Almacenes Exito SA (EXTO) 2022 Q4 法說會逐字稿

Good morning, everyone. Thank you for joining us today for Grupo Éxito Fourth Quarter and 2022 Results Call. At this time, I'm pleased to present our Chief Executive Officer, Mr. Carlos Mario Giraldo; and Chief Financial Officer, Ms. Ivonne Windmueller.

Please move now to Slide #3 to see the agenda. We will cover Grupo Éxito's financial and operating highlights, performance by country and consolidated financial results for the fourth quarter and '22 operations in Colombia, Uruguay and Argentina. Besides, we will also review the outcome versus outlook in 2022. Please bear in mind that as regards to the outlook for 2023, we cannot discuss figures at this moment due to listing restrictions. The call will conclude with the Q&A session. Thank you for your attention. I will now turn over the call over to Mr. Carlos Mario Giraldo.

Thank you, Maria. I want to thank you all for being present for this call for our Q4 results and for our full year results for 2022. I will start by making a brief reminder of where we are in the listing process of the Éxito stock.

In Slide #4, we can see the Éxito listing process for ADRs and BDRs, which constitutes a really structural change for the stock of Éxito increasing its floating. We expect an increased liquidity or floating from the current 3.48% to approximately 53%, adding around 50,000 shareholders to the base of shareholders of Éxito. It is a result of GPA distributing 83% of its current 96.52% positioned in Éxito.

Casino will remain with approximately 34% of Éxito shareholding position and GPA with approximately 13%. As a result of this, there is a high potential value unlocking for Éxito shareholders given liquidity and also visibility given the fact that the project includes listing Éxito stock in 3 markets in New York, Brazil and Colombia.

In Slide #5, I will go through the main highlights of the time line. We are now in process of listing with the CDM in Brazil and SEC in U.S. The initial filing has started, and we are pending the approvals from 2 -- from the 2 authorities. Éxito already made the share split from 1 shares to 3 in order to facilitate this exchange.

The approval from GPA's governance bodies has been obtained. In February, GPA General Assembly approved the capital reduction needed for this share distribution. The transaction completion is projected depending, of course, on the authorizations of CVM and SEC for the end of first semester. If we go to Slide #6, now we start to speak about the results for Éxito for the year.

In 2022, we had a year same-store sales increase of 20.5% at the consolidated level. This is a record in the last years for Grupo Éxito's. Our recurrent EBITDA increased by 8.3% with an 8.1% margin. If we adjust the recurring EBITDA, excluding the nonrecurring real estate income in the base, the increase in EBITDA would be 12.6%. Omnichannel share ended at 9.6%. And if we look only at Colombia, it would be 12%. And if we look only at food, that percentage of the share is 10.5%, one of the highest that you can see in the whole continent in a big-sized retailer.

We had a solid 22.7% total sales growth, imposed by innovation formats and by omnichannel penetration. We also had the lowest SG&A as a percentage of sales level since 2015. That is 9 basis points below the historic levels. Net income was impacted -- was affected by the Argentina inflationary adjustment by the deferred noncash tax effect coming from Colombia and Argentina by the increase in the provision of Tuya, our credit card and the higher interest rates seen in Colombia this year.

The net income was benefited by the operational results of the company. The dividend proposal that the board approved and it's going to be taken in March to the general assembly is to distribute COP $217,393 million, that is COP $167.5 per share, which constitutes a dividend yield of 4.9%. The CapEx that we executed during 2022 was near to COP $500,000 million, adding 31,000 square meters of new store area and intervening with WOW, Fresh markets, et cetera, or Surtimayorista, 50,000 square meters of retail area.

If we go to Slide #7, let me speak about ESG sustainability development achievements, which are very important for Éxito. In our big goal of bringing malnutrition to 0 for Colombia as a vision, teaming with the government and with NGOs for 2030, we gave nutritional packages complementary to around 60,000 children during the last year. In governance, Merco measured reputation of Colombian companies, all size, national and international, and Éxito is the top eighth company in reputation. Éxito also classified within the best global retailers in the SAP Sustainability Index.

