Madrid May 13, 2020 (Thomson StreetEvents) — Edited Transcript of Distribuidora Internacional de Alimentacion SA earnings conference call or presentation Tuesday, May 12, 2020 at 8:00:00am GMT
Distribuidora Internacional de Alimentación, S.A. – CFO
Distribuidora Internacional de Alimentación, S.A. – Chief Executive of Spanish Division
Distribuidora Internacional de Alimentación, S.A. – Independent Chairman of the Board
Ladies and gentlemen, thank you for standing by, and welcome to the DIA First Quarter 2020 Financial Results Conference Call. (Operator Instructions) I must advise you that this call is being recorded today on Tuesday, the 12th of May 2020.
I would now like to hand the conference over to your speaker today, Stephan DuCharme, Chairman of DIA Group. Please go ahead, sir.
Stephan DuCharme, Distribuidora Internacional de Alimentación, S.A. – Independent Chairman of the Board 
Welcome to DIA’s first quarter 2020 financial results. My name is Stephan DuCharme, and I am the Chairman of DIA. Thank you for joining us today. I’m going to take you through an overview of DIA’s performance for the first quarter. I will then share an update on our business transformation, including a road map for phase 2, which is now underway. You’ll then hear from Ricardo Alvarez, our CEO for Spain; and Marcelo Maia, our Executive Chairman for Brazil, with a short overview of the priorities in their countries in 2020. Then our group CFO, Enrique Weickert, will provide a more comprehensive look at our Q1 2020 financial performance. Finally, I will wrap up with a few concluding remarks.
Let’s get started. In terms of the key highlights. Our first quarter financial performance was stable with some early, positive top line results, driven by the various initiatives launched in 2019 to rebuild DIA. Our top line performance was supported by cost discipline and reinforced by strengthened financial foundations.
The quarter is, of course, defined by the COVID-19 outbreak, and our response and actions were centered on protecting employees, customers and communities. This situation was also an extreme, real-time stress test for the new DIA and it demonstrated how far the business has come in the last year, allowing us to have an effective and successful response to unprecedented market conditions. This further underlines the positive impact of the first phase of our business transformation, built on a world-class team, reestablished retail basics and the launch of our new operating model, which will underpin the second phase of our transformation now well underway.
In this presentation, we will provide more detail on the strategic road map for phase 2, as well as the underlying targets we’ve set to help you track our progress in the coming years.
Moving first to Page 5 and an overview of our group financial results. We delivered stable financial performance in Q1, impacted by currency effects and COVID-19-related costs. Enrique will go into more detail, but to highlight some of the key drivers. Starting with the top line and as per our Q1 trading update, group net sales were broadly stable year-on-year, but on a very different store network following the closure of 955 stores since January 1, 2019, an almost 12% decrease of our total portfolio.
The devaluation of the Brazilian real by close to 20% over the period also had an impact. And Enrique will provide more detail on this. We still have work to do in Brazil. Encouragingly, Marcelo Maia has made good progress since his arrival in February, and you will be hearing more about our priorities for Brazil later on.
Gross profit margin was down. This was linked to improvements to our supply chain to support an expanded fresh offer. COVID-19-related costs also played a part and I will provide more detail on the measures taken to protect and support our stakeholders in the quarter. The improvement in EBITDA year-on-year was driven by continued cost discipline with lower overall labor costs despite the impact of COVID-19 on resource requirements.
The quarter also saw an improvement in our underlying financial metrics with an 8% improvement in trade working capital built on better supplier relationships. We also saw an almost 3% decrease in our net financial debt following the long-term refinancing agreement and the bond repayment in July 2019. We will continue to actively work on these components of our business.
Moving to trading at a country level on Page 6. Spain and Portugal followed a similar trend with good progression in like-for-like in Q1 even before increased COVID-19-related trading, thanks to concerted return to retail basics. Stockpiling in the run-up to lockdown and continued higher general volumes were visible trends in both markets in March.
