Q3 2017 Sonae SGPS SA Earnings Call

SON.EP - Sonae SGPS SA
Q3 2017 Sonae SGPS SA Earnings Call
Nov 16, 2017 / 03:00PM GMT 

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Corporate Participants
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   *  Edmundo Figueiredo
      Sonae, SGPS, S.A. - Senior Executive
   *  Luís Filipe Campos Dias Castro Reis
      Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS
   * Miguel
   *  Rui Almeida

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Conference Call Participants
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   *  Filipe Rosa
      Haitong Bank S.A., Research Division - Head of Research for Portugal
   *  José Manuel Rito
      Banco Português de Investimento, S.A., Research Division - Analyst
   *  Timothy Michael Attenborough
      Grupo Santander, Research Division - Equity Analyst

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Presentation
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Operator   [1]
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 Good afternoon, welcome to Sonae's First 9 Months 2017 Results Conference Call. During introduction hosted by Mr. Luís Reis, Sonae's Chief Executive Officer. (Operator Instructions) I will now hand the conference over to Mr. Luís Reis. Please go ahead, sir.

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [2]
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 All right, hello, everybody, and thank you for attending our 9 Months 2017 Results Conference Call. As usual, I have our CFO with us -- or with me. Rui Almeida from Sonae MC; Miguel Águas from Worten and Sports & Fashion; Edmundo Figueiredo, from Sonae Sierra; Carlos [shielda] from Sonae Investor Management. And we also have together with us [Ron Ward] from our Central Planning and Management control, as well as all our Investor Relations team.

 Since we are attracting the attention of new investors and new markets, I will have just start by briefly showing what is the shape from a strategical standpoint during the first 9 months. And then as usual, I will briefly cover our 9 months results at yielding level. And then we'll enter into a little bit more detail on a per business basis.

 Regarding our strategy, that some of you know it's basically based on 3 main pillars, which are: defend and leverage our key assets and competencies mainly in our core markets; the second one is to continue to drive the international expansion; and the third one is to diversify business model from investment approaches.

 On these 3 arenas I think we have achieved quite a lot during the last couple of months. And I'd like to start stressing that on the first pillar, I believe that Sonae MC have a particularly good quarter. The value proposal of Sonae MC is proved to be very resilient. Once again, we were able to defend our price leadership in the market that was happily recognized in the Portuguese market and also happily recognized by the Portuguese consumers.

 And on top of that, we've continued to expand our proximity store network. We've opened 10 Bom Dia stores since the beginning of the year and all of those stores are performing either according or above our initial expectation.

 Another area where we are developing adjacencies to our core business is the Health and wellness segment, where we are keep pushing on everything that has to do with biological foods. Our supermarkets are [Aldi] area -- are developing well. We've also launched an experimental concept in the light health segment with 2 Dr. Well's clinics that are also working quite well. A further area where we've achieved -- some significant developments in terms of leveraging our key assets and competencies in Sonae Financial services where our universal credit card continues to grow at a very steady pace and continuing to produce quite interesting results.

 On our second pillar, international expansion. I think that Sonae Sierra is continuing to post very interesting results, not only in its new activities related with the management of funds, they continue to invest together with Bankinter and also together with AXA, 2 funds that have invested during the 9 months. And we still have a very interesting and robust pipeline of new developments, both in Europe and outside Europe. I'll be back into that when I will mention Sonae Sierra.

 The third area is Sonae's Sports & Fashion. Currently, our sports is either directly or indirectly or our brands are directly and indirectly are present in more than 90 countries. Hence, some of our products are posting quite significant growth. But I'd like to give some messages on Salsa which is performing particularly well in the Spanish market.

 On the third pillar, which is aligned with the diversification of business model divestment approach. I think that we are very close to conclude the JIV agreement with Sports Zone. That deal is now only pending the approval the Brussels Competition Authority. Everything is on track with our initial calendar.

