Almacenes Exito SA (EXTO) 2023 Q1 法說會逐字稿

Good morning to everyone. Thank you for joining us today for Grupo Exito's First Quarter 2023 results. (Operator Instructions) I'm pleased to present today our CEO, Mr. Carlos Mario Giraldo; and CFO, Ms. Ivonne Windmueller. Please move now to Slide #3 to see the agenda. We will cover the core exits, Delisting process, the ESG strategy, followed by the quote highlights, the company's financial performance and concision.

The economy will conclude with the Q&A session in which all participants can rather and ask questions or send them through the chat available at the bottom of the (inaudible). In any case, this indicate to full name and company's name. Thank you for your attention. I will now turn the call over to Mr. Carlos Mario Giraldo.

Thank you all for being present for this quarter results call. I'm going to start by speaking about management, recent changes that were informed to the market yesterday, Jacky Yanovich, the COO, President of the company after 23 years of a very good management advance for the company retires from the company. It is his own decision to dedicate to his personal projects that will be effective June 30.

We have to thank very much Jacky for his great contribution to the growth and consolidation of the organization. His replacement as COO of the company is Jose Loaiza-- he is 48 years old. He has been for 17 years working in the company in different positions. He started in the commercial part of the company. He was IR of the company, also Commercial Vice President. And currently, he is VP of omnichannel and Innovation. So, he will start June July 1 as COO of the company. Jorge Jaller, who is the Vice President of Retail. He takes care of the Exito brand and (inaudible) will also take care of the low-cost brands, which are a great potential of growth and penetration in the traditional market in Colombia. Jorge has been for 25 years in the company. He's also 48 years old and with a huge expertise in retail in all the formats.

Sebastian Perez, 34 years old and 11 years in the company will take as Vice President of omnichannel and Innovation. Sebastian is a digital generation person who has worked all the time in the digital e-commerce marketplace, home delivery as part of the company. And so, he is now going to lead this very important pillar of growth of Grupo Exito. All these changes show solid collective management team and a very complete succession plan with the organization.

Now let me go to Slide #5 and give you an update on the ÉxitoDR listing process. Only to remember, this will be the result of capital diminution of GPA expressed by the distribution of 86% of its Exito shares to the GPA shareholders. The potential increase that this has in the floating of Exito is to take it from the current near to 3.5% to approximately 53%, making it one of the most liquid companies in the Colombian Stock Exchange. And it will bring to the table around 50,000 additional shareholders. This has the potential of unlocking value for the company, only to give you an idea of this, today, the current market cap of Exito is around COP 5.5 billion, while the market cap of GPA is COP 3.6 billion.

So it's evident that there is a potential of capturing and unlocking value for the organizations. The filing is going as follows: -- we got the approval from the Brazilian CBN in April 4 for the BDR filing. Second, the creditors of GPA at until April '17 to express any position, which they didn't do. We are pending the ADR approval by the Securities and Exchange Commissions and then administrative processes that have to be done in the 3 stock exchanges and with the Colombian authorities. The completion of the transaction is estimated for the month of June or the month of July.

Slide #7, let's speak about our ESG consistent process for Exito sustainability in the economic part of the company. That is its financial soundness, the social expression and the environmental strategies. It gives what we call a balanced growth, sustainable growth. In the quarter, we have to highlight that in our nutrition program through the Exito Foundation, we had the benefit for 27,000 children. This is only for the 3 initial months of the year. We recycled between carton and plastics around 5,000 tons 83% of our fruit and vegetables were bought directly to the producers eliminating unnecessary intermediation and sharing in a better way, the profitability of the business.

And our textile business, our apparel business continues to have a very solid national sourcing with 93% of the total sourcing, which is done approximately with 300 small-and medium-sized companies plus the national brand suppliers. This gives not only a very important social benefit to around 9,000 people but in case a very important economic sustainability to the business, given the very strong national sourcing in moments of high import taxes and a volatile exchange rate.

