Companhia Brasileira De Distribuicao (PCAR3) Earnings Call Transcript & Summary

[Operator Instructions] We inform you that this videoconference is being recorded and will be made available on the company's IR website. You can also download the presentation using the chat icon. [Operator Instructions] We point out that the information contained in this presentation and any statements that may be made during the videoconference regarding business prospects, projections, operational and financial goals of the GPA constitutes the beliefs and assumptions of the company's management, health as well as information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions, and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors could affect GPA's future results and could lead to results that differ materially from those expressed in such forward-looking statements. With us today are GPA's CEO, Marcelo Pimentel; and CFO and Investor Relations Officer, Guillaume Gras. I will turn the call to Marcelo Pimentel for his initial remarks.

Good morning to everyone. It's a pleasure to be with you today providing you the opportunity to clarify points regarding the material fact that was published at the end of yesterday. Now continuing with the material facts from eighth of August, 5 of September, December 30, yesterday, we released a material fact communicating that the Board of GPA approved the proposal that will be submitted to the General Assembly on February 2, which segregate businesses GPA and Exito. Today, we will give you opportunity to clarify regarding the structure of this operation. We have prepared 3 stages for today, and then we will end with Q&A session. The first part of today is a summary of the structure and the merits of the transaction. Many of you have already observed this structure, and it's important to remind all of you the structure and the merits of this transaction. The first -- second part would be the time line of the transactions and the upcoming steps as of now. And at last, we will talk about the share distribution of Exito and how the mechanism with [indiscernible] with Guillaume, our CFO that will proceed with the presentation embarking in details and he will show you in details each 1 of these 3 points. And then we are at your disposal to answer any questions you may have. Guillaume, good morning.

Thank you, Marcelo. Good morning to all of you. Thank you all for participating in this call to present the progress of our project to separate the activities of Exito Group. On Slide 5, we have the structure of the transaction. First and foremost, I would like to remind you that before the separation of Grupo Exito's activities, we adopted decisions aimed at strengthening the financial structure of GPA [ 31 ], the anticipation of the installments related to the sale of the hypermarkets into the schedule we received of Exito's ordinary dividends regarding 2022, which will occur before the separation is effective. That being said, the separation of Grupo Exito's activities will be carried out via a distribution of Exito's share through a capital reduction now from GPA's current stake, which is 96.5% in Exito, we will distribute to its shareholders 86.3% of Exito's capital, and we will maintain a 13.3% stake. Thus, the new shareholder structure of Exito Group will be, GPA will continue with 13.3%, Casino will directly hold 34.1% and the market will have 52.6%, increasing the current floating of 3.5%. As already mentioned, the distribution of shares will be made by a capital reduction, representing BRL 7.1 billion. This is 52.7% of the GPA group equity that represented BRL 13.5 billion at the end of Q3 of 2022. Finally, considering the Grupo Exito is listed asset in the Colombia Exchange, this distribution of shares will be carried out through a BDR and ADR program, both Level 2, which will meet the same current governance levels of GPA. Now on Slide 6, we have the rationale of this entire transaction. Looking at the separate market value of each asset, we've observed that the market appears to significantly undervalue these assets. Now on the GPA side, the market value is lower than the value of Exito in which the group has a 97% stake. This implies in a negative valuation of the GPA Group. Now looking at the Exito side, the market prices are below the average multiple of the sector and also below the last 2 transactions made in Exito's capital in 2019 and 2022. This is probably because of a floating capped at 3.5% of capital. Thus, by separating the assets, we expect to allow the market to better price the companies and unlock the value not reflected in the market cap of the companies. In addition, this transaction allows us to increase Exito Group's floating to 53% and also the liquidity level, thanks to a listing in 3 regions: Bogota, Sao Paulo and New York. Finally, this transaction does not create a lack of synergy and allows the management of each company to focus more on each 1 of its markets. On Slide 7, we would like to remind you that this transaction is similar to the spin-off operation that we carried out in the past with Assaí, which was in the beginning of 2021. The operation also aims to unlock the value of Assaí, which was not fully reflected in the market cap of the GPA group between the date of the spin-off announcement and 6 months after the spin-off went into effect the -- of the GPA plus Assaí parts increased 85%. On Slide 8, you can see the main key financial and operating indicators for each 1 of the company separately based on the last 12 months at the end of Q3 of 2022. Each group is the market leader in the formats. They operate and perhaps, I will give the floor to Pimentel, so he can present these new 2 groups and remind you the GPA strategy.