 Jumping now into our consolidated results. While we are quite proud of our results, turnover for the 9 months has grown 6.9%, with any positive contribution from all of our main businesses. Sonae underlying EBITDA has grown more than 6.9%, actually 9.6 percentage points. And Sonae recurrent EBITDA also increased by 11.5%. So we are showing not only a growth and a significant growth in terms of turnover, but also an increased profitability. So an increase in our overall productivity at this yielding level.

 Sonae EBITDA decreased when compared to the 9 months. So that is totally due to nonrecurrent items that we have last year. The first half of 2016, we have significant [salinbee] on these back operations that we didn't repeat during 2017 with the same dimensions. So that's the only reason why EBITDA is not performing with the same levels as all the other lines I've already mentioned.

 Indirect results stood at EUR 47 million, more EUR 16 million when compared to last year, and that was driven by 2 effects already reported on the first half of 2017. First, the positive contribution of evaluation of Sierra assets and second, the capital gain that came from the de-consolidation of our brokerage business [endair].

 Net income has reached EUR 133 million and the capital structure is being reinforced once again. And it's also important to notice that the average maturity of all our debt is steady, it's 4 years. And the average cost of debt has slightly reduced from 1.4 percentage points to 1.3 percentage points. Then obviously our team is continues to be -- continues to be very active and we're renegotiating all our debt facilities, because we are still finding some interesting opportunities. We've raised more in terms of extension of the maturity than really in terms of pricing, which is quite reasonable already.

 Going now into Slide 3, deeper analysis in each one of our businesses. I'd like to start by commenting that, as I said, we believe has posted a very, very positive first quarter set of results. That came to start with from our sales. Sales have posted quite an impressive growth, 0.5% in the 9 months, most important 0.1% positive like-for-like in the first quarter. And on that respect, I think it's important to highlight the fact that we have very, very tough comparable. Last year, we have posted a growth of more than 4% in the third quarter. And also, this is particularly significant in the context of the deflationary market in fruit and vegetables. So this is particularly remarkable in terms of sales. And obviously, because of our expansion that continues to perform very well, the increased turnover in MC, it's 4.8% in 9 months and 4.4% in the third quarter of 2017.

 By all indicators that we have, including the economic -- the National Institute of Statistics, but also all the agencies that measure market share, we can be totally positive about the fact that we won market share once again. And this is the 8th consecutive quarter where we'll continue to gain market share in the Portuguese market. We are not only reinforcing our leadership position, but actually gaining space between us and the other players in the market.

 The underlying EBITDA margin stood at 5.2 percentage points, 30 basis points less than last year, totally in line with all the messages I've been giving during these conf calls. And you know my interactions with the market, as I've been saying, we are facing, still, a relentless competitive environment. And because of that and also, and mostly, because of our expansion, we are witnessing a slight decrease at our margin that is approaching a level of stabilization. As I've been mentioning during all these calls, we've always thought about a decline between 20 to 40 basis points in our EBITDA margin for the year. We are pretty much in line with that. And eventually, anticipating some of your question we are not witnessing any kind of significant degradation at the promotional investments in Portugal. Actually, some of our main competitors are already showing some signs of rational behaviors. And I think that those rational behaviors can be very important for the quarters to come.

 Worten. Jumping now into Worten, I think it's a stellar performance in our portfolio. The results of turnover growth, the results of improvement in terms of the EBITDA are quite significant. I think that some of you are following these conf calls for a long time. Some of you have very good and fundamental reasons to mistrust our judgments regarding all the movements we did in Worten. But I think that we are now quite confident that our Iberia approach, coupled with the very strong omnichannel that is shown in these results. We've written in the earnings announcements the impressive growth of our e-commerce operation, both in Portugal and Spain. Worten is growing much, much faster than the market, both in Portugal and in Spain. And now our Iberia is really becoming stronger, hence we are right on track to meet, which is not done. It's an overall ambition of getting to close to EUR 1 billion in sales and the 3% EBITDA margin, which we think is the beginning of a very sustainable operator in Iberia.

