Companhia Brasileira de Distribuicao (CBD) Q4 2021 Earnings Call Transcript

Picture supply: The Motley Idiot.

Companhia Brasileira de Distribuicao (NYSE:CBD)
This fall 2021 Earnings Name
Feb 24, 2022, 8:00 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

[Foreign language] [Operator instructions] We want to inform that this video convention is being recorded and shall be made obtainable on the corporate’s IR web site the place the whole materials of our earnings launch is obtainable. It’s possible you’ll obtain the presentation within the chat icon. [Operator instructions] Please word that the knowledge on this presentation and forward-looking statements made through the video convention regarding the enterprise outlook, projections, and working and monetary targets of GPA are beliefs and assumptions of GPA’s administration and knowledge at the moment obtainable. Future-looking statements are usually not assured efficiency.

They contain dangers, uncertainties, and assumptions as a result of they check with future occasions and due to this fact depend upon circumstances that will or could not happen. Buyers ought to perceive that common financial situations, market situations, and different operational elements could have an effect on GPA’s future efficiency and result in outcomes that differ materially from these expressed in such forward-looking statements. With us right this moment are GPA’s CEO, Jorge Faical; CFO and IR, Guillaume Gras and CEO of Grupo Exito, Carlos Mario Giraldo; and the CFO, Ruy Souza. Now I’ll give the ground to Guillaume Gras to provoke his presentation.

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] Good morning, everybody, and thanks for attending the GPA Group earnings outcomes. And I’m glad to current to you right this moment the primary outcomes of what we name a brand new GPA, which has registered a optimistic progress in Brazil, whereas markets are taking a dive and presents strong profitability in a difficult surroundings. I’ll begin the presentation speaking about our monetary efficiency and the evolution of the hypermarket transaction. Subsequently, Jorge will discuss concerning the operational highlights of the interval, technique, and enterprise views.

Properly, primary, on Slide 5, you possibly can see the consolidated efficiency figures, which have in mind all of the GPA Brazil operations, together with hypermarket and drug shops and the outcomes of Grupo Exito. The consolidated gross sales totaled BRL 14.9 billion in This fall, rising 6.7% when in comparison with the final 12 months and exhibiting strong efficiency in a tough macroeconomic context and regardless of the demobilization of hypermarkets in Brazil. 12 months thus far, consolidated gross sales reached BRL 51.3 billion in step with 2020, even with the unfavorable impression of the pandemic within the first half. On this difficult surroundings, we maintained our management of SG&A, bettering our share of income by 0.5 bps and 30 bps within the 12 months.

Our consolidated EBITDA totaled BRL 1.2 billion in This fall and BRL 3.8 billion in 2021 and was impacted by the hypermarket actions in Brazil, which reinforces our assertive technique of exiting this unprofitable format, promoting this asset at a very good value with the intention to deleverage our group and reinvest in additional worthwhile codecs. Properly, lastly, GPA’S internet earnings totaled BRL 805 million in 2021, together with the earnings tax achieve on funding subsidies. Retracting this IR achieve, the web revenue quantity is BRL 300 million, which continues to be two-fold final 12 months’s revenue with out tax credit. On Slide 6, we will see that the corporate ended the 12 months with a low leverage stage of 0.3 occasions internet debt EBITDA.

We ended the 12 months with a money place of BRL 8.3 billion, which is 5.6 occasions our short-term debt, which ensures a wonderful liquidity. This stage of liquidity is a results of a robust operational money era of BRL 1.8 billion, excluding the hypermarket and drugstore operations as proven on the slide with the debt evolution. Within the discontinued perimeter, additional hyperstores, and drug shops, there’s a impartial variation with the usage of funds acquired with the primary installment of BRL 1 billion to resize working capital to the brand new operation and to finance mission prices. Now lastly, within the subsequent three years, we can have money of BRL 4.2 billion relating to the transaction of the hypermarket.

On Slide 7, you may even see the evolution of the hypermarket transactions introduced in October ’21, an announcement during which we introduced the top of the hypermarket format operation in Brazil, with 70 industrial factors to Assai and 33 shops to be transformed to different codecs and shutting the remainder of our property. We arrange a schedule for the demobilization of the shops that started in October and stopped the acquisition of a number of nonessential and nonfood classes and continued with discount in retailer dimension till their closure between December and January. Throughout this era, we dedicated to our clients, particularly within the provide of important merchandise. In December, 31 shops have been closed and the remaining shops have been closed within the first half of January 2022.

In the identical interval, we began the conversion of 28 shops in Pao de Acucar or Mercado Further. These shops shall be opened through the first half of this 12 months. On the similar time, we started the readjustment of the corporate to the scale of the brand new GPA with the difference of our headquarter IT construction and community logistics. On Slide 8, we now have our P&L and money particulars of the transaction and its anticipated impacts.

Within the fourth quarter’s outcome, we had a internet impression in different earnings and bills of BRL 400 million the place BRL 1.2 billion in capital achieve, which represents roughly 23% of the overall estimated capital achieve of the transaction. BRL 0.8 billion in bills equivalent to the dismissal of staff, cancellation of contracts, breakout of stock, and different bills relating to transactions. This internet outcome earlier than taxes of BRL 400 million recorded represents between 15% to 18% of the transaction. With this, we can’t but decide the precise remaining quantity, however the firm expects to acknowledge one thing near BRL 1.8 billion within the first quarter of 2022, already contemplating the working losses anticipated for the transition interval of the deserted actions with the completion of the operation.

When it comes to money movement, the corporate had already acquired BRL 1 billion in 2021 and we’ll obtain an extra BRL 4.2 billion by 2024. From these funds between BRL 1.2 billion and BRL 1.5 billion shall be used for mission prices and taxes. BRL 500 million shall be put aside for minimal dividends generated by the web revenue transaction and between BRL 1.2 billion and BRL 1.5 billion to speed up growth capex, renovations, and conversions of shops and the remaining steadiness of BRL 1.7 billion to BRL 2.3 billion shall be used to deleverage the corporate. Lastly, after this operation that represents a gross sale quantity of BRL 11.7 billion in ’21, during which roughly shall be assigned to Assai and 20% to retailer conversions.

The dimensions of the brand new GPA is — turns into BRL 20 billion towards BRL 27 billion earlier than the operation. And that is primarily based on 2021. Now on Slide 9. You’ll be able to see the monetary efficiency of recent GPA Brazil repositions as a premium, digital, and proximity meals retailer.