With regards to Brazil, the previously mentioned currency effect had an impact on net sales, but it is worth noting that the closure of underperforming locations in 2019 also had a significant effect here. We have taken decisive action in Brazil, rolling out a new commercial strategy in February, and you will hear more from Marcelo Maia on what we are doing to address performance issues.
And in Argentina, we achieved positive net sales in spite of the continuing challenging macroeconomic conditions, thanks to a new perishable assortment as well as online improvements reinforced by supply chain developments in terms of capacity and delivery frequency.
On Page 7, we show group like-for-like progression since the start of financial year 2018. As you can see, we have had 3 consecutive quarters of positive evolution. This is further confirmation that our business transformation is working. Following the well-documented deterioration in performance in 2018, which further accelerated in the first half of 2019, we are now starting to see a positive trend emerge.
Taking our largest market, Spain, while the second half of March did see a significant jump as a result of COVID-19 shopping behaviors, February saw positive like-for-like for the first time in 3 years, illustrating initial progress of our business transformation initiatives, which we will cover in more detail later on.
Portugal is showing similarly encouraging results and trends. It is early days, but we are moving in the right direction. And a brief comment regarding Q2 current trading. The recovery seen on this chart has continued into April and May, with all 4 countries demonstrating positive like-for-like in Q2 so far. That being said, any commentary on current trading should be viewed in the context of the important role played by proximity stores like ours during lockdown as well as the major disruption experienced by DIA in Q2 2019, which you can clearly see on this chart.
I would like to emphasize that as in any turnaround, we combined early urgent actions with a systematic approach to reestablishing retail basics, all with a view to driving sustainable, positive long-term change in the business for DIA and for our customers.
Moving to Page 8. The COVID-19 pandemic has had a profound effect on our people, our customers and our wider communities and I would like to take this opportunity to thank our team for their tireless efforts over the last few months. I am proud of how they have taken on this unprecedented challenge. Our response to COVID-19 has underlined the important role DIA plays within our communities. And I will talk a bit later on about how we plan to reinforce this role through our new support and outreach program DIA Contribuye 2020. We are proud to have played our small part at this challenging time. It is obvious that the transformation efforts made in the last 12 months played a significant part in ensuring stores wind opened and well-stocked with at least 95% of our store network operational at all times, while the supply chain handled the unexpected pressures with minimal disruption.
I will come back to the market changes we are seeing at this time and the opportunity that they present to accelerate further business transformation at DIA.
I’m now going to give you a short update on DIA’s business transformation on Page 10, looking briefly at what has been achieved so far before outlining our key objectives for the next phase. As announced last month, we have now successfully completed the first phase of the business transformation initiated in 2019. There were 3 primary objectives of the first phase, each with a clear, positive outcome and which all position us for the next phase of growth.
First, investment in capabilities, with a focus on retaining existing and attracting new retail and general management talent at both the Executive and Board level. Without this investment, we would not have been able to reestablish core retail practices, which we have talked to you about on several occasions. In addition, and as a result of this investment, we have now been able to activate our new group operating model based on devolved and empowered country leadership with full P&L responsibility, strategically supported at group level. I will provide more detail on this shortly.
Two, a focus on culture interest, driving sustainable, long-term positive change in the business and performance of DIA is not possible without fostering long-term relationships and partnerships with all stakeholders based on consistent execution of objectives. It also requires a performance-based culture in the business. Since summer of 2019, we have been engaging constructively with all our suppliers to ensure that our customers have well-stopped stores with an appropriate assortment. We are building long-term supplier relationships based on mutual respect and agreed execution of commitments. DIA’s turnaround presents a win-win opportunity for suppliers and, of course, our customers. We are also increasing our commitment to investor and financial stakeholder relations and communications, as demonstrated by our quarterly trading update, which will be a regular component of our financial calendar disclosure going forward.
