Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2022 Earnings Call Transcript
Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2022 Earnings Call Transcript February 17, 2023
Operator: Good morning, everyone, and thank you so much for waiting. Welcome to the earnings call for the fourth of 2022 for Assai Atacadista. I would like to highlight that if you need simultaneous translation, we have this tool available on our platform. For this, just click on the interpretation button through the icon on globe at the bottom part of your screen and choose the language of preference, Portuguese or English. This earnings call is being recorded and will be provided on the company's IR website, ir.assai.com.br, where you can also find the earnings release. During the presentation, all of the participants will have their mics off. Soon after, we'll begin the session with Q&A. The information in this earnings call and possible statements that could be made during the call regarding business perspectives, forecasts and operational targets and financial targets at Assai represent assumptions and beliefs of the company's management as well as information that's currently available.
Future statements are not a guarantee of performance. They involve risks and uncertainties and assumptions because they refer to future events and thus rely on circumstances that could or not occur. Investors, should understand that market conditions and other operational factors could affect the future performance of Assai and lead to results that different materially as those listed in future statements. Now, I'll pass on the floor to Gabrielle Helu, she's the Investor Relations Director, Assai.
Gabrielle Helu: Hello. Good morning, ladies and gentlemen. Thank you for your participation in our earnings call for the fourth quarter of 2022. We'd like to invite the management team to present themselves. So, we have Belmiro de Gomes; Daniela Sabbag, the CFO; Wlamir, VP for Logistics and Commercial VP; Anderson Castilho, Operational VP. Before we begin the presentation, I'll pass the floor on to Belmiro for his initial remarks.
Belmiro de Gomes: Thank you, Gabi. Thank you, everyone, for your participation. I want to thank you all for your presence and especially thank all of the Assai team and our partners and suppliers. I want to thank the members of the Board. Due to the major efforts and work from our team and other people and other companies, suppliers, supporters, that led to the results that we have in the presentation and also the expectations we have across. 2022 was an extraordinary year, one of the best and most important in our growth track. So, we had 60 openings of new big stores. And we invested over BRL4 billion. With this, the company generated over 16,000 new job positions. We became the biggest private employer in Brazil. And it was the year where even with all of the challenges economically, inflation and stability, pressure on consumption, the company kept its growth track record and stability, predictability, whether we look at numbers generally, but also when we look at the different forecasts provided to the market in this project, especially with the purchases of the hypermarkets from Extra.
With this, we reached 108 openings in the last three years. The company doubled in size in the past three years. And just as we're going to see in Anderson, Danny and Wlamir's presentations, many other indicators also doubling. So, the strategy we've been working on to manage a store network plus huge expansion process that we could spend hours here talking about with all the details and the levels of efforts, we believe that the numbers really demonstrate the characteristics and stability. We also had this year some evolution and this is important in the model. We've been searching for this. As we mentioned, other opportunities to improve the purchase experience the customers have regardless of their social levels we've been working on major efforts to keep our main low costs, but also improve purchase experiences for customers, consumers regardless of their social levels, but also, with B2B customers.
We had important progress in governance with the operation of a new related party and of interest policies as well, which is in line with the Board as well to keep an important evolution from a governance perspective. I'll pass the floor on to Wlamir. He's our Commercial and Logistics VP. He'll give us a little more details on the performance and sales margins and then we'll get back to the expectations for 2023. Thank you very much.
Wlamir dos Anjos: Thanks, Belmiro. Good morning, ladies and gentlemen. I want to thank you all for your presence. Also, I want to thank Assai team and -- for some reason, I can't see the presentation on the screen, but I think it's there. Yes, it's shared on the screen. Okay, great. So, let's talk about the sales in the fourth quarter and what happened in the year. As you can see, we ended the year with -- with the fourth quarter, sorry, with BRL16 billion in revenue and net sales. So, we doubled the amount of sales in three years when compared to 2019. This is then repeated when we take a look at the closed year, we ended with growth of 31%, BRL54.5 billion in revenue. The numbers are very strong, very solid and this demonstrates the resilience of Assai and stability in our business.
When we look at the numbers, I think a good part of this contribution came from the stores we opened last year, whether they are organic or also from the converted store network, which are within this ramp of what we planned for these stores. And it's really in this growing curve with what the company expected. So, we should also mention that in this part, the increase of flow, and this has really made us very satisfied and excited for 2023. When we take a look at this, we still have an important inflation and trade down impact, but overall, I think we were able to reverse this with the inclusion of new categories, new services. We're going to provide in detail per head and also the fact that we were able to increase the customer flow. When we look at sales, we see the Nielsen measurements.