That is together with the 103 additional hypermarket shops and the 102 drugstores. It is very important emphasize that this result’s a professional forma and already considers the approximate readjustment of the logistic community of our head work and different prices for the brand new space or perimeter. Thus, our new GPA presents a very good restoration on This fall with robust resistance from our premium e-commerce and proximity codecs, which registered optimistic progress like for like with the self-service market, whereas the self-seller market was in decline. Tight management of bills in an surroundings of accelerating inflation allowed us to enhance our EBITDA totaling 8.4% within the quarter and eight.8% within the 12 months.

Now shifting to Slide 10. We — you possibly can see the results of whole GPA Brazil, which was impacted by the demobilization strategy of the hypermarkets with the discount in retailer dimension and the closure of 31 shops already in December. The EBITDA for the quarter totaled BRL 393 million, down 3.6 factors. Every thing targeting gross revenue, which was impacted by the upper stage of out of inventory, decrease business funding, given the destocking course of, the robust discount in purchases, and the impression of the combination impact with the demobilization of hypermarket shops.

Now we go now to Slide 11 with the outcomes of Grupo Exito, which as soon as once more will current robust gross sales progress, reaching BRL 8.4 billion within the interval with progress of 17.8% the place 15.3% in the identical retailer perimeter. This progress was pushed by means of concentrate on innovation in Colombia, the place modern codecs represented 33.3% of gross sales. Now robust omnichannel efficiency with gross sales penetration of 9.9% in 2021 and a GMV of BRL 771 million. And eventually, larger contribution from complementary companies benefited by the lifting of restrictions through the 12 months within the nations of operation.

Along with the rise in gross sales, our gross income improved 30 foundation factors over the quarter and 80 foundation factors over the 12 months and our bills grew beneath inflation throughout all of the nations the place Grupo Exito operates. That was due to the achieve in effectivity of our shops operationally talking. Because of these results, the Exito Group carried out tremendously financially with an adjusted EBITDA in This fall ’21 of BRL 802 million, up 18.1% versus This fall ’20. And over the 12 months, the EBITDA — adjusted EBITDA margin grew 0.5 share factors versus 2020.

With that, I end my presentation, and I might like to show the ground over to Jorge.

Jorge Faical — Chief Govt Officer

[Foreign language] Thanks, Guillaume, and good morning, everybody. I’ll shortly go over a number of of our highlights, the highlights of our operations right here in Brazil with Grupo Exito, and likewise go over a few of our future plans to offer you an thought of the place we’re proper now. [Foreign language] It is vital to speak to you concerning the new time period that we’re utilizing, Novo GPA, which is GPA with out a few of our previous supermarkets. It is a time period we shall be utilizing throughout your entire presentation.

The demobilization of Further Hiper, as Guillaume stated, provides us loads of confidence that we made the precise determination on the proper time and did it the precise manner. This was one thing we did in document time. We emptied the shop — or just about emptied the over 70 shops that we had inside that transaction and Guillaume has proven you among the time line for that mission. We anticipate to have all of these shops or as many as 28 shops transformed and for additional market, which is a very grand technique and really complicated as nicely.

This was an especially intense mission for our staff’s administration. So, I might prefer to take the chance to thank our staff due to what they did with this mission. It actually looks like flying a aircraft whereas constructing it. We are actually on the final stretch with the empty shops, however actually having among the operations with Assai, however that is primarily a web page that we have turned with our operation.

And we now have your entire staff targeted on Novo GPA or new GPA. With that, we redimensioned and streamlined the corporate considerably. This was a resizing that was proportionately bigger than what we had with our income. Even fascinated by the present occasions, it was a manner of defending us when it comes to bills.

And now it is time to look ahead. We wish to take a look at our worthwhile plans and our growth plans. Simply to offer you some extra particulars about our plan, we contemplate our growth plans like a locomotive. It takes some time till it picks up velocity.

Expansions usually depend on or depend upon licenses. There are a variety of regulatory points, however I might prefer to let you know that the pressure this locomotive has began to select up steam. Final 12 months, we delivered 13 proximity shops, and particularly with Minuto Pao de Acucar, in 2022, we anticipate to ship round not less than 50 further shops. So, 13% in 2021 plus all of those this 12 months, we now have numerous shops on our pipeline, lots of that are already within the final stretch headed towards supply.

We additionally delivered a retailer throughout the state of Sao Paulo and town of Limeira. And proper now, we now have 14 Pao de Acucar tasks already in protocol on the a number of ranges of presidency with town or in negotiations with the landlords. And we now have one other 14 conversions underway. So, over the course of this era, we’re not giving the precise date with Pao de Acucar, however we anticipate to, beginning within the second half of the 12 months to see a few of these Pao de Acucar shops come out inside our growth plan, making an allowance for that our growth plan by means of 2024 contains not less than 100 proximity shops and 100 shops within the Pao de Acucar format.

It is good to do not forget that Pao de Acucar can also be accounting for about 43% of our gross sales, not contemplating Minuto Pao de Acucar. Pao de Acucar already accounts for 43% and we anticipate it to account over 50% of our gross sales throughout the new GPA. On the digital entrance, I’ve two charts right here, I’ll go over in a short time. We’re very happy with the figures we have attained.

We got here to BRL 107 billion in 2021. Keep in mind that in 2020, our base was already robust and we grew 53% over 2020. I am actually happy with that work. It is a transformation journey.

And we all know that within the Brazilian market, the share of grocery and on-line gross sales could be very low. So, I wish to discuss somewhat bit extra about our partnerships and the way we got here to those figures final 12 months. So let’s end this chart. I might prefer to say that Novo GPA Brazil, as we stated, had progress by 2.3%, which is beneath inflation with a lower in quantity with an exterior macroeconomic surroundings that is very difficult.

And it reveals that we’re going by means of a rebound and seeing figures which might be a lot better than we had within the third quarter of 2021, particularly with Pao de Acucar, which has clearly gained a market share that is very consultant. Mercado Further and Compre Bem of their markets of operation has consolidated with a double-digit progress on this fourth quarter of the 12 months. So it actually cemented itself in that interval. So though low due to the difficult surroundings, it is a progress fee that is larger than that of different retailers which have launched their outcomes just lately.