Finally, DIA has been reconnecting with the communities in which we operate, an outcome best seen by the positive reaction to our immediate COVID-19 response from customers as well as local authorities. DIA is a reliable friend in need for our communities and our customers.
Moving to Page 11. The third component of Phase I was to reestablish core retail practices across the group, laying the foundations for future commercial success. Remarkable progress has been made here in a short period of time, thanks to the efforts of Karl-Heinz Holland, who brought his deep operational retail expertise to bear here. Starting with our commercial offer, we completed a first iteration of the assortment optimization, which has been rolled out to selected stores in Spain based on new store layouts and planograms.
On the commercial side, customers are already benefiting from our improved fresh offer, and we have seen good takeup of this offer during the lockdown period. Initial examples of an improved private label range are also available in-store with more change scheduled for the second half of the year. The improvement in our supply chain and store operating processes have supported these commercial changes.
In parallel, we have also defined and started to roll out a new franchise model in Spain based on greater transparency and clear incentives for our franchisee partners. As a precursor, we did transfer a significant number of franchise stores to coco status in the last year for a defined period of time to benefit from such improved operating processes. And from a financial perspective, our focus has been on initial round of OpEx reduction and stock management optimization, the latter of which can be seen by the positive impact on trade working capital.
In addition, we are applying a strict return-based CapEx allocation approach to any investment under consideration. On behalf of the Board of Directors and the whole DIA team, I would like to once again thank Karl-Heinz Holland for his commitment to DIA and for successfully delivering the critical objectives of the first phase of DIA’s business transformation ahead of schedule.
Moving to Page 12. I would like to briefly focus on DIA’s new group operating model, which will be key to the success of phase 2 of our business transformation and is designed to be even more focused on the customer at a local level. The arrival of new leadership in Spain and Brazil in recent months has allowed us to activate our devolved model, in which the countries are fully empowered to build on our strengthened retail foundations and to run their day-to-day retail businesses in the most appropriate way for their markets, customers and local dynamics. You will hear more from Ricardo Alvarez, our CEO for Spain; and Marcelo Maia, our Executive Chairman for Brazil, who has experienced leaders and retailers manage strong local teams of specialists with experience in and knowledge of their local markets and customers. The 4 country leadership teams will be supported by a lean corporate center at group level, providing strategic guidance, performance oversight and capital allocation. The countries will have full P&L responsibility and all instruments at their disposal to drive the top line and manage costs, supported by strengthened local (inaudible) who has been joined by Javier Lopez Calvet as CFO, a 35-year retail sector veteran, who has carried out this role for Carrefour in numerous territories. This function was previously covered by the group finance function.
In Brazil, Marcelo is supported by strengthened local finance function and will also call on a newly created DIA Brazil Advisory Board, which includes the former Executive Chairman of Banco do Brasil as well as one of the most experienced Brazilian food retail leaders.
Before we look at our road map for phase 2, I want to briefly share some perspectives on how we see the post COVID-19 landscape on Page 13. It is clear that there will be both short-term impacts as well as longer-term evolutions. Enrique will provide some detail and context on costs.
Looking first at the short term. Our new operating model will be critical in ensuring we deliver a country-by-country rather than a top-down group approach. The corporate center will support and facilitate country response with a focus on ensuring information and best practice sharing across markets. In Spain, our improved operational capabilities allowed us to tactically increase online ordering capacity to meet customer demand during the lockdown, opening 13 new dark stores and taking on an additional 2,200 staff members.
So in this case, COVID-19 actually allowed us to accelerate plans, and I will shortly talk more about how we can use this platform to sustainably develop our online capabilities.
In terms of future consumer trend evolution, it is too early to distinguish short-term customer reactions from fundamental behavioral changes. We are confident that our network of over 6,500 stores fully focused on grocery, enhanced by an emerging commercial value proposition and supported by an integrated store and online offering is aligned with our core objectives in support of customer needs.