We can understand that our commercial strategy is very good and well -- very precise. We had in the fourth quarter over 2% market share gains nationally, and to get into more details here. When we look at the City of Sao Paulo, it was an operation where we invested a lot, with 27 stores in the State of Sao Paulo. We had an increase, 4% in the state. And just to give you an idea, just in Sao Paulo, we increased our share by 5 percentage points. So, even with the stores being in a parameter, that is really big especially when you look at the average sales area with the other stores. We were able to keep the growth. We went from BRL4,500 sales per square meter to BRL4,700, demonstrating that all -- with all the innovation and the evolution of our model, we continue to be very precise in our proposal.
So, we can move on to the next slide, please. Well, my connection is not that great right now, but anyways, this -- for some reason, I'm having some technical issues. But when we look at the gross profit, it's also doubling and we had about BRL2.7 billion of gross profit in this quarter and BRL9 billion in the year. I think regardless of the gross profit generated, I want to highlight the stability. So, if you take a look at this, we brought the gross margins in the last four years, and you'll see that in this quarter and the year the variations are very small regardless of the size of the efforts to open up the 60 stores with pre-op costs. And I think the strategy, everything that was done also allowed us to deliver a value proposition that's better for the customers, adjusting the assortment in each store and region for the surrounding public.
So, I think we're very precise. And I think we're really focused on really being able to provide a good purchase experience for each region. I wanted to take advantage of this moment to mention the investments in our logistics. To support the expansion of the 60 stores in this year, we had an increment. We opened three new DCs, one was substitution to smaller DCs and we increased our capacity for storage by about 40%. And then we had this new unit in (ph), it's a small DC. And besides looking at all of this, we also have the back-office structuring this to support not only this investment in 2022 with logistics, but also thinking about the ongoing expansion where the next three years will be supported by a logistical structure. So, I think that was pretty much it.
But there's another point to mention, which is -- question that's going to come around, which is, you'll see that in the working capital, especially for supply, we had a significant increase. These were negotiations, increase in deadlines with a huge expansion. And so, we did negotiate some additional timing and terms, and so this will also provide some relief on the CapEx invested. I think that's pretty much it on my side. I'll pass the floor on to Anderson, so he can give us more details on the operation. Thank you all so much.
Anderson Castilho: Well, thanks, Wlamir. Good morning, everyone. Thanks to all of our team and partners. We're super thankful and happy with the work reinforcing this that Wlamir already mentioned is really an all-time high. We're talking about 60 stores with the project. We began with an initial guidance for 52. So, we challenge ourselves to make those 58 and we've reached the end of the year delivering 60. So, I think it's an all-time high for Assai, but also for the sector as a whole when it comes to cash and carry. And this demonstrates the strength and capacity of our team. We had 13 organic stores and 46 hypermarkets transformed. Within this, in 17 different states, which reinforces the complexity and the strength of our regional offices commercially with marketing as well and operations to execute this project, which involves the entire company as a major challenge especially in the last quarter, we opened over 37 stores.
Photo by Nathália Rosa on Unsplash
And we reinforced that we have a project with 47 hypers that were transforming from hypermarkets to cash and carry stores. And we have an even bigger challenge that demanded a lot from our team for engineering and studies, especially when it comes to providing some structural reinforcement, we were talking about hypermarket with about 1,000 kilos per square meter and assistance for firefighting, cooling. And so, it's really a restructuring process to be able to service our business model. And I think we have some examples that we've mentioned due to the size of the project. We're talking about 12,000 kilometers of electric cables, it's a lot. And 4,050 statue (ph) statues if we were to consider the amount of concrete. So, at the end of the day, what we always worked on is to always offer a nice store with good lighting, modern equipment -- structure and furniture -- an equipment with low cost perspectives and thinking about the future maintenance of these assets.
So, we have -- customers have a real different experience compared to what they had before and what they are receiving now. When we talk about low costs, Gabi, please, if you could go over the next slide. Here we talk about the timeline. And we can show clearly that the discipline from our team, when we talk about expenses, we have major focus on developing the project, mainly innovation, but always being careful to make sure we don't harm the essence of the business model, which is low expenses. So, we offer this new experience, customers that were hypermarket customers, really feel that there is a big difference in the model and the quality of the store we delivered. And we always have this perspective for the B2B and B2C customers and we adapt the assortment, improve the services and customers always search for lower prices and a bit of all of that.
