Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2023 Earnings Call Transcript
Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2023 Earnings Call Transcript February 23, 2024
Sendas Distribuidora S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone, and thank you for waiting. Welcome to the earnings call for the fourth quarter of 2023. If you need the simultaneous translation we have this available on our platform on Zoom. In order to access this please select the interpretation button through the icon on the globe, the bottom part of your screen and choose your language of preference, Portuguese or English. We'd like to let you know that this earnings call is being recorded and will be provided on the IR website at the company, at ir.assai.com.br., where you can already find the earnings release. During our presentation all participants will have their mics off, soon after we'll begin our Q&A session. To submit a question please select the Q&A icon on the bottom part of your screen.
Write your name, company and language enter the queue. As you're announced a request to activate your mic will appear on the screen. Then you must activate your mic to submit your questions. We'd like to instruct you that you submit all your questions at once. All of the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts, and operational targets at Assai represent beliefs and assumptions of the company's management as well as information that's currently available. Future statements are not an insurance of performance. They involve risks, uncertainties, and assumptions as they refer to future events and thus rely on circumstances that may or not occur.
So investors should understand that other operational conditions and market conditions could affect the performance at Assai and lead to results that differ materially than those mentioned in future statements. Now, I will pass on the floor to Gabrielle Helu, our Investor Relations Director at Assai.
Gabrielle Helu: Welcome, everyone, to our earnings call for the fourth quarter at 2023. Today, we have with us Belmiro Gomes, our CEO, Daniela Sabbag, CFO, Wlamir dos Anjos, our VP for Commercial, VP & Logistics, and Anderson Castilho, our Operations VP. Before we begin the presentation, I'll pass the phone to Belmiro for his initial remarks. Belmiro?
Belmiro Gomes: Thank you, Gabri. I would like to thank you all for being here in the earnings call as we present the numbers in the fourth quarter of 2023. And of course, the closing of 2023 as a full year, which was very symbolic in Assai's history and a year where we have the closing of an internal process with the expansion and conversion of our stores. So the numbers we see now in our results during 2023 are numbers that reflect the over 82,000 employees in our company that are operating different stores and logistical centers and offices and administrative functions as well, as well as all the support within your management within your board. And throughout 2023, I'd say it became a true cooperation with the exit of the former controller shareholder in a year where we have an environmental deflation in the food sector that's very strong.
So in our perspective, we ended the fourth quarter in a very positive way. The company is ending the fourth quarter with 16% growth in total throughout the year where we had no inflation and we saw, as you probably saw the household inflation was 0.50 ending the year of 2023. And the 16% are very relevant as they come along after the fourth quarter of 2022 where we had a total growth of 38% due to the fact that the growth in the fourth quarter of 2022 had an important cycle of openings with 38 new stores opened in the fourth quarter of 2022. So the 16% really makes the company at the end of the fourth quarter reach a level of growth of 60% in two years. So when you add up both years of growth. And this is representing the growth of the fourth quarter represents an increase of R$2.7 billion, which were added on to sales.
The fourth quarter continues its process for expansion of the 27 stores open last year and 12 of these were done in the fourth quarter. And then with this Assai end the year with 288 stores under operation, we're still missing two stores for the closing of the extra project. The main stores have already been opened. And in our vision, we'll provide some more details. The number of this important project could be conversion from the perception of results and earnings, but also the achievement of new customers considering it was a new positioning demonstrates the company is really on the right track to perform this project, making us have a growth of almost 60% in two years and almost 90% when you look at the three year period where you actually have this strong cycle of expansion and new store openings that the company went through.
So what we've seen throughout this fourth quarter is an improvement in the fourth quarter ever since the second half of November. And throughout 2023 we saw an environment of deflation debt among consumers greater caution to have the volumes of purchases, but especially our B2B public that at this moment when you have a drop in prices also becomes a little more cautious with how they're going to set up their stocks which impacts the volumes in the second and third quarters and this is not repeated in the fourth quarter. So from the second half of November, we already noticed an improvement in volumes and we ended the fourth quarter with a progression in sales of approximately 3% and an important market share gain in the fourth quarter, but also in the end of 2023 with a positive combination in the fourth quarter of growth in the sales of the same-store space and tickets as well as the volumes.
And so of course, this scenario we've seen throughout 2023 makes us have cash and carry and I say not be immune to the economic scenario when it comes to debt and the families and the trade downs, but in our vision, it also brought benefits when we look at the gains of customers and the amounts of tickets that were performed in this scenario of a more difficult and complicated economy. We can see that customers start searching for a channel as a source of supply. Those customers that need to keep their supplies in their business, but also families that are searching for ways to save, even in a period where we have a drop in inflation the volume of purchases for replenishment and home supplies kept very strong in the growth rates. So we ended the year with the growth of and those of our tickets as very positive 79 million tickets in this fourth quarter total of 290 million tickets.