And with Pao de Acucar proximity, Minuto and Compre Bem, the brand new GPA stands as a neighborhood grocery enterprise that gives companies and could be very robust in perishables and produce and has a very good stage of service and preserves your entire shopper journey. It is vital to focus on that as a result of neighborhood retailers or neighbor retail shops are extra steady in companies and consequently in outcomes as nicely. Now somewhat bit about digital. In 2019, we bought BRL 360 million, give or take.

We had that basically spectacular tailwind coming to BRL 17 million gross sales. And now in 2021, we’re already at BRL 1.7 billion. That BRL 1.7 billion represented about 8% of our general gross sales and we reached a powerful milestone of about 1 million orders a month. And it is vital to focus on that in contrast to different digital gamers within the Brazilian market, our order contains about 30 to 40 objects per order.

So, for those who multiply 10 million by 40 objects, we’re speaking about over 400 million objects that have been shipped[Technical difficulty]figures, however nonetheless very on a child steps stage. So we now have quite a bit to do. Our present run fee is at about BRL 2 billion. So, we’re coming into 2022, nonetheless rising over 2021 and our technique is to proceed on that development.

Not like the steadiness ranges we’re seeing in the marketplace and even a few of our opponents seeing a lower of their digital gross sales. So, shifting ahead, our ecosystem, as we at all times say, is more and more extra targeted, particularly on our methods that we name 1P. Our 1P at the moment accounts for 70% of our on-line gross sales. And it is vital to focus on that.

Once I say 1P, I imply paodeacucar.com, James Supply, and [Inaudible], which actually has allowed us to navigate market developments, and we wish to take a number one function in numerous different developments. A type of developments is the Extremely comfort, that are deliveries accomplished earlier than half-hour. We have already got a number of pilot merchandise operating with each James and Pao de Acucar. We’re going into WhatsApp gross sales as nicely.

We have already got 11% of gross sales with Grupo Exito on that entrance. And right here in Brazil, we’re launching a WhatsApp plan that is structured with a simplified navigation, not essentially with a human being behind the scenes, however that is one thing we’ll be launching between third and fourth quarter. WhatsApp is one other frontier in digitalization and never all clients are skillful in constructing an app. So, WhatsApp will carry new digital clients to our shops.

OMS, for instance, our order administration system can also be taking part in a component at the hours of darkness shops we’re launching. These shall be launched in three completely different areas: Curitiba, Belo Horizonte, and Salvador. We even have a brand new initiative that unlocks the worth in digital, which is what we name hub shops. In that case, clients will place an order within the Further Membership and a Pao de Acucar retailer will really conclude that supply.

That is our hub retailer mission. So numerous initiatives at all times primarily based on a flawless service stage. We at the moment have over 90% of on-time full in that various and we are inclined to exceed 95% quickly. One other one among our very profitable initiative is with our partnerships.

We have already got six companions already locked in. And our mission is to develop into the No. 1 vendor of all our companions in meals objects. Our focus is to be wherever the shopper is.

So, if the shopper is looking for comfort with iFood, so we plan to be on iFood, offering a really excessive stage of service in comparison with our opponents, all throughout the similar app. One in all these initiatives we’re speaking about, which can also be an ultra-convenience plan that features the ultrafast final mile, but in addition different fronts. We’re negotiating new contracts and we shall be releasing them very quickly inside this new initiative. Our 3P market has seen a shift in route versus working in a extra generalist market.

We’re planning to concentrate on six completely different classes. So simply as different retailers in Brazil are specializing in a market phase, we plan to concentrate on seven market segments: wine, artisanal and particular beers, distilled and different varieties of drinks. So, that is the specialties we’re planning to enter in. Only one instance to offer you an thought, we would like all producers as small as they could be, possibly even home beer producers, we would like them to have the chance to promote their product on our web site and throughout the platforms we’re working.

That is one instance of a complementary vertical inside what we’re speaking about. Inside our system, I’ve to say our loyalty packages, our loyalty packages, they actually account for 82% of our gross sales. It is a excessive — that is very important in our whole income. We have now an especially good database of our shopper and we at all times use our database to monetize our enterprise.

One of many highlights of the final quarter was the Stix program. We initiated it along with our accomplice, Raia Drogasil, and this began in the course of final 12 months and there was a redemption on to checkout. Subsequently, the shopper can regain BRL 10, BRL 15, BRL 20 within the checkout and this gives reductions to their grocery retailers. This initiative was very profitable.

We and Stix throughout its first 12 months of existence, offered a breakeven that we solely anticipated for the second 12 months. We have been capable of obtain this within the first 12 months. It is a program that it has 10% of breakage for those who comply with this market. This is essential.

Our philosophy is to have a Stix program — to have a Stix program that fosters retail and to not earn money as a result of the factors expire. And on the finish of the month, we had over 1 million redemptions of premiums, awards, or reductions. That is extraordinarily important in quantity of redemption. That is the largest loyalty program in Brazil in redemption quantity.

Our redemptions have a decrease worth, however this already gives momentum to this program. Now, the mission of Stix of 2022 is to extend the coalition ecosystem and never solely work with GPA, Raia Drogasil, we would like extra companions. We wish to broaden to different segments within the Brazilian retail and we would like this to be a forex for use throughout Brazil. And this is likely one of the highlights of our quarters.

Subsequent slide, please. Now the highlights. From Brazil, we registered 2.3% of progress in same-store gross sales. It is a clear restoration of developments.

Though inside our difficult state of affairs relating to, nicely, the exit from the hypermarket reveals how assertive we have been in our choices. Our predominant drivers, particularly in Pao de Acucar can be an enchancment in our assortment, a plan of retrofits in 2021. We carried out 50 retrofits through the second semester of final 12 months in 2022, along with the conversion of 20 additional hyperstore. We are going to retrofit all our Pao de Acucar.

That is what we’ll do with the proceeds of our transaction. These are 130 shops refurbished utilizing the G7 format. Now our growth plan I already talked about. These are 100 shops by the top of 2024 in all codecs.

And we at all times strengthen Minuto Pao de Acucar that may be a successful, worthwhile format and with nice potential in Brazil. Now that is for the scale-up of the format, not solely in Sao Paulo, but in addition in different areas of the nation. Now going to Colombia’s highlights, Grupo Exito’s highlights. Primary, it is vitally vital to speak concerning the important restoration through the second semester of final 12 months.