 Regarding Sonae Sports & Fashion. This is the first quarter where we are presenting fully comparable results with the inclusion of Salsa, already totally comparable in last year's third quarter. All our businesses, all of our main businesses have presented very good turnover growth. All of those businesses have also posted positive like-for-like with the exception of Sport Zone. Sport Zone is played -- Sport Zone more towards the profitability, again than towards the (inaudible) actually Sport Zone presented quite interesting growth in the net profitability, not so in terms of growth in sales. But overall, in this division turnover has grown 16.8% and as I said, it's fully comparable. The underlying EBITDA stood at EUR 12 million, improving almost EUR 40 million. And it's quite interesting that I would note particularly the good performance of Salsa, which is in older markets that's key for Salsa namely the European markets, and particularly in Spain, the results of Salsa are particularly good.

 Moving on to Sonae RP, not a lot of news there. You are aware of the fact that we've closed a small (inaudible) transaction for food retail assets, an amount of EUR 35 million. But a significant capital gain for that size of operation EUR 10 million, that shows that the market is very interesting at this stage for this particular type of asset. We are already aligned with our strategic [preold] around 50%. We are still being offered some interesting opportunities, but if we will announce anything in this area, we will obviously be very, very slow.

 Regarding some Sonae Sierra. The operational performance is really good. I have to say that the occupancy rate in all of our -- or the average occupancy rate in Europe stood at 97.2%, which is a benchmark number for all operators of shopping mall across the world. And in Brazil, where the economic situation is improving but is still recovering from a difficult period, it stood above 90%. So our shopping malls are performing quite well. Hence, in another different area, regarding the development activity, as I said, we have now 6 projects in pipeline. Nuremberg in Germany, designer outlet in Málaga, in Spain, there's an outlet in Morocco, Cúcuta in Colombia and NorteShopping and Colombo expansions in Portugal. They are all evolving according to plan. And also McArthurGlen designer outlet in Málaga in Spain. The NorteShopping expansion as they are already in the construction and we have those 2 expansion scheduled for 2018. Obviously, there's very good performance in operational terms, has translated into a very positive evolution of Direct Results. In Indirect Results, there is a decrease but please be aware of the fact that our Indirect Results cannot be compared with last year because last year we've registered during this quarter, the Indirect positive results of the opening of ParkLake in Romania that we did when we opened the shopping mall.

 A brief note on NorteSh. We are, as I've been saying, a very active shareholder of NorteSh. We are very proud of the work the team is doing there, continuing to grow in all the operating metrics and showing again a growth in de novo, it's 3.4%, significantly improving EBITDA, significantly improving net results, but also very important to note is the fact is that free cash flow has grew from EUR 48 million to EUR 146 million in the 9 months. And I would like to stress that fact that NorteSh has paid dividends in the amount of EUR 103 million during the second quarter. That shows the commitment of NorteSh towards significant remuneration to its shareholders.

 On Sonae Investment Management. Just a very important note to stress the fact that in our key investments, the key investments that we did last year in the ones [spiritu] interest funds is now Armilar. We entered into those funds mostly because of 2 tech companies that we think are quite good, [outsystems]and SIFI. And because of the performance of those 2 companies and because of the rounds of financing that those 2 companies managed to raise during the last quarter, we've already registered a positive Indirect Result of EUR 4 million coming from the good performance of those 2 key investments in Armilar funds.

 Regarding Sonae Financial Services. As I said at the beginning, we are really on feeling a very positive trend there, 23.6% growth on production, 40% growth on turnover, positive EBITDA EUR 2.1 million. This is a very young operation, less than 2 years of operation, but already very positive figures. We've clearly surpassed the 0.5 million customers in the Portuguese market. We are above 10% market share in credit production. So really, very positive early indicators on this area.

