Sendas Distribuidora S.A. (ASAI3) Earnings Call Transcript & Summary

Good morning, everyone, and thank you so much for waiting. Welcome to the earnings call for the fourth quarter of 2022 at Assai Atacadista. [Operator Instructions] This earnings call is being recorded and will be provided on the company's IR website, ir.asai.com.br, where you can also find the earnings release. [Operator Instructions] 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 a 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 ISA and the results that differ materially as those list in future statements. Now I'll pass on the floor to Gabrielle Helu. She's the Investor of Relations Director of ASAI.

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, the 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.

Thank you, Gabi. Thank you, everyone, for your participation. I want to thank you all for your presence and especially thank all of the ASAI 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 BRL 4 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 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 for ACRA. With this, we reached 108 openings in the last 3 years, the company doubled in size in the past 3 years. And just as we're going to see in Anderson, Danny and Rami's presentation, many other indicators are also doubling. So the strategy, we've been working to manage a store network plus a 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, and other opportunities to improve the purchase experience that customers have. Regardless of their social levels, we've been working on major efforts to keep our main low cost, but also improved 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 conflict 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. You'll give us a little more details on the performance on sales margins. And then we'll get back to the expectations for 2023. Thank you very much.

Thanks, Belmiro. Good morning, ladies and gentlemen. I want to thank you all for your presence. Also I want to thank the ASAI team and for some reason, I can't do the presentation on the screen, but I think it's there. Yes, it is 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, was $16 billion in revenue and net sales. So we doubled the amount of sales in 3 years when compared to 2019. This is then repeated when we take a look at the closed year we ended with growth of 31%, BRL 54.5 billion in revenue. The numbers are very strong, very solid. And this demonstrates the resilience of ASAI 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're 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 drag-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 ahead 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 to present market share gains nationally and get into more details here. When we look at the city of Sao Paulo, it was an operation where we invested a lot. We had 27 stores in the state of Sao Paulo. We had an increase of 4% in the day. 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 of the other stores, we were able to keep growth we were from BRL 4,500 sales per square meter to 4,700, 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, just 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 $2.7 billion of gross profit in this quarter and BRL 9 billion in the year. But 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 4 years, and you'll see that in this quarter and the year, the variation is very small, regardless of the size of the efforts to open up the 60 stores with pre-post and -- and I think the strategy, everything that was done also allowed us to deliver a value proposition that is 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 3 new DCs. One was a substitution to smaller DCs and we increased our capacity for storage by about 40%. And then we have this new unit in billing. 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 for the next 3 years will be supported by a logistical structure. So, I think that was pretty much it. But there's another point I can mention, which is a 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, an increase in deadlines with a huge expansion. And so we did negotiate some additional timing and terms. And so this would also provide some relief on the CapEx invested. I think that's pretty much it on my side but I'll pass the floor on to Anderson, so you can give us more details on the operation. Thank you all so much.

Well, thanks, Wlamir. Good morning, everyone. Thanks to all of our team and partners for super thankful and happy with the work, reinforcing this that Belmiro mentioned, it's really an all-time high. We're talking about 60 stores with the project we began with an initial guidance for 52. So, we challenged ourselves to make those 58 and we reached the end of the year delivering 60. So I think it's an all-time high for ASAI, 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 involved the entire company. It was a major challenge, especially in the last quarter. We opened over 37 stores and we reinforced that we have a project with 47 hypers that we're 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 reimbursements, we're talking about a 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 450 stature -- crystal statures if we were to consider the amount of country. 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 and equipment with low-cost perspective 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're receiving now. When we talk about low cost, I be pleased if you could go over the next slide. Here, we talk about the time line. And we can show clearly that the discipline from our team, when we talk about expenses, we have a major focus on developing the project, menu 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's 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 time line, we have this project we've consolidated already. And so we expanded this even more. We added this to our stores. And we have the importer, which is basically -- we kind of just changed a bit of the service provision we already provide to customers in all of the SA stores, especially when we look at the transformational market, the restaurant owners, pizza shops, the Pastel and other snack shops. And so we standardize this considering the size of the hypermarkets we to concentrate this and bring this to the customer with better services, searching for better sales, of course. So, the numbers reinforce the discipline of our team with expenses, time line. And of course, without changing the ASAI work, right, without losing our characteristic of price and low cost, right? So, we deliver, as Wlamir mentioned, the stores have a really prospective a positive perspective. We have a customer flow that's super interesting also. We already have 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'll pass the floor to Daniela, our Financial Director.