Grupo Exito, the Colombian, and their financial system adopted a unique tempo once you examine it to the Brazilian financial system. It is financial system grew extra Grupo Exito surfed this wave. They did not solely achieve along with all of the Colombian market, however they gained in share, which is essential on this phase. This was 1 / 4 with features above inflation with an enchancment of income, profitability, and this progress was leveraged by three predominant elements.

Primary was the expansion by means of modern codecs like Exito WOW, Carulla Contemporary and we have talked about this in numerous quarters. The second pillar of progress was that they strengthened their omnichannel. The expansion in digital was extremely — was very important. And as a 3rd level right here, the restoration of the actual property companies inside Colombia and Colombia is the largest operator of actual property of purchasing malls within the nation.

Exito is also rising considerably in gross income, 2.1 occasions better than final 12 months and a rise of similar shops was 15.6%. Furthermore, we’re speaking about 57 shops that have been opened or retrofitted in Colombia or Uruguay. Over the last quarter, we made an vital settlement of 5 shops with the Almacenes La 14 community within the Cali area. The Cali is the third largest metropolis in Colombia.

It is a area the place Grupo Exito wasn’t distinguished. So with 5 shops within the area along with Bogota, [Inaudible] the second largest nation, we — our curiosity — we now have an fascinating illustration and it is a metropolis that has round 2.5 million inhabitants. It is a transaction that we want to spotlight to all of you over the past quarter. Now once we see the digital facet, now right here in gross sales share 9.9%, nearly 10% of gross sales, reaching nearly peaks of 12% of shares.

Now the apps, the Exito and Carulla apps reached greater than 1.6 downloads and grew 22% once we examine it to 2020, pushed by the partnerships with Tuya and Puntos Colombia and likewise inspired by de Squanto app similar to de Squanto in Brazil, which had greater than 2.6 million coupons redeemed. The corporate in digital registered nearly 8 million orders fulfilled along with Rappi. Now that is 36% of share of the logistics platform by Grupo Exito. And final 12 months, they launched[Technical difficulty]which is very accepted in Colombia.

As we see in Sao Paulo now the financial rebound within the nation, the degrees of actual property occupancy strengthened the enterprise of the group, features of market share, digital modern codecs and Exito continues being a wonderful enterprise as a result of it generates money, internet revenue. And when it comes to debt, it is vitally vital for our group. Now this week, the shares of Exito through the earnings launch outcome, nicely, their shares have been impacted. They grew considerably within the Colombian Alternate and the market cap is round BRL 8 billion, BRL 8.2 billion.

It’s at all times fascinating to say this as a result of they’re a part of the corporate’s property and it is at all times good to replace you relating to these info. To finish my presentation and to embark in our Q&A session, I want to spotlight our ESG. Properly, ESG and GPA just isn’t one thing new. These — we for the previous twenty years have had a strong agenda appropriately with all Brazilian retailers that ought to mobilize a worth chain to have a extra sustainable and inclusive society.

Right here, we now have the primary highlights of the fourth quarter. Right here, solidly, we will present you figures and I would like you to concentrate to those figures which might be essential. One we’re speaking about our energy consumption in Brazil is already — 88% of our energy is consumed by means of the free market, which permits us to assist local weather change. Now, the greenhouse gasoline results dropped 7%.

This is essential as nicely. Now relating to diversion and inclusions: 30% of our management positions are occupied by girls. We’re very happy with these figures and there are a variety of improvement packages, each in feminine management and likewise the event of black staff. I want to thank the partnership with Zumbi dos Palmares College that has helped us quite a bit over the past quarter.

We had 131 graduations from our black inhabitants. Now relating to the social facet. This was an vital 12 months. We ended 2021 with 5,000 tons of donations of meals.

That is round, if we’d remodel this in trailers, this might be over 200 trailers filled with meals throughout your entire 12 months. And that is in partnership with our clients. Our clients donate to our shops and our operational staff or logistic mobilizes themselves they usually take this meals to over 350 social establishments in Brazil. It is a important determine and we’re highlighting this right this moment.

Exito, we had greater than 20,000 tons of store-back waste recycled throughout 2021. Carulla Contemporary additionally can have a carbon-neutral seal 21 shops have been recertified in 2021 relating to range and inclusion. The variety of girls in management place is near GPA, like round 36% and Exito constantly works by means of their basis totaling round — reaching greater than 70,000 kids benefited from the zero malnutrition program. We’re very happy with this program and I want to congratulate Exito for his or her dedication.

So now our remaining messages and our key factors right here. Now we have turned the web page of the hypermarkets in Brazil. It can be crucial that we’re completely targeted on the inspiration of retail, neighborhood retail, a retail market that preserves the expertise of the buyer, even bettering it. Right here we now have recovered the RX however we now have — there is a rebound of our growth.

We’re strengthening the premium idea of this banner. It is a banner that strongly stands out. as quickly as Brazil pulled out of a extra wise or delicate financial downturn. Now right here, you possibly can see our leads to e-commerce, proximity shops, or different shops.

Our construction is simplified. We virtually have a stage of bills, which is tailored to the brand new GPA. That is the corporate that took a step backwards to take two steps ahead. And Exito Group is a Group, not solely this 12 months, however has at all times taught us quite a bit, has offered us loads of expertise with a Latin American benchmarking of operation, an instance of retail practices, not just for Latin America, however globally, collectively, not solely with their practices, they’ve offered nice outcomes and glorious money movement for the corporate.

That is what I had from my half, and I will keep right here for our Q&A session. Thanks.

Questions & Solutions:

Operator

[Foreign language] [Operator instructions] Let’s hear our first query. It comes from Danniela Eiger, sell-side analyst from XP. Danniela, we are going to open your microphone. Please, you could proceed.

Danniela Eiger — XP Inc. — Analyst

[Foreign language] I’ve a number of of them really. The primary one, for those who might please discuss concerning the development out there most likely this 12 months? We heard calls from different gamers out there with a unique positioning than yours, however they incurred this begin of the 12 months has been higher than the fourth quarter final 12 months. So I needed to listen to from you ways is the market? But in addition I wish to hear, not solely concerning the Pao de Acucar model but in addition Compre Bem and different manufacturers that did not carry out in addition to these. So for those who might discuss this, that may be nice? My second query is, what do you guys see on the horizon when it comes to normalized earnings for you, GPA [Inaudible]? You have talked about or went over the [Inaudible] in 2021 however I needed to listen to what you guys see as a possible for 2022 after the additional supply that have been transformed into Pao de Acucar? We wish to simply have an thought about that.

