Eurocash SA

WSE:EUR

Earnings Call Transcript

[Adam Kucza, executive]

Good morning, ladies and gentlemen. Welcome to the third quarter results of Eurocash for 2022. Together with me, we have Pawel Surowka, the CEO; and Jacek Owczarek, the CFO of Eurocash. We will start with the presentation of the slides and then we will have the time for the Q&As. So Pawel, go ahead.

[Pawel Surowka, executive]

Yes, thank you very much, Adam. So a short introduction, and one slide that we've added to this presentation. After our strategy, we decided to also give you a pit stop on each of those quarterly results, where we are standing in terms of realization of the strategy.

A lot of you have commented on our strategy that it is ambitious, that it goes in the right direction. And obviously, you've also highlighted that there is a certain execution risk linked to it. So we would like to address this head-on and give you a transparent feedback on where we are standing in terms of realization of that strategy.

In this respect, one can say that the third quarter of 2022 brought us a decisive step towards realization of our strategy for 2025, obviously with the biggest ambition out there, reaching the PLN 1 billion EBITDA at the end of this term, 2025. As we've already said last quarter, we see ourselves as, starting with 2022, going well above PLN 500 million EBITDA, which will be a first for Eurocash.

And we say so being given that on the last 12-month average, we have already reached PLN 516 million. Being given that we're looking relatively favorably at Q4, we believe that we will -- it is safe to say that we will pass that threshold of PLN 500 million for this year. And that's how pre IFRS, we're set to be well positioned to reach the PLN 1 billion within 3 years. Obviously, it's an ambitious target. It's doubling our EBITDA. But we believe we are on track of reaching it.

Another strategic commitment that we have set for the end of this year was to go below debt-to-EBITDA of 1.5x. And we set this target for end of this year. As a matter of fact, Jacek and his team were able to reach it even -- by the end of this quarter, you can see 1.48. And this is our commitment to constantly deleverage the company, which we believe is the right path forward, being given the interest rate environment we are in. And that's going to be also a key focus of the management for the next year is to reduce our leverage and reduce our financial cost so that more of the EBITDA actually translates into cash generation and into net income.

Another commitment and strategic target that is quite important for us, it is making the traditional local stores more efficient, taking out costs and helping us work on data. And a key enabler for this strategic target is the connection of those stores to our POS systems. That's a very important step, which allows us to talk more efficiently with those stores to get more data, work more efficiently also with suppliers. And that's, in this respect, the number of connected stores is a key KPI that we follow. And we've told you that by the end of 2025, we would like to have 12,000. It's an ambitious target. We started with a little bit less than 3,000 when announcing the strategy.

Now we can say we moved a decisive step by signing a strategic cooperation with Comp, which is running another platform called the M/platform that we are now working together under the Eurocash umbrella. We have two key benefits from that. One is that Comp, as one of the leader -- leading providers of POS systems in the country, will be, we believe, a much more efficient player to roll out our POS systems for us in the market.

The second is Comp brings already a lot of connected stores, including our own stores to that deal. And that means that through that very cooperation, we were able to add over 1,000 stores with one stroke to our connected stores. And that means that for Q3, we already reached 4,700. So a good step forward to reaching the 12,000. And I think that being given the level of cooperation and dynamism that we see here, that bodes well for reaching the target altogether.

Another goal that a lot of you have hinted, you found ambitions in the current competitive environment, that is our commitment to add 500 franchise stores each year to our network. In this respect, we will always -- we will also want to communicate on that. In that last Q3, we've added 171 stores. So I'd say that is a good figure, being given that we want to have that figure by 500 every year, and so still investing in the market. We do that a little bit more disciplined in terms of really payback period and also how we're investing between franchise systems. But still, we are adding those stores and they are also adding to our loyal customers and building our sales in the Wholesale part.