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 3 years at a period where we opened 107 stores. We ended the fourth quarter with adjusted EBITDA of BRL 1.3 billion. And what's important to highlight is that if we were to offset the effects of the preoperational expenses regarding the expansion this year, we would have an EBITDA margin in the quarter of 7.7%. In the year, the EBITDA reached 3.9% and a margin of about 7.2%. So, if we were to adjust the preoperational 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 in last year than 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 it's a profitability. It's 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 a quick maturity as well as rigorous control of some of the expenses that Anders on 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 side with the financial results and cash generation maybe. We had a financial result that in the fourth quarter reached BRL 445 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 the sales. And this result, of course, in the year, is about BRL 1.5 billion, excluding the BRL 1 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 12.4%, and last year and 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 were very important and sometimes even sometimes helping to lower this. And these were -- our debt was about from 8% to 12.4%, which also explains this effect to them. So, we are 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 of about 2.2%, 2.19 to be precise, but in our expectations and even a little bit lower than what I was mentioning to you guys. We were talking about 2.5%, but there was like some displacements 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 BRL 4.2 billion. This is super important for our performance, and it's an increment of almost BRL 2 billion in 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 BRL 3.6 billion with the extra payments and financial expenses. As I mentioned, of course, this net debt for the first quarter 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 on to Belmiro. Here, we have an overview of the profits in the quarter was $406 million and a margin of 2.5% and in a year of 1.2 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 the 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?

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 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 a in ES, the 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 ASAI 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 ratio issues. So, the company is 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 were made from 187 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, right? 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 until 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 delivered this project as well as with the organic stores. And so even if there's 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 of almost 2x. And in 2025, this will drop to 1.5 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 as some relief when it comes to pressure. And we've seen some analysis, maybe the drop in the 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 growth less than the inflation, but it goes even more when you have lower inflation because the population is very anxious to resume or 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 would 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 3 years. So what we've seen so far is the conversions we performed in the calendar of the fourth quarter was maybe not as we expected. So we started opening a lot more in the end of 2022 January, we already have the first a full month of these conversions and the market share gains that Wlamir mentioned were really accentuated in January and February. So as I through a major gain of over 3 points in 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 margins. 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 level as 2023. And that's when the company is really going to search for growth. So the growth so far were the half of the first quarter, and it's going to be higher than the growth that we had in the same-store sales base in 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 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.

Thank you, Belmiro. We can start with the Q&A session. [Operator Instructions] Now we'll start the Q&A session. [Operator Instructions] We will start with our first question coming from Danniela Eiger, the sell-side analyst from XP.

I congratulate you on the results and earnings. I have 2 questions. I have more, but I'll focus on 2. So the first one is when it comes to the growth dynamics that you mentioned that it's accelerating compared to what we saw in the fourth quarter. But we've seen a lot of investors being very concerned with an impact of possible slowdown in the food inflation and how this can be reflected in the same-store sales. They want to understand how you're looking at this overall equation between price and volume over the year. And maybe a recovery in volumes could contribute to bring in a little more color on this acceleration if this comes from this point. So I think that's the first aspect. And the second point, you've already covered a bit, which is about governance. So, we also think it would be good to have a little more visibility. You've already mentioned that a bit in the past. But what's the mindset with ASAI more to the midterm when it comes to governance? Is it like moving towards a corporation or really having this year renewal of the Board as an important sign that this is the path you're going to be following in line with the main shareholder. It would be good to understand a bit more of these discussions, right? And what the path is for the company in the midterm when it comes to governance.