Going to Slide #9, I want to speak about the consolidated financial and operational sales. Our revenue was COP 5.5 billion, growing by 18.6% and sales grew by a very strong 19.7%. The contribution to this result in the top line chain from the 3 countries which had important growth from that innovation process representing 43% of our sales and from the omnichannel strategies of omnichannality grew by 15% in the quarter. EBITDA consolidated for Grupo Exito was COP 387,000 billion, growing by 9%, with a margin of 7.1%.

And if we exclude from the basis, the benefit of local taxes [discountability,] which was eliminated in the tax reform, and we exclude nonrecurring real estate income, the comparable growth in EBITDA would be 21.5% with an expansion of margin. Net result was COP 45,000 million, given especially 3 circumstances, higher interest rates in Colombia, higher Tula financial business provisions and also higher share of minority shareholders or partners given the new widened solid results.

If we go to Slide #11, we can see the behavior of the top line during the quarter, which is strong in all the country business units. -- sales growing by 19.7% in the consolidated basis. And if we look at the 2 years for the first quarter, the growth of the added 2 years would be a very important 45.9%. Colombia makes approximately 70% of sales in this quarter, growing by 9.4%, Important to consider that this growth is negatively affected by around 5 percentage points in the base in the baseline, given that this year, we did not have a non-BAT tax-day that we had last year. Same-store sales grew by 6.1% and involved mainly by food sales that grew 14.4%. Exito brand had a growth of 7.1% same-store sales 3.3%. Bear in mind that Exito has all the impact of the non-BAT tax in the baseline, given the important share of nonfood products that the Exito hypermarkets have.

Carulla grew by 19.2%, same-store sales 20.6%. Important to highlight that share of omnichannel in Carulla, 22% and the highest in all the group, and I would say one of the highest in any food brands in all Latin America and even compared with United States players. Food in Carulla grew by 19.3%. The low-cost brands grew by 10.7%, same-store sales, 6.3% and Surtimayorista had a growth of 15.8%. If we continuing with Slide #11 and speaking about Uruguay. Uruguay had a very strong quarter in all assets, not only in sales but also in profitability. It's local sales in Uruguayan pesos grew by 13.5%. That is compared with an inflation of 7.3%. This is involved mainly by a very strong tourism in the eastern part of Uruguay in the summer season and by the investment that Uruguay is receiving from neighbor countries.

The fresh market innovation, which you have to recall, started in Uruguay now represent 60% of sales and the fresh market stores grew by 9.6%, clearly adding dynamics to the sales growth of our brands in Uruguay. In Argentina, our operations Libertad sales grew by 129% and which is very positive if we compare a very high inflation of 107%. So, it's around 22 points around above inflation. Same-store sales at 100% growth. And I would say, the main contribution, even though we had a very good performance of the hypermarkets and the real estate business, but the main difference came from the introduction of the cash and carry format in Argentina. Libertad opened in the last 18 months around 10 mayoristas, mini mayoristas, cash and carries, and they now represent 13% of the total sales of the business unit.

In Slide #12, we speak about omnichannel performance -- our Omnichannel sales came to around COP 450,000 million. It is incredible that now we are arriving to sales in 1 quarter near to $100 million, depending on the exchange rate, but this shows the solid performance of this pillar of growth of the company. Sales in omnichannel grew by 13.9%. That is ahead of the growth of Colombia. And this was impoed mainly by our main emphasis, which are food home delivery sales that grew by 29% and consolidated its strong leadership in Colombia that measured by Nielsen is around a 52% share in food. The share of omnichannel sales within the total Colombian sales was 12.3% compared with 11.8% last year, and we had a total of around 4.1 billion on deliveries in the combined effort of our ally, Rappi and our own managed deliveries.

