Q&A with our CEO 2021: GROWTH

Looking back at yet another year marked by the pandemic plus economic and social disruption, what will you remember most about 2021?

In 2021, our spirit of helping one another, agility and resilience was once more put to the test. For us, as a Company, and looking ahead, there remains a reinforced clarity on the importance of having competent teams, cohesive and resistant to adversity, like those with which I have the privilege to work, to be able to overcome the challenges imposed by realities such as the pandemic crisis we lived in. Today, we are much more prepared, as a group, for other shocks that may happen.

Looking back over the last year, and following a tough 2020, the public health crisis further tested our reaction capacity with a long period of lockdown, from January onwards. For our Businesses, the key words were uncertainty and volatility, with large fluctuations in operating conditions throughout the year, as a result of either easing or tightening restrictions, with different impacts from one banner and format to another.

Most of all, 2021 was another period of overcoming for MC, only possible because we remained focused on three key priorities: protecting our People and Customers, and supporting the Communities around us; promoting agility in response to the constant shifts in circumstances impacting our Businesses; not losing sight of our long-term vision for the Company, namely with regards to fulfilling our growth opportunities.

Speaking of growth, I must, of course, highlight a major MC 2021 milestone; the entry of a new shareholder, CVC, through the Strategic Opportunities fund, complementing Sonae in its role as majority shareholder. A move that supports and strengthens our vision for the future.

Regarding consumer expectations and major trends, what do you think changed in structural terms, and what do you think is here to stay once normality is re-established?

The main difference revolved around embracing digital, which leap-frogged many years. This ramp-up is visible across various fronts. On one hand, we saw an expressive growth of e-commerce, which, even in businesses traditionally more protected from this reality, such as food retail, is now at a much more relevant level. We also noted an increase in fast delivery solutions, which gained ground in food retail deliveries and prepared meal delivery services, thus creating a new market. On the other hand, Customers have an increased expectation that there are digital solutions for the main points of friction in their purchasing experiences, wherever they occur, be it brick-and-mortar or online. In this sense, we highlight the surge in digital payments.

Embracing digital also transformed the way we work, and it won't return to the pre-pandemic scenario. The hybrid and work-from-home models are here to stay and, with them, the centrality of the home in the lives of families gains a new prominence, which will make permanent changes in consumption habits that emerged in this period.

With regards to other current trends, question marks remain concerning post-pandemic forms. Whilst some will rely on economic activity recovery levels, others will be maintained or cease to exist depending on the rebound of pre-COVID-19 social modus operandi. We will keep our eye on the ball to ensure that Portuguese consumers always find the best solutions within the MC ecosystem.

Looking at MC's long-term strategy execution, which 2021 initiatives would you like to highlight?

We set to embrace digital, and in line with our strategic focus in this area, 2021 was marked by the launch of the new Continente and Wells online stores. Thus, offering Portuguese consumers a wholly renewed and outstanding shopping experience. We also launched Continente Labs, a cashierless store, the first of its kind by a European retailer. This store is an excellent and innovative learning laboratory for our retail operation.

We continued to focus on growth, expanding our Continente Bom Dia and Continente Modelo store network in tandem with the expansion of other banners such as Bagga, Zu and Note. These banners significantly contribute to the power of attraction of our food retail stores, offering our Customers added convenience. We still have room to grow our operations in Portugal, and we are committed to capturing existing potential. Regarding health, wellness and beauty, we remained focused on our pathways to growth, namely highlighting Wells and Arenal new store concepts implemented in Portugal and Spain.

All these developments were only made possible because we continued to evolve behind the scenes, in areas invisible to the Clients eyes. We completed the expansion of our distribution centre in Azambuja and initiated a major intervention in our distribution centre located in Maia. Both efforts are of the utmost importance to support our vision for the future of the Company. We also carried out several new initiatives geared towards developing and promoting the well-being of our People, considering the new work models and business dynamics.