Speaking of which, so a very broad highlight of the quarter all over. We can say that the quarter has been good. We've been able, for a fifth consecutive quarter, to increase EBITDA, increase sales decisively, and therefore, also increase our performance. On the Wholesale part, pretty much everything was growing. And that sales growth that came from leverage from inflation but also still recovery from the COVID past has helped, using the operational leverage, to also increase our EBITDA margin, and therefore, a very strong rebound and very strong figures in the Wholesale part that we also see continue in the quarter 4.

In terms of Retail, also good like-for-likes, particularly in formats like our own stores rebounding strongly, Inmedio rebounding and overall sales growth of 26%, which is good. Obviously, we were not able to expand the EBITDA margin like we did in the Wholesale part because partially, we need also to invest into the consumer who, it needs to be said, becomes more cost-sensitive. And that is definitely something that we see happening through inflation. We can come back to that a little bit more. Still, we can definitely see that Delikatesy Centrum are getting on top of their operational challenges, EBITDA and sales, performing in line with our expectations.

In terms of the Projects, Frisco, adding to sales as expected and so, we believe, well on their way to reach the PLN 1 billion sales target for 2025 and also the target of being profitable by the end of that term. Another, I would say, rising star that, we believe, really aspires as well to become a part of our core Retail segment, which is Duzy Ben, and has shown 26% of like-for-like, which is, by any means, the standards are very, very strong, very strong figure for a player that becomes a sizable player by now.

Obviously, that still does not show in the EBITDA part because we are still investing very heavily in the growth. Duzy Ben, having added almost 150 stores within the last 3 years, those stores need to mature. They need to reach necessary scale. But they do, and we see that coming up as we expect. And so we also see Duzy Ben gaining not only scale and growth but also profitability in the foreseeable future.

With that, I would maybe pause here as a round-out view for that quarter that we believe was very good. And I will hand it over to my friend and colleague, Jacek, who will take you through the figures. Thank you very much.

[Jacek Owczarek, executive]

Thank you, Pawel. Welcome, everybody. So let's start with our view on market and trends. As you can know, we are living in the inflationary environment, so there are no surprises here. The inflation, of course, it's impacting our consumer. What we can feel on our side of the market, that the consumer is still there, which I will present you in a few slides later, showing the number of transactions in our segment. And it seems like it's supporting our sales growth as well.

Going into details, and I think that's the slide which is showing the rebound. As you may remember, because a big part of you are following us for quite long, the fact is that during the COVID time, the so-called small-format or independent shops were under big pressure of discounters. Still, discounters are growing the fastest on the market. On the other hand, all segments we are cooperating with, if you are looking into the details, are also having positive dynamics, the highest ones are in stores between 40 to 100 square meters. So for example, a big part of our ABC and grocery stores belongs here. And then the second one, it's in the small supermarkets, 100 to 300 square meters. So the stores are growing more or less with the food inflation in our segment.

Looking into the transaction, what I mentioned before, please have a look at the comparison of September '22 and September '21. The fact is that more or less, we have the same level of transactions as estimated by CMR, which as you know, one of the agencies who is trying to do it. The average basket is growing in line with the inflation. And the number of the items in the basket, it's still very comparable with what was happening last year. The same results, you can find out on our website. You could see that real number of transactions during the COVID was really affecting our segment much more than what is happening right now. And then the total food inflation, we know that we had a peak on seasonal products during the summer. And right now, somehow the number of the increases we are receiving from the producers is stabilized.

Let me go now into the details. So first, the Wholesale segment. As Pawel mentioned, we are growing 14%, which we know, on our B2B clients, it's quite a remarkable number. And also, what is happening, we are improving our operational leverage. So as we are mentioning over the years, we are diluting the fixed cost base, not only on the logistical platform but also through using digitalization tools more and more. And also on the right-hand side on the slide, you can see that we are growing across all segments also, as it was mentioned by Pawel. So that's good news. Because of course, that seems like we are distributing all assortment altogether. Going into the details of digitalization, right now, 55% of sales is done through eurocash.pl. It's growing from 44% last year. And also, the number of the shops who are cooperating with us is growing and reached 14,440 stores.