Can we go to the other slide? This is just to remind you what we have thoroughly communicated regarding the GPA strategy -- or the new GPA as we call it, that is a supermarket proximity and multichannel group. This is a vision based on 6 strategic pillars with top line growth improvement of the customer experience. We've used NPS to measure this pillar. The growth of our -- the growth in our digital penetration in all levels, growth of the organic expansion of our stores and models. And here, I would like to highlight the success of the organic expansion during 2022. We ended with our planned growth, the resumption of profitability to our business. And last but not least, but the base of culture and our ESG commitments. We are doing this with a view of a plane with 2 wings. One wing aiming at the premium market with Pao de Acucar -- Minuto Pao de Acucar brands. And another wing, which we call the main string. This is Mercado Extra, Compre Bem and Minimercado brands. Our focus, as we have mentioned, is precisely to capture the resumption of the importance of the brand, Pao de Acucar, the prioritization of this brand and focusing our ways on our customer and this is what we have done. This transaction will also allow us to consolidate the focus of GPA on the national Brazilian operation, which -- with which we are committed to. Now going to Slide 11. Here, you can see the time line of this transaction up until the day we concluded 2 important status. One, the agreement with the banks and debenture holders on this transaction to the filing of the BDR program together with the CVM. As next steps, we have the filing of the ADR program that should happen by the end of January. The extraordinary shareholders meeting on February 14, which will vote on the capital reduction to execute this transaction. Subsequently, we have a 60-day period and this will start for GPA's creditors to oppose or not the transaction. The CVM approval of the BDR program and on Q2 with the possibility of approval in the first quarter, the SEC approval of ADR program on Q2. And at the end, the distribution of share of Exito shares as of April, this date may evolve depending on the date of the second CVM approval. On Slide 13, now this is the third part of this presentation where I will give you more visibility regarding the arrangements for distribution of Exito Group shares. Number one, so what will GPA shareholders receive? Each GPA shareholder will receive 4 Exito shares for 1 GPA share. The GPA shareholder who holds 1 U.S. share listed in the New York Stock Exchange via the ADR program will receive 4 Exito shares via ADR level to also listed in the New York Stock Exchange. The GPA shareholder that holds 1 share in Brazil listed in the new market of B3 will receive 4 shares of Exito through BDR Level 2, also listed on B3. When and who will be entitled to receive Exito shares as of April 15, the end of the legal opposition period for creditors and after the approval of the CVM and SEC filing? Once we received the green light from the second CVM, we will publish a new material fact that will set the record date for GPA shareholders and the date of the first day of trading of Exito's ADR and BDRs. Who will receive Exito shares? Will be the GPA shareholders in proportion to the shareholding position on the record date that will be communicated beforehand by a material fact. What is the cost for the shareholder? No cost is associated to receive Exito shares. In addition, shareholders will have no costs during the period up to 30 days if they wish to change the region where they will hold Exito shares and can migrate to Bogota, Sao Paulo or New York. After 30 days, the possibility of migrating into another quotation region will continue to exist, but with associated costs. Finally, we recommend that GPA shareholders contact their representatives in case they have any questions about the transactional aspect of Exito shares. I close the presentation here and open for the Q&A session.

[Operator Instructions] Let's move on to the first question. It's from [indiscernible] sell-side, BTG, in Portuguese.

On our side, it's going to be quicker. We would like to understand what's the extraordinary dividend of Exito that had been mentioned previously? I think this was mentioned in the material fact. So I would like you to explain whether this time frame will continue with the amount. And we would like you to provide more details about what we have available in terms of timing of Casino, the sale of Casino after the transaction.

Thank you for the question. When we look at the dividend of Exito, first, it's an extraordinary dividend. It's the ordinary dividend based on the results of 2022. So the amount of $400,000. This is not the amount that we expect. It should be based on the net income of 2022, which is not known yet. But it's going to be based on the results of 2022. In relation to the second question in relation to the sale of Casino. We still do not have this information. We have no estimate. Exito is an asset that is valuable with the potential to grow to increase its profitability. The financial performance of the past years was exceptional. Its financial structure is very solid as well, very sound. So Casino will continue accompanying Exito in terms of value. And then we will check what will be the best moment to sell the equity of Casino.

Our next question comes from João Pedro Soares [indiscernible] Citi.