flow supported a deleveraging trend with a net leverage ratio, excluding leases, at 1.5x, down from 2.3x a year ago. As per our guidance, we will continue on our deleveraging journey, aiming at net debt to EBITDA ratio, excluding leases, of below 1x EBITDA in the midterm. And now moving for a while to non financial results. While growing our business, we remain focused on sustainability. We have integrated ESG targets into both our short term and long term incentive plans.

In 2024, we once again received the EcoVadis Platiniu model. We reduced scope one and two emissions by more than 30% compared to the base year. Our sales of own brand products promoting healthier and more sustainable choices reached PLN 1,800,000,000.0 in 2024. And a key step this year was also a group wide rollout of our sustainability reporting. We concluded a double materiality assessment.

We shared that with you in the annual report. And as early adopter, Japka prepared voluntarily its first CSRD report, reinforcing our commitment to transparency and accountability. And finally, I would like to share with you, our guidance. So what is very important is that we remain confident in the medium term outlook shared during the IPL guidance. We expect continued strong momentum in our business.

We aim to open over 1,100 stores in 2025, which, as you recall, is 10% ahead of our midterm guidance. And this is a reflection of very good performance of recent vintages, which Tomek shared with you, and also very good pipeline and availability of real estate in Poland. In the medium term, we continue targeting 1,000 plus a store opening per annum in Poland and in Romania. On like for like, Zabka anticipates delivering mid to high single digit like for like growth for the full year 2025 in the medium term. The company expects stable adjusted EBITDA margin towards the top end of 12%, thirteen % range in the near and medium term.

And in 2025, we expect to deliver EBITDA margin, which is similar to the margin delivered in 2024. Adjusted net income margin will further increase. It is expected we expect it to improve towards 3% in the near term and progress towards the medium term target of approximately 4.5%. In terms of current trading, we continue to see robust trading with the first quarter like for like expected to be mid single digit, reflecting seasonality and high base effect. I will now hand over to Tomasz, who will summarize the meeting, and then we will be ready for your questions.

Tomasz Zuhanski, CEO, Zabka Group: Thank you, Marta. In conclusion, JAPCA continues to deliver consistently strong results with attractive top line performance driven by a healthy mix of like for like growth and store expansion. The company achieved margin progression at both the adjusted EBITDA and net income levels resulting in strong free cash flow conversion and accelerated deleveraging profile. JAPCA remains committed to delivering on growth initiatives including store openings, rolling out street food across all the network and seeing positive traction from digital customer offering. The company remains confident in delivering the near and medium term outlook for growth and profitability in line with what was communicated at the IPO.

So I would like to end our presentation here and move on to the questions. Thank you.

Conference Moderator: Thank you. We’ll now begin our Q and A section. Our first question comes from Isabelle de Breva from Morgan Stanley. Please unmute yourself and ask your question.

Isabelle de Breva, Analyst, Morgan Stanley: Hello, good morning. Thank you for taking my questions. I have three questions, please. So my first question is on the path of the debt refinancing and the 1,000,000,000 potential issuance which you have now announced for the first half of the year. Could you just confirm if this 1,000,000,000 is successfully issued?

Number one, would you expect any spread benefit relative to the current cost of debt? And number two, should we assume that this will be used to rotate the existing debt under that more tax efficient structure. So could you just confirm that that’s how that works mechanically? And then my second question is on working capital. Is it possible to quantify how much of the movement in this year’s working capital was linked to the calendar effect, which you mentioned?

And what your expectation is for the working capital movement for 2025? And then my final question is on the cost outlook. So if I look at the marketing costs, they were up 19%. So should we be expecting a similar level of growth into next year or should we expect an acceleration in the marketing costs in line with the completion of the remodeling? And then similarly, the IT costs, those were up just under 25%.

Was there any front loading of the IT spend in the 2024 number? Or should we expect a similar level of growth in IT costs in 2025?

Marta Vrofna, Chief Financial Officer, Zabka Group: Isabel, thank you for your questions. So maybe I will start with refinancing. So as you’ve seen this morning, we announced that we have signed a a bond program agreement. So we are planning to we are considering issuing bonds in 2025. We may do the first tranche in the first half of twenty twenty five, as you correctly mentioned.