So, when we take a look at the timeline, we have this project we've consolidated already and so we expanded this even more. We added this to our stores. Then, we have the important, which is basically, we kind of just change a bit of the service provision we already provide to customers and all of the Assai stores, especially when we look at the transformational market, the restaurant owners, pizza shops, the pastel, and other snack shops. And so, we standardized this considering the size of the hypermarkets, which account to concentrators this and bringing this to the customer with better services searching for better sales, of course. So, the numbers reinforce the discipline of our team with expenses, timeline and, of course, without changing the Assai work, right, without losing our characteristic of price and low cost, right.
So, we deliver, as Wlamir mentioned, the stores have really perspective -- a positive perspective. We have a customer flow that's super interesting also. We already had this as a reference in the stores we transformed in the previous years. This remains and this really makes us continue to work, continue to expand and we imagine we're really on the right path. So, I also want to take advantage of this moment to thank all of the operations team and the areas involved. I think we had some fantastic work done and that's basically what I had to share. Thank you so much. Now, I will pass the floor to Dainela, our Financial Director.
Daniela Sabbag: Thanks, Anderson. Good morning, everyone. As a consequence of everything that was already presented by Wlamir and Anderson, I want to talk about our EBITDA, and basically this EBITDA doubled in three years at a period where we opened 107 stores. We ended the fourth quarter with adjusted EBITDA of BRL1.3 billion. And what's important to highlight is that if we were to offset the effects of the pre-operational expenses regarding the expansion this year, we would have an EBITDA margin in the quarter of 7.7%. In the year, the EBITDA reached BRL3.9 billion and a margin of about 7.2%. So, if we were to adjust the pre-operational expenses as well, we would see that we have an EBITDA margin of about 7.4%, which is pretty similar, if you were to consider what we delivered last year, then if we were to remove that and have the recurring stores, so eliminating the effects of this expansion, right.
And when we take a look at this EBITDA, it's really relevant if we were to consider all of the expansion historically, we've already discussed, with 60 store openings and its profitability has been very consistent. It's a very resilient portfolio. And I just wanted to summarize a little bit of what we've already been discussing with you guys. Now, the conversions have been presenting quick maturity as well as a rigorous control of some of the expenses that Anderson mentioned, so I think that reinforcing that there was an expectation from the market when we were talking about the store conversion project that our EBITDA margin would be around 7%. And so, at the end of the day, we delivered a number that was surprising, which is 7.2%, and we're super satisfied with that and these results.
But from this slide, that's pretty much what I wanted to mention, right. We could move on to the other slide with the financial results and cash generation maybe. We had a financial result that in the fourth quarter reached BRL445 million or 2.8% of the sales. And we always bring in this analysis by excluding the effects of the interest -- lease interest and from this perspective, the financial expenses were about 1.7% of sales. And this result, of course, in the year is about BRL1.5 billion, excluding the BRL1 billion liability effect and 1.8% of our sales. So, of course, we have an important effect here with the increase of interest, and this year, we had to -- 12.4, and last year 4.4. So that was a significant impact. And also, the fundraising we had to be able to handle all of the investment plans and store conversions, so we had some fundraising we announced quarter-over-quarter.
These are very important and sometimes even -- sometimes helping to lower this and these were -- our debt was about from BRL8 billion to BRL12.4 billion, which also explains this effect a bit. So, moving on to cash generation -- just a second, about the debt, I think it's important to mention that our cost of debt is still CDI plus 1.5% and the average term of 3.5 years. So, we ended the year with about -- a EBITDA -- net debt to EBITDA ratio about 2.2x, 2.19x to be precise within our expectations and even a little bit lower than what I was mentioning to you guys. We were talking about 2.5x, but there was like some displacement of other payments that kind of explains part of this. When we move on to cash generation, the cash generation in the past 12 months, we generated BRL4.2 billion.
This is super important for our performance. And it's an increment of almost BRL2 billion and a really important part, which was coming from the operational improvements and also the strengthening of the company in central regions with high density, so that optimizes working capital. As Wlamir mentioned, this was an important contribution for this kind of cash generation. Then here we also have an understanding of the investments of BRL3.6 billion with the extra payments and financial expenses, as I mentioned. Of course, this net debt for the first quarters due to the seasonality increases a bit, because we have all of the CapEx with the second wave of conversions which takes place now in the next quarters. And naturally this is a variation, but I think it's important to mention that it's really within what we planned for this project, and very coherent as well, and what we've been mentioning to the market as a whole.
So, on the next slide, for final remarks, when it comes to our results and then after I'll pass the floor to Belmiro. Here, we have an overview of the profits, in the quarter, was BRL406 million and a margin of 2.5%. And in the year, BRL1.2 billion and margins of 2.2%. So, it's a profit that we consider to be really strong and it becomes even more relevant in this context with high interest that we've noticed throughout the year and all of the investments. So -- and that, of course, reflects maturity of the stores and the success of the commercial strategy and discipline towards our expenses. So, I think these are the main points when it comes to the results and earnings. And I'll pass the floor to Belmiro to talk about ESG, okay.
