1. Homepage
  2. Equities
  3. Brazil
  4. Bolsa de Valores de Sao Paulo
  5. Sendas Distribuidora S.A.
  6. News
  7. Summary
    ASAI3   BRASAIACNOR0

SENDAS DISTRIBUIDORA S.A.

(ASAI3)
  Report
Delayed Bolsa de Valores de Sao Paulo  -  05/23 04:07:45 pm EDT
15.87 BRL   -0.56%
05/10TRANSCRIPT : Sendas Distribuidora S.A., Q1 2022 Earnings Call, May 10, 2022
CI
05/09Brazil's Assai posts 10.8% decrease in Q1 net profit
RE
05/09Sendas Distribuidora S.A. Reports Earnings Results for the First Quarter Ended March 31, 2022
CI
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsOther languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

Sendas Distribuidora S A : Conference Call Transcript - Transaction involving the conversion of Extra Hiper stores

11/24/2021 | 10:00am EDT

Transcript

Earnings Conference Call

Transaction between Assaí and GPA

Assaí (ASAI3 BZ)

October 15th, 2021

Operator:

Good morning, everyone. Thank you for waiting. Welcome to the earnings call the video conference for a Assaí Atacadista to discuss the Material Fact about the transaction of some Extra Hiper store conversions.

I would like to let you know that if you need simultaneous translation, we have this tool available on our platform. You can select a button for interpretation through the globe icon, on the bottom part of the screen and select the language, you prefer, Portuguese or English. We would like to let you know that this video conference is being recorded and will be available in the IR website ri.assai.com.br, where you already see the material fact and presentation.

During the presentation, all participants will have their microphones disabled. And when we'll begin the section with questions and answers, you can submit a question. Please press the Q&A icon on the bottom part of your screen and write your name company and language, so, you can enter the Q&A. Now, we'd like to pass on the word to the company CEO to begin this presentation. So, Mr. Belmiro Gomes, you may begin.

Belmiro Gomes:

Thank you very much. Good morning, everyone, ladies and gentlemen, thank you for your participation. So, can you hear me all right? We had some issues with the connection, but just let me know if we can hear you. All right?

Gabrielle Helú: Yes, we can see you and hear you well.

Belmiro Gomes:

Okay, great. So, the objective today is that will give you some details on the Relevant Fact about the transaction we announced yesterday and during the presentation will cover some important points. And after we'll open up for Q&A with the main reasons for the transaction, involving the main benefit to the strategy, why is this taking place at this moment. And what will the strategic reasoning to consider this transaction as something that we consider to be historical, which will add an extreme value to Assaí and its shareholders, and places Assaí in another positioning level for this this view of the market. Next slide.

So, the objective of the transaction is a conversion of 71 stores from the Extra Hiper, which will allow to go over the number 300 stores in 2023, when we include the organic expansion. It's worthy to emphasize that these points 71 points that are being acquired right now does not represent the entire park of hypermarkets.

At this moment, this acquisition is restricted to the perimeter of what we call large surface stores, which will bring Assaí about four 420 thousand square meters. We should imagine that these are not completely comparable to the current Assaí model. Even with our organic expansion during the past years, there are challenges in the real estate market, with the deployment of stores for big surfaces over 6,000 square meters, with more than 500 or 600 parking slots, due to the restrictions and the real estate market have made, especially in the major city, the big capitals. So, the perimeter of this transaction is limited to the 71 largest stores that are operated by Extra Hiper stores.

Now, the Hypermarket brand earns about R$ 8.7 billion of sales and, due to the performance of the sales/square meter of Assaí, on average of what we've already done, the other conversions of Hyper Supermarket, we estimate a potential revenue of R$ 25 billion after they are converted upon maturity.

And in the case of converted stores, maturity occurs in a very short time, approximately in the second year of operation, it is already fully mature, with most of the stores reaching breakeven within the fourth month. In an organic store, where you are going to be creating a commercial point from scratch, that are normally more distant from central regions, where customers' needs to discover that new points and the stores that are operated by another format and they're already well known by customers, already with good access, most of the customers already buy in the store.

Este conteúdo foi classificado como CONFIDENCIAL

So, in our view, it's a transaction that is extremely important. This allows us to once again to compete for market leadership. Thus, we estimate that the current Assai store network, the current store network we're opening the plus all of the organic growth in the next year's, and now with the inclusion of the 71 new stores, we should have a target revenue for 2024 about R$ 100 billion.