Jorge Faical — Chief Govt Officer

[Foreign language] Thanks on your query, Danniela, I’ll cowl a part of the solutions, after which I will flip over to Guillaume, who will discuss concerning the gross sales. So the beginning of this 12 months continues to be very risky and warrants loads of warning. We’re nonetheless going through the results of excessive inflation and likewise customers decreased earnings. So I’d say that it is a barely unstable or unsteady begin of the 12 months for us.

It has been bettering within the — in latest weeks. The beginning of January was a bit tougher, however issues have been bettering in latest weeks. However as I stated, nonetheless a fairly risky state of affairs. It is a week that features a Carnival vacation, which is not going to contain parades or events as regular, however will probably be a vacation that is a vacation like we have had final 12 months.

So we anticipate good outcomes for this era. We may even have the Easter month, which is a really consultant for our gross sales, however this isn’t 1 / 4 the place we’re anticipating important restoration for the state of affairs generally. As I stated earlier than, we now have already turned the web page from an operational perspective with the Further Group, and we’re actually targeted on curbing our bills and paying shut consideration to the profitability problem and managed profitability inside our neighborhood retail, as I discussed, which incorporates additional — Mercado Further and Compre Bem. Further has type of fluctuated in its efficiency as a result of it is a retailer that companies individuals with decrease earnings, it has a share of promotional gross sales that is larger, and it suffers from results of the competitors.

There are areas the place the competitors is de facto robust of their promotional gross sales and others the place the competitors is following extra of a profitability step. So its efficiency is kind of erratic. We have now areas which might be rising by two digits with Mercado Further, with large gross sales from purchasers that got here from the hypermarket. There are areas the place we didn’t have a hypermarket and people are struggling a bit extra.

Now, Further and Compre Bem are codecs that aren’t very digitalized. And a part of our technique for Mercado Further and Compre Bem is to make them distribution — logistical distribution hubs. We had that in a few of our shops, and it is our predominant technique proper now to have the digital sale warehousing targeted on these shops and to put them on a unique stage of digital participation in comparison with what that they had final 12 months. May you discuss concerning the profitability facet of the query, Guillaume, please?

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] In fact. We anticipate our EBITDA within the continued pyramid to remain above 90%. We have already signaled in our launch what can we see as a professional forma outcome with an EBITDA of 8.1%. That is the early indication.

And for 2022, it is vital to focus on that we’ll be going through a transitional interval within the first half of the 12 months. We first want to complete readapting GPA in its logistical community and likewise IT construction. And we additionally should conclude our program to transform 26 to twenty-eight shops. So in 2022, we’ll be going by means of this transitional interval within the first half and beginning in mid-year, we anticipate to see our profitability ranges to return to regular, which might be about 8%.

Danniela Eiger — XP Inc. — Analyst

[Foreign language] OK. Thanks.

Operator

[Foreign language] Our subsequent query comes from Marcella Recchia, sell-side analyst from Credit score Suisse. Marcella, we are going to now open your microphone so you possibly can ask your query. Please, you could proceed.

Marcella Recchia — Credit score Suisse — Analyst

[Foreign language] Good morning, Jorge and Guillaume. Just a few fast questions. The primary one is concerning the professional forma outcomes of GPA Brazil. May you clarify to us what’s behind the 60 bps lower in your gross margin that makes up for 20% of your EBITDA margin? And what are the primary initiatives when it comes to extra effectivity and spending curtailment? How will that have an effect on your EBITDA margin? That is my first query.

The second query is about same-store gross sales, additionally contemplating GPA Brazil ex hypermarkets and drug shops. We noticed a efficiency that was even higher than the remainder of the business contemplating a weaker financial interval. And I might like to listen to from you what do you suppose that improved efficiency may be attributed to? And what can we anticipate for the subsequent few months? Thanks.

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] Thanks, Marcella. Jorge, for those who might take the primary half?

Jorge Faical — Chief Govt Officer

[Foreign language] Properly, you possibly can take that.

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] Properly, the gross margin change that you just noticed inside new GPA, which is 60 foundation factors is brought on by two predominant results. To begin with, inflation, which was not 100% handed alongside to clients and the impact of emptying out hyper shops. To regulate the extent of inventories within the shops, we needed to make that change and that affected our profitability in different shops. So these are two factors that we must always recuperate over the course of the primary half of the 12 months.

Marcella Recchia — Credit score Suisse — Analyst

[Foreign language] Excellent. Thanks.

Jorge Faical — Chief Govt Officer

[Foreign language] Marcella, from the efficiency standpoint, our efficiency has barely improved. In fact, we’re not happy but with how a lot we’re shedding when it comes to quantity, however the enchancment has to do with a number of components. There was no bullet proof or there was no silver bullet that improved every little thing. However one factor was that with Pao de Acucar, we recovered loads of our assortment — quite a bit from our assortment that had been decreased.

So that you’re now as soon as once more discovering a number of objects that we had faraway from our cabinets over the previous few years. We additionally stabilized our logistical community somewhat bit higher. Our disruptions have been eradicated by about 30% with Pao de Acucar. This was due to a really technical program and a really technical work with our suppliers and likewise a rise in perishables, fruit, prepared meals, this was the class that elevated quite a bit with us.

Bakery, our bakery is seen as among the best bakeries — among the best bakery traces in Brazil. And the fourth ingredient has extra to do with our digital operation. Our progress in digital is, clearly, we would not have a exact gauge of our on-line gross sales, our brick-and-mortar gross sales are what actually ship these merchandise to clients. So the digital entrance is what helped us in that omnichannel technique that we’re adopting.

Marcella Recchia — Credit score Suisse — Analyst

[Foreign language] That was good, Guillaume and Jorge. Thanks.

Operator

[Foreign language] Our subsequent query comes from Eric Huang, sell-side analyst from Santander. Eric, we are going to now open your microphone so you possibly can ask your query now. Please, you could proceed.

Eric Huang — Santander Brasil — Analyst

[Foreign language] Good morning, guys, and thanks for taking our questions. We have now two. First, I would really like you to speak about your Proximity format. This was an fascinating spotlight over the course of Q3.

So I might like to listen to from you what do you see as the primary driver of these outcomes? And what do you guys anticipate when it comes to the aggressive surroundings on this business? We’re seeing extra networks, each native and worldwide. So we needed to listen to what you anticipate on that entrance? And now with regard to Exito, the Exito WOW and Carulla FreshMarket added a big incremental gross sales fee and likewise I needed to listen to concerning the growth format. What you guys can inform us about these modern fashions? Can we anticipate them to be extra open? And what would conversions appear to be? In the event you might share one thing concerning the Exito Group as nicely, that may be nice?