In the environmental side, we achieved now an accumulated 43% reduction in the footprint of the company in Scope 1 and Scope 2. Éxito is today the main recycler of carton and plastics in Colombia and obtained last year a recycling of 20,500 tonnes. 88% of our fresh products are bought locally of those 86%, but directly to the producer eliminating additional intermediation.

In Slide #8, we speak about the Colombian sales performance. Sales in Colombia increased by a total 18.4% last year and 12.3% in the fourth quarter. Even though in the fourth quarter, we had 2 non-BAT days in the base. Despite inflation, especially inflation in food, our volumes last year increased by 3%. We had a huge effort to protect consumers from inflation.

While inflation in food was 28% to the market, our process to the market increased 770 basis points below food inflation by strategies like anticipating purchases and obviously, translating productivity efforts from the company. We also saw some trading down of the consumers into our private brand and especially to the portfolio of unbeatable products, which has been highly successful in the market.

If we go to Slide #9, we see the sales performance in Colombia by banners. Éxito increased by exit -- by 18.4% and (inaudible) brand increased by 18.9% boosted by 19% share in home delivery, the highest share in home delivery within all our brands. The low-cost brands within them Surtimayorista increased 16.9% same-store sales. Surtimayorista which today, this cash and carry format has 40% of its sales going to mom-and-pop increased by 26.8% its same-store sales during 2022.

If we go to Slide #10, we speak about the innovation formats, the way in which they are increasing their sales against the other stores that have not been converted into WOW Fresh Market or Surtimayorista and the ROI that they have, which gives us confidence to continue in the following years in this conversion process into the WOW Éxito hypermarket stores, the French market, Tuya premium stores and not only conversions to Surtimayorista, but especially new openings of this cash and carry very successful for it.

Éxito sales around WOW now represent 34% of the total Éxito brand. In the case of Carulla, they represent 59% of the total Carulla sales, those Carulla that are under the fresh market concept, high premium, high innovation, high service imported product, refined liquor offer and a very important service level.

Surtimayorista low cost continues to have a high ROI being the lowest cost format within the company, and I believe in all the country with cost level around 10%, and it has the lowest CapEx per square meter of the whole organization. The ROI on investments to conversions was for the WOW around 62% for the fresh market around 19% and for the cash and carry around 24%. This gives us the confidence to continue working in that conversions and in that expansions around these brands.

If we go to Slide #11, we speak about the omnichannel performance, one of the best in all Latin America and even compared with United States retail players, especially in food. I would say that our omnichannel sales, that is those that are -- come from last mile or marketplace or e-commerce or click and collect within others or sales from our apps they increased a total 18.2%, meaning a share of 12% of total Éxito sales and with 13.3 million deliveries, home deliveries, which is a combination of our own deliveries and that deliveries with our products done by our last mile all rate. This means that we are getting to one out of every 4 Colombians with a home delivery if this could be expressed as an average.

Omnichannel is a sustainable strategy. It came to remain from the start. We went after the pandemia from 4.5% to above 12%, and we remain there. And as you can say, they even grew a little above the total sales growth in Colombia this year, when in many other geographies, omnichannel sales are going down as a share of sales, given the reopening of the physical stores.

We're very -- we are working a lot in new capabilities. One of them, of course, and you know it very well because many of you are customers of this service is the turbo fast delivery that we do with lapping an exclusive portfolio of Carulla. And this is a rapid delivery service of up to 10 minutes. But we are also working in the misurtii. misurtii is an app that is deemed to work with the mom-and-pops so that the mom-and-pops can, in a digital way, ask for our products in a B2B service, and it is growing in a very successful way with now near to 20,000 mom-and-pops inscribed in the misurtii app.

The food online, as I said, represented 10.5% of total food sales and has a very important market share in the food online sales in Colombia with more than 50%, which gives us the confidence to continue working to remain as an absolute leader in this food online service. The increase of Food online service sales this year was 25%.

If we go to Slide #12, I start to speak about our asset and traffic monetization, starting by our real estate business. As you know, Éxito through Viva Malls is today the shopping mall leader in the Colombian market. Viva malls holds of all the GLA of Éxito, around 568,000 square meters of GLA, comprised by 18 assets. Those are the shopping malls or medium-sized commercial galleries. And recurring EBITDA of the Viva real estate model increased by 20.4% and represented around 13% of the group EBITDA. The real state occupancy rate is now 96.5% coming to the good levels that we had before and (inaudible).