And this represents a store flow of approximately 420 million people throughout the year of '23. And from this volume, 45 million of people have been visiting our stores ever since December. So just as everyone knows, we went through an intense store opening process for organic stores but also for conversions. Alongside this process, we also had important changes in our business model, changes that in our perception keep the characteristics of a site of having a strategy that is quite bold, anticipating any changes in the market and especially anticipate any purchase trends and movements in the end customers. So the penetration has been even greater in the Brazilian households and customers. This comes from the strategy, the conversion process with actual stores and our entrance into more regional, more central regions to be closer to the mid and high income public and closer to customers that are in the food service sector was a strategy that was very precise.
The innovation of the butchery and the cold cuts and bakeries, increasing service levels and improving customer service made us in 2023 have one of the biggest achievements in the year, because we became the company for physical store commerce regardless of the sector that's most present in Brazilian households, We were able to reach one in every four households that are currently in Brazil. In some cities and regions, especially in the Southeast and major regions, we are already close to almost 50% penetration in the households and we've been able to enter new social levels as well. So this combination and changing the business model, especially including new services, stores in more downtown regions and an increase in occupation costs in these stores also represented a possible issue where maybe we would lose the cash and care model, but I think this is very strong in the fourth quarter when we see the efforts of the team, combining productivity gains, ongoing maturity of the stores and due to the strong process and the expansion we went through, but also the culture in the company, which is a low-cost culture, searching for ways to do more with keeping up a strong balance in the purchase experience where they is demonstrated through the drop in expenses and expenses have a reduction compared to the fourth quarter of 90 bps, considering the productivity gains we had.
And the fact that the stores open and that cycle of new stores open in the end of 2022 is already in this process for maturity. And this team effort made us have a better level of expenses which also allowed us to invest more in our competitive advantages, especially in the stores that are reaching maturity. And so this is a reflex of our strategy. We have this impact of 50 bps. And this is also impacted by the smaller volume of openings. And as we can see, a strong expansion cycle, which increased the gross margins. So that's also, as you can see in our earnings release and this presentation, we're really focusing on our free-IFRS vision, considering that this in our perception reflects our operational performance better because it's a lot more connected to the cash generation and it's the EBITDA that's already considering the lease.
And when we close the fourth quarter, we reach 6.1. A nominal value that's above our increase in sales and especially considering that even with the impacts of the second and third quarters, the end of 2023 brings in an EBITDA and a pre and post IFRS vision that is really connected to what we've seen throughout 2022. Fulfilling the guidance provided by this administration in the end of last year, where even in the environment we were in with deflation that could impact the EBITDA at a pre-operational level, this would be stable compared to last year. And so the company as you all know went through a very important cycle of investments with a total amount of investments in the year is over R$5 billion. Through the carryover we had with the CapEx of the stores opened and all the rest of the payments as well that we had to be made to GPA, which ended now in January, 2024.
But the company, even in this process with strong expansion that almost doubling in size, almost 60% growth in the last two years, the company kept its strong cash generation and this operational cash generation reached R$4.6 billion in 2023. And we all know that the execution of this conversion project and the acquisition of the commercial points, the organic stores and the investment costs increased our debt levels. And Daniela will talk about this a little more. And it also pressured the financial expenses considering the level of leverage in the company, but even with this entire cycle and this strong opening process, the net income reaches 1.9 and a total per year of 1.2%. And at this moment where the company gets back to the closing of the project focused on deleveraging, this is a line that we think should have a strong increase from now on.
You can advance on to the next page, please. So, we did bring in a bit of this considering the magnitude and relevance of the project, how the conversion network has been behaving. So of course, the shift in especially was important and it's the first time I think that Cash & Carry can really get into major regions and big cities and locations were due to restrictions in the real estate market and difficulty to get approvals, it becomes very difficult to add this organic store throughout 2023, even with this environment. This was not only the clique rate or the higher interest rate. And we see that the store network, so the average we see -- so we have an average of revenue of R$20 million going to R$28 million in the end of the fourth quarter, which is very close to those three times we had mentioned, which was the objective in the company.
And in our perception, we still have a lot of ramp up and growth in our sales. So when we look at this in an isolated way, only in the food sector perimeter, since we also don't sell home appliances, which is something that hypermarkets had very strong, this multiple can reach over 3.8 times, very close to the target of the project, which was about three times more. So another behavior is that the growth in sales was also accompanied by maturity in the pre-IFRS and EBITDA vision and as we all know, these stores do have occupation costs that's higher. And so they also have an average ticket that's a lot higher. There's also the issues with the commercial galleries, as we can, should also bring in some important profitability gains, leaving 2.6% in the first quarter to 5.6%, which is in the closing of the fourth quarter and also very close to the legacy network that here we want to remind you that the higher cost is already affected in this margin perspective.