Jorge Faical — Chief Govt Officer

[Foreign language] It is a pleasure. With regard to Proximity, we are actually beginning to scale our mannequin. It is a mannequin the place our revenue is close to two digits within the EBITDA margin. It is a format that is performing quite a bit higher with Minuto Pao de Acucar than with Mini Further.

Minuto Pao de Acucar has a worth proposition that was a very good match with the proposition for patrons. That is one which’s extra targeted on supplying and replenishing shares then to a comfort retailer mannequin. So that is type of the neighborhood grocery retailer versus a comfort retailer that as these you see in gasoline stations. So it is a worth proposition that is aligned with good profitability.

And we discovered the steadiness from the actual property standpoint, from the logistical standpoint, as a result of the logistics for these codecs could be very difficult. And we now have a vital model recall that we depend on for progress on these traces. So these are distinguishing elements when in comparison with the competitors. Clearly, we’re paying very shut consideration to what the competitors is doing.

We have now nice respect for all of these gamers, however granted, the profitability with this format just isn’t one thing that is easy to attain. We’re largely taking a look at them, but in addition targeted on our growth, taking a look at the details that current an excellent chance to develop in that entrance. Now, with regard to Further, I will flip over to Carlos Mario, who will reply your query.

Carlos Mario Moreno — Director

Thanks, Jorge, and thanks for the questions. I want to say that first format that’s the innovation for the Exito hypermarket, now represents almost 30% of whole gross sales. And people shops, with greater than 24 months, have grown 42% towards 10% progress of the overall model. So actually, it’s having an excellent efficiency with an ROI of 31%.

What we anticipate for some time is to have a — at full potential of 40 full WOW shops, that’s huge hypermarkets and 100 WOW financial shops, that may be a new mannequin that we’re piloting for middle-class aspirational shops. That shall be achieved, I’d say, in a interval of 5 years. And for the second, this 12 months, we’ll do 15 of the full-sized Exito WOW shops, together with the six shops — hypermarkets that we’re receiving from La Catorce. In Carulla, Carulla now the FreshMarket represents 45% of the overall model gross sales.

It has an ROI of 10%. And gross sales of these shops which have opened greater than 24 months in the past have grown 30% towards 16% of the complete progress of the Carulla model. Our full potential for Carulla is round 80 shops that may even be achieved in 4, 5 years. Of these, we shall be doing round 12 this 12 months and — between 10 and 12.

And right here, we embrace those who we name Full Contemporary that’s huge shops of greater than 1,000, 1,200 meters. And the opposite half of the Carulla FreshMarket can be midsized Carullas, however that — actually our drive[Technical difficulty]in progress and are driving market share in Colombia.

Eric Huang — Santander Brasil — Analyst

[Foreign language] Thanks very a lot. Your reply was very clear.

Operator

[Foreign language] Our subsequent query from Joao Soares, he’s an analyst from Citibank. Joao, we are going to allow your microphone so you possibly can pose your query. It’s possible you’ll go on.

Joao Soares — Citi — Analyst

[Foreign language] Properly, good morning. Faical, might you elaborate on the digital channel, which is extraordinarily important for you and also you’re evolving in numerous buddies, partnerships, darkish shops. After we see issues within the mid run, how consultant will the channel be and now that you’ve got the funds after promoting your hypermarkets, I consider that you’ll speed up your funding on this entrance? You’ll put money into CIC. How do you see the evolution of the channel? And what concerning the profitability on this channel now that there are the upper variety of clicks? May you elaborate on this?

Jorge Faical — Chief Govt Officer

[Foreign language] Thanks on your query. Primary, this enterprise represents round 10% of our BRL 1 billion accounts for nine-point-something at the moment, and plenty of occasions, I’m requested. However how a lot does this account for in GPA? Properly, we nonetheless have no idea precisely the long run share. Nonetheless, we all know that in Brazil, the sale represents 1.5 roughly, give or take of our grocery in Brazil and in Brazil, round 6.5% to 7%.

The U.S. 5 occasions extra share in grocery and digital than within the Brazilian market. There isn’t a doubt that our share shall be just like that of the U.S. in 4 or 5 years, give or take.

So this market will fourfold or fivefold. Properly, it is not by probability. We have now to — in fact, there are lots of traders that need a part of this pie. However right here, we see a multiplication of final mile or firms that wish to embark in grocery.

No, Joao. This isn’t simple to handle groceries, logistics. It is not simple to work with recent merchandise which have a brief expiration day. It is not simple to do the final mile logistics.

You want an infrastructure of distribution facilities which might be near the buyer. And three, choosing is essential to work with the choosing of a product for the buyer just isn’t easy science. Now, we’re strongly investing in know-how. We’re strongly investing in administration in order that we develop into — so we differentiate ourselves in these three entrance with choosing, with know-how, the place issues are achieved in an agile manner, in a easy manner, and in a productive manner.

Level No. 2, the placement of our fastened property, bodily property, I am one step forward of all of those firms which might be rising within the nation as a result of we have already got this, after I see the multiplication of darkish shops in Brazil, we now have our brick-and-mortar shops which might be completely ready to be distribution facilities and acquisition prices. Properly, there’s at all times — there’s a complicated logic. Many occasions the acquisition price is taken by — is assumed by GPA and once we create partnership of those firms, a part of the fee goes to the final mile, or to not — many occasions, we share the acquisition price — the price of acquisition goes to the platform.

And to us, there’s a complete dynamic for that — in the meanwhile is offering a very good profitability. Our profitability was one digit, which is excessive in e-commerce. That is an incremental revenue. Because of this there is not any purpose to not scale.

Our digital scalability will undergo all of the factors that I’ve talked about previously, and we are going to quickly scale. In fact, inside our authority, boundaries that may be meals, proper?

Joao Soares — Citi — Analyst

[Foreign language] Faical, only a fast follow-up on the query. As you acknowledge the multiplication of last-mile platforms and darkish shops coming from overseas, creating their operations in Brazil. Do not you — aren’t you making an allowance for some M&As to speed up numerous capabilities?