Moving to Page 14. We have a clear road map in place for phase 2 of our transformation. And I’m pleased to take you through the key highlights looking first at Spain. Spain, as you know, is our largest market with a 62% share of group revenues, which is why the DIA turnaround will continue to have our Spanish business at its center. As the lockdown begins to slowly ease in Spain, we will return to the implementation of the 2 important initiatives, which we put on hold as part of our response to the crisis. First, the rollout of optimized assortment, along with new store layouts and planograms. Currently available in 490 stores, this initiative will be extended to an additional 1,500 stores over the course of the coming months. Second, the rollout of our new franchise model based on long term partnership, transparent margin and payment terms as well as opportunities for selected franchisees to manage multiple locations.
The new bottle will benefit 1,000 franchisees and will be rolled out over the course of 2020. In parallel, we will build on the significant progress already made with our operational excellence program with a view to driving a further reduction of complexity and cost in support of our stores. Based on the results achieved during the lockdown period, we will continue to accelerate both our online grocery and our express delivery initiatives, combining in-house and partner capabilities.
We strongly feel that the capillarity of DIA’s proximity network goes hand-in-hand with a strong online presence, provide customers with their daily groceries at our neighborhood stores or directly at home.
In the second half of 2020, we’ll start focusing on a fully renewed commercial value proposition and store concept, take advantage of all learnings from the previous 15 to 18 months as well as addressing the needs of our customers in a post COVID-19 world.
We will proceed on a systematic basis, incorporate rigorous testing and measurement of customer response as well as operating and financial results in a limited number of locations prior to the gradual buildup of a refurbishment and relocation program during the course of 2021. Such an approach will allow us to drive top line growth, critical for our operating leverage in a way that manages cash flows and liquidity in a prudent manner along the way.
In my new capacity as Executive Chairman, I will provide strategic oversight and appropriate resources to our strong Spanish team to make this happen. We will continue to update you on progress against each of our critical milestones throughout the year.
On Page 15, we look at the road map for our other markets: Portugal, Brazil, Argentina. While each country will have its individual time line, we will take as a base, the approach we are applying to Spain, extracting the relevant learnings for these markets to ensure that we respond in all cases to local dynamics and customer needs.
In Portugal, we have made good progress in terms of operational excellence and are preparing to begin the rollout of an optimized assortment along with new store layouts and planograms. Before doing so, we will embed learnings from the COVID-19 crisis and current customer needs into the offering.
In Portugal, we are also close to launching a new franchise model, applying the learnings from our positive experience so far in Spain, and we have appointed a new franchise director specifically for this purpose.
Moving to Brazil. Following the significant reduction of the network in 2019, 2020 has seen the introduction of an updated and adapted assortment and commercial policy to reflect DIA’s position as a local proximity retailer. The adapted assortment also reflects an increase of private label presence prepared over the last 6 months. Since February, Brazil has initiated a strong focus on operational excellence and improving both supply chain and store operations. As part of this effort and reflecting the complexity of Brazilian infrastructure, a separate supply chain function has been created and will be led by a recently appointed Supply chain director reporting directly to Marcelo Maia.
In parallel, in Brazil, we have now launched an initiative similar to Spain to review the franchise model with a view to improving transparency and incentives for our franchisee partners to drive both sales and profitability. We currently plan to start rollout of the new franchise model in the second half of 2020. The Brazilian business began the first steps towards an express delivery proposition during the COVID-19 crisis, and we will continue the development of the business in this direction to provide customers with a home delivery option in addition to our neighborhood store network.
Finally, in the second half of the year, the Brazilian team will participate in the group-wide initiative around a fully renewed commercial value proposition and store concept. We currently plan to begin testing such a revised commercial value proposition and store concept fully Brazilian in flavor for the local consumer in the first quarter of 2021.
Last, but definitely not least, we are pleased with the performance of our Argentinian business in the current complex macroeconomic environment. The Argentinian team is applying relevant learnings from the other geographies and will follow a similar series of milestones.