 So all in all, very -- we are very pleased with the 9 months results. But equally pleased with the results of this last quarter in Sonae MC, in Sonae, in Worten, in Sonae Financial Services, in Sonae Sierra and NorteSh. Almost all over our different participations, we are seeing quite, quite positive results. And we believe that we are right on track to continue to produce a very strong and solid operational performance going further, whilst we continue to strengthen our capital structure.

 So I will open for Q&A. And not only myself, but all my colleagues here will be more than glad to answer your questions. Thank you very much.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Your first question comes from the line of José Rito from CaixaBank.

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 José Manuel Rito,  Banco Português de Investimento, S.A., Research Division - Analyst   [2]
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 My first question on the food retail and margin evolution. You have pointed that expansion and competition has been the main reasons for the margin compression. But we also know that 2018 should be the last year of your full year program in terms of store expansion towards the proximity formats. And you also mentioned that competition is stabilizing. So do you think it is possible to assume some improvements at the marginal level in the near future? That will be my first question. Then also related with food retail and in terms of OpEx cost. Other players have been flagging some pressure on costs for Q4. Do you also expect to increase wages by the year-end? And also, how do you see this evolving for 2018? And finally, a question on the working capital evolution if that's improved by EUR 30 million year-on-year in the 9 months. Do you expect to maintain this trend in this gain in Q4?

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [3]
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 Jose, I have just announced on your statements regarding our expansion plan. It's not yet finished. Obviously, for -- just for -- just for competition reasons, I'm not going to completely reveal it. But we do see more opportunities to open new stores. And currently, we don't foresee any slow down in our expansion plan, at least for the next 2 years. So the expansion plan will continue. Obviously, the impact of the expansion plan in our bottom line will become dilutive over time because we will also benefit from a number of stores that we've opened in the previous years that will reach maturity during the next couple of years. But there's no slow down, at least, for the next 2 years in our expansion plan. And as I have stated today and I wanted to have that particularly clear. I've been mentioning this once and once again, we are very careful selecting each one of our stores. We carefully measured the return on invested capital on each one of our new stores, computing on that return on invested capital. They can [involve an] impact in our other stores. But as far as we can say, we are today very, very confident that especially Continente Bom Dia, our proximity formats stores is a very, very performance format, it's clearly a winning format vis-à-vis the eyes of our consumers. Every time we open one of those stores in areas where we were not present and now the competitors of that stores, that they impact in the market is very significant in terms of market share gain. So we are very happy and proud with the work of the team and there is no plans to slow down there. Regarding wages. Let's try on 3 things. First of all, regarding 2017, we already have, since the beginning of the year, fully accommodated the impact of the wage increases that were expected for the year. And naturally Sonae has always have a policy of paying above the minimum wage, so we were not impacted by the change in minimum wage. Going forward into 2018, we will continue to apply the same policy. The only minor factor that can play a role in that particular area has to do with unemployment. As you are all aware of, unemployment is reducing and in a situation where you have a reduced offer of employment, it's natural that the cost of employment might rise slightly. But the profit is in a way also positive because if there is a diminishing unemployment, usually you have a significant link between that reduced -- reduction in unemployment and the increase in consumption, and particularly an increase in food consumption. Regarding working capital, so a little bit more technical, I think we are doing quite well, but I will ask Rui to guide you through that line in our balance sheet.

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 Rui Almeida,    [4]
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 This is Rui Almeida speaking. Regarding the working capital evolution, I think to stress that the working capital evolution is based on 2 evolutions, the evolution from the stock evolution and also from the suppliers -- is debt to supplier's evolution. And the supplier's debt to evolution is basically increasing and intensity in terms of working capital -- from that due to the fact that we are growing. Our activity is growing. We will benefit from that. In terms of stock evolutions, we launched several projects to optimize the stock evolution in the past. Now we are gathering all the results from that. We launched several projects from the warehouses to the stores. And now we are seeing the stock evolution growing properly in the last year -- in the last months and we are expecting to continue in the coming months.