Jorge Faical — Chief Govt Officer

[Foreign language] OK. We have now James, proper? And we bought James. And James is a crucial platform in our income, and James can be like “a strategic reserve” for us as a result of the training curve that we now have on this phase on this market is utilized to James and can also be utilized to our 1P platform. Now, what we’re doing on our finish – our M&As, what we’re doing, what we’re creating are sound strategic partnerships with these final milers.

It’s going to — it’s extra advantageous for these firms to make use of GPA as a retailer, as a service as a substitute of spending cash and leasings with darkish shops, all have, for instance, potatoes that spoil of their stock. We have now a partnership with HomeRefil. They promote by means of their platform to the buyer by GPA sells the product to HomeRefil and likewise is answerable for the logistics operation for HomeRefil. That is an fascinating instance of our positioning as retailer, as a service.

So we’re following roughly the trail of strategic partnerships as a substitute of M&As.

Joao Soares — Citi — Analyst

[Foreign language] Thanks, Faical, on your reply.

Operator

[Foreign language] Our subsequent query from Joseph Giordano from J.P. Morgan. Joseph, we’ll allow your microphone so you possibly can pose your query. So you could go on, Joseph.

Joseph Giordano — J.P. Morgan — Analyst

[Foreign language] So good morning, Jorge. Good morning, Guillaume, Carlos Mario. Thanks for taking my query. These are three blocks that I want to discover along with you.

Primary can be throughout the strategic options of the Group. We have seen a sure related motion from the purchaser with the intention to simplify the operations. So I am speaking about cross operations, on one facet we now have a buyback introduced by Exito, however we now have an Exito and a [Inaudible] which might be underneath GPA. So what do you anticipate from right here on now that the leverage that was a priority that the Brazilian holding had — has been approached by the money that you’ll obtain from Assai? One other query can be, if it is smart throughout the total market context and all of the modifications, the receivable of Assai.

I want to know concerning the consolidation as nicely. You have talked concerning the competitors, and I want to know if it will make sense to hold out an M&A to speed up extra? So I want to know if an M&A would make sense in order that your operation turns into a extra nationwide operation? I do know that we now have plenty of shops, however that is largely targeted in Sao Paulo. And going again to consolidators apps, I want to perceive the way you see the profitability of the enterprise in the long term as a result of clients are migrating extra to apps and platforms and they’re not loyal to those banners. Though you — we now have firms which have a very good assortment, I consider that there might be a shrinkage of your margin.

I want to understand how you see this?

Jorge Faical — Chief Govt Officer

[Foreign language] Guillaume, would you prefer to reply and discuss concerning the simplification facet?

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] Joseph, thanks on your query. Primary, you will need to reply so as right here. Our first stage can be to finish the hyper transaction and to exit this format that may deleverage the Group and this prepares us for the upcoming steps. Subsequently, we’re targeted on this at the moment, and we anticipate to finish this motion on the finish of — by the top of Q1, in any case of this.

Now, clearly, we, right this moment, don’t have anything to share with you. We have now no tasks to announce. However as a matter of truth, the hyper stage is the primary basis to consider the long run. We wish to promote our share in Cnova, and we’re ready for higher market situations to promote our share at a very good value.

Subsequently, I would not have a timeline relating to these actions, however we proceed with these — with this intention to promote our share of Cnova. Now, relating to Exito, nicely, there’s a chance of future actions in our share, however nothing — however we will not talk or disclose something proper now relating to this level. Now, what concerning the anticipation of accounts receivables of Assai? We have now analyzed this chance, and I want to remind you that in our monetary outcomes, we acknowledge rates of interest within the installments which have been agreed upon with Assai. So the impression of the monetary outcome for right here, we have already captured the rates of interest of this transaction.

Joseph, I did not perceive your query relating to the way you posted a query relating to Pao’s growth. You might be correctly capitalized and I want to know if it will make sense to speed up extra and to remember an M&A. It is a nationwide operation however strongly targeted in Sao Paulo. We don’t put aside M&As, however there’s nothing on our horizon.

At the moment, we’re following the natural growth path for this premium format that must be positioned in premium neighborhoods with properties which might be costlier. It is a sluggish pathway, however is extra strong from the monetary viewpoint. And the returns are extra ensures by means of natural progress. We’re going to develop organically, not solely within the state of Sao Paulo.

There are a variety of tasks exterior of the state of Sao Paulo, nonetheless, as I stated, our predominant growth space can be to saturate the present cities. We are actually generally in talks with small networks with two, three, or 4 shops. We consider this sort of M&A might be easier, and we might advance on that entrance. However main regional networks are usually not on a part of the dialog at the moment.

Now, with regard to profitability with e-commerce, that is fascinating as a result of in contrast to different enterprise, e-commerce is one a part of the enterprise the place we are going to revise and evaluate our plan six years — each six years and even much less. One 12 months in the past, for instance, primarily, nobody was engaged on the final mile throughout the nation, and now you will have over 20 firms. What we do consider in is, initially, these are assumptions. These are golden guidelines we undertake inside our enterprise when trying into the long run.

Two of them are profitability inside e-commerce and a high-level of service or a high-level service. These are two golden guidelines. So how do you will have profitability when competitors is rising, which was your query. Properly, we are going to play alongside these gamers.

We are going to work by means of them as nicely or with them, which is our — performs into our partnership proposal. However we all know that many of those platforms have a sustainable plan due to their enterprise capital, however with a really difficult P&L. In order that they should generate a big buyer base with a really excessive COGS. However as soon as these firms change the important thing to optimistic P&L charges, then the business will go — will bear a consolidation course of.

These firms are taking part in the month-by-month recreation. And at the moment, we have been very profitable within the recreation we’re taking part in with them.

Operator

[Foreign language] Our subsequent query comes from Vinicius Strano, sell-side analyst with UBS. Vinicius, we are going to now activate your microphone so you possibly can ask your query. It’s possible you’ll proceed.

Vinicius Strano — UBS — Analyst

[Foreign language] Hello. Good morning, everybody, and thanks for taking my query. May you guys give us extra particulars concerning the economics of the shops that have been transformed to the G7 mannequin? How do you see retailer productiveness, gross sales by sq. meter, and margins for this mannequin in comparison with the margins for different fashions? And with regard to Exito, how can we take into consideration their margin development shifting ahead, maybe fascinated by the extra accelerated progress for low- or slender margin fashions?