In closing this page, I would like to reemphasize that we will execute on our strategic road map in a structured and systematic way, whilst taking into account, the need to respond tactically to an ever shifting post COVID-19 landscape. In doing so, we will be consistent in striking the appropriate balance of driving growth, essential to any healthy retail business, with constant vigilance around managing our costs and cash flow as we implement our program.
On Slide 16, we share our financial targets for 2021 and ’22 and ’23 based on the series of actions outlined on the previous 2 slides and fully aligned to our strategic road map. The financial targets reflect the appropriate balance of measured growth and careful cash flow management. We are targeting steady like-for-like growth of 5% to 7% over the planned horizon. That being said, the sources of like-for-like growth will vary over this period, initially driven by commercial and operational improvements, subsequently supported by a store refurbishment program and eventually by store openings.
Growth in overall top line reflects both like-for-like growth and the sequential initiatives around a new commercial value proposition and store concept, namely our refurbishment and relocation program as well as new store openings in the latter stages. Top line growth, improved operating leverage, improved commercial conditions and stringent control over logistics, distribution and head office costs will allow a progressively increasing adjusted EBITDA margin.
In terms of CapEx, we are forecasting controlled spend, carefully managed to optimize cash flow and returns. As part of this, we will maintain positive free cash flow across the plan horizon, underpinned by a moderated improvement on trade working capital in terms of number of days.
Finally, net debt will remain flat before declining slightly in 2023, while our overall leverage will improve steadily. Rebuilding trust and fostering long-term relationships with all stakeholders has been a key to our business transformation so far, and I want to briefly talk about DIA Contribuye 2020 the focal point for our community activities on Page 17. As I said earlier, the current COVID-19 crisis has reinforced the important role DIA plays within its communities. And we have developed a new program built on the 3 key pillars of public service, proximity and society.
Initial activities have naturally been directly linked to the COVID-19 response, but looking forward, we have defined key areas where we think we can maximize impact at a local level. We look forward to sharing progress updates about the program in future quarters.
That’s all for me, for now. Next, you’re going to hear from Ricardo Alvarez, our new CEO for Spain; and then Marcelo Maia, our new Executive Chairman in Brazil, before Enrique shares his financial review. I will be back to make some concluding remarks at the end of the presentation.
Ricardo Lvarez, Distribuidora Internacional de Alimentación, S.A. – Chief Executive of Spanish Division 
Thank you, Stephan. Hello, everyone. My name is Ricardo Alvarez, and I am the CEO of DIA Spain since February this year. I have more than 20 years experience in food retail sector in U.S.A. and Spain. And last year, with — COO in U.S. and as well in Spain before that.
When I joined DIA, I found an incredible well-run business transformation, thanks to Karl-Heinz Holland. He’s been operating as CEO of Spain, carrying out many significant and impactful changes in a really short period of time, in my opinion. I can say that we have now an exceptional management team, thanks to the hirings made in the last year and months. This brings to the company, a deep retail experience in the Spanish market. Our team is now complete with the arrival of Javier Lopez as CFO of Spain with an incredible experience in retail as a financial specialist.
Going now to some details, I’m going to briefly talk about our priorities in Spain for phase 2. This is not by chance, but what you see here in the screen is fully aligned with what Stephan presented earlier. All of these activities will play a key role in the future in DIA Spain, but in the interest of time, I’m going to focus just on some of them. First, operations model. This is really key for us to redesign our operations model in the whole supply chain in the company as a link between our commercial and sales department. This is key to be able to have a very high level in the implementation in the stores for our new (inaudible) strategy that we are currently developing.
Our goal is to do this through a much better and efficient logistic processes. As an example, in this area, in particular, we are involved in a transformation process, which will reduce our transportation cost in more than 10%.