In Retail, I think I'm quite happy to say that we have the fifth quarter of improvement of our operations. If you're looking at the -- the top line growth is 26%. Part of this, of course, it's coming from the consolidation of Arhelan. So that's the last quarter which is -- which Arhelan acquisition is not yet in the base. We started to consolidate from Q4 last year. So in the Q4 last year, you will start to see the nominal growth rate is not coming from consolidated numbers. And at the same time, I'm happy to say that we are growing in all other segments, including the franchise business, owned stores and also Inmedio, which is allocated to this segment. At the same time, EBITDA grew to more than PLN 100 million , which represents quite stable percentage of margin. And then here, the deviation in which you could see here, which is 0.2%, it's really coming from depreciation of IFRS, so the lease contracts.

And then let's go into the Projects. So of course, there are three major projects, which we are running right now. Frisco, which a number of the clients is growing steadily, not only in the new areas, which is not a big surprise because we doubled the number of clients year-on-year, but also in Warsaw, which is the most stable market, we've grown number of clients by 15%. Sales in Q3 was year-on-year 47% up and reached PLN 85 million. So we are -- and please also remember that for Frisco, actually that Q3 is the weakest one.

So we have a little bit different seasonality than in the rest of the business. Because we are placed in the big city centers, of course, during the summer, people are going for summer holiday. So the big city demand, it's lower. So that's a little bit different pattern for those of you who would like a little bit dig into the details. And the average basket is 297, which is very satisfactory. It represents stock-up mission, so it's equivalent of hypermarket visit, if you wish.

Then Duzy Ben, it's -- we are keep continuing going into the expansion of Duzy Ben. We reached -- the network reached 277 stores. We are on the good track to be near 300 at year-end. At the same time, like-for-like in Q3 were 25% and then total sales, 73% of total growth. And more or less, 40% of network is profitable as of now. So as we said, next year, we are expecting that over the next year, we start to have a breakeven in Duzy Ben as a project.

And the last, also maybe I will only shortly summarize, as mentioned by Pawel, our strategic cooperation with Comp translates into almost 5,000 right now installation of IPH machines or POS systems, which is a big part of our strategy regarding the data. And in summary, of course, we are keeping investing. So the investment, I think, it's also comparable on quarter-on-quarter. The biggest growth in Duzy Ben and Frisco. I think it's, right now, Duzy Ben the biggest project contributor from the perspective of sales for the group.

Let me summarize consolidated numbers. Maybe I should start with the phrase that actually our 12 months' EBITDA is the highest in the history of the company. And also the Q3 nominal EBITDA, it's the highest in the history of the company. So somehow this year, it's quite favorable for us. Also improved year-on-year, all financial indicators, including net profit, which last year was lower than by PLN 10 million than this year. So altogether, I look at this quarter and also the performance of this year as a good one. And also, we wanted to keep it going.

The last element I'd like to share with you, it's cash conversion. So we keep the cash conversion at around 18 days. It's a little bit different this quarter than in the previous one. First of all, we have some seasonality in payables, which you can observe also in the historical data if you would compare 2022 over previous years. And then we compensated partly with a little bit higher usage of factoring in receivables. But altogether, the conversion rate is capped. And financial costs, of course, are growing due to the increase of fiber. We try to manage this through the financial income, which is mostly representing the discounts we are getting from suppliers.

All in all, the net debt situation is under control. So as again we pointed out at the beginning of the meeting, we reached 1.48x net debt to EBITDA based on our covenants. Banking covenants after IFRS is 3x. And then as I said, EBITDA, PLN 518 million, which is 12 months' rolling EBITDA, is the highest in the history of the company as well like EBITDA which is after IFRS.

So altogether, I think that's the summary -- financial summary. So let me go into Q&A.