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 José Manuel Rito,  Banco Português de Investimento, S.A., Research Division - Analyst   [5]
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 Okay. Yes, just a follow-up on the expansion of plan. You mentioned 2 years, so it is -- should it be start in '18 and '19? So additional 25 stores in 2019, is this correct? And also, then in terms of wages. Just to clarify one thing. If the minimum wage is set at EUR 600 already in '18, the entry salary for the food retail is already above these 3 (inaudible). Just to confirm that.

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [6]
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 Yes. There's -- Starting with the second one. The impact of that will be minimal. I think that where we could face some any impact, I mean, it's not closely by company particularly in some areas and some zones. It comes mostly from the lack of employees. So the fact that unemployment is reducing makes us sometimes more difficult to find people, and obviously we will have to adjust our rates just to become more competitive. But Sonae never been complaining about minimum wages and we want. We think that paying properly to our employees is a key part of our value proposition. Also regarding our employees, we didn't have any problems with employees during 2017. We don't expect to have that kind of problem in 2018. We have very clear HR policy, so we are quite comfortable on that. Regarding the expansion plan. You talked about 35. That's a number. It's not our number, it's your number. This year, we will close the year slightly below that, around 20, 21 stores. It's something that around that, and yes, we will open around those numbers in 2018. In 2019, for sure. I -- 2020, is still very early to say. But what I want you to be well aware of is that, for us, each store -- we are not in a rush for square meters. We are in a rush for finding the right spots. We only invest in a store when we do find a spot that can guarantee us the adequate returns on invested capital. And up until now, I think, with 1 exception out of 70 stores, all our stores are either at or above the initial levels of projections. I think that it's actually someone and in Rui Almeida does that and we're becoming more and more professional at selecting the right spots to place some stores. And we are quite confident with that one. And actually, for 2018 and '19, the vast majority of the spots where we want to open our stores is already identified.

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Operator   [7]
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 Next question comes from the line of Filipe Rosa from Haitong Bank.

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 Filipe Rosa,  Haitong Bank S.A., Research Division - Head of Research for Portugal   [8]
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 So just a follow-up, firstly, on Sonae MC. Looking into 2018, so we have discussed a lot of moving parts. But in the end, I thought it was not clear for me, what -- at this stage what could be your expectations in terms of margin evolution, okay? I know that you still have some dilution from new stores. But you said that it should be lower and lower. You have some signs of stabilization on the competitive backdrop. You are the price leader already, so you shouldn't need to do any sort of gross margin investments. So can we expect the margin to be at this stage? Would it be wise to expect the stable margin next year? So that's my first question. My second question on Worten. So very, very good performance this year and it has been quite impressive the evolution of the sales per square meter and of the profitability. My question is, what's next, okay? So you finally have a positive -- you are close to have a positive EBIT margin. Can you now give us some visibility like you gave for Sonae MC in terms of growth? Can you give us some visibility for Worten as well? And my third question, regarding the real estate. So we have seen in Portugal which is still the most important market for Sierra, we have seen a tightening of the government bond yields. Could you just update us on the outlook for this year and perhaps looking to 2018? What could be the evolution of the rental yields in the portfolio in the Sierra?

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [9]
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 Okay, Filipe, I think you can note in my voice that I'm smiling because all of those questions are very difficult to answer because they are all regarding 2019 and beyond. So we're just presenting the results of the 9 months of 2017. So it's quite difficult. And in some cases even impossible for us to answer. 2019 is obviously, as you said, it will depend on a number of factors. We are very clear regarding our strategy. Sonae MC will continue to be the price leader in Portugal. Sonae MC will continue to have the best stores -- the best food stores in Portugal. Sonae MC will continue to have the best promotions in the Portuguese market. And Sonae MC will continue to protect the spend and eventually even expand its market leadership in the Portuguese market. Those are our key drivers. We think that we have the right value proposition. We are showing that, that value proposition is a winning one. We know that we might adjust or we might have to live with some marginal impacts in our EBITDA margin, which is -- continues to be very high. But we are prepared to live with those impacts in our EBITDA margin as long as our key strategic priorities that I've mentioned right now for Sonae MC will continue to be delivered. I will now hand it over to Worten -- to Worten, to Miguel Águas and then to Edmundo to answer you regarding the 2 other questions.