So once again, covering the EBITDA pre-IFRS and also in the post-IFRS vision, which is the base for cash generation in the company, you can see this evolution, the evolution of the maturity, expense, discipline, and the consistency and efforts of the commercial area to adjust the product mix, which is very important to ramp up the stores, commercial dynamics, communication, in our marketing teams, promotional campaigns, and then at the end, you can see this positive set of factors. And this also makes the company have an important leak in its growth, demonstrating how these conversions and how this expansion has been very precise, even though it did lead to a higher leverage level than what we imagined in the beginning of the project. So with this, the value of the EBITDA is completely stable even with 115 stores.
This percentage is quite stable. And we have an increase of 20% compared to the previous year and 33% when we look at this fourth quarter. So the EBITDA, the post-IFRS EBITDA also has a shift in geographies, considering that most stores are already operating and the least we have are already completely operational. So now, I would like to pass the floor on to Gabrielle as she talks about the net income and our leverage level.
Daniela Sabbag: Hi, this is Daniela, good morning, everyone. And now we're going to move on to slide five, where we get into our earnings and our net income. So in the fourth quarter, our earnings reached R$736 million. And if we exclude interest on the liability, on the lease interest, the results reach almost 2.6% of sales-- of the net sales and R$478 million. So this increase is about a bit more than R$200 million every year. And in the full year, we have a financial result of R$1.8 billion and R$800 million more. Now, when we get into the effects, the main effects, we can see a bigger volume in the gross debt, especially when we consider the maturities of the debts and commitments in the company for 2024. Sorry, the commitments in 2023, but throughout the year, we were able to have a CRI in July, then we had some fundraising for the maturities of '24, [indiscernible] in December, and some other debt rollout processes that we also operationalized.
So then we also have a smaller effect from an accounting perception, which is the capitalized interest due to the final phase of the conversion project. And so in the quarter, we have a capitalized interest that's lower and all the rest is in the IFRS-16. And in the year, this effect is over R$400 million and in the cost of the net debt is R$344. So in the year, we have the impact of the average interest, which also affects our debt and went from R$12.4 in '22 to approximately R$13 in this average interest in '23. So these are the main effects. And of course, we have an impact in our net income, which ended the quarter with R$3.3 million and the greatest level in the year with a margin of 1.9% with all of the seasonality in the quarter. And we also had operational leverage that was very important in the quarter as it was very positive.
And we have the quality of expansion maturity of these 115 stores in the last three years also helps a lot and leads to this net income in the quarter. So with this, we can also demonstrate the resilience of our business model even in a context with inflation, sorry, deflation in '23 and interest at so high, and so in our year, our profit reaches R$776 million and a margin of R$1.2. Then we reach the cash generation side and leverage and so as Belmiro mentioned, R$4.6 billion and this is a growth of R$453 million year-over-year. So this result comes from the growth of the free EBITDA that grew 20% leveraged by everything we had already discussed with the sales, growth, maturity of the stores and the control of expenses as we mentioned and also an improvement and it's important to highlight the improvement of our cash cycle, which at the end of the day is translated into a lower need for working capital.
And so we can see this generation is sufficient to fund all of the investments in expansion and the payments. And however, we still have this high level of interest that affects the cost of the debt of R$1.8 billion. So we'll end the year with a net debt of R$13.1 and our leverage reached R$3.8. And so the results you see here on this graph, on the blue line of this graph, the R$3.8 and this leverage came above what we expected, especially due to this operational generation and everything we mentioned with the maturity. And we had mentioned that in the Investor Day, we had talked about how the leverage in '22 -- in the end of '22 was representing a reduction of 0.3 times. So this drop of 0.6 year-over-year is even higher than this sign represented there.
And so here I think we can really, everything we've seen from analysts, we can really surprise. And when we consider the leverage has between 0.8, 0.9 on receivables and this number includes the receivables in the company. When we look at the gray line, we have the vision represented here that we normally used to disclose into the second quarter, but here we don't have the receivables and also the payment of the real estate, the commercial real estate. And also in '23, we've paid R$2.4 billion in the installments in the acquisition of the commercial spots. And in January, we already paid off the last installment, which was R$900 million. So in the concept of the covenants for financial contracts, our leverage was 179, which was a lot lower than the limit we have of three times, which represents a difference of almost R$6 billion compared to our very comfortable position with our covenants.
And so when we get into the deleveraging process for '24, it should be continuing this process to intensify the deleveraging of the company with a ongoing and growing cash generation and the end of the payments as well, as I mentioned previously, as well as a lower level of investments that we have for '24 with 15 stores due to our last factor that contributed to the deleveraging, which is also a lower level of interest in '24. So now, I finished my slides here and I'll pass it on to Belmiro to finish our presentation.