[Adam Kucza, executive]

Yes, so now we start the Q&A. We already received three questions. Let's start with this one about the ambitious target of 500 new stores annually, currently at plus 171 in this quarter. Are we able to achieve such increase? And the clarification about Arhelan shops, are they within this number or not?

[Pawel Surowka, executive]

Yes. So the 171 that we are showing in terms of new stores for this quarter do not include Arhelan stores. Obviously, they are not in the base, but we didn't count them as expansion because this is something that we have already communicated to the market and everybody is counting with them. So the 171 are new stores that have been added to our franchise systems, be it ABC, Groszek, Duzy Ben. And so each of them -- and Delikatesy Centrum, obviously. Each of them is doing their expansion work.

We are working quite selectively and now looking holistically at which store openings add most to our sales value and payback as quickly as possible. But I can confirm that the 171 do not include Arhelan. And that is part of our organic growth that we've been doing for the last quarters and will be continuing. And therefore, we do stay quite optimistic that we will be able to reach that 500 store target for the entire year.

[Adam Kucza, executive]

The next question from Sebastian Walentynowicz is about the sales of own shops of the Delikatesy Centrum. So how is the process going? And the second question from Sebastian is that are we going to further deleverage, reduce net debt?

[Pawel Surowka, executive]

So the first one is no change in the status. We maintain our point of view that those stores are not strategic. We're not investing in new own stores. If I say we added 171 stores, it's only franchise stores. So we keep this asset as not strategic. And we are still under a regime where we say an options review is underway. And we have no new elements to add to that. Should there be any elements, we will inform you in due course. That's for the first question.

The second question, yes, our target is to deleverage the company further in two ways. And I think Jacek has pointed out, first of all, we would like to bring the net debt/EBITDA level even lower. It is already in a quite comfortable level for a trading company like ours. But being given the interest rate environment, we just want to keep our financial costs as low as possible, and therefore, believe that we should deleverage further. And so we will use the operating cash flow that we are able to generate through stronger quarters like these to deleverage further.

On the other hand, as Jacek also pointed out, there's financial costs also linked to our trade financing. And we are constantly in discussions with our suppliers to also get them offset by cash discounts for paying on time. And obviously, with the interest rate hikes that we have all the time, these are discussions that take some time. You might have some lags between one and the other. And therefore, that's something that needs to be managed by us. But we are on top of this. And therefore, we believe we'll be able to bring the financial cost of the company to a level where a big part of the operating cash that we generate will end up also net income. That's our target as management.

[Adam Kucza, executive]

A follow-up question on Frisco and Duzy Ben third quarter results in terms of the results, so EBITDA, for such formats.

One comment on our side is that we report EBITDA on the segment level, be it in Retail or Wholesale or Projects. So generally, we do not go so much into details per particular format. However, we've presented the EBITDA of the segment in the slide. Of course, the EBITDA is in the negative area. I don't know, Pawel, if you would like to comment on the expansion of Frisco and Duzy Ben versus EBITDA.

[Pawel Surowka, executive]

Yes, I'm afraid, not much more detail I can add here. Frisco and Duzy Ben are both in quite competitive landscape. We, therefore, do not comment on their respective profitability per detail but only per segment. That's particularly true for Frisco. But we maintain our guidance. Frisco will become profitable at the end of 2025. And it is profitable in Warsaw. We are currently investing into an additional warehouse. And also, the adding sales in the locations where Frisco already is, that takes something of a cash burn. And that is kind of factored into the business model.

What we are doing currently is we are reviewing, together with the Management Board of Frisco, also their operational effectiveness in terms of handling those cities outside of Warsaw, looking at whether we can get profitability there even sooner. So in terms of sales development and clients, we see their growth is in line. In terms of average order value, it is growing. We would like to have it growing even further with the inflation. And they are working on it that there could be a little bit more coming our way in the future. And in terms of cost management, that's a key highlight of ours. But again, nothing more I can add here than we really believe Frisco will be profitable by the year-end of 2025.