Finally, I would also highlight the completion of the sale of our stake in Maxmat as part of a strategy of active management of our business portfolio.

What key aspects of MC's sustainability efforts would you like to highlight?

I'll dive into telling you about our main initiatives in the three major areas where we can have the most significant impact and where we have focused our efforts. First up, Diversity and Inclusion focused on uniqueness. We have invested in gender equality, and we aim to fill 40% of our leadership positions with women by 2023. Another of our focus points is disability, and we have invested in improving our capacity to integrate disabled persons.

Regarding our environmental initiatives, we significantly increased our capacity to produce renewable energy. Via offsite power purchase agreements (≪offsite PPA≫) for the long-term supply of energy, we ensure that circa 20% of the electricity consumed by MC will come from renewable energy sources. For over ten years we have promoted energy efficiency and remain on track with our efforts and investments. For example, throughout 2021, we continued to improve the recyclability of our own-brand plastic packaging, achieving a recyclability rate of around 75%.

The last point I'd like to highlight is that we are an active agent in promoting sustained relief to Communities. With a particularly visible role during the pandemic, in which we donated circa €20 million of food goods and launched a pioneering campaign on loneliness and social isolation by discussing topics on combating these issues that cut across our society. A Company as large as ours can cause a positive impact, and we want to continue to do so.

How do you interpret the Company financial performance figures for 2021?

Once again, MC announced results which filled me with pride. In addition to 2020 resolute performance, in 2021, we grew €318 million in sales. This figure represents a 6.3% increase year-on-year and a 3.4% increase in like-for-like terms, thus corresponding to a €5,362 million turnover. Turning more specifically towards our online channel, yet again we attained remarkable performance figures of circa 30%. These results are excellent. Still, they are even more impactful for outperforming the market variation, enabling us to further strengthen our market share and leadership position.

Within a context of increased inflationary pressure on a retailer cost basis, MC's operating profit reached an underlying EBITDA of €537 million, thus preserving a 10.0% margin turnover. Additionally, in the period the Company generated a cash-flow of €243 million. We further strengthened our balance sheet by reducing net financial debt in €103 million, after the yearly dividend pay-out. These robust results allow us to continue investing in our Businesses, expand our brick-and-mortar store network and online channel, invest in digital transformation, and strengthen our operations.

In increasingly competitive markets, what gives you the confidence to foresee that the coming years will be positive for the Company?

It's a fact that we operate in increasingly competitive markets, with more retailers, be it in terms of brick-and-mortar or online, but it is also true that there is still room to grow, both in food retail and in health, wellness and beauty.

As a Company, we are experiencing a very positive period. Our sound position enables us to continue to promote the sustainable expansion of our various Businesses and invest in our People. In addition to this, we have magnificent teams committed to delivering the best value proposition to our Customers. By doing so, we will obtain increasingly higher recognition, which will undoubtedly reinforce our market leadership, making the coming years the continuation of a very successful period for MC.

What are MC's main priorities for 2022?

We have four main priorities that have been our prime focus over the last few years. Firstly, continue to grow our food retail, health, wellness and beauty Businesses. We will continue to expand our store network and invest in our online channel, strengthening interconnections between both channels through an increasingly omnichannel value proposition.

Secondly, we will maximise value capture through digital transformation, which will enable our operating models to be more efficient and agile throughout the value chain and offer increasingly tailored solutions to meet individual Customer needs.

Thirdly, we will remain attentive to all consumer needs, adjusting and reinforcing our value proposition, maintaining our position as a democratic and competitive operator, and ensuring our differentiation in key offer areas such as private label and fresh products.

As the basis of our strategy, we will remain focused on our People and sustainable development. Good strategies don't exist without talent; hence we will strive to be increasingly more capable of attracting and retaining the best. We will invest in the continuous training of our People and in the skills of the future so that nobody is left behind. It is patently evident that nowadays, we can't think about Business without thinking about sustainability. It is an ethical imperative for organisations, and we are focused on consistently setting an example across its various dimensions.