Assaí has a history, has an expertise and a very proven history of success, whether in organic expansion or in conversions. In recent years we have opened more than 150 new units, most of them organic by point detection, design approval and also 25 conversions in the last five years.

So, all of these from all of these openings, we do not have any history of unit that we had some performance problem or issue where the main assumptions, the company's adopted within the BP for each of these units has maybe ledges on kind of a significant variation, especially negative. Fortunately, we have even managed to exceed the expectations of the market, so, in this way too, with the company's management, which has relevant confidence in the team's execution capacity, in the capacity of the commercial model, in the proposal of value that Assaí has placed today to operate both the organic stores, which will come in the coming years, but also these 71 units and they practically bring 50% of daily sales of what Assaí produces today, given their performance, normally because it is in better located central regions. We estimate, even conservatively, a sale per square meter similar to today. Usually, the conversions have been a little more assertive, given that they are in central regions of São Paulo, so this gives us the confidence to reach the R$ 25 billion in revenues.

So, why did this and why this asset? Well, because of natural reasons since Assaí was a subsidiary from GPA in the past years, our expansion avoided some organic stores very close to big hypermarkets. The conversions that were made in the past four or five years were not what we call the best Extra stores. They were not the best, best located doors or in central region. These stores that had a bigger challenge and performance due to the hypermarkets being a little more distant. and even in these stores, Assaí managed to triple the sales volume and deliver an EBITDA margin around 150 bps higher than what we have today in organic stores.

What are the main drivers for this transaction? This transaction takes place while the commercial points are very strategic. Most of these stores are in the capital cities in Brazil. We will detail this a little further on, highlighting how important these points are and how much they differ in relation to the average organic expansion we are doing today, comparable to large stores that Assaí already operates today. Given the low cannibalization of Assaí stores, the strategy of avoiding placing Assaí close to Extra Hiper and the real estate barrier itself. We have stores within this park that are being acquired, so you can have an idea, 63 stores are either in capitals, in 16 Brazilian capitals, or in their metropolitan regions.

These are regions that have a real estate barrier that's huge. These stores were open, 20 years, 30 years ago where there was already availability to have some land like 50 or 60 thousand square meters. Today, implementing a store with 7 or 8 thousand square meters of sales area and more than 600, 700 parking spaces, is impossible. Now, if we were to look at the cash and carry format in Brazil, we're going to know just that most of the time, the stores are located in the outskirts of the major city. So, this to make some major regions lack this format, which in our vision with the incorporation of this, Assaí will be in locations that are very different.

So, the stores also accelerate our pace for organic expansion, especially enabling Assaí to enter in central areas and access higher social levels. The history we have of similar stores, opened organically or in other conversions, shows a population with greater purchasing power, which, as they are in central regions, has a number of merchant customers, especially food service, in the primary and secondary zones of these stores that now have a store to supply them and, obviously, the bureaucratic rite between approving an organic store and simply making a conversion of an existing point is much smaller, not that it is not complex, which does not have the conversion work, but it is much smaller than the one related to the implantation of an organic store.

And it's a lot quicker than an organic and deployment, so, quick maturity of the points and the potential for profitability and considering that this reflects on the trend that's going on in the Brazilian market, especially for about like two decades at was accelerated in the past decade which is a strong migration of individual customers. In the purchases and also into the cash and carry format.

Este conteúdo foi classificado como CONFIDENCIAL

This movement was accentuated last year, the year of the pandemic. In this first year, the post-pandemic year, it remains very strong, in fact even amplified in relation to the previous year, since inflation and the increase in food prices have attracted the population, regardless of their social strata, to seek a price lower. On average, in a wholesale operation, we sell the product 15% cheaper than in the hypermarket, which means that the format's value proposition

  • and in this Assaí is a reference - is in very high demand by the population. As the wholesale sector grows in Brazil, you have greater competition with regional players, especially on the outskirts of cities and the inclusion of stores in the central regions, in our view, is totally in line with this movement that has been happening within the market Brazilian.