In terms of Duzy Ben, I'm not sure that we give guidance in terms of their breakeven. Well, definitely, we see the breakeven of Duzy Ben in the 3 years period of the strategy. And when you look at -- I think we've also highlighted in terms of stores that are profitable. When you look at the maturation of the stores, we already have -- almost half of the stores that are profitable per se. And as I mentioned, 150 stores have been added in the last 3 years. And we see them coming over breakeven every month. So it's really met over a couple of quarters onto Duzy Ben, as a company we'll become profitable again. So this is a little bit really the moment where the EBITDA reflects the buying of the growth. But it should come back into at least neutral territory quite soon.

[Adam Kucza, executive]

Next question from Tomasz Sokolowski, and similar from Jakub Krawczyk, about this quarter and the following quarters and so forth. And the first, about the retail stores traffic, taking into account comments from Jeronimo and Dino that customers started to shift formats from small stores to discounters and similar trading-down behaviors. So how do we see the margins like-for-like in the fourth quarter and going forward?

[Jacek Owczarek, executive]

Okay. So let me take this one. The fact is that we are also observing that the consumer is much more cautious in terms of price. If you are talking, on the other hand, about the -- our possibility to sell to the small stores, we don't see this drop. So as you could see, we are growing a little bit higher than the normal growth presented by Nielsen. And also in the volume terms, we are growing as well. I think our market share -- I'm just talking from the top of my memory, but was growing something like 0.4%, 0.5% in relevant wholesale market, so -- and that's the fact of -- historical fact. Also, what is happening, I think, which is a new phenomenon somehow is helping us, is the fact that the sales to the independent guys is growing a little bit faster right now than to other franchisees.

So franchisees very stable, normal business as usual. And we started to grow to sales to the independent guys. So if confirmed in the coming quarters, which I think we can talk about in coming quarters about it, that would also indicate that we are gaining market shares and somehow we are more attractive than our wholesale competitors to our clients. So I assume that we would not have this demand to us if our clients would not sell to consumers. So that's a little bit probably a different view than Biedronka or Dino. But the fact is that consumer is much more cautious. So that's also, I could confirm, as stated.

[Adam Kucza, executive]

Follow-up question from Jakub, more detailed one about the basket value. I guess, we can bring back the slide on the basket value reported by the market agencies. And Jakub is asking about the basket value evolution in October and November, so already Q4, in small format. How do we see that, especially since last year, the growth was accelerating exactly around October? So how is it going this year?

[Jacek Owczarek, executive]

We don't have the details here, but what we are discussing at, of course, our Board meetings with our business units or our sale formats, the fact is that as it was presented on the CMR slide that the value of basket is growing faster than number of items inside of basket. So somehow these volumes are lower. On the other hand, I'm not recalling really any fundamental change in October, which is closed, or beginning of November. I think from our clients' respective shops, I think the only difference here could be that last year, the increase of excise tax on vodka was bigger than this year. So for sure, appetite of our clients was bigger to stock up than we are expecting this year. But that's the only indicator I have off the top of my head.

[Adam Kucza, executive]

And one more in this direction, third quarter volumes at Cash & Carry and Delikatesy Centrum, so not only the sales itself but how it breaks down.

[Jacek Owczarek, executive]

I think, again we don't have this kind of details here. So please, if you could contact us offline, and we'll try to provide. Because otherwise, it's guessing.

[Adam Kucza, executive]

All right. Then the question from [ Sebastian Wojciech ] about the reverse factoring in the third quarter. And yes, as we published that in the financial statement, it was more or less PLN 1.2 billion at the end of the quarter, further being reduced in the fourth quarter currently.

[Jacek Owczarek, executive]

The usage of the factoring was maybe a little bit lower. But I'm not recalling that we reduced the lines. Lines are exactly the same like last quarter. Let me check. In the financial statements, the fact is that the lines were reduced at the end of last year. So in reality, from cash flow generation perspective, the fact is that we generated enough cash to go into the normal activity without this factoring clients plus we reduced the nominal value of Eurocash group debt. But we have the...