Moving to our commercial value proposition. In the last 6 months, DIA has substantially evolved its commercial offer by improving its assortment. We organize different assortments corresponding to our different sized stores, increasing in some of these clusters until more than 10% of SKUs. This will bring a better offer for our customers and for sure, an increase in our sales. This reorganization of the different assortments are accompanied by new layouts and planograms in all the stores, which will bring to the customers a better guide to shopping. Main focus will be in our fresh proposal underlining fruit and veg, where we changed already the assortment, setting a much higher quality standards and meet, where we will introduce during the second part of the year, a lot of changes in most part of our current assortment.
Another pillar will be our investment to rise the product quality and design in our private label. First one, replacing many of our current products by new ones, more adapted and adjusted to the customer needs. And second one, developing new product groups and ranges to meet the new demand appear recently, such as ready meals our convenience food. Another key point in this 2020, a pursuit for DIA future, will be our franchising business. We absolutely believe in DIA’s franchise. And for this reason, we need to adapt and improve our current franchise model. We will launch our new model on this year, and we expect to have it implemented with 1,000 franchisees. This model will improve our relationship with these stakeholders with more transparent conditions in margin and payment terms and will let us be much more competitive in the market. With this new framework, we expect to be able to attract new franchisees to the company and developed a multi-franchisee concept for our current ones who could be interested in.
The last point I would like to mention is e-commerce. Since the lockdown began in Spain, which has been more restrictive than some other countries in Europe, our customers had to dramatically change their habits. We saw the obligation to support our customers at this difficult time, but also a huge opportunity to meet a clear increase in demand for e-commerce and home delivery. DIA reacted promptly, much faster than the other competitors, using existing multiple e-commerce solutions. And we were able to do this thanks to the key characteristics of our business in Spain: first, our significant geographic footprint; and second, we reacted really faster than the others. We closed several of our current stores in the main cities in Spain, passing from 3 dark stores to 15 dark stores in 4 weeks.
On another hand, we signed a new agreement in March with Global, the largest food delivery service in Spain. With this movement, we could increase our density net growth to 500 cities in Spain, being able to deliver with this partner in less than 1 hour in many cases. With these actions, we were able to increase our capacity 8x. As a result of these efforts, e-commerce has quickly grown from EUR 6 million turnover in January and February to EUR 19 million in April, and we believe that a significant part of this business will be maintained in the future. This new opportunity led us to move from a tactical reaction during the crisis, to a more thoughtful and strategic reflection of the e-commerce role in the future of DIA value proposition.
We are now working to integrate long-term innovative solutions in order to increase the customer experience. For this challenge, I am pleased to call on the support of Basola Valles, DIA Group Board member, who is a highly experienced digital specialist.
To sum up, I would like to say that for me, it’s very clear that all this work of the last month together is reaping now its fruits. Ahead DIA to town like-for-like sales to a positive trend in February before the lockdown and after in March and April as well. And all of these were done, thanks to the experience in food retail of the current management team and a huge effort and commitment of all our members during the crisis.
Thanks for your attention, and thank you, Stephan, for the opportunity to participate. In next sessions, I will be delighted to update you about the progress in Spain.
Marcelo Maia, 
Good morning, everyone. My name is Marcelo Maia, and I have been Executive Chairman of DIA Brazil since February 2020. It is a great pleasure for me to lead DIA Brazil, a business that I have followed closely for several years with great interest and admiration. There is no similar proximity and our value of our money fully retailer in this large market and it represents a great potential and opportunity, both for me and for DIA. I’m also pleased to be supported locally by a newly created advisory board, which is composed by extremely seasoned Brazilian professionals from the retail and bank sectors. They are very complementary to the DIA Group corporate center from where I benefit from strategic support and guidance.
In the first quarter, the impressive commitment and engagement of our employees have enabled us to remain focused on business sustainability and cash flow improvements. Thanks to these strong foundations, we were able to face the start of the COVID-19 related quarantine period in Brazil with confidence and stability.