If we go to Slide #13, we speak about 2 very material complementary businesses other than all the complementary businesses that I don't refer to but that are also becoming important as insurance has traveled and also our telco business. In these complementary businesses, let me speak first about the financial, retail, that is the company Tuya held 50-50 by Éxito and Bancolombia. Today, it has 2.1 million cards being one of the leaders in number of cards in the Colombian market even compared with bags. The loan portfolio came near to COP $4.5 billion, growing by 25%.

Tuya has developed a very interesting service that is called banking as a service, giving its know-how in this retail business. And today, it runs the business of Alkosto, one of the most important players in electronics sales in Colombia and Claro, the telco leader. This has been a year of transition for Tuya given the high level of provisions that have been done partially given the loan portfolio growth of 25%.

Let me speak about Puntos Colombia. Puntos Colombia is a high potential business. It is a reality after 3 years of existence. It put together the customer base of Bancolombia, credit cards and of Éxito customers. It is a very interesting complementary alliance because the bank through its credit card is a net issuer of Puntos Colombia, while Éxito is an issuer but also a very important Redeemer, which gives alternatives not only to the customers of Éxito but also the customers of the rest of the brands and companies that appertain to this alliance to this coalition.

Today, we have 6.2 million active high user customers that is frequent users of Puntos Colombia. We also have 161 Allied brands. Those are brands or of gasoline or (inaudible), cinema, fast food, other retailers that work with Puntos Colombia. It has a full potential of a second horizon of development other than obtaining a margin from selling and redeeming points, and it is coming from loyalty as a service, Puntos Colombia today is developing a platform to give loyalty as a service to small and medium-sized companies that do not have the way of having a loyalty program and also media business, given the strength of the customer base that Puntos Colombia has. I will hand it over to Ivonne to go through the financials and through our operations in Uruguay and Argentina, and then I will come back with some conclusions.

Thank you, Carlos Mario. Good morning, everyone, and thank you for joining us this morning. I'm glad to be here with you today presenting the financial results of the company. Let's continue on Slide #14 to review the financial performance in Colombia, where we want to highlight the double-digit top line growth and the stable annual operating results despite effects in the gross profit.

Net revenue grew 11.1% in the fourth quarter and 17.2% for the full year. This is around 5 percentage points above the inflation. Top line growth was driven by: first, a solid commercial strategy Second, the increased share of innovative formats by 22 basis points, the continuous growth of our omnichannel business that reached COP $1.8 billion in sales; and fourth, the growth of the real estate business, considering higher nonrecurring income in the base.

Regarding the gross performance in 2022, 75% of the 162 basis points of margin reduction came from base effects due to higher nonrecurring real estate income in development fees and property sales as well as income from Tuya Royalty. This, in addition to other effects in retail related to the mix on sales and price investments. The remaining 25% effect on margin is coming from the annual recognition of higher cost of processing goods accrued fully in the fourth quarter as a result of the relocation of agri-food industry site with an impact of around 40 basis points.

Around 1/3 of this recognition is from the period of 2021, but registered in year 2022 due to low materiality for the consolidated results. When isolating this effect, the fourth quarter will be with our gross margin deterioration of 108 basis points and an EBITDA with positive growth. SG&A grew 13.5% below sales and revenue evolution with a dilution of 75 basis points and reached a low rate of 17.4%. Expenditure efficiencies led to an EBITDA of 8.1%, 132 basis points below last year, but stable in cash, thanks to the contribution from retail and complementary businesses that compensated the effects mentioned above at gross level.

Moving forward to Slide 15. We will review the performance in Uruguay. The operation posted a strong annual top line growth of 34.4% with a positive effect of 20.7% in addition to operational efficiencies that led to an EBITDA growth of 30.9% to a 9.9% margin. Annual sales in local currency grew above inflation and 11.4% total and same-store sales at 11.2%, driven by the performance and value proposition of Fresh Market stores that grew 9.9 percental points above the other stores and represented a 52.9% share on total sales.