It is to diversify our source of financing. We are, as you may imagine, the beginning of the process. So it is this hard for now to assess the spread benefit. But of course, if it will be possible, we will, we would like to achieve it. On the top of that, we will, as I mentioned already, there will be no increase in the total debt as a result of bond insurance.

So therefore, what you can expect is that we will use the bond proceeds for the operating activity and spending on our investments. But we will, in the same time, we will repay part of our existing debt, which is non tax deductible. So out of that, we will achieve the our debt structure will be more tax efficient. In terms of net working capital, as I mentioned, there is a calendar effect between 2023 and 2024. The receivables at the end of twenty twenty four were unusually high as the December 2023 fall on Sunday.

And therefore, the franchisee did not repay to us their receivables because they do not they usually don’t do that during the weekends. So does and additionally, as at the end of twenty twenty three, there was also some accelerated payment payments to the to the suppliers. The effects of those two was approximately, like, between $250,000,000 and 300,000,000. So we may expect that going forward, we, this is a part of the positive impacts coming from working capital, which is visible in 2024 but will not be visible every year going forward. And your final question was on

Michal Potira, Analyst, UBS: Marketing and the marketing cost outlook.

Marta Vrofna, Chief Financial Officer, Zabka Group: Marketing cost outlook. So when you look on the, like, SG and A costs, including technology, as a percentage of sales and you adjust that for the portion of nonrecurring costs, which were related primarily to the IPO and some of that also to, like, to the acquisition of Dream and IPO bonus and Altip, the adjusted cost as a percentage of sales will be constant. So the level will not increase in 2024 compared to 2023. And in the following years, we also do not expect those costs to increase as a percentage of

Zhegor Zhekovsky, Analyst, Trigon: sales.

Isabelle de Breva, Analyst, Morgan Stanley: Thank

Luca Colagnon, Analyst, Lombardi Capital: you.

Marta Vrofna, Chief Financial Officer, Zabka Group: Thank you, Isabel.

Conference Moderator: Isabel. Our next question comes from Michal Potira from UBS.

Michal Potira, Analyst, UBS: I have two questions, please. So the first one, if you could comment on your expectations regarding the franchisee margin evolution in 2025 and in the longer run? And the second question, if you could comment on the supply environment in Poland, are is your position improving versus the last two years remain stable? If you could give any color on that, that would be helpful. Thank you.

Marta Vrofna, Chief Financial Officer, Zabka Group: Michal, thank you for this question. In terms of the franchisee cost as a percentage of sales, so as we discussed historically, the like, engagement of franchisee is key for our success. And therefore, we always make sure that we keep involvement and engagement of our franchisee on the high level. And since it was mentioned during the presentation in 2024, we increased, in fact, engagement of our franchisees, which is very important for us. As you may recall, in 2024, we had very significant increase in the minimal salaries in Poland, which impacted the labor cost of our franchisees.

And on the top of that, we had a Zwapka positive product mix coming from the higher sales of our QMS and soft drink drinks categories, which I which, as I mentioned during the presentation, had the highest like for like. So as a result, the franchisee cost as a percentage of sales increased. Going forward, like, we do not expect very significant increase. However, there may be some coming primarily from the improved product mix. So if we make sure within our strategy that we share the benefits coming from a higher margin between us and our franchisee, So if we see we have better products means and better direct margin, we will share part of the benefit with our franchisees.

So from this perspective, we may expect, like some increase but not significant coming from better product mix.

Tomasz Blicharski, Chief Strategy and Development Officer, Zabka Group: Yes. To add and build on what Marta said, obviously, the increased cost on the franchisee side, we, it’s counterbalanced against productivity increases that we’re working on with franchisees. We’re implementing, tens, if not more, different solutions to reduce the time spent on any given tasks. We’re optimizing the tasks inside of the stores as well as in between the logistics and the store. And we are introducing technology solutions, including building up with additional features, the franchise app, in which the franchisee is effectively running the store, as well as working out on increasing the utilization of self-service checkouts inside, which are in all our stores now, and adding different technology solutions, to effectively be able to minimize the labor intensity in each of these stores.

So there are two effects. And, over the last few years, we’ve been able to successfully rollout and have a pipeline of these efficiency gains to counterbalance the increased cost.