The commercial points, in our view - and we are going to present a book of these points later on - are points that, given our knowledge of the real estate market, are currently irreplicable. The combined points are present in 16 states of Brazil, 63 in large cities or metropolitan regions, even if it is not a metropolitan region of a large capital, we have cities like Campinas, with more than 1 million inhabitants, Osasco, Santos, Sorocaba, stores that were opened 20, 30 years ago, when the real estate barrier of today did not exist and that will place Assaí in an extremely different position in relation to other players. 50% of the store network is within the state of São Paulo, the state where Assaí is a reference, the state in which we have the largest market share, the richest state in the country, the state where we are able to operate with the average margin, greater than we operate in the other federated units of the population and greater ease of scalability.

So, we plan to convert them into two majors' waves and this first wave will be to reopen about 40, 45 points around July or August of 2022 and another batch would be 28, 30 stores, which will begin construction work in the second semester of 2022 for opening in the first quarter of 23.

Another important point about this transaction is the potential for sale of about R$ 8.7 billion for those, R$ 25 billion in revenue that we have upon maturity. So, just to give an idea about the significance of all of it, all these R$ 25 billion, those 450,000 square meters, the 71 stores should already generate sales that are equivalent to being the third largest player in the food retail market in Brazil for retail and wholesale. With R$ 25 billion in revenues, which will be even bigger than group Mateus, a public listed group. And that's why this transaction is very historical. We can move on.

Well, obviously we will not be able to present all these stores in the presentations, so I'd like to invite you all, iff you're interested in this choose some capital and you can find a store location, it's a very unique point. Stores that have been implemented and where you do not have, in your primary zone, usually in the secondary zone in most of them, another cash and carry operation. Most of these stores you look, at a radius of like 5 or 6 kilometers that anywhere you look, you have population with about 600, or 700 thousand inhabitants and no other operation with cash and carry format. So, there should be a protection for the real estate market. This model does not depend on this protection from the real estate market, but they will naturally, of course, have this resist of real estate barrier because of the real estate market and the expense you would have in difficulties to place in another store.

As you know, Assaí has grown organically, the Company's management team has a great knowledge of the real estate market, prices of commercial locations, land prices, construction costs and, today, given the situation in the real estate market, stores like that, on average, cannot be implemented. First, because there is a lack of large plots of 50 or 60 thousand meters in the central regions. In addition, the cost of these lands, today, makes any project that has already been attempted unfeasible. To give you an idea, if it were an implementation of a similar store, between land and construction, it is not a smaller investment than between 240 or 250 million reais.

So, why I'm calling attention to? Because in comparison with the organic stores in Assaí, it is important to differentiate what it is to put an organic store, no matter how successful it is, but which is in regions with less density, you have an offer of land for large surfaces than a store that it is within a central region, in a very well-located point, in a city that has grown very strong.

Well, we can move on, then the store conversion history before the split with GPA. We had already had some conversions over the past years, where 25 store converted and in these stores were able to triple the revenue. Extra's converted stores, even though they are not yet the best converted stores, in our view, they currently deliver an additional 150 bps of EBITDA margin.

Este conteúdo foi classificado como CONFIDENCIAL

This greater additional comes, in the first place, because in some large surface stores we managed to obtain a dilution of expenses, the public around them has higher incomes and the level of merchants, especially food service, is also much stronger within of these more central stores, so this means that we have a higher average ticket, causing a dilution of expenses, being able to deliver, in addition to a higher gross profit, a lower SG&A for these stores.

The maturation ramp level, unlike an organic store, in which it will often take a year, a year and a half to reach breakeven, in converted stores, as there is usually a very high expectation regarding the closure of operations Extra for the reopening of Assaí, there is great expectation, whether from the end-consumer population or from merchants who are in the vicinity, which have been breaking even in stores around the fourth month of operation.

In the first year, there is usually a delivery of approximately 2 points of net profit at the end, even more considering that these stores also deliver a sale per square meter, for the reasons I mentioned earlier, around 5% higher than the average number of stores in Assaí these days. The history of conversions was extremely satisfactory, with stories of great success, so much so that we pointed out in another conversation that Assaí has always been interested in increasing the number of conversions at Extra stores. You can go to the next slide, Gabi.

Why now? A lot of people are asking us think, "okay, but the company had conversions before the split. Why didn't you do this before the split avoiding additional payment? Because both the companies are related parties and they're part of the same trolley."