Okay. Perfect, Danny. Thanks for your questions. Let's start with the first question -- the second question. So governance, yes, this is the path. We've been providing some science to this. Of course, we have many different alignments. We're really in line with our controlling shareholder, and renewal of the Board will provide one more sign of this, just as in the fourth quarter, the modification of the policy for related parties provided some comfort since we have 70%. -- we will do so to be able to make the investments quicker, and we won't work on such an aggressive approach to accelerate the ramp-up curve, destroying margins very quickly -- we had -- we reached almost 6,000 to 7,000 employees. And you can see this. But the biggest highlight and the level of costs, we were able to engage more than 3,000 people for support with training new hires and really being able to keep the stability. So there was a concern, of course, the market always has concerns, but first, we were able to open what was the impact in the margins and expenses and the continuity of this. So, the first, we're super optimistic now, especially with the numbers we've been looking at so far in the relative perspective compared to the market. I hope I answered your question.

So just at this point on the organic run rate, the maintenance of these 20 openings would make sense around?

Well, we can't mention that it's a clear sign because, of course, there is an indicator that's really important on the return on invested capital. So one of the points is that ASAI is really acknowledged for its growth track record, but also because of the delivery of major returns. So these 20 projects were already underway even before the acquisition of the extras where we really focused on the conversions of the hypermarkets. So these are projects that we valued more with the best projects from an organic perspective, balancing out the licenses, maturity in the stores and margins, but there was a significant increase in the cost of construction, especially when it comes to cement, concrete and steel, which is something that in the organic stores where you build all the infrastructure and the foundation, there could be a bigger impact, and this could lead to a revision in the product portfolio. So at least 15 openings in the next years could be expected. So there's a focus also on deleveraging. In 2022 and '23, we're pretty strong. We're expecting the curve to take place in the fourth quarter this year. And in 2024, especially, we plan to deleverage the company along because then we've already gone over the big investment period. So this is not only with the cost of conversion in the stores, but also the payments made to GPA, which end in 2024 for the smallest installments in 2024. So that's when we already have a net debt-to-EBITDA ratio that's smaller than 1.5x.

So, now our next question is from Maria Clara, the sell-side analyst from Itau.

Here on our side, we would like you to explain a bit more of the issue with the improvement in the dynamics with your relationship with suppliers. So as we think about more of a gross margin perspective, is it reasonable to consider that these more favorable terms could positively impact the profitability dynamics when you look ahead? And this is from a working capital perspective. Does it make sense to think that we have a new working capital level in the operation?

Wlamir, do you want to answer this one?

Yes, sure. I'll answer. But thanks for this question. Maria Clara, of course, we -- when we consider the negotiation with suppliers, this system in constant. And what we are estimating is that with this trend towards expansion, we sat down with the suppliers, and we had this movement to increase the terms, of course, as I mentioned, this is something that we're going to be working on extending now in 2023, 2024. And we were able to achieve not only this in the negotiation of terms but also pricing. So when we look at the stability and balance between the gross margins but also in the levels of stock, this demonstrates the precision of our commercial policy and what we can deploy. So yes, we continue to negotiate terming to not have -- to be able to continue to expand and also negotiate our prices to be able to be competitive. So when you add up the gross margin, working capital, expense control makes us have this share gain. And if you look at the other weeks, we had some share gains, almost 28 and so this shows that this relationship with suppliers has contributed to the maintenance of these indicators and the expectations that we'll keep these gains that we kept in 2022.

So the next question is from Marcella Recchia, the sell-side analyst from Credit Suisse.

We have 2 questions here. The first one is about capitalized interest. We know this has been a major factor for discussions about changing to looking at the amount of stores that were added to the base. We also know that this represented most of the profits in the company. So we can see that the total was almost a little more than 60% of the profit in 2022. So as the company is completing the conversion process and opening up these last extra stores, what should we expect throughout the first semester until the opening of the last conversions when it comes to capitalized interest that's still impacting the profit line -- that's my first question. And the second question is about the conversions. So, in our conference now in the beginning of the month, we had feedback that the conversions already have sales very close to the uplift of 2, 2.5x. And the profitability is above expected. So this is especially due to the bigger mix of individuals still within sales. And Belmiro, I want to know from you if this is something you're looking at something occasional just due to the macroeconomic scenario or if this certainly represents an opportunity for the gross margins to be better in the long run when you consider a mix that could also be better.