Tomasz Zuhanski, CEO, Zabka Group: And thank you, Michael, for the second question. We were always saying that our relationship with suppliers based on respect and planning. So we work with all the suppliers together, making plans for the future. So thanks to that, we are, for many, many years now, retailer number one, chosen by suppliers. But we also know that we are one of the most growing companies in Poland, opening more than 1,100 stores per year and having more than 20% of sales growth.

So we know that we have a purchasing power and we have arguments on our sites. If you add to that that we don’t have fresh, so vegetables, meat, these kind of things, in many categories, we are the best customer for our supply. So we know how to use it, and that’s why we are increasing our margins as well. So I don’t know if you answered that questions, but I would stop here.

Michal Potira, Analyst, UBS: Thank you very much for the answers. Let me please have one follow-up question. If you could maybe give us your view on the shape of consumers in Poland, because there is a lot of kind of, I would say, mixed opinions given by some of your peers And also the the retail sales data as reported by the statistical office seems to be very volatile. So if you could maybe give us a little bit of color maybe also on your one q trading, like, were there any differences between January, February, or is it more or less the same? Thank you.

Tomasz Blicharski, Chief Strategy and Development Officer, Zabka Group: Thanks. I’ll I’ll take this. I think we not we we see the consumer environment pretty stable. So I my kind of answer to that question doesn’t change. I think I answered similar question in, in our last meeting.

There is neither extremely good, neither poor. I would say that if you look at the through the lens of ten years, so removing all the noise coming from COVID, inflation war, and a few other kind of events, we are in the market in a market that is exhibiting more or less normal patterns of growth overall. Of course, there are different channels and different shopping missions even, effectively perceive it differently. Right? There are there are kind of differences between the different aspects of the market.

But from our perspective of our business, the consumer is pretty stable, and we see quarters last few quarters which are pretty similar to each other with relatively not so such a big variances between the months even. What drives the biggest variances of all these factors is the weather. And especially in the time of the year where we have where we have kind of, where the variability could be big. Right? We can see positive or negative variances coming from from, from the weather impact.

But but overall, if you look at the grand scheme of things, these aren’t that that sizable. Right? So we have, we have positive kind of growth in in all these underlying months that that we have. Right? Now obviously, that is looking at our business from our perspective.

And, what is worth mentioning is that we, through the strategy that we had over years and was especially visible these strategies in the last few years, we have separated ourselves from all everyone else from the market by focusing on convenience, focusing on impulse mission, focusing on hot food and QMS, on on the things that we do the best. Right? Here, as you know, we’re, we’re a little bit alone on that part of the market. Right? So in our part, I think that’s what we what we can say.

Tomasz Zuhanski, CEO, Zabka Group: So maybe I can add to that repeating what Marta was saying and adding albeit, color on the weather during the first three months of the year. So January was good. February, in terms of weather, was quite bad. But March is quite good. So altogether, we are pleased with our performance.

So what we can say is that in first quarter, we expect to be mid single digit, which is reflecting seasonality and high base of last year. Matta was showing that. Last year during first quarter, we had 11.5% of like for like.

Conference Moderator: Thank you. Our next question comes from Zhegor Zhekovsky from Trigon. Please unmute yourself and ask your question.

Zhegor Zhekovsky, Analyst, Trigon: Good afternoon. Thanks for taking my questions. I am Preet and I I will ask them one by one. First is around fourth quarter gross margin. There was a deterioration year on year in fourth quarter following a different trajectory than in previous quarters of 2024.

Could you clarify the reasons for the decline? To what extent did the positive effect in electricity prices, prices, or what was the impact of the product mix and supply trading terms? That’s the first question.

Marta Vrofna, Chief Financial Officer, Zabka Group: Yeah. So in terms of, like, when you look on the EBITDA margin, the margin in the last quarter is last year on 2024 is similar to the margin which we generated in 2023. There is, in fact, like a zero point like slightly lower margin direct gross margin. And it is driven by so what we’ve what we by implementing our multilayer strategy to drive volume at our stores. So we tried, as Thomas mentioned, and we introduced at our stores number of very innovative promotions.