Belmiro de Gomes: Thanks, Danny. Of course, when you look at all the numbers and the advances with customers, but also the amount of stores, were important advances, especially regarding ESG, the company is super aware of its social responsibility. And due to the size of the company, the amount of customer service, so we had many advances, some highlights, even with the inclusion of Assai in ISE Index for B3 in companies when it comes to sustainability, and the fact that we came in with a high level of suppliers. And within this GPTW Index as one of the 10 best companies to work in and also the creation in 2023 of the Assai Institute, which is going to be super important to support our work in social projects. So, the company has many different initiatives in this sense and this really is in line with our values and culture.
And there's major work also to be this reference when it comes to social advances and inclusion of people with disabilities and strong search for gender equality and other racial issues. So, the company isn't moving along with many advances when it came to this topic. So, we can advance now; expectations for 2023. When you consider the amount of store openings that are made from 108, 107 openings, 60 different store openings, we are keeping the investments and the company remains having the strong expansion plan for 2023 where the objective, of course, is to complete the conclusion of the stores, the Extra conversions where we had 19 conversions we have to deliver this year still and the opening with 40 -- and the objective of having 40 openings -- so then, till the end of 2023.
There is an expectation of a better curve in the interest rate. This doesn't change investments in new stores. The projects we had are the same when it comes to the perspectives and expectations when we deliver this project, as well as with the organic stores. And so, even if there is still some pressure in this net debt to EBITDA indicator, due to this wave of payments and so we're going to follow this deleveraging curve, it's going to be really quick. So, we should end 2023 with a net debt to EBITDA at most 2 times. And in 2024, it'll drop to 1.5 times, even with a scenario that is a little more aggressive for the interest scenario. And so -- but we have seen once again food -- mentioned some more inflationary indexes, there's some relief when it comes to pressure.
And we've seen some analysis, maybe the drop in inflation could harm sales. But we have to remember that a big part of the population had important trade down in the past years. So, if you look at the historical curves in the food sector, but especially for the wholesale operations, normally same store sales in a period with high inflation grows less than the inflation, but it grows even more when you have lower inflation because the population is very anxious to resume and recover their normal purchase behavior. So, one of the means that the population adopted in this high food inflation was to adjust the purchase mix. So, when you take a look at -- like a consumer, that's a typical wholesale consumer. He has a certain amount of money he can spend regardless of the inflation.
So, even if the inflation is going to provide some relief, which will be very beneficial to the population, this should favor us because of the trade-down effect we noticed that was so strong in the last three years. So, what we've seen so far is the conversions we performed in the calendar of the fourth quarter, it was maybe not as we expected. So, we started opening a lot more in the end of 2022 January. We already have the first full month of this conversions and the market share gains, that Wlamir mentioned, were really accentuated in January and February. So, Assai goes through a major gain of over 3 points of market share. And we're already at 5 percentage points. So, to give you an idea, especially the stores that were recently converted and this pressure you have on income and the search for prices with a combination of what we did to improve the purchase experience, expanding the assortment and being careful with the low operational costs really generated an important combination.
We're noticing this in the flow. We're reaching many records and all-time highs. In January, we had more than 6 million tickets due to the strong contribution of the recently opened stores. So, of course, we've seen that these stores didn't have such a big impact in the margin. The company continues to follow a strategy to keep up with the ramp up of the converted stores, balancing sales and margins with our eyes open on competitive advantages if we need to invest in these margins that will take place, but it's not what we're looking at, at this moment. So, we keep this expectation for 2023 with the EBITDA levels pretty much at the same levels 2023 and that's when the company is really going to search for growth. So, the growth so far were half of the first quarter.
And it's going to be higher than the growth that we had in the same-store sales base and the total base, which gives us more conviction that the plan, as it was executed, and what we presented to the market, we've been able to achieve even a little above what we had mentioned to the market as a whole. So, within 2023, we should have some evolution -- ongoing evolution from a governance perspective. We really have our eyes open. And we've been talking to our shareholder -- our controlling shareholder to perform the modifications from a governance perspective to guarantee the security of minority shareholders, reflecting on the new Board to keep the same shareholding stake and share, and also, when we look at some procedures to really set the track to become a true corporation.
So, this is what I had to say for 2023. And I'll pass the floor back to Gabi for the Q&A session. Thank you so much, ladies and gentlemen.
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