Food sales had a share of 10.8%, one of the highest in all America boosted top course by last mile deliveries. Nonfood or [rechannel] decreased by 3.1%, especially by the base impact of the non-BAT day in comparable, if we exclude this impact, nonfood are growing up and around 26%. It is important to highlight the increasing share of our marketplace. Now the gross merchandise value of the marketplace is growing in the quarter by 28%, and its share is 29% of total e-commerce, nonfood sales. Highlight, it's important to highlight the growth of Misurtii, our B2B app, which was launched around 18 months ago, now growing by 68% and delivering around 25,000 orders to especially the mom and pops.

Our Turbo project, exclusive between Rappi and Carulla that is the 10-minute maximum home delivery grew by 175% and is consolidating by the great experience it gives to our customers. Slide #13, we see how our innovative formats are going. They are key for profit and sales growth -- as a whole, they now have a share of 41% of the total Exito sales in Colombia. The Exito stores now represent 35% of the total exit of sales. Those stores with a maturity of more than 24 months, grew by 27 points additional to the growth of the rest of the Exito brand with an ROI of 62%.

In the case of the Carulla fresh market, which represent now 61% of the total sales of Carulla in Colombia grew by 17%, also on top of the rest of the Carulla brand stores and with an ROI of 19%, while our Surtimayorista Cash & Carry, representing now 5.2% of the sales of the company and with expansion planned for this year of 25 stores has an ROI of 24%, which is amazingly positive for a discount low-cost format as such. Going to Slide #14, we speak about -- we speak about our asset and traffic monetization, I'm going to refer to the financial business to Puntos Colombia and to our real estate business.

In the financial retail business, Tuya, which is a partnership 50-50 with Bancolombia, Tuya has very strong fundamentals. It has 2 million cards issued after a selective reduction of cards, giving the need to take scoring decisions in a moment of high interest rates and high impact on consumers. We have a portfolio of loans of COP 4.1 billion, nonperforming loans at 30 days in a high single digit with an increase, reflecting this situation in interest rates. Tuya has, for the last 13 years being rated as AAA. I would say, reflecting is it's very solid state. New business that Tuya is doing and which is going in the right direction, is banking-as-a-service with other brands like Alkosto, an important retailer in digital products, Claro, the main telco in Colombia and the TransMilenio public transportation system in Bogota.

Puntos Colombia, our loyalty coalition is every time stronger even though it is a (inaudible) business. Now it has with the customer base of Exito in Bancolombia, 6.3 million frequent customers that issue and redeem points in a frequent way. This represents now those households that manage Puntos Colombia around 1 out of 3 households in Colombia. We have 168 allied brands, that is brands that pay into the ecosystem to be able to use our points for their own loyalty and for their own growth in sales. These Allied brands grew by 29%, showing the attractiveness of Puntos Colombia, and they now represent 32% of the retention within the ecosystem, which is key to demonstrate how important and attractive Puntos Colombia is.

In the horizon 2 of Puntos Colombia, we are working in 3 initiatives loyalty as a service in a digital platform for small and medium-sized enterprises, payment systems and instruments, especially those that can use Puntos Colombia as means of payment and media services, given the strong representation of this customer base and the important information that is there contained.

In Slide #15, we go into real estate. Real estate is the right point in the quarter results as it has been in previous years. Now after (foreign language) with a high occupation of 96.6%, which is above the percentages that we had before the (foreign language) and a very important growth in rental and administrative recurring fees of 22% in the Colombian results. Viva Malls remains with a hidden value, the valuation that has been given to the business by our partner, represents around 1.4x the book value of the business in the Exito books. We are in the prep process now of construction of 20,000 additional GLA meters, 70,000 of them to be occupied by the second IKEA store in Colombia and the only one in the Medellin metropolitan area. I now give the word to Ivonne to go through financials, and then I will come to some conclusions before the Q&A.

Thank you, Carlos Mario. Good morning, everyone, and thank you for joining us this morning. I will be presenting the quarterly results of the company. Let's continue on Slide #16 to review the operating performance by country where we see a common solid top line growth and the effect of the inflationary pressures in the cost and expenses.