In fourth quarter of twenty twenty four, we also launched our Super App, and there was some investment related to the launch as well. So we wanted to attract new customers to our stores and to our app. And from this and therefore, we invested also to achieve that goal. Overall, we expect that going forward in 2025, given what Thomas said, given our position and relation with the suppliers and given that we are planning to continue the growth of the top line in 2025. We believe that similarly, and as in the previous years, we will be able to improve our terms of trade with suppliers based on the increased sales.

Zhegor Zhekovsky, Analyst, Trigon: Okay. That’s helpful. The second one is around like for like. Could you share with us to which extent like for like growth 2025 is driven by price and volume?

Marta Vrofna, Chief Financial Officer, Zabka Group: I think what I can say at this stage is that we see positive volume and positive price effect. So we see more customers coming to the stores. We see higher traffic. We still see that customers choose more expensive products or more premium products. And we also see the positive price effect.

So all of them, like, contribute positively to our like for like in the first quarter. We will be able to share more details probably when we release the results for the first quarter in May this year.

Zhegor Zhekovsky, Analyst, Trigon: Thank you. And the third one is around loss in Romania because you mentioned a positive contribution from this year segment, why the new growth engine segments shows a bit the loss at around PLN 70,000,000. So is it fair to assume that the EBITDA loss from Romanian operation combined with Dream Daniel Logistics was around or over PLN 70,000,000, PLN 80 million? Could you repeat that?

Marta Vrofna, Chief Financial Officer, Zabka Group: I think it was like, for sure, what I can confirm is that we invest in Romania. So the current operation of our stores in Romania, like, does not contribute positively to a BDA. But I think that the calculation which you have performed is not fully accurate is what I could comment. The excess of the loss is not as significant as you mentioned.

Conference Moderator: Okay. So just as a reminder, if you do wish to ask a question, you can use the raise hand function. Or if you’ve dialed in, you can press 9. Once you’ve been called upon, please unmute yourself and ask your question. So we have another question here from Elena Yoranova from JPMorgan.

Elena Yoranova, Analyst, JPMorgan: I have a few questions, please. First and foremost, on amortization, I think it went up significantly towards the end of last year. Can you please talk a bit about the reasons of this and if your current amortization run rate is sustainable in 2025?

Marta Vrofna, Chief Financial Officer, Zabka Group: Yes. Hi, Alana. So we have like as you correctly noticed, there is an increase in amortization and depreciation in 2024, but part of that is nonrecurring. So we have increase in right of use, which is driven by the fact that our contracts with the rental contracts are indexed by CPI, so by inflation. And given that in 2024, they were indexed with inflation for 2023, which was higher than 11%, there is some increase in the accounting depreciation of right of use coming from this adjustment.

On the top of that, and this portion is not recurring, we have in 2024 accelerated amortization of some of the legacy software for Zabka as well as for the new business for digital for the digital businesses, which was, so the software which is going to be replaced with the new super app. And given that the new super app is go was launched in the fourth quarter of twenty twenty four, there was an accelerated amortization, which increased the total value for 2024. Going forward, we expect that the growth which we had in 2024 is going to be non recurring. So in the near term and in the medium term, we expect to come back to the levels of depreciation and amortization as a percentage of sales, which we used to have in 2023 and in the previous year. I’m not sure if it answered your question, Alana.

Elena Yoranova, Analyst, JPMorgan: Yes. Yes. Perfect. Very clear. Thank you.

Then another question I had was about your expectations and impact from the excise tax increase on the tobacco category from, I think, May. Is this part of your like for like margin guidance? And what is roughly the impact that you’ve modeled on like for like in margins?

Tomasz Zuhanski, CEO, Zabka Group: And maybe before Marta will go into details, just a helicopter view on that. In Poland, for many years, excess tax for alcohol or for cigarettes are growing. So it’s nothing new for us. We know how to deal with this. Also, it has a limited impact on consumption maybe at the very beginning, but then it’s stabilized.

So we will we don’t see here any threats for the business. There is one excess tax that is related to e cigarettes, which will come in September. What we discuss with our suppliers is the fact that people will move from e cigarettes that are not liquid as they are onetime use, right, cigarettes. They will move to from the single use to the multi use. So also we do here a lot of activities with suppliers to mitigate that possible risk in terms of the impacts in plants.

Yes.

Marta Vrofna, Chief Financial Officer, Zabka Group: So as you said, Dimash, so in terms of the total impact, we do not expect it to be significant. So we will see a positive impact coming from higher prices, which will be, to some extent, offset by slightly lower volumes. But we don’t see that as a main driver of our like for like for 2025.