Thanks, guys. Thanks. I'll answer about the conversions and then Danny will talk about the capitalized interest has been significant. And that's really what we are working on. So Danny will highlight this more. But when we look at the conversions, the pace is still kept. We're looking at 2 curves, the sales curve and the margin curve. So at this moment, we mentioned that there's going to be some stability because we always want to be prepared for an increasing competitive advantages. But of course, these stores due to the level they have in the region they're a part of, we do have expectations that will reach a better level of margin, working capital, not only due to the current scenario, but also due to the fact that we already had the expertise in the other organic stores that were open in downtown regions for other conversions and that we really have been searching for another stance expanding the improvement in the purchase expense for customers and the assortment to reach other social levels. So we've been searching to do what has been already going on in other countries where you see all of the population buying in operations at are very similar to ours. So, we do expect this. And of course, it depends on the company's discipline to manage this. And so we have a huge country with a lot of diversity and a lot of in quality, which places a bunch of different challenges when we look at different regions. And there is an expectation for -- to capture more margins. That's why we're very confident about this project. But of course, we're very careful when we have other factors such as an increase in competition and more pressure from the market. And so and that's why we're being more careful. Since the stores have a performance now when we look at January and February, that's pretty much in line with what we planned. We still have some sales ramp up space that we want to search for, and it could be a little premature still. One, we get into some regions where they're part of, I think there's some room for this. So we were even criticized due to changes in our business model -- but people are drawing sticks and stones, but we know that any model needs to evolve and there's evolution modifications and these models that were kind of left and they operated in our sector, and they kind of kept the same model and the needs the customers have also changed. Customers want to have the best purchase experience. And if it's possible to do so, keeping low cost, we must do so. Sometimes, we can expand this. Some of people that we never imagined would buy in a wholesale operation, there are going to be surprised level of experience in the product and the service level that they find. So of course, a retail company that works with thousands of employees and millions of customers besides this positioning commercially, there's also when you look at this -- so -- this has been a big concern in the company, and the numbers have been proving this consistently. So now, I'll pass the floor on to Danny to talk about capitalized interest.

Okay. Marcella, to answer your question here, a bit of what we've been discussing on this topic. And so the first highlight is that the capitalization, as Belmiro mentioned, follows the accounting guidelines, and this is not a new practice in the company. We always have been disclosing our CapEx, and we always take a look at the capitalized interest where when the companies -- when the store is under construction, you have a capitalization, but this is of course, something that's more significant due to the volumes of stores this year. And we had a reduction in this line. That was about BRL 100 million. That's in the explanatory notes that you can see. So of course, this follows the schedule for store openings, we concentrated a little more in the end of the period. So we have a reasonable amount reduced a lot -- as this takes place, it's not something a new practice for us. It's an accounting guideline follow. So it's within our best practices.

So if I can have a quick follow-up just about this the tax line. So we've seen some volatility that's very significant in this line. And we received a bit of the -- we lost a bit of the reference of what this effective tax line would be after some of the ICMS exemptions you started to consider as a benefit. Is there some visibility on what we can take on or expect something recurring from this year onwards at a more adjusted basis?

So just to round it up a bit, we had about BRL 70 million with an effective tax rate of about 8.6 million -- and in the previous quarter, we published about 60 million. So, we can give you some more details to be able to help balance this out. But there's always going to be some kind of a variation with regards to this. And this is connected to the ICMS. So it's really going to depend on the sales mix for the different states and exempt categories. And so we're always going to have to hold on to that depending on the way in the region it's in and the mix you sell, but we can balance this out and think of a way to communicate this to give you some better guidance -- and this variation -- this is always going to have some kind of a variation. It's not a fixed number. So unfortunately, in Brazil, you have some tax changes, and that's what most happened. So anyways, when it comes to this effect, you're not at the effective income tax rate. But when you look at this, although there are some variations, there could be some other monetization, some of the credit, which is not necessarily taxable. But for projection Max effects, you could use the average in the last 3 or 4 quarters, and it's going to be a pretty good average. So if we don't think it's a good Well, this is the average we've been working on internally. But of course, you've seen that there have been some changes in decisions. One big decision that was disclosed does not really affect us because we had no lawsuits in this regard. But when it comes from a tax perspective, this is going to be a year with major changes. There are many different changes from a tax reform perspective, increase of the tax load. And so taxes and fiscal issues are always a challenge in Brazil.