Gross profit grew 35.6%, thanks to cost efficiencies and margin gains rose 32 basis points, while SG&A increased 53 basis points in terms of rate due to recognition of the actuarial valuation of a pension plan created. When excluding these nonrecurring expenses as a percentage of net revenues will be in line with last year's outcome.

Annual recurring EBITDA grew 30.7% to a 9.9% margin and improved 20 basis points to a 10.4% rate when excluding the pension plan effect on expenses. Uruguay continue being as the most profitable operation of the group. Please move to Slide 16 to discuss the operating performance in Argentina.

The operation showed a positive performance and top line grew 2.1x, while its recurring EBITDA grew 2.6x in local currency. Sales in local currency grew 103.7% and 96.1% in terms of same-store sales, driven by, first, an increased traffic; second, the implementation of a multi-format strategy with the launch of the Cash & Carry under the Mini Mayorista banner; and third, the evolution of omnichannel that improved its penetration in 142 basis points.

The real estate business also showed a positive performance and grew 93.7%, benefited from improved commercial trends and high occupancy levels. Gross profit showed positive evolution of 67 basis points to a margin of 34.5% and grew above sales growth, thanks to lower price investment, action plans to improve markdown and the positive contribution of the real estate business.

SG&A dilution originated from solid sales performance and strict cost controls to mitigate the inflationary pressures. Annual EBITDA grew 83.2% and reached COP $75,700 million with a margin gain of 93 basis points above last year, closing at 4.3% margin.

Let's move forward to Slide 17 to review the company's consolidated results. To highlight the double-digit top line and EBITDA growth when excluding nonrecurring effects from the basis, there is still a strong retail performance across the 3 operations, driven by innovation with a 40% share in sales and omnichannel that grew 18.9%. In the consolidated perimeter, sales grew 22.7% during 2022, over COP $3.6 billion above last year. Other revenues grew 6%, leveraged by the positive performance of the real estate business that grew 8.5%, but affected by nonrecurring income in the basis and the absence of Tuya Royalties.

Annual net revenues grew 21.8% and reached COP $16.9 billion. Gross margin reduced 79 basis points affected by the annual cost of goods recognition in Colombia after the relocation of our food industry site and the higher nonrecurring income of real estate and Tuya in the base.

SG&A reflected control action plans to mitigate the inflationary pressures across the region, expenses had the lowest rate of the last 7 years of a 20.3%. Recurring EBITDA reached COP $1.6 billion, 8.3% above last year with a positive cash contribution from the retail and complementary businesses, partially offset by the nonrecurring income on real estate in Tuya. When isolating these effects, recurring EBITDA grew 12.6%. Finally, net group share result was COP $99,072 million, a decrease of 71.9% by effects that we will review in detail on the next slide.

The group share net results show positive variations in operating performance of COP $71,050 million coming from the retail and real estate business, but partially offset by the following cash and noncash impacts. Total cash effects of COP $185,000 million, mainly from higher financial expenses despite gross debt reduction. Financial expenses over 8 percental points above fourth quarter 2021 due to the increased interest rates.

On the other hand, total noncash FX of COP $261,000 million coming from deferred tax adjustment in Colombia and Argentina in Colombia due to the increase in capital gain tax of 5 percent points and in Argentina from adjusted statutory rates. Inflationary adjustments in Argentina, the ADAS 29; and finally, the impact from Tuya (inaudible) profit affected by higher provisions with a portfolio growth of 25.6% in nonperforming loans deterioration.

Finally, on Slide 19, regarding the cash and debt position of the company, we would like to highlight that the strong cash flow position of the company leveraged our strategy and investment required, the payments of dividends, the buyback operation and debt amortization. Net financial debt decreased COP $151,000 million when excluding dividends and buyback.

Net financial debt was affected by working capital variations mainly from, first, higher inventories due to sales seasonality changes; second, temporary effects on payables from the implementation of regulatory requirements; and third, increase of financial expenses from higher repo rates.