Well to be very direct and clear. This movement had two important events this year that change the geography of the market. The first one is that you have the acquisition of group of Big by Atacadão. Atacadão is a main competitor and second sector leader, when they buy 30 stores for Makro and then right after Carrefour performs the acquisition of Big, which incorporates the Maxxi brand and Grupo Big stores, which probably should also be converted, there was, in our view, a gap and we needed to find a way to speed up our expansion in a profitable way. Those who have followed Assaí's trajectory have seen that we have been growing extremely profitably, even with an aggressive organic expansion plan, in recent years, the Company is a self-generator of cash.

When talking about at the expansion, we also considered M&A. And the Assaí has seem more vital at this moment that due to the reason that I'll present up ahead, was really the network of stores Extra Hypermarket due to the low level of overlapping that there was because of the period where the companies were together. Whereas Assaí was a subsidiary of GPA and, because since its transaction between the same controller, this does not need to be verified by the CADE, verification process the antitrust party. At overlap levels, we will have only six closures of stores in Assaí, which are small stores and were implemented over ten years ago, and none of which come from the organic expansion. These stores, in our view, are small, close to Extra; they often do not provide good service to the public in that region; there are only 6 stores that will be closed; the fact that CADE does not have an assessment makes us very quick for this operation.

There's also like a decisive factor that made us expand our negotiations with GPA to bigger perimeter of store, which were some limitations we had due to the renters or landowners that did not give us the authorization to convert the stores into a Assaí stores. Although both operations are operated in the food format, the conversion of a hypermarket requires a structural change within the property: a significant reinforcement of the floor, an alteration within the store's fire system, the exchange of equipment so that it can leave the hypermarket format and become a cash-and-carry. In addition, even previously, some lessors were not in favor of converting a hypermarket store to Atacarejo.

Even during the period of the 25 conversions, we had some difficulties with other lessors to convince them that the predominant format within Brazil is not the hypermarket, but a new cash-and-carry model, which we currently operate, to authorize these structural changes.

When we had these two movements, we started considering this up possibility knowing about the risk in the market reality. Since we're under the same controller, having the split recently and other questions, I could have come up but the actual decision for the transaction starts off with in Assaí. We contacted GPA team, we start talking about this, we don't have the full Extra hyper new store now and then we place and pressure this because I really wanted to operate stores and start converting them by the beginning of 2022.

Este conteúdo foi classificado como CONFIDENCIAL

So, why did we start this moment? Well, you have been monitoring the inflation, pressuring the income has pressured the population. It's been pressuring the purchases in general, within food inflation's, almost 30 percent in the past two years and then our vision for next year, that's movement should continue and generate even greater pressures, which would basically make whoever has been monitoring the process said sector at the moment with the largest difficulties, not only in Brazil for example, but in the US as well, if you notice the real estate crisis in 2008, you probably saw that. That was the year, the biggest to gear for growth at Cosco. At that year, Cosco was growing 18% and after this, it continued growing. So, in our our vision, at the Assaí team division, is that 2022 is going to be a difficult year with the election period, the post pandemic turbulence, the uncertainties in the commodities supply chain, the currency variation will all make the population of the end customers regardless of their social levels or the actual small businesses were going to be searching for better prices and in our unique transaction, we start offering the Assaí model within regions that the brat ones out. The area offering a level pricing service in regions where there is a very strong demand for the cash and carry model.

So, if you consider that the transaction, our view was only for storage with larger regions, free of inventory by the Hypermarket, especially for home appliances and part of their product assortment is not adhering to the cash and carry format. So, the scope of the transaction involved the purchases of the commercial points and the delivery of them to Assaí in the beginning of 2022 without an inventory or thinning liability, that makes it and without the employees.

So, this payment involves payment installments. It's going to be start starting to be paid in 2021, and it's going to finish them to interning in 2024 for the amount of R$ 4 billion, which represents 46% of the Extra sale in the past in 12 months and only 15% of the Assaí sale upon maturity. Even when we add up the Capex necessary for the conversion of the Hypermarket into a cash and carry store, this amount and this ratio because of investments versus sale, is still going to be at about 20 to 25 percent, even a little lower than what we have in our organic expansion, which really accelerate this process a lot.

