Sonae understands success requires reaching the highest standards across the whole spectrum of economic performance and social impact. Our drive towards sustainability is part of who we are and we have no doubts that our mission is to create and share both economic and social value. Such ambition took us on a journey of hard-won successes, always anchored in delivering a solid economic performance while making a difference towards a better society including respecting and caring for nature. In a time when our planet’s ecosystems are hurting and societies are being torn apart by inequality and lack of stewardship, it has never been easier to know that our convictions are fundamental.Economic Value
Last year I started this letter by saying that it is never easy to grow, improve operating results and reduce gearing. I am pleased to report that we have achieved this again in 2019 and have in fact accelerated the pace.
Sonae’s consolidated turnover grew 9.2% to €6.4 billion and, considering the proportional contribution of non-consolidating businesses, the €7 billion threshold was surpassed for the first time in our history. All sub-holdings posted strong performances with relevant market share gains being achieved across the portfolio. Profitability also showed significant improvements in all our main businesses. In total, consolidated underlying EBITDA increased 22.2% to ca.€600 million and return on invested capital reached a solid level of 8.4%, maintaining a consistent upward trajectory (excluding non-recurrent events).
Additionally, and despite sustaining high investment levels, the group once again proved its ability to generate cash flow and significantly reduce its net debt and gearing levels, which now stand at €1,150 M and 0.5x respectively. All main businesses currently hold investment grade leverage levels and the holding LTV remains at a conservative 13%. The group is fully financed for the coming 18 months and our average debt maturity is currently over four years. All in all, the recent operating performance of our businesses and our level of financial strength give us great confidence to face the challenges ahead.
Sonae’s model of value creation implies having the ability to add value to its existing businesses but also to manage its portfolio and capital allocation to improve overall performance and ensure a future proof business portfolio. Regarding portfolio management and development, I would like to point out ISRG’s post-merger performance and consolidation as a leading Iberian player in sports retail, the acquisition of Arenal by Sonae MC in Spain (an important step in the execution of our Health & Wellness growth strategy), the success and continued growth of our newest Business Unit — Sonae Financial Services — and the acceleration of Sonae Sierra’s capital recycling strategy – with the completion, already in 2020, of the Sierra Prime transaction, a critical milestone for the company and for Sonae. With a longer term vision of portfolio development, the company will continue to look for new investments with interesting growth prospects and particular fit with our abilities and competencies. The acceleration of technology and the challenges posed by the need to meet environmental and social targets, will doubtlessly imply many disruptions and opportunities that Sonae needs to be well equipped to tackle.
Creating economic value is the fundamental starting point of any company and, in the case of Sonae, which has a huge ambition of growth and positive impact on society, our goals must be to achieve an outstanding level of economic performance. Nevertheless, we must do this in a sustainable manner which implies equal commitment to unwavering care for nature and social development.Natural Capital
The perils of climate change, growing pollution, accelerating loss of biodiversity, the scarcity of clean water, soil impoverishment, deforestation and growing social and economic inequality cannot be separated from the surge of failed states, terrorism and refugee crises in poorer countries, as well as divided societies, protest voters and populist extremists on the rise in the western world. Social and economic progress are severely under threat in many parts of the world, including Europe, and the urgency for Environmental, Social and Governance principles to become the drivers of political and economic agendas is unrelenting. I think there is finally a common understanding of the major impact sustainability will have on business performance, and consequently on social progress, and that they cannot be handled separately, but rather they have to be the central dimension of any business strategy together. I believe that there is enormous value creation potential behind this framework of thinking and that many future winners will arise from discovering new ways to unlock this potential.
The quest for sustainability and, in particular, the concern with the environment, have long been engraved in our history and have made us stand out as a responsible and ethical example of a long living company. Yet in 2019 we decided that we were not doing enough and that we needed to step up our game in ambition, speed of execution and prevalence in all companies, geographic areas and aspects of environmental impact.
Our Sustainability Advisory Group was revamped to strengthen the definition of policies and the implementation of projects across our portfolio and to help us focus on key action axes. Theses axes arise from a comprehensive and thorough analysis and discussion with our stakeholders and play a pivotal role in pushing forward an ambitious agenda within Sonae and across all our network of stakeholders. During 2019, our achievements in all these dimensions were significant and we have defined, for each axis, a clear and ambitious plan.
Our work in respect to two of these axes is particularly worth mentioning – Climate Change action and Plastics.
Climate change has been on our agenda for a long time and in 2019 Sonae and its portfolio of companies raised the bar by setting the reduction targets of their own greenhouse gas emissions. Aligned with the decarbonisation trajectories needed to limit global warming to 1.5oC, our companies pledged to reduce their own emissions (scope 1+2) by 54% in 2030, compared to 2018, in accordance with the Paris Pledge for Action of which Sonae is a proud signatory.