In Colombia, as previously presented, net revenues at COP 3.8 billion with 8.4% growth driven by the innovative formats performance, the increase of the omnichannel penetration in 44 basis points and the positive contribution of the real estate business. Gross margin at 22.6%, with a nonrecurring negative net effect of 44 basis points, the nonrecurring base effect in gross profit in the first quarter of 2022 was around COP 42,500 million related to real estate development fees and sales of property. And for the first quarter of 2023, around COP 29,400 million by sale of property. In comparable basis, gross margin will have had a positive evolution of 19 basis points. SG&A grew 15% and reached a rate of 20%, reflecting the inflationary pressures on fixed costs, such as wages and utilities, but additionally, with an effect of 50 basis points coming from higher operational tax, tax after the reform as on December 2022 weight from being 50% at tax credit to fully deductible impacting P&L.

Colombian recurring EBITDA decreased 10.8% at COP 233,510 million and 6.1% rate deteriorated in 132 basis points. It showed the positive operational contribution driven by the commercial activity and the real estate business but offset by the inflationary pressures on cost and expenses and the nonrecurring base effect. In comparable basis, when we isolate the real estate nonrecurring income and the operational tax impact recurring EBITDA grew 1.4%. Uruguay with a top line that grew 52.5% in Colombian pesos and 13.5% in local currency, around 6 percentage points above the local iteration. This driven by the positive dynamics during the holiday summer season and the fresh market performance. The gross profit grew 56.5% and reached a rate of 35.5%, improving in 19 basis points by the mix of sales and the commercial and promotional performance. The SG&A grew below revenues and almost a stable in rate, thanks to the cost control action plans that mitigated the pressures in the labor costs. Recurring EBITDA at $139,683 million, grew 62.5% and improved its rate 74 basis points, reaching a margin of 11.9%.

And finally, Argentina continues the positive trend with a net revenue growth of 129.5% in local currency, thanks to the outstanding performance of the Cash & Carry format Mini mayorista, boosting the sales growth 23 percentage points above the local inflation and the real estate business contribution with strong occupancy levels. Gross margin at 33.4% deteriorated in 48 basis points due to higher price investments to fail the inflationary environment and the increased participation of the cash and carry forward. dilution of 89 basis points originated from the solid sales performance but also to the strict cost controls and efficiencies. Recurring EBITDA grew 92.9% and reached MXN 14,192 million with a margin gain of 67 basis points.

Let's move forward to Slide 17 to review the company's consolidated results. Here is to highlight the double-digit top line growth of 18.6%, boosted by sales in Uruguay and Argentina over the local inflation and the positive Colombian sales performance despite the non-VIT day in the base. Additionally, we had the positive contribution of the real estate and complementary businesses affected by the nonrecurring income in the basis. Recurring EBITDA at COP 387,285 million with 9% growth, reflected the solid top line performance, gross profit improvements in Uruguay and cost action plans across the 3 operations that allowed to mitigate the inflationary pressures. On a comparable basis, EBITDA grew 21.5% and improved margin in 13 basis points.

Net group share results for the quarter was [COP 45,180 million], a decrease of 34.1% by FX that we will review in detail further on. Let's move forward to Slide 18 to have a more detailed review of the maturing EBITDA. On the bridge on the bottom left side, the EBITDA in Colombian perimeter had a positive contribution from the real estate operation. But nevertheless, this performance was offset by: first, nonrecurring real estate income with a net effect of COP 13,100 million and an impact of 40 basis points; second, COP 18,000 million of higher operational tax with an impact of 52 basis points, accelerating these 2 effects on a comparable basis, EBITDA in Colombia grew 1.4%. And third, additionally to the previous nonrecurring effects, EBITDA had also one-off effects such as the non-VIP contribution and also to the royalties income.

On the consolidated view, we had a positive contribution from all 3 operations but offset by the nonrecurrent effect in Colombia mentioned before and an impact of 75 basis points. On a comparable basis, consolidated EBITDA grew 21.5% and improved its margin in 13 basis points. Going on Slide 19. The group share net results showed the positive contribution of the operating performance coming both from the retail and the real estate businesses with lower income tax, thanks to a higher nontaxable income from Uruguay and lower deferred tax by higher tax loss. The negative variations are coming from.

