Sonae : MC 1H19 Report and Accounts

1st Half Results, 2019

Matosinhos, 24th July 2019

Sonae MC's new perimeter

Proforma unaudited figures reported according to IFRS 16

1st Half Results, 2019

01.

Highlights

• Another quarter of record sales and gains in market share
• Steady underlying EBITDA on par with benchmark profitability figures
• Conservative capital structure providing adequate financial support

Message from the CEO | Luís Moutinho

"During the second quarter of 2019, Sonae MC continued to deliver excellent results, as demonstrated by our strong sales, healthy operational profitability, and improved earnings. It is highly encouraging to note that all segments yielded favourable results, marked by recurring improvements in value proposition and focused and agile execution amidst a buoyant macroeconomic backdrop.

By improving the quality and value of our offers, and making shopping more convenient, we are strategically poised to continue progress at the level of our core businesses. Our clients appreciate our efforts as we continue to transform, as well as explore material growth avenues.

With an abiding belief in our Company, and its extraordinary and unique assets, and revolving capabilities, we look towards the future with confidence in our ability to continue growing and steering the retail revolution, whilst simultaneously delivering sustainable returns for our shareholders."

Coffee shop at a Continente store

1

1st Half Results, 2019

02.

Operational and Financial Performance

TURNOVER		2nd Quarter			1st Half
(€m)	2018	2019	∆ y.o.y.	∆ LFL	2018	2019	∆ y.o.y.	∆ LFL
Total Sonae MC	1,007	1,132	12.4%	6.7%	1,982	2,180	10.0%	3.9%
Hypermarkets	372	392	5.4%	5.6%	743	761	2.4%	2.6%
Supermarkets	486	544	11.8%	7.1%	957	1,041	8.8%	4.2%
New Growth Businesses & Others	148	196	32.5%	9.0%	282	378	33.9%	8.6%

• Against a backdrop of favourable macroeconomic conditions, the buoyant activity trends from the first three months of 2019 continued into the second quarter, during which Sonae MC posted a sharp acceleration of its sales and gained market share in a highly competitive market.
• Turnover in the first half totalled €2,180m, up 10.0% versus the same period last year, as the business portfolio continued to perform very well, and the Company continued strengthening its leadership position, both in brick-and-mortar and e-commerce, mainly due to:
• 1. Excellent like-for-like growth of 3.9% across all segments (particularly regarding proximity supermarkets and new growth businesses) driven by increased volumes. Sonae MC continued to innovate and improve its offering, to which customers responded positively, focusing on healthier lifestyles, more convenient shopping experiences and high-qualityproducts at market- leading value (namely in perishables and private label products). In particular, the second quarter saw a solid like-for-likeperformance of 6.7%, which remained robust, even excluding the positive calendar effect of later Easter compared to the previous year. Also, worth highlighting was the upward momentum of the omnichannel food offer, with online sales up by double-digitfigures, with both transactions and basket size growing year-on-year,benefiting from increased speed and delivery coverage plus the expansion of the click & collect network.
  2. Accelerated organic expansion programme via which the Company opened 49 new stores (11 net additions), corresponding to circa 16 thousand sqm. of sales area, marked by the roll-outof the first Continente Bom Dia store under the new ultra-proximityformat (300 to 600 sqm. of sales area). This was coupled with the refurbishment of 19 stores, which harbour heightened potential, and which effectively increased sales density over the period. At the end of June 2019, Sonae MC's store portfolio totalled 1,168 stores (or 888 thousand sqm. of sales area).
  3. High brand power with continued improvement in perception and top of mind awareness, along with enhanced customer engagement. Nearly 3.9m customers have enrolled in the Cartão Continente loyalty programme, of which >750,000 are already registered users of the new app. These shoppers visit the stores more than average and spend above average.
  4. Effectiveness of the Arenal post-acquisition integration efforts that are going according to plan, and as a result, the Company has achieved the expected synergies.