[Pawel Surowka, executive]

Year-on-year.

[Jacek Owczarek, executive]

No, no, no. Year-on-year, it's true. Quarter-by-quarter, if I understood correctly the question, it's not true. So year-on-year, yes, we had the reduction of factoring last year fourth quarter. And it could start in previous months. I would just recall it and come back.

[Adam Kucza, executive]

Meanwhile, we have a question from Tomasz Sokolowski about when do we expect Duzy Ben to reach this breakeven that we see within the framework of the strategy.

[Pawel Surowka, executive]

Yes. So within the framework of the strategy, I think you can assume that being given that there's good part in almost half of the stores that are already profitable and another half that has been opened within the last 2.5 years. And it takes a maturation of almost 2 years for them to reach breakeven within -- you can see that there's a runway of 1.5 years that most of those stores should be profitable. I think that's a fair assumption.

[Jacek Owczarek, executive]

Okay. And coming back to the previous question, please refer to the Page 16 and 17 on our financial statements. I think here, it's the whole story with comparable numbers. So as I said, the factoring was cut last year, not this year.

[Adam Kucza, executive]

Another question from Tomasz Sokolowski is a follow-up on these independent stores that Jacek mentioned. So why do we think they buy more than our franchising partners? And yes, the first feeling is, of course, that we tap into the market that we were not there before, right?

[Jacek Owczarek, executive]

Yes, of course. And unfortunately, we don't have 100% market share yet. But on the other hand, we can grow out of our competitors. So I think that's the biggest difference which is happening here. Also, whatever we could think, but the fact is that from the producers' perspective, I think it's also we feel it that they support much more bigger organization than the smaller ones, even from the -- like we do from the perspective of allocating credit limits or how to secure the cooperation, how to secure the relationship, volumes, market shares. Of course, somehow the strength of concentration, it's really happening.

[Pawel Surowka, executive]

Yes. And then just maybe to add -- to build on what Jacek was saying, as you probably recall, within our strategy, we also guided you that we see Wholesale as institution, also after the integration that we are now performing, should add market share coming from almost 23% to 29% overall market share for the Wholesale segment. And we see that the market share again, we've also -- we will see that this year, and we believe, that our Wholesale segment will add almost 1 percentage point of market share overall.

And that is also a function of the stores that we've added to the franchise system that we have seen. But it's also wholesale gaining ground also in terms of independent players that are not part of our franchise network and that we are selling to. And as Jacek rightly pointed out, a big part of that is also our service level that becomes key in situations like these.

[Adam Kucza, executive]

New question comes from [ Janek Janiszewski ] about the costs in Others segment, which came in above PLN 40 million, so higher than last quarter and a year ago. So just checking back on the quarters. Last year, in 2021, the cost in this Others segment were between PLN 26 million and PLN 41 million, so not so far away to this figure that we reported this time. But there is also some seasonality to that, right?

[Jacek Owczarek, executive]

Yes. So the fact is that the seasonality here comes really from the, as you know, from the two main factors. First one is timing of creation of provisions between our management account system and the statutory numbers. So we have the difference in recognition of provisions. So that's number one. And then number two, it's really connected with the fact that the bonus for the employees somehow we know over the period of the year.

And based on the accounting policy, we can release it faster if we know that part of the business units are not performing well to receive this business -- this bonus. And this year, we are expecting everybody to deliver budget because we have a very good year from the perspective of operational performance. So that's probably the two biggest items. If needed, we can dig a little bit more into the details.

[Adam Kucza, executive]

I don't see any further questions in the panel. Is there still anyone willing to ask questions at this Q&A session?

[Pawel Surowka, executive]

Just to build because we've now -- because actually, the question of Sebastian was what is the factoring limit used today? And the answer, I think, that was given, so by the end of this quarter was PLN 1.2 billion. That is compared to almost PLN 2 billion same time last year.