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Miguel   [10]
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 Filipe, this is Miguel Águas. Thank you for your question. So what's next for Worten? First, the fourth quarter is next. And up until now, the first 6 weeks trading has been positive, more or less in line with the first 9 months of the year. As being said, obviously, as you know, the last 5 weeks of the year will be absolutely crucial because we have Christmas and Black Friday and it will have a huge impact on the final outcome of sales and trading in the last quarter. Going further into the future, we are still maintaining the strategy that has been proven correct up until now, of investing strongly in the development of an omnichannel proposition. We have been posting very strong growth in our digital sales, leveraging our -- not only our e-commerce and [rebuilding]in customer services there, but also the natural physical stores that can offer a strong development position [with us] in pure players for examples. We have been posting very strong growth both in Portugal and Spain. And so for the future, that's clearly an area where we will continue to invest and growth hopefully above the market as we have been doing so far. And regarding further organic growth, we believe that obviously, in Portugal, we want to maintain the pace of capturing market share from competition. That will -- not entail significant expansion efforts. We will continue to optimize our (inaudible) in Portugal impacting into the small pockets of market where we are not present yet, but it will not be significant. However, the same as we believe that we will -- we have conditions now to fuel, extend growth obviously, maintaining the pace of economic recovery that we have been doing so up until now. But we believe that there is room for growth in Spain both on digital front and on physical store. And we will invest somehow on that growth, as we have been doing it until now. But probably in Spain, we have -- we are not going to have such a strong effort as we had in the past with the store closures or other restructuring. So the natural pace in Spain would be to continue now leveraging the growth of the partner we have in installed and from openings in Brazil and leveraging also the much tougher economic performance of that [former associate] that we have been implementing for the last 2 years, helping us to improve the economics of the Spanish operation.

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 Edmundo Figueiredo,  Sonae, SGPS, S.A. - Senior Executive   [11]
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 Filipe, this is Edmundo speaking. On yields, Sierra does not expect any material compressions on yields for the last quarter of this year and it's too soon to make any kind of prediction on 2018. In any case, just to make an observation on the comments you've made about the government bond yields and it's decreased, much more important than that in the Portuguese real estate market, especially in the retail real estate market are the comparable transactions and there's a big one, which was announced to take place and it hasn't yet take place, there is no evidence of [price]. And that could be one major factor that would shift yields. But that has not yet occurred and therefore, we do not anticipate any movements in yields for the rest of the year. Thank you.

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Operator   [12]
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 Your next question comes from the line of Tim Attenborough from Santander.

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 Timothy Michael Attenborough,  Grupo Santander, Research Division - Equity Analyst   [13]
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 I'm Tim. I'm going to have one more stab at the EBITDA margin and food retail if I may. You talked about stability, increasing stability there at minus sort of, 20 to minus 40 basis points. And then, if I think I heard you correctly, you're saying that the market is becoming more rational. And it's -- if you can tell us what deflation or inflation rate was, where are we with like-for-like volumes in the third quarter? And where inflation is -- is looking like in the fourth quarter? That might be helpful in us trying to get a clear picture of the sort of the entry rates and angle of trajectory going into 2018 on those MC EBITDA margins. And just one other side of question. On Sierra, you talk about regular tendency rotation. Forgive me for not following that, is this sort of a cyclical seasonal thing? I mean, can we expect levels to get back up sort of 94%, 95% level reasonably soon?