So, these points will be paid in installments, in part of these 71 stores, 17 stores that were owned by GPA, a sale leaseback operation will already be carried out within GPA, for lease to Assaí, in which Assaí guarantees this operation and becomes the lessee for a period of 20 years, which in our view, in the Brazilian real estate market, is more than enough to obtain approval. When this movement was conceived, given the recent changes in the Brazilian market, either by the acquisition of another player by our main competitor, or by the possibility of unlocking the Península fund, which is one of the major owners of these Extra stores and which, and then, we could convert stores that were already known, desired, where it was already idealized to have a cash and carry and to have the Assaí brand idealized, which regardless of the time, we simply did not do because there was no authorization for this, there was no agreement for this, the hypermarket format also came from another performance, that is, to monitor last year how much it had a positive movement, but this year, we saw that the market trend would become this is a favorable moment to carry out the operation.

Given that this transaction is related in part after the spin-off, a period that we understand to be a complicated moment, the transaction and negotiation was carried out exclusively between me and Jorge Faiçal, who is the president of GPA. We submitted this to the board of directors, in which only the independent members voted, given that the Casino members were in conflict for this operation, it was approved on the board by the independent members of the two companies, and yesterday, a fairness opinion was obtained from a first-rate bank line, the BP were built within the best governance principle.

We should have now appeared for due diligence forecast for the next 45 days, but it's an operation a lot more simplified than if you just buy a company or the entire liability labor, tax and culture and all these other system issues and other complexities.

So, within this project Assaí always focused on growing the company, whether organic or not. We also studied a possibility of M&A and normally the multiples requested are a lot higher than what we're looking at for this operation. In practical terms, if we were to consider that the irreplicable points of a single player, there was no other company, third party company that could have commercial points of same level the Extra points. And even if they did exist something like this would not be able to have a transaction with this cost would be a lot more expensively.

Este conteúdo foi classificado como CONFIDENCIAL

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Sendas Distribuidora SA published this content on 24 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 November 2021 14:59:07 UTC.


© Publicnow 2021
All news about SENDAS DISTRIBUIDORA S.A.
05/10TRANSCRIPT : Sendas Distribuidora S.A., Q1 2022 Earnings Call, May 10, 2022
CI
05/09Brazil's Assai posts 10.8% decrease in Q1 net profit
RE
05/09Sendas Distribuidora S.A. Reports Earnings Results for the First Quarter Ended March 31..
CI
05/09Brazil's Assai posts 10.8% decrease in Q1 net profit
RE
05/02SENDAS DISTRIBUIDORA S A : Amendment to Current Report by Foreign Issuer (Form 6-K/A)
PU
04/28SENDAS DISTRIBUIDORA S A : Ordinary and Extraordinary Shareholders´ Meeting - Final Voting..
PU
04/28SENDAS DISTRIBUIDORA S A : Notice to Shareholders - Dividend
PU
04/27SENDAS DISTRIBUIDORA S A : Annual and Extraordinary Shareholders´ Meeting - Synthetic map ..
PU
04/19SENDAS DISTRIBUIDORA S A : Notice to the Market - Sales Performance 1Q22
PU
04/13SENDAS DISTRIBUIDORA S A : Notice to the Market - Notice to the Market Joint Assaí and GPA
PU
More news
Financials
Sales 2022 55 371 M 11 541 M 11 541 M
Net income 2022 794 M 165 M 165 M
Net Debt 2022 8 513 M 1 774 M 1 774 M
P/E ratio 2022 27,4x
Yield 2022 1,60%
Capitalization 21 380 M 4 456 M 4 456 M
EV / Sales 2022 0,54x
EV / Sales 2023 0,43x
Nbr of Employees 60 000
Free-Float 59,0%
Chart SENDAS DISTRIBUIDORA S.A.
Duration : Period :
Sendas Distribuidora S.A. Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends SENDAS DISTRIBUIDORA S.A.
Short TermMid-TermLong Term
TrendsNeutralBullishNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 13
Last Close Price 15,87 BRL
Average target price 20,35 BRL
Spread / Average Target 28,2%
EPS Revisions
Managers and Directors
Belmiro de Figueiredo Gomes Chief Executive Officer
Daniela Sabbag Papa Director-Administration & Finance
Anderson Barres Castilho Operations Director
Luiz Nelson Guedes de Carvalho Independent Director
José Flávio Ferreira Ramos Independent Director
Sector and Competitors
1st jan.Capi. (M$)
SENDAS DISTRIBUIDORA S.A.23.15%4 417
WALMART INC.-17.62%328 132
SYSCO CORPORATION-2.00%39 219
KROGER7.51%35 081
WOOLWORTHS GROUP LIMITED-7.00%30 027
LOBLAW COMPANIES LIMITED7.28%28 834