Several initiatives have been implemented to accelerate our path toward the decarbonization of our energy matrix. We have reinforced our capacity to produce electricity from renewable sources and continued several projects to promote the eco-efficiency of our operations. Sonae’s efforts were internationally recognised by CDP with the award of the level A-, which boosts our confidence by confirming that we are on the right track.
We are aware of the escalating environmental catastrophe surrounding plastic. Given its utmost relevance across most of Sonae’s portfolio, we have written the Sonae Companies’ Charter of Principles for Plastic, a policy that encompasses our vision towards a more responsible use of plastic. In early 2019, Sonae MC strengthened this ambition, becoming the first Portuguese retailer to join the Ellen MacArthur Foundation’s New Plastics Economy Global Commitment. Later in the year, Sonae joined the Portuguese Pact for Plastics, pledging that 100% of our private label plastic packaging will be reusable, recyclable or compostable by 2025 and incorporating on average 30% recycled plastic into new plastic packaging.
We have accelerated the way we are translating this vision into action and have already recorded a reduction of about 2,000 tons of plastics, that was eliminated from our packaging and products. Additionally, we have increased the amount of recycled plastic incorporated in our products, processes and packaging, that now represents 20% of the total volume of plastic we use. Considering the progress made in 2019, and the commitment of the whole team, we are confident that will be able to meet our targets before 2025.Social Value
We do not forget that our most important contribution to society is the creation of good jobs and distributed economic value, but we also know that this is not enough as companies have also a relevant role in shaping the social quality of economic development.
Our position on Social Inequalities and Inclusive Development starts inside Sonae. In 2020 we created a new and concrete Plan for Gender Equality, which defined specific measures to be implemented between 2020 and 2021 throughout our portfolio of businesses. Under the remit of gender equality, it promotes the sharing, implementation and monitoring of best practices and career management programmes for the underrepresented gender. The establishment of a reflection committee within the Human Resources Advisory Group oversees progress and increased prominence in this area at all levels of the organisation. Additionally, we subscribed to the pledge "Embrace Difference” of the European Round Table for Industry that advocates the creation of an inclusive and open working environment so that everyone can reach their full potential. Importantly, we have added flexibility to our hard-working culture with a number of programs to ensure that we can adapt to a more diverse set of personal circumstances including the number of hours or days available to work, working from home and flexible timetables.
Also, inside Sonae, 2019 saw a strong development of programs to improve solidarity for our teams. Our "Somos Sonae” initiative, created with the aim of supporting our employees during vulnerable phases, reached more 17% of people when compared with the previous year. An amount of around 1 M€ has been invested since the beginning of the programme in 2013. This value has been used to provide essential goods and services, legal support and debt and credit renegotiation, health and oral healthcare support, as well as other forms of support.
We are aware that, in many of the communities where we operate, people continue to face serious social difficulties and Sonae remains committed both to directly helping those in need and to contributing to find long term solutions to end these situations. During 2019, Sonae’s portfolio invested around €11 M of support in social economy organisations (more than 1,100 institutions) and our employees contributed with 7,000 hours in volunteer work in the community. Missão Continente (Continente’s social responsibility program in Portugal), for example, strengthened its role supporting around 1,000 institutions with daily donations of food, and partnering with national goods collections campaigns such as those performed by Cruz Vermelha Portuguesa (Portuguese Red Cross) and Banco Alimentar contra a Fome (Food Bank Against Hunger).Share price
In 2019, Sonae dedicated significant efforts to improve its communication with capital markets. We need to continue to clearly articulate our strategy and key decisions to all our stakeholders, while simultaneously collecting important feedback that may help us to move forward. In the first few months of its new mandate, the management team had extensive interactions with investors, and, in October, we organised our first ever Capital Markets Day – an important milestone to provide more visibility concerning our assets and strategy. During 2019, our share price performance was much improved and closed the year up by 12.3% (compared to 10.2% of the PSI 20).
We know, that by choosing to be ambitious across all three areas of value creation — economic, natural and social —we are not making life easy for ourselves or for all our partners and suppliers. So, it is always with a deeply felt gratitude that I thank all our internal teams, the members of all boards and our many partners for their commitment, creativity and energy — it may not be the easiest of lives, but it is the life worth living!Paulo Azevedo
As this letter goes to print, we are being impacted by a tremendous challenge to the wellbeing of our societies, and our companies and our people are in the frontline of the fight to limit the health, social and economic impacts of this crisis. Some activities have either closed or are about to do so to limit the potential viral spread whereas others must keep open under extremely difficult conditions to supply critically needed services such as food and telecommunications. The daily shifts in operations are unlike anything I have previously witnessed and all our actions must be taken with the safety of our people and of our clients as the top priority. The way the teams are rising to the occasion leaves me in awe. We are currently working with single-minded tenacity and with a firm belief that we will be capable of doing whatever it takes to keep the operations that are critical to society up and running.