First, the net financial result due to higher interest rates increasing cost of debt; second, a higher minority interest coming from the improved performance in Uruguay and the real estate business in Colombia with Viva Malls. Third, impacted results in the financial business [Studio] due to higher provisions in its nonperforming loans deterioration across the financial sector; and fourth, higher nonrecurring expenses related to the (inaudible) listing process.

Finally, on Slide 20, regarding the cash and debt position of the company, we would like to highlight our last 12 months free cash flow of COP 115,000 million. The net financial debt remained stable when excluding COP 534,000 million of dividend payment and buyback operations. The cash level shows the low basis at of year 2022 closing and additional gross debt of COP 387,000 million from higher revolving credit lines in use. As a conclusion, a solid cash flow position of the company allow the investments required to follow the growth strategy and to comply with payments to shareholders.

Now as a summary for the financial results, we had a Colombian perimeter with high single-digit sales growth, thanks to the performance of the innovative formats and omnichannel that showed double-digit growth and with other revenues decreasing by nonrecurring basis effect. SG&A with inflationary pressures and impact of higher operational tax. Uruguay with sales performance above inflation and gross margin benefited by promotional performance with an EBITDA margin at double digit, improving its level.

Argentina sales over 20 percental points above local inflation, gross margin reflected the mix effect and price investments, but together with the control of expenses, improved 67 basis points at EBITDA margin. Consolidated net revenue grew at double digits and SG&A with pressures, which were partially mitigated by the constant cost action plans and efficiencies. That led to an EBITDA growth of 19%. Net results with positive operational contribution offset by nonrecurring and one-off effects and a solid capital structure and cash generation to shareholders. I now give the floor back to Carlos Mario for the confusion.

Thank you, Ivonne. Going to Slide 22. We see that we had a very strong quarter with sales growing 19.7%. 2-year sales for the first quarters of '21,'22, '23, growing by 45.9% and EBITDA growing by 9% and in a comparable basis by 21.5% with Colombia growing 9.4% and taking in consideration 5 points of non-BAT the sales interface. It would be a comparable near to 14%. Food sales as a driver with an increase of 14.4% and a very strong increase in omnichannel home delivery sales of 29%.

Comparable EBITDA in positive grounds in Colombia despite expense pressures and operational tax discount that we had in that base. Uruguay, in its best moment, growing above inflation near 6 points with an EBITDA increase of 62% in margin, which is top in the region of 11.9%. Argentina clearly resilient and not only resilient but prepositive with sales growing 29 points above inflation, with a cash and carry contribution now up 13% of sales and EBITDA growing 92%.

I finish by saying that it is a very important historical moment for Exito in which we are completing the file of our DRs in the stock exchange of New York and Brazil plus adding an additional liquidity in the Colombian market and that this will permit that the company fundamentals will gain additional visibility from investors. Thank you very much for your attention, and now we open it to a Q&A.

(Operator Instructions) We have a question from Nicolas Larrain.

I had one especially on Colombia. If you could explain maybe a bit more that operational tax change you mentioned, if this should be -- I mean, the impact within the first quarter should be recurring as we move on? Or there is some way you can offset or maybe make the impact less relevant as with the quarters roll on.

Thank you, Nicolas, for your question. The operational tax effect is coming from the tax reform that we had in December 2022. Previously, this operational tax, we were able to -- in the physical book to have a discount of the 50% of the value of the tax, which was only 50% in the accounting books. And after the tax reform, this accountability was taking up. So, the tax is 100% deductible, impacting P&L in 100%. And as your question is, it will be (inaudible) going to see this effect quarter-by-quarter because we don't have it in the base.

So we have now Julian Ausique from Corredores.