Conference Moderator: Our final question will come from Luca Colagnon from Lombardi Capital. Please unmute yourself and ask your question.

Luca Colagnon, Analyst, Lombardi Capital: Right. Thank you so much for taking my questions. I have two in theory, if I can. So the first one is just as a clarification, I think Martha said that QMS offering has been growing very fast and is the category with the highest like for like. So could you please detail how much like for like was impacted by that?

In other terms, how much that QMS category contributed to like for like for the whole group? And then the second question is on inventories. I think if you compute inventories in terms of selling space, that has been increasing and it’s now the highest over the last four years. So why is that?

Marta Vrofna, Chief Financial Officer, Zabka Group: So maybe starting with the QMS like for like, what I can say is that the category has the highest like for like, and it is driven by mostly by new product, which we develop and launch in our stores. So it is it includes the new street food offering, also the Merrychef products, which we offer at our stores, but also number of ready meals, which is internally developed and is like new and exclusive at JapCastler for our customers. This positive or high like for like of the QMS also impacts other categories through co buying. So customers usually buying QMS by also, like, soft drinks or other categories, so it has like wider impact on our sales. In terms of inventories, there was an increase, as you said, as at the end of the year.

And like, it was driven by a number of reasons, but it was also related to the expected increase in the excise tax, which we discussed like a few minutes ago.

Luca Colagnon, Analyst, Lombardi Capital: Understood. But thank you very much. And maybe a clarification, would you be able to say how much higher the QMS like for like is versus the rest of the group?

Marta Vrofna, Chief Financial Officer, Zabka Group: Yeah. I think we do not share this info on this detailed information currently.

Luca Colagnon, Analyst, Lombardi Capital: Alright. Okay. Thank you so much.

Marta Vrofna, Chief Financial Officer, Zabka Group: Thank you.

Conference Moderator: We do have an additional question come through. So that’s from Janusz Pientzta from Embank.

Janusz Pientzta, Analyst, Embank: I’ve got one question regarding working capital. As you stated that there was some extraordinary positive impact in 2024. So what are your expectations? Could you give us a bit more color on 2025? Should working capital have some positive impact on cash flow in 2025?

Or should it be less positive that we saw in 2024?

Marta Vrofna, Chief Financial Officer, Zabka Group: Yes. So there will be positive inflow coming from our working capital in 2025, but the value of the positive impact in 2025 will be lower than in 2024 given the, like, non recurring effects which I mentioned. So as we discussed, there is like between $250,000,000 and 300,000,000 of this calendar and, like, year end effect between 2023 and 2024, which will be non recurring. So but even after that, we expect, as you can see, the positive impact also coming from working capital given that it has negative profile for us. And we expect sale and the number of stores increase in 2025.

Also, working capital will bring positive impact on free cash flow in 2025. But the extent will be like similar to historical number rather than similar to 2024.

Janusz Pientzta, Analyst, Embank: Okay. And maybe last one on the CapEx. So how much CapEx would you expect for this Merrychef rollout in 2025, the completion of the rollout as I guess it would will not recur in 2026, yes?

Marta Vrofna, Chief Financial Officer, Zabka Group: Yes. So in 2024, we have most of the stores were like we added the Merrychef to most of the stores in 2024, and the major of CapEx was spent in 2024. In February currently, we have 70 as at the end of the year, we have we had 75% of our stalls, like with Marie Shev. So another 25% is to be, like, implemented in 2025. So the and we I think we disclosed historically that the, like, CapEx for Merrychef, including also the screens, like, at our stores is approximately 50,000 Polish lotto per store.

Yeah. So based on that, I think you can estimate. What I can also say is that as a percentage of sales, when CapEx for 2025 will be lower than in 2024, given that we had in 2024 this like one off CapEx related to MediChef implementation in most of our stores.

Conference Moderator: Thank you. Well, there are no further questions on the call, so I’ll now hand back to Japka management for closing remarks.

Tomasz Zuhanski, CEO, Zabka Group: So actually, we are after closing remarks. So thank you very much for that meeting and see you in May. Goodbye.

Marta Vrofna, Chief Financial Officer, Zabka Group: Thank you.

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