Moving on, the next question is from Vinicius Strano, the sell-side analyst from UBS.

Could you talk about how your performance was in the B2B channel and B2C channels when you think about volumes and what you're looking at and expecting when it comes to the mix for these 2 segments in 2023? And would you also be able to talk about the converted stores. So are you looking at some change in the B2B mix or B2C mix? And do you imagine that maybe -- well, could you give us an idea on the profile of the public you've noticed in the converted stores? Are these consumers with higher income. And here is a little bit more of a specific question. Could you talk about what you've seen when it comes to the evolution and occupation costs here and even a bit more in line with the inflation -- when it comes to the cost for construction, if you could have a quick discussion on the CapEx for openings and conversions and how this has evolved.

Thank you, Vinicius for that question. There is a shift in the customer mix, and that's already expected. And so that's not that related because it's a lot more was related to the regions that they're in. This already happens when you have the organic store openings. And initially, even when it's a curve where you have the necessary timing for new store openings, which is -- which varies. But generally, what we should see in this channel is a little more share from the final consumers. If you look at how these are moving along, you can see that this rate has been increasing. And within the B2B customers, it's pretty stable. Well, we see is some changes -- and even the distribution with the actual industry. And so we will notice with the increases in the logistical costs are the categories that these B2B customers are buying with and they've tried to supply in a cash & carry store. But even when we look at the level of density in these stores, we do expect that there will be a bigger presence of end customers or B2C customers. So now it's difficult to measure this number because you have, in some cases, some B2Bs that also have a high level of non-formality or nonidentification -- but in these stores, you normally have about 70% -- 75% of consumers and about 25% of the B2B customer public. But you could have an air margin of about 5 percentage points, considering that it's also very common for some small companies, which we seems call utilizers. And sometimes they sell close, but they also come and buy like cleaning supplies or other items that they use in their close store and they also buy for their own house. So normally, is a big focus also on small companies, entrepreneurs, regardless of -- if their commerce is super-specific per sector. So when we increase the cost of construction, the inflation was quite perverse not only in the food sector, but this has increased costs, especially for the newer stores. So now an organic store, you have a big variation depending on the region you're building in. the area of the store and the level of the foundation, but an organic store could cost BRL 80 million or even more than this, depending on the level of the foundation you're going to use for the store. So of course, there have been more investments and some evolution in these stores, which also impacted our costs with conversions. And we had estimated an initial cost at a comparable base from an organic store about BRL 45 million. And this number has gone over. And of course, depends on the construction work and even considering the size of these units that were converted. So we have stores that have over 10,000 square meters. And there was also a concern on our behalf, which making these stores really reach new conditions, right, to avoid cost of maintenance. It's so high and avoid renewals or renovations in a short period of time. Sometimes you save initially, but that's going to cause your CapEx and maintenance costs in a short period of time. So if you had the opportunity to get to visit these stores, you'll see that they really have new conditions.

So our next question is from Vinicius Pretto, a sell-side analyst at Bank of America.

Congrats on the results. We wanted to know if you guys had seen any lessons learned with the different initiatives with services and assortment. And if it's adopted, it led to any kind of changes to the new store conversions.

Yes, there are some lessons learned. Of course, these are acquired not only in the stores, but also in the organic expansion plan we had. So some of these services had some pilot projects that we worked on that did not continue. And many of them were continued expanding to the existing store park. So in the last year, we opened over 100 batteries -- and there's, of course, depending on the region, you have a different level of need. But this is part of this evolution in the model to be able to penetrate other social levels, of course. And obviously, this store network with different locations gives us a base of knowledge and lessons it's very significant. So when we look at improvements and other points that we also think we have room for when you look at a consumer with a higher income level, more availability as well to have a bit more expense in the sector as long as we can offer an adequate proposal, of course, keeping the confidentiality of each business model. But yes, there are lots of less than learned.