Now as a summary for the financial results, we had a Colombia perimeter with double-digit growth, thanks to the performance of innovative formats and strengthening the competitiveness in an omnichannel that showed solid growth and maintain the penetration. SG&A efficiencies that mitigated the inflationary effects and reached low expenses rates. Uruguay, with sales performance above inflation and gross margin benefited by cost efficiencies with an EBITDA margin at double digit. Argentina sells 8 percentual points above inflation.

Gross margin reflected the commercial strategy and low price investments. That's together with the control of expenses improved 93 basis points its EBITDA margin. Consolidated revenue grew at double digit and SG&A will double rates since 2015, thanks to cost control action plans and efficiencies, leading to an EBITDA growth of 8.3%. Now I can give the floor back to Carlos Mario for the conclusion.

Thank you, Ivonne. I would rapidly go through that because many of them have already been highlighted. We had a very positive 2022 with annual net sales growing 22.7% out of the impact of innovation, omnichannel penetration, real estate income within others. Our recurring EBITDA growing at a consolidated level of 8.3% and adjusted by nonrecurring at 12.6%, the lowest SG&A level in many years, and net income impacted negatively by the noncash effects of Argentina inflation and deferred cash -- the deferred cash in Colombia and Tuya provisions and the cash impact of the increase in interest rates in Colombia. Dividend proposal very positive given the cash generation of the company of COP $167.5 per share.

In Colombia, sales going up 18.34% and a volume expansion, which is very important in this scenario of 3%. A solid contribution from innovation, which now represents in the WOW cash and carry and the French market of 41% of the total stores sales of the company and omnichannel growth of 18.2% above -- or at the level of the sales growth in Colombia and the food above this growth growing by 25% in good online service.

Surtimayorista growth at 32.7% and like-for-like at 26.8%. Our EBITDA growth in Colombia would have been 5.7% when adjusted with nonrecurring real estate income in the best. In Uruguay, strong annual growth of 11.4% above inflation in Uruguay and an EBITDA margin near to 10%. In Argentina, our growth beating inflation, which is very high in Argentina, EBITDA expanding its margin by 93 basis points and a very good performance of a real estate footprint. In Argentina, 11 cash-and-carry stores that were launched and which are having an important contribution to the sales growth of our division in that country.

If we go to Slide 21, I won't to go throughout the details. This is the outlook versus the outcome you can see that they are in green, which reflects that we surpassed the objectives in top line, in expansion and in sustainability within others. Thanks a lot for being here, and now I open it for a Q&A session.

(Operator Instructions). The first question comes from Nicolas Larrain, from JPMorgan.

Mine was specifically more on the balance sheet, I wanted to ask 2 on this regard. The first one is, if you could point to us, what is the cost of debt you're having now over the benchmark in Colombia? And also I saw that you disclosed the cost of factoring. I wanted to understand what's the average cost in Colombia for factoring I'm trying to understand here how much you're factoring each quarter.

I will start with the cost of debt. Today, the cost of dept -- the average cost of debt of the company is between 11% and 12%, given the fact that we have debt that was acquired in the past and a combination with new debt. Obviously, today, the interest rates are higher than that and if the need for new debt, it would have a cost between for Éxito, giving a AAA risk between 16% and 17%, which would change the mix. And that's the reason why we are being very cautious in the debt increase, and we're keeping our CapEx this year very similar to what we had last year, of course, very much focused in a very interesting format directed to the mom and pops, which is Surtimayorista. I will hand it to Ivonne for factoring.

Our factoring cost is around COP $40 million to COP $45,000 million for the full year.

Perfect. And if I may, a follow-up. Could you help us understand thinking about 2023? What would be the impact for Colombia of the relocation of this facility you mentioned in the release. I understand that in fourth quarter, we had an accumulated impact, right? But how should we think about it for the full year of '23...

Yes. As you know, it had an impact in the full year 2022 of around 40 basis points in the gross margin what we believe is that it will have an impact in the first quarter, which would be as we are seeing it now smaller in percentage to what it was the last year, and it should be stabilized by the end of March. We had an important impact in January, much less in February, and we expect that in March, it will be on budget according with the historical levels of productivity of the patterns.

Nicolas for additional calculations, you can use the basis for 2022 impact.