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1st Half Results, 2019

CONSOLIDATED RESULTS		2nd Quarter			1st Half
(€m)	2018	2019	∆ y.o.y.	2018	2019	∆ y.o.y.
Turnover	1,007	1,132	12.4%	1,982	2,180	10.0%
Underlying EBITDA	105	126	19.3%	180	207	14.6%
as % of turnover	10.5%	11.1%	0.6p.p.	9.1%	9.5%	0.4p.p.
D&A - Fixed assets	-39	-38	-2.5%	-75	-75	0.3%
D&A - Right-of-use	-16	-27	67.4%	-32	-45	41.0%
Underlying EBIT	50	61	20.8%	73	86	17.6%
as % of turnover	5.0%	5.4%	0.4p.p.	3.7%	4.0%	0.3p.p.
Net financial activity - Financing	-4	-3	-	-8	-7	-
Net financial activity - Leasing1	-13	-15	-	-26	-30	-
Other investment income	0	0	-	0	0	-
Non-recurring items	0	0	-	0	0	-
Equity method	0	0	-	0	1	-
EBT	33	43	27.1%	40	50	25.8%
Income tax	-10	-8	-	-8	-5	-
Minorities	-1	-2	-	-1	-2	-
Net profit (from continuing operations)	22	33	46.0%	30	43	41.2%

• Following the adoption of IFRS 16, over the second quarter, Sonae MC completed the review of additional transportation lease agreements under this new standard, with retrospective impacts on the income statement and the balance sheet dating back to the beginning of the year. These changes, applied in the second quarter of 2019, included the replacement of €8.2m of rental charges with €8.0m depreciation on the right-of-use asset and €0.4m interest on lease liability. Excluding this effect, underlying EBITDA performance was broadly in line with the previous year. Furthermore, an additional right-of-use asset to the value of €57m, and lease liability of €58m was registered on the balance sheet for the period. On an annual basis, these changes will increase underlying EBITDA by €16.4m, depreciation by €16.0m, and interest by €0.7m.
• The Company's underlying EBITDA totalled €207m in the first half, growing €26.4m year-on-year, with a resilient underlying EBITDA margin of 9.5%, which remains an industry benchmark.
• This performance is namely due to the continuous improvement and cost-to-serve efforts, as the Company continued to deliver efficiencies and gains in productivity across its operating model, along with the simplification of its business, resulting in a solid underlying operational performance despite the persistent pressure on operating costs (namely labour costs).

• Interest on lease liability.

3

1st Half Results, 2019

• In the first six months of the year, Sonae MC posted record earnings, as net profit from continuing operations totalled €43m, up €12.5m compared to the same period in 2018, taking advantage of dynamic revenue growth and best-in-class margin profile.

CASH-FLOW		1st Half
(€m)	2018	2019	∆ y.o.y.
Underlying EBITDA	180	207	14.6%
Fixed rents	-51	-68	32.9%
Change in working capital2	-175	-33	-81.1%
Gross capex	-109	-185	70.1%
Maintenance & Optimisation	-68	-51	-
Expansion	-40	-52	-
Acquisitions3	-1	-82	-
Sales & leaseback divestments	0	0	-
Income tax and net financial activity	-16	-11	-
Cash flow4	-170	-90	47.1%
Cash conversion5	47.4%	63.6%	+16.2p.p.

• For the same period, Sonae MC's cash flow amounted to -€90m (reflecting typical first half seasonality), up €80m mainly due to an improved top-line and the contribution from working capital. A higher level of investment than in the previous year was what drove the change in cash flow from investing activities. As a result, Sonae MC cash conversion5 ratio stood at 63.6% (+16.2 p.p. vs. H1 2018).
• The Company continued carrying out its investments, of which €51m were assigned to maintenance and optimisation, aimed at revamping selected stores, €52m were allocated to support Sonae MC's fast-paced expansion programme, and €82m were allotted to strategic acquisitions (completed in the first quarter). Major CAPEX projects also included structural investments in the backbone of the business (namely IT and logistics), real estate investments (including the acquisition of properties), and development of new winning business concepts.

• Includes impacts from the changes in perimeter that occurred during 2018.
  3 Includes both the equity stake and the assumed debt.
  4 Corresponds to the change in net debt and dividends.
  5 Underlying EBITDA less fixed rents, less maintenance and optimisation capex, as percentage of (underlying EBITDA less fixed rents).

4