So, the next question is from Ruben Couto, sell-side analyst from Santander.

Let me talk about the increment and productivity about 400, 500 to 700 and now in the end of the year with the conversions. And I wanted to understand about this number is it exclusively in the state of Sao Paulo, in the metropolitan region of Sao Paulo? I thought this was really interesting considering the level of maturity, have the recently opened stores and converted stores and also there's a concern that some people have about cannibalization. When we look at this cannibalization topic, how has the level been in the converted stores that are close to those that already existed where there was already some kind of installed store. Has there been any adjustment? Or is this in line with what was expected?

Well, getting back to cannibalization, yes, that exists. There's no way out. We're in the regions where we were already present and other players were already present. But we believe that around December and from the total base. So it's natural that eventually, what happens in the big cities like in Sao Paulo, we have some stores with a lot of operational pressure. And so some we didn't have the conditions to service customers. There is a big queue on the outside. So the level of services as well that was provided no you need a store in that region. And it's in line with what we expected. And so the market may be expect a little more impact. So maybe it would be about 12.5%, if we didn't have stores inside regions that were that close. So what happens is that BTB is sometimes quicker than BTC because businesses have to go far. There's one you have a different category of products. And so if you open up a straits 100 kilometers away, obviously, they're going to start buying from there. But it's natural that when you have an expansion, especially when you have to move on to a similar model with less overlaps and to avoid the level of cannibalization and some stores that were relatively close. So the sales per square meter that are highlighted considers all of us. And then you have a variation that's very significant when it comes to the national territory. So then when you look at the purchase power, sometimes it's not only because you have a smaller volume in the quantity or amount of products sold, but sometimes it's just the average price. So it's normal that the population has more purchased power and sometimes it even engages a similar amount. But sometimes, it's a product with lower added value, but this is an average for Brazil. And I hope that answers your question.

Yes. No, that's clear.

So the next question is from Nicolas Larrain, the sell-side analyst.

Belmiro, I just wanted to get back to the organic expansion you mentioned. And how many stores for the store openings have you already hired for 2023 and 24? And also, how are you looking at the scenario from an industry perspective? Do you think you have room to accelerate the M&A once the balance sheet is already deleveraged?

Well, thanks, Nicolas. M&A is not what's on our strategy today. Our strategy is to really look at the organic stores that were already in the land bank for the company. So these are projects that are practically prior -- all prior to the acquisition of the Extra stores. And what happened was a bigger selectivity of these projects to adjust the cost of contraction in this new reality without leading to impact in the in the and the M&A is not our target. Our target is to finish the project and deleverage in the company. Of course, this does not mean that it's a completely closed door. It will always be, as mentioned, kind of on track. And as soon as we have the deleveraging or we can do this, it could be that it could happen, but it's not our main strategy at this moment. But I do believe that maybe for 2024 or '25, it could be possible for us to be a little more active in the sense, but this is really connected to the company's leverage as well.

Moving on to the next question is from Irma, the sell-side analyst at Goldman Sachs.

I have 2 questions are very fast. The first is if you could give us an overview on the level of CapEx for 2023. And in line with this, could you also remind us about the agenda for payments that you still have for the extra stores throughout '23, especially in the beginning of '24. I think it ends almost in the end of trait. And then the last question related to this is if you could help us understand a little more on the expectations for cash flow for '23 because we saw you've already reached a leverage of 2.2 versus the end of the year. And so now you also highlighted the objective of reaching close to the 2x to at most 2x until the end of the year. So it seems maybe a little timid initially. Obviously, I understand you maybe have some CapEx aspects for 2023 and payments that need to be done, you have higher interest. But I just wanted to understand a bit of your mindset when it comes to cash generation for this year.