Our next question comes from Julian. You're going to speak now. Okay. Next question... Maybe, Julian , if you can write your question down on the chat. Julian is writing his question, and he says that he would like to understand if the impact from taxes were recognized only during this quarter.

Yes, Julian, the deferred tax impact from Colombia and Argentina was a onetime recognition in 2022.

And it's important to understand where income came from in the tax reform, there was an increase in capital gains from 10% to 15%. According with the tax law, when you have that, you have to recognize a onetime deferred tax with what would be your expectation in capital gains in the assets of the company for the future. So we did it at once, but it's a completely noncash.

Okay. So I think we have another question through the chat, please give me one second. Is Andreas Duarte. He wants to know what is our current fundamental price estimation being used for the listing and the listing process taking place...

The listing and the leasing process with CVM and SEC does not have a price outlook for the share of the company. Of course, we have internal valuations, which we cannot reveal. But of course, what we are going to see is, first, that there was a split of our share from 1 share to 3 shares. It was done end of last year. Second, that we are going to increase our shareholder base by 50,000 shareholders.

The third thing is that we're going to gain a lot of liquidity and floating and there's going to be an arbitrage between the 3 stock exchanges, and that we believe, as it happened in Brazil, where Assai was spin off from GPA that there can be a very important unlocking of value for the shareholders OpEx. You can take the indicators of EBITDA and make the multiples and calculate them against peers in any case, and you will find a huge potential for the Éxito shareholder. And all this process has been done to give the opportunity to shareholders of GPA and also to shareholders of Éxito to capture value.

Okay. (Operator Instructions). There are no further questions at this time. I'm sorry, we have some questions right now is from Julian. Julian is asking about -- commenting about a little bit more about Tuya NPLs and the expectation for the business this year.

Okay. Tuya, we had on 2022, the impact, as we mentioned through the presentation coming from the growth of the portfolio growing above 25%, and we had also a deterioration of the NPLs, which was a deterioration across the financial sector. Even though the indicator from Tuya is still on single digits. The expectations from this year is to a stabilization. We had higher provisions, as I mentioned last year to protect the results from this year. So the expectation is a stabilization from the business during this year.

(Operator Instructions) Okay. There are no further questions at this time. I will now turn the call over to Mr. Carlos Mario Giraldo for his closing remarks.

Thank you, Maria, and thank you, Ivonne for the call and for your intervention. I want to say at the end, I think we are in a historical moment for the Éxito shareholders and for the Éxito share. We're going to a situation in which our stock is going to be quoted in 3 markets, probably the only stock in Colombia that is going to be booked. It is going to be very important because it gives an additional liquid stock to the Colombian Stock Exchange only speaking about Colombia, and it has a high floating level which has been for many of the analysts like the caveat for the Éxito stock given the historical very strong results of the company.

The second thing is that in the competitive scenario, we have found highly performance formats, the WOW conversions and the fresh markets have brought experience to our brands, while keeping a portfolio of unbiddable price basic food products that are very competitive in the market. And we have found a very strong alternative of growing in the low-cost segment with Surtimayorista, the cash and carry, which most important target are the mom-and-pops.

Mom and pops in Colombia are around 260,000. We are teaming with them through the misurtii app through the Aliados strategy and through the Surtimayorista. And this is a new market. It is a blue ocean for the company with small cannibalization with our current big selling brands, Éxito and Carulla. We continue to grow to promote online alternatives.

We have found that those customers that purchase online and purchase at the same time in our physical stores, purchased 4.2x a normal customer that only purchase in the physical store. And we believe that the full competitive format in the future is a real omnichannel alternative where you offer a good experience in the stores or online. It is what we call today a phigital player as we see some of the most important players in the world becoming -- and we see some even some pure players of online going to physical alternatives given this very important trend. We continue to see market opportunities.

We see a very strong scenario in Uruguay, given the strength of the economy and given the big level of investment coming there. We have issues in Colombia, as you all know, but we are performing in a good way with seeing those issues given the fact that we have the adequate formats and the adequate commercial strategy. So thank you very much for being here. And I hope that we will be back in some months to go through our Q1 results.

Thank you, Carlos Mario. This concludes today's conference. Thank you all for participating.