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [14]
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 I am not completely sure I've understood your last question on Sierra. What I'd say is that our occupancy rates, which means that out of each 100 stores we have to let in our European shopping malls, 97.3% of those stores are let and rental stores are let. They are usually let for a significant period of time. And it's quite unusual for shopping malls to have such a high occupancy rate. You'll usually find a very good shopping malls, working at 91, 92, 93 percentage points of occupancy rate. That's more of the standard occupancy rate for shopping malls. So we are presenting quite high occupancy rate. It's obviously, very good for the customer experience, but also for obviously the performance, the economic performance of the shopping mall. Sonae Sierra shopping malls are usually quite good. First year in the countries where we are operating, in Europe mostly. And that's why we are achieving such high occupancy rates.

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 Timothy Michael Attenborough,  Grupo Santander, Research Division - Equity Analyst   [15]
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 Sorry, I was referring specifically to the Brazil where there is....

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [16]
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 In Brazil there was a dip of occupancy rate during the crisis. We've already recovered from that dip. And actually we are now at 90%. As you are saying, we are probably going up because we had 1 store that was closed and will reopen, a big store that was closed and will reopen quite soon. So it's indeed, you can expect a recovery on the occupancy rate in Brazil going forward. Regarding foods. I will just hand it over to the Rui who will guide you through the deflation and also give you some color on what we expect for the fourth quarter of this year. Regarding the rationalization that I mentioned in the market, what we are seeing is a little bit of slowing. Our competitors have tried over the last couple of quarters. And actually as I've mentioned, we are gaining market share for the last 8 quarters. So during those 8 quarters, our competitors have tried almost everything they could think of from very irrational promotion to completely irrational promotion to even more than complete irrational promotion. And then to the point where the market starts to understand that we expected to behave more rationally than continue to waste money in promotion that are obviously totally inefficient for them. And we've monitored that both for us and for them. And what we have witnessed during the first quarter is that, that level of the irrationality, if I may say so, have clearly diminished. And entering into the fourth quarter, we see a much more, I would say, regular promotional activity. I'm not saying that the promotional activity has decreased significantly. What I'm saying is that, the environment is still tough, but we don't see any signs of it becoming more tough and we are seeing some rationalization of the overall promotional environment. But these things are quite difficult to predict, and sometimes, this all can become irrational for reasons that we can't control. I think that what we've always said is that we have a very clear strategy. We know what we should be doing in our businesses, defend, protect and potentially expand our clear market leadership in the Portuguese market, and we will continue to do it quite calmly, quite rationally, quite efficiently. We are not going to be the one to push for an even further deterioration of promotional intensity in the market. Please, Rui, go ahead.

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 Rui Almeida,    [17]
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 Thank you for your question. Regarding third quarter, yes, in fact, during the third quarter, we slightly decreased the volumes in terms of like-for-like basis in our operations. But that's tremendously impacted by the growth of offering in the Portuguese industry -- Portuguese market. In fact, the offer measured by the number of square meters in stores in the Portuguese market is growing above 3% in the market. And it impacts, obviously, our operation, and then also the like-for-like were impacted by that, also considering that the number of stores that we are having are cannibalizing by slightly [in our]operations. But they are continue to grow and continue to grow in the [our] operation. But going forward, for the fourth quarter, we are expecting and according to the last days of the fourth quarter we are expecting to end up the quarter of the year with a positive like-for-like or slightly above the level of like-for-like that we presented in a year-to-date basis in the third quarter.

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Operator   [18]
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 (Operator Instructions)

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 Luís Filipe Campos Dias Castro Reis,  Sonae, SGPS, S.A. - Chief Corporate Centre Officer, CEO of Sonae RP and CEO of Sonae FS   [19]
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 Okay. Since there are no further questions, I'd like, again, to thank you all for being in this conf call. And as always, the team is available to take any further very specific questions, if you wish to discuss. So thank you very much. And I hope to have you all back again in our yearly conf call in around 3.5 months' time. Thank you very much. And by the way, Merry Christmas to all of you.

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Operator   [20]
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 Thank you. That does conclude the conference for today. Thank you all for participating. You may now disconnect.




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of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
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may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

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