[Adam Kucza, executive]

We have a new one from Sebastian Walentynowicz. What's the assumed increase of payrolls for the next year, considering the minimum wage increases?

[Jacek Owczarek, executive]

Of course, we'll increase payroll based on the minimum salary, like we did this year. Also, elasticity of the model, I think it's very similar next year like this year. As you can see, we improved also our gross margin. So part of this goes into the prices, part of this goes into this effectiveness. Especially on the Wholesale side, the most labor-intensive activities like on stores.

Cash & Carry logistics somehow are covering this one. But we are not expecting much bigger salary increases than the regular increase as per year. Also, I think it's worth to mention, maybe Pawel can build on this a little bit more, the fact is that right now, we don't have any special pressure on salary increases or shortages of employees. So somehow the situation, I think, on our side is quite stable.

[Pawel Surowka, executive]

Yes, I think I can only confirm that we -- there is a certain influx of people. And while at the beginning of the situation in Ukraine, we did have a lot of churn in the warehouses, I think the situation has now stabilized. So we do not see our logistical operations struggling to get people. So obviously, we are prepared for cost increases. And those discussions will be ongoing. But we believe we can keep this to a level where we also will be able to offset it partially by productivity growth.

[Adam Kucza, executive]

A new question from [ Janek Janiszewski ] about the estimation of net financial costs for the next year. Having in mind the high interest rates in third quarter, it seems quite high and consuming much of EBIT.

[Jacek Owczarek, executive]

Okay. We are not giving forward-looking statements, so I can tell you how to calculate. I think our assumption, as Pawel said, is to deleverage the company further. And also, if you are looking in our cash flow, operational cash flow this year, it's -- this -- after 3 quarters, it's around more than PLN 600 million. Our CapEx on an annual basis, it's somewhere around PLN 250 million to PLN 300 million. So the rest is really going into the serving of debt. So depending how -- what's your view on the reduction of this debt, somehow it translates into the reduction of the financial cost.

And of course, if Central Bank will increase reference rate, it will directly go into the cost itself. But generally speaking, I would assume, as historically, that we are in the normal cycle of Eurocash. So we are deleveraging the company and delivering the cash flow. And maybe one more point, and we are not planning any big one-offs like M&A right now. So that was always a distraction in the picture. So that's really a normal cycle of 18 days, which we are showing a negative cycle of cash, which we are showing on our presentation.

[Adam Kucza, executive]

And about the cost -- the financial cost itself in the P&L, we have not -- not only the debt servicing within that position but also the other things like currency changes?

[Jacek Owczarek, executive]

So the only difference, as Adam said, this quarter is that we have negative impact of revaluation of IFRS 16 contracts, minus PLN 15 million due to the fact zloty was weakened between Q2 and Q3. So that's the only one-off really. The rest is much more proportional. We'll have a slight increase of costs connected with interest on IFRS 16 due to the fact that the reference rate I mentioned, the Central Bank reference rate, as I mentioned, is growing. But that's not very significant. I think really the clue is in the assumption regarding what's the deleveraging capacity of Eurocash.

[Adam Kucza, executive]

Okay. As we don't have any further questions in the panel, Pawel, any final comments for the record-breaking quarter in terms of EBITDA?

[Pawel Surowka, executive]

No, I think I will only restate that I feel that the company is very focused on delivering the strategy and delivering ever better results. I think we have a very good energy within the Management Board and the wider management team and also the entire company to really show the power of our company. And I think that shows. And I believe that we will be able to continue delivering, even if obviously, times are challenging, nobody knows what this next year will bring.

There's still a lot of organic operational improvement that I see within the company where we can unlock the value for us and for you, the shareholders. And so whatever the headwinds, I think that Eurocash will be able to improve on its past performance. And hopefully, the macroeconomic headwinds that we see now will be not as present as we all expect in the next year. Thank you very much.

[Jacek Owczarek, executive]

Thank you.