Back to the side on the screen, you can see that my agenda evident into the strategic road map for the group, very much reflecting the activities, as Stephan outlined previously. The second phase of DIA’s transformation plan in Brazil is similar to the agenda of my colleagues in other countries. We will follow a similar path while we’re reflecting Brazilian market dynamics and opportunities, reinforcing our management structure in Brazil remains my first priority, and there are 2 areas of prime importance: supply chain and franchising.
With my past experience as CEO of the Brazilian Franchising Association, I’m assuming now and for an interim period only, direct responsibility for franchising management. Our expansion potential also depends on the success of our franchisees. The focus now is to reestablish the franchisee network, capitalizing on the opportunity offered by the Brazilian market, one of the largest and most active franchising markets in the world, which I know well from time the Brazilian Franchising Association and had a former Brazilian Federal Secretary for Commerce and Services.
I’m also pleased to confirm that we have now staffed the supply chain position with a very experienced professional. As a result, we have now been able to address the stock and issues that are often very challenged in Brazil. In parallel, our initial commercial work will give way to the development of a new commercial value proposition and concept incorporating lessons learned from the COVID-19 lockdown period as well as emerging customer needs.
In simple terms, the model will be based on a star clustering approach, together with the launch of our delivery offer and the activation of Club de our loyalty program.
Since February, our commercial team has also extended assortment available to the stores and introduced 98 new private label lines, which have been very well received by our customers. This program will continue through the year with the compression of 407 new products until the end of August. Having the right commercial value proposition, new store concepts and the correct assortment, while also developing an omnichannel platform is crucial for DIA Brazil in delivering our long-term growth objectives.
Thank you, and I will pass the mic to Enrique.
Enrique Weickert Molina, Distribuidora Internacional de Alimentación, S.A. – CFO 
Thank you, Marcelo. Good morning, ladies and gentlemen. Enrique Weickert speaking, Group CFO of DIA. It is my pleasure to cover the main highlights of the financial review section of this Q1, 2020 presentation. And let’s get started with a quick overview of the group’s P&L in Q1 2020 versus the same period last year on Page 22. Delivering stable net sales in the first quarter at EUR 1,696 million, represent a remarkable achievement in the context of a store network which has been reduced by 11.7% and the negative impact of the devaluation of the Brazilian real by 18.6% in the period. The underlying increase in sales density will be a key measure of our business transformation progress. COVID-19-related costs totaled EUR 22 million in the period, impacting several P&L lines and include the purchase of protective equipment such as gloves, masks, hydrogel, visors and cashier projective screens, an extraordinary bonus on the extra hours paid to employees, additional workforce requirements to cover quarantine staff and costs related to disinfecting stores and warehouses.
While it could be argued that some of these costs are one-off, and therefore, OpEx in the coming quarters could be expected to be lower, there remains limited visibility regarding ongoing protective and staffing requirements. Some elements may, therefore, become part of our ongoing cost structure, and we will have more clarity in the coming quarters, but cost discipline and focus, leveraging on scale through group purchasing to ensure cost efficiency and tight monitoring of overtime and labor KPIs will help us keep new costs under control.
Gross profit at 21.1% on sales is impacted by this COVID-19 costs, as well as supply chain improvements include the increased delivery frequency to stores, now up to 6x a week to support our enhanced fresh offering, a key pillar of the new deal offer.
Labor costs were down 1.3% on sales, despite the additional overtime and staff cover already mentioned, reflecting an underlying productivity improvement that points in the right direction. For example, net sales per FTE grew 5.9% in Spain in January and February, ahead of COVID-19 lockdown. EBITDA grows from EUR 17 million to EUR 61 million, fueled primarily by the sharp reduction in restructuring costs, down by EUR 61 million to EUR 6 million, following the completion of all key restructuring initiatives in 2019.
Adjusted EBITDA, which we remind you, strips out IFRS 16, IAS 29 and restructuring costs, is at breakeven levels impacted by the COVID costs. Financial results include EUR 65 million of negative FX impact in Brazil, of which EUR 49.4 million related to euro-denominated intra-group financing. With the remaining EUR 15.6 million resulting from U.S. dollar and euro-denominated bank financing of diesel. This is partially offset by an improved interest cost and reduced refinancing expenses.