I would like to understand better the impact that we have in other revenues in Colombia because we saw a decrease of revenues of about 3.5%. I understand that it was something related with the real estate business, but if you can give us more color about the impact. And also, I would like to understand the amount of the provision that the Colombian operation has because of Tuya. I don't know you can help me with those numbers.

Okay. Thank you, Julian. Regarding your first question, the revenues impact are the following: the first quarter 2022, we had [COP 420, 005,000] million related to real estate development fees around COP 31,000 million and additional sale of property. The impact that we have in first quarter '23 is a sale of property of COP 29,400 million having a net impact of around COP 13,000 million. And for the second question, we had an increase of the provisions in Tuya. I just want to remind you that those provisions expenses are not within the Grupo Exito of P&L because we (inaudible) we have Tuya share of profit, but it is impacting to just a result. And we had an increase of around 120% of provisions when compared to first quarter 2022. And I have answered your questions.

(Operator Instructions) We have a question from Julian Ausique.

We now have a question from Nicolas Larrain.

(inaudible) Yes, I want to ask if you could comment a bit maybe on how have you seen performance specifically in Colombia and Uruguay in April? Any first thoughts would be super appreciated.

Nicolas, we have to be prudent that at this moment because given the filing that we are doing with CVM and SEC, we cannot deliver guidelines on top, what I can only say is that Colombia is going to continue to make even a slowdown in economy, GDP, as you have seen, is projected at 1% growth. We saw this Q, and I think it will be something that is going to be expressed in the rest of the year. Volumes slow down between 3% and 4%, while traffic increase of more than 6%. This is interesting because it shows that customers are there. They are coming with more frequency, but with a lower size of ticket, reflecting, of course, the inflation impact in people.

We -- in the second Q, you have to see that we are also going to have in the pace a non-BAP. This is the last one. And I think that it's positive that we no longer are going to have non-BAP tax because they reflected a 1-day huge sale, but they impact the supply chain organization of our retailer like us. We continue to see the consumer trading down and that is expressed, for example, in that our unbeatable portfolio of products, which offer the best price in the market against local competitors or national competitors in each city are going a lot. This is a portfolio of more than 500 products.

We continue to see good dynamics in last mile deliveries and pressures in expenses. -- and a very good performance of our real estate business. But the good news for Colombia is that food inflation is showing that it's giving a break to the consumer. It has been reduced from 28% to 21% in 3 months. And if things go as we see them, they would continue to reduce in an important way.

Speaking about Uruguay, the economy continues to perform very strongly. The confidence of the investors in Uruguay is amazing, and you can see it by the exchange rate, which continues to see a revaluation against the U.S. dollar in many, many months, and we expect our business to continue in very positive grounds. That's as much as I can say for this moment.

Do we have more questions, please? Okay. If there are no further questions at this time. I will now turn the call to Mr. Carlos Giraldo for closing remarks.

Thank you for being here. Again, in this quarter conference, I think that we are very satisfied with what we have seen in a historical growth of 45% in 2 years in our first quarter. We can see also the contribution of the different business units. This time, the list growth was involved by our international business units. We can see also that we are having a payback of our strategy consistent with innovation with omnichannel and with complementary businesses. And even though the financial business is having a momentum of high provisions, other businesses like real estate are taking the stance and giving us a very positive contribution with an increase of 22% in its recurrent income. And we are also seeing a very interesting trend coming from our loyalty alliance of Puntos Colombia.

Exito persists in a consistent strategy continues with an important expansion plan focused on innovation format transformation, but especially this year in the expansion of new meters through the Surtimayorista cash and carry, going to the mom and pops, which represent 47% of the total consumer goods in Colombia. Exito continues with a very strong financial basis with cash generation, low debt and growth opportunities. I believe that the moment of a certain, I would say, uncertainty in markets and Colombia is not an exception, having a strong cash position, low debt, important growth opportunities, which are profitable from the beginning is very important for a retailer and for any company. I would thank you very much for being here, and I hope to see you in our next conference.

So, this concludes today's conference. Thank you for participating.