Belmiro Gomes: Hi, Daniela. Thank you so much. And I'll go back to highlighting what this three-year period was all about, considering that this, when we had the decision to search for the stores in downtown regions include more services, all this happened in 2020 and 2021. We had a whole other reality and interest rates in Brazil. We knew that it was a low rate, but the movement we had that was quite old and strategic to position new stores demonstrates that from a perception of result was a very positive movement we had a strong level of investments. The company invested in the cost of debt and what we already had in previous that a total amount about R$16 billion, but the company was able to generate over R$11 billion already in this period, so the generation of cash is a strong.
We have a strong cash generation operation and this is one of the important milestones in the company and this makes this level of leverage fund a project that a beginning, middle, and end. And when we complete this project, we'll start seeing the deleveraging process in this period. But all of this allowed the company to work from 184 stores to 180 stores with R$39 billion and over R$73 million. One of the biggest companies in Brazil, one of the biggest private employers in Brazil and we're able to keep our strong cash generation. So in '23, although there have been turbulence in the year and the maintenance of the pre-IFRs EBITDA really gives us the certainty and trust as strong deleveraging trend we're facing in the near future. We can move on.
About ESG, as we also need to highlight Assai in the reference, we had many highlights now throughout the fourth quarter and Assai was kept very present in sustainability index at B3. We also kept our carbon efficiency index. We had an advance of over 10% reduction in the emissions of Scope 1 and 2 with an increase in the reuse of waste. I want to thank all of our sustainability team and different departments involved. This is all part of the culture of the company and part of our business model, within the decisions that really make the company keep on a sustainable trend, but also be sustainable when it comes to social responsibility in our role of responsibility with over 480 tons of food delivered to over the 24 social organizations and work that continued in 2023.
Besides the strong work we've done during the period of the pandemic with all of the efforts that Assai performed in the community's brain. We also had an important CEO [ph] which is about women on board. And we have important advances to be made as well as the inclusion of people that are over 50. So the indicators in the company of course represent ongoing improvements and they had an important evolution of 43% of black individuals, 25% women in leadership positions and the amount of employees that have disabilities which is above the legal quota or minimum which is 5.4 and that's an important achievement with a company that has over 82,000 employees. This year you'll see in the report some of our strategic pillars in this revision of the work we performed.
And this is all based in three pillars. So the operations that are efficient we're just seeing our climate impacts of course always promoting the guarantee of responsible supplies, continuing our work with the development of people and communities that where we are present in a country there's a lot of social inequality like Brazil and a big difference from one region to another. And then of course we always try to encourage entrepreneurism and we perform many different projects with the Assai Academy and we try to also implement a very entrepreneurial vision, of course keeping the ethics of transparency in our business based on the best practices and issues mentioned in the overall market. Moving ahead in 2024, we have a strong focus to deleverage.
We've been highlighting the conversion project which had a beginning, middle and end and now we've completely finished it the last part of the store as we had of the installment we had to pay to GPA, we paid in January, but the level of debt in the company in the first quarter should drop compared to the fourth quarter which allows us to set a positive scenario in the leverage position and we expect that at this moment we'll see a reduction in the leverage considering the indicator index that we had already highlighted in the Investor Day we had in 2023. And this is due to the fact that we ended our payments to GPA. We have a reduction in the levels of investments and expansion. We have 15 stores expected for 2024. And so we have a huge difference when it comes to the level of investments the company performed in the last few years to this level we're in now.
And when we add this all up alongside what we've already seen in the fourth quarter, the growth of the sales, maturity of the stores leading to greater cash generation combined with the rate that's also part of the expectation of the reduction in the interest rates today that allow us to have improvements in our net income and also the reduction of the financial costs and leveraging the company. So when you look at the macro scenario, you can see the levels of expenses we delivered in the fourth quarter, which are of course a result of the operational efficiency and they're sustainable in the long run and they of course, the company will continue to balance out its competitive advantage, the ramp up of the stores and this will also lead to an evolution of the EBITDA margin in 2024 compared to what we had now in 2023 with a series of opportunities, with profitability of the assets as well as in this network of stores we still have a lot of stores that have maturity and this gives us the opportunity to explore.
Our galleries better and include new categories of products adjustments in the evolution also in the service areas. And of course, we can estimate a scenario that's more positive in '24 than what we had in 2023 besides our continuity in the strategy. So from my side on the presentation this is pretty much it. Now I'll pass the floor back to Gabrielle Helu our IR director.
Gabrielle Helu: So thank you Belmiro. We're going to start the Q&A session now.
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