Moving to Page 23 to focus on the evolution of our net financial debt since year-end 2019, we see that despite typically negative seasonality, Q1 2020 shows a reduction of EUR 36 million in net financial debt, thanks primarily to cash flow from operations almost at breakeven, working capital inflow providing EUR 49 million reflecting mostly sales growth and CapEx discipline, now 90% focused on maintenance and ongoing.
Moving to debt maturity and liquidity on Page 24. The debt maturity profile was significantly enhanced following the long-term refinancing agreement and bond repayment in July 2019, with the largest maturity now moved to 2023, aligned with the completion of the phase 2 operational transformation road map presented by Stephan earlier.
After the effort made in 2019, both by the shareholders through the EUR 606 million capital increase and the syndicate lenders extending the maturity of circa EUR 1 billion of facilities to 2023 to provide DIA with the time needed to successfully complete the turnaround, the financial agenda will now focus on the 2021 bond refinancing. As announced, in light of the unprecedented current market conditions and the group’s current challenges in accessing debt funding markets, we will prioritize alternatives, which include a debt for debt exchange offer and consent solicitation.
The rest of non-syndicated revolving bilateral facilities are, in general, being renewed at maturity in the normal course of business. Available liquidity improved in Q1 despite typically negative seasonality, reaching EUR 425 million, of which EUR 232 million, 55%, is in the form of cash and cash equivalents. We have the available liquidity needed for our transformation plan.
And looking next at the balance sheet on Page 25. Trade working capital increased by EUR 49 million, primarily driven by the increase in trade payables for stocking during lockdown. While the increasing inventory to ensure continued supply during the COVID-19 crisis was largely offset by the decrease in trade receivables.
Our suppliers have been very supportive all through the pandemic and that has helped to us keep stock levels and product availability indexes at very satisfactory levels. Payment terms with suppliers remained stable at very similar levels to those prevailing at the end of 2019.
The net shareholders’ equity of the parent company, DIA SA, which is under Spanish loan, the key magnitude to trigger any legal dissolution or capital increase obligations, amounted to EUR 206 million versus EUR 223 million at December 31, 2019, thereby providing a sufficiently large equity buffer.
And with that, I now hand back to Stephan for some concluding remarks.
Stephan DuCharme, Distribuidora Internacional de Alimentación, S.A. – Independent Chairman of the Board 
Thank you, Enrique, Ricardo and Marcelo. A few concluding remarks for me. DIA is fully on track in terms of the company’s overall strategic, operating and financial turnaround. Phase 1 of the business transformation, consisting of building a world-class team, reestablishing the retail basics and rebuilding trust with our stakeholders has been completed ahead of plan. Phase 2 of our business transformation based on an operating model of devolved and empowered country leadership and supported by strategic and lean corporate center is fully underway. Phase 2 has, as its foundation, a clear road map of business objectives across the 4 countries in which DIA operates, and this road map features concrete and measurable milestones which will be tracked on an ongoing basis.
Senior management is fully aligned with external stakeholders in its focus on the delivery of the strategic road map and the targets share today. I have played an integral role in building the team as Chairman, and I’m delighted to be working directly with the strong DIA team in my new capacity as Executive Chairman. DIA has responded effectively to the unprecedented COVID-19 crisis and looking forward, DIA’s emerging commercial value proposition will bring together phase 1 lessons with post COVID-19 consumer behaviors. We have great confidence in DIA’s offer, over 6,500 stores in 4 countries, providing a safe shopping experience, proximity and modern technology to our customers, fully focused on daily grocery needs.
Thank you all for your attention. We are happy to address going forward any questions you may have on the results or the operational and financial details presented today. Please be in touch with Enrique and our IR team for this purpose. Thank you again.