All right. Danny will talk about the payments now from GPA, a bit of the investment CapEx. We're finishing the numbers, and we should be highlighting this in our annual report. We have an elevation in the CapEx as well as due to the organic stores are about 20 organic stores. And they have a higher level of CapEx her also some revitalization of the existing store network and the services in stores that were not implemented yet. And part of this since the openings in '22 happened really close to the end of the year, 12 on November 9 in October 12 in December. So it's quite natural that you have a significant carryover in the CapEx from 2012 that's going to be paid out in '23. So that's why you see the leverage curve will follow a peak now compared to what we saw in the fourth quarter because the fourth quarter is also benefited by the seasonality of the products in the end of the year. And naturally, by -- with a term that's a little higher. So you'll see in the first and second quarter that it goes up a bit and then in the third and fourth quarters it drops. So basically, we still have room to be in a lower debt level, but we're still having some carryover costs and uncertainties, maybe possibilities and opportunities to even have an additional expansion in the amount of stores -- so that's why we're being a little more conservative to have this level of debt that we expect to land by the end of trading and of course, having a cost of debt, there's a relevant part of the GPA that's going to be paid now in '23.

Yes. So, Irma, so the thing is about the payments. We have basically in the first semester, 1.2 billion, which was a significant part in March and another in June, which adds up to BRL 1.2 billion. And then in the second semester, as Belmiro mentioned, we have the carryover from last year with the payments of some delays in certain stores, and then we're going to be paying this in the second semester. So you can consider about 1.2 million in the first semester and 1.2% in the second semester. So this is pretty much the payments flow that we have up ahead. And this explains the leverage that Belmiro mentioned as well.

So it would be the payments just to GPA, the 1.2 million. Well, the 1.2 in the first semester, 1.2 in the second mass have a final payment in 2024?

Exactly. So we have BRL 700 million in 2024.

And besides this, you still have the CapEx for organic stores, right?

Yes, exactly.

So now, our next question is in English, it came from Andrew Ruben with sell-side analyst from Morgan Stanley.

All right, thank you. I just have a quick follow-up. Thinking about the nonfood categories within the converted stores, how have the sales been trending versus your expectations? And do you have any updated thoughts about perhaps adding the non-fluid assortment within some of the core stores?

Yes. The stores not necessarily since the fact that they're converters, but where you have the location of stores with higher income, then you have a bigger share of nonfood items. It's still very timid in our sector. It's different than what happens in other countries, where Cash & Carry already like in the U.S., for example, with Costco, right, where you have a real high share on these kind of categories of products, but it's also connected to our -- to the level of American income. But the opportunities here really are performing the ramp-up in some categories that we predominantly work with, although we had the inclusion of some items that are nonfood. Some of the biggest inclusions in the assortment were more we're considering the broadness of the brands and categories. But we believe there's an opportunity. And throughout the year within this maturity strategy, it is possible that we'll have some tests and some trials with how to offer low prices with some nonfood items as well, especially for higher income consumers, which is where we really believe there's opportunities in these stores. But it's a secondary focus of what we're going to be following now in this path.

The Q&A session is officially ended. And now we will pass the floor to the company to their final remarks.

Well, thank you all so much once again for participating, as I mentioned, I say, has been following this path for growth. And in 2022, we have an important step towards the amount of stores, the amount of people we're servicing in 2023, and we are still in this investment phase, right, growing and generating more jobs and our expectation for '23, of course, has challenges, obviously, just like every year, but I think our team, our political scenario, the strength of our brand and all of these factors give us a lot of reliance and confidence that the company will move towards delivering results consistently regardless of adversities that we cement have when it comes to the market. So we're pretty used to handling this and whoever has been keeping up with the track record of the company, you'll see the level of stability in our numbers that we can adjust in our business model. And there's a pretty good expectations for 2023. Once again, I just want to thank all of the members Danny, Belmiro for their participation in this earnings call. Once again, I want to thank our team for their work, and I want to highlight that for 2023. We hope you will be with us in this process for growth and guaranteeing these results.

The earnings call for the first quarter of 2022, at is officially ended the Investor Relations department is available to answer any future questions you may have. Thank you so much to all participants, and have an excellent day.