Jorge Faical — Chief Govt Officer

[Foreign language] Thanks on your query, Vinicius. As soon as we convert our shops to G7, they see a rise by six to seven factors over a comparable base. Talking, clearly, from a gross sales standpoint, that displays — or that mirrors the gross sales by sq. meter. We use primarily the identical base for the 2.

Now, from a margin perspective, it has the next share of perishables, which is a class with margins which might be above common. So their margins are larger than what the identical class had earlier than, nearly one to 2 factors larger in gross phrases, nevertheless it additionally brings a rise in bills by about one to 2 factors. So in share phrases, it type of stabilizes. However as a result of it features six to seven factors in gross sales, it clearly features 5 to seven factors in money.

So that is one thing that basically stimulates us and actually helps us to carry corporative prices down. And it has fairly quick return on funding. I will let Carlos reply the remainder.

Carlos Mario Moreno — Director

[Foreign language] Margins within the firm, and that’s the mixture of the primary improve within the low-cost manufacturers, particularly our money and carry with decrease margin, rising final mile, which is bettering quite a bit the margin however has decrease margin than the typical. However on the opposite facet, we now have a really robust conversion plan in WOW and Contemporary which have the perfect margin of the manufacturers, and likewise we now have the optimistic contribution of our complementary companies, which is in an excellent development of enchancment. That’s our Tuya monetary enterprise and our actual property enterprise to solely talk about two of crucial ones.

Vinicius Strano — UBS — Analyst

[Foreign language] That was good, guys. Thanks.

Operator

[Foreign language] Our subsequent query comes from Bob Ford, sell-side analyst with Financial institution of America. Bob, we are going to activate your microphone so please proceed.

Bob Ford — Financial institution of America Merrill Lynch — Analyst

[Foreign language] Thanks. Good morning, and thanks for taking my query. Jorge, might you discuss concerning the results brought on by the competitors and likewise the extent of elasticity that you just’re seeing at your building work? And will you additionally discuss your figures with Mercado Livre and any of the advantages that translate to your operations exterior that channel as nicely?

Jorge Faical — Chief Govt Officer

[Foreign language] Thanks on your query, Bob, and pleasure talking with you. Properly, we work with comparatively extra steady competitors ranges than the remainder of the market, each with Further and Pao de Acucar, we are actually seeing a stability in our promo share ranges. That share is about 25% in every one among these companies, which for the present time interval is a big and wholesome fee for the Brazilian market. Up to now, Pao de Acucar had promo share ranges of 15% to twenty%.

We are actually working with about 25%. And we work with a competitiveness stage versus self-service and common costs at round 103% to 105%. However it’s at all times fascinating to have a broader view of our portfolio and fascinated by our generosity towards clients as a result of Pao de Acucar has its 105% in competitiveness stage. It is common promotional gross sales, however to our most loyal clients, we now have what we name My Low cost, which provides an incremental low cost.

So the extra loyal the shopper is to Pao de Acucar, the upper the reductions they’ve. The extra loyal they’re, the extra sticks they obtain, for instance, and people tickets are reverted into reductions on purchases. So I might say that this stage of competitiveness at about 100% is extra — or serves extra to clients who’re solely occasional patrons of our product. Essentially the most loyal clients have a big stage of reductions, which additionally assist them to proceed to be loyal to our model.

Now, about Mercado Livre, that is one partnership we’re very happy, very proud of. We’re nonetheless working in a grocery surroundings with dry meals. We have now about 1,000 to 2,000 SKUs with them, and we’re poised to start out very quickly a motion to incorporate our recent merchandise as nicely. We have now began to run a number of pilots as nicely, and we plan to start out promoting recent meals with them as nicely over the subsequent few months.

I can not let you know precisely when. However there are some fascinating issues about this. One is, about 80% of our gross sales with Mercado Livre happen in areas exterior of the place we now have our shops. One instance is town of Belo Horizonte.

We have now a really fascinating stage of gross sales in Belo Horizonte, the place we now have no Pao de Acucar shops. So it is a studying curve and mutual studying on this case, however that is proving to be a really a lot of a win-win partnership.

Bob Ford — Financial institution of America Merrill Lynch — Analyst

[Foreign language] That is very fascinating, Jorge. Thanks.

Operator

[Foreign language] Our subsequent query comes from Gustavo Fratini, sell-side analyst with Goldman Sachs. Gustavo, you could proceed.

Gustavo Fratini — Goldman Sachs — Analyst

[Foreign language] Good morning, guys. Thanks for taking my query. Simply following up on a earlier query. It was clear to me that this impact that has pressured your gross margin over the quarter was a one-off, however I might like to grasp the way you see your bargaining energy as in comparison with the competitors shifting ahead? And the way can we take into consideration your progress margin prospects shifting ahead? And for those who might additionally handle your working capital concern? Taking a look at this possibly decrease scale within the near-term, how might that have an effect on your working capital, particularly your accounts payable? Thanks.

Jorge Faical — Chief Govt Officer

[Foreign language] That was a really fascinating query, Gustavo. Thanks. Properly, with regard to our bargaining energy, we have talked about this quite a bit earlier than saying our transaction. Clearly, we’re holding an in depth eye on that.

Issues would possibly change when in comparison with our prospects, however we’re nonetheless a $20 million firm on the subject of gross sales. We’re larger than the retail facet of our predominant competitor. We’re a lot larger than the No. 3 within the Brazilian market and incomparably larger once we discuss regional opponents.

So this is the reason one of many arguments we consider we is not going to lose bargaining energy. We work with very excessive volumes in gross sales and throughout all classes, whether or not there — whether or not it is a extra commoditized product or a extra structured, extra of a contemporary commerce class, so to talk. One other vital issue is, as I confirmed you earlier than, for those who add Minuto Pao de Acucar, and Pao de Acucar, the Pao de Acucar model accounts for over 50% of our enterprise right this moment. And the Pao de Acucar model is a large development setter in shopper items, groceries in Brazil.

It’s type of a flagship in branding for our opponents and our clients. So we have helped launch numerous new manufacturers out there. And we don’t anticipate that to vary. So our energy with the share of Pao de Acucar goes up, which can even improve our bargaining energy with some suppliers in some classes.

We’re constructing a really shut relationship — we’re in a really shut partnership with lots of our suppliers, and that is one thing I am very grateful for. I am grateful for his or her partnership throughout this transition interval. This one-off outcome that we had. Our companions actually accepted our presents, and we all know we will construct very fascinating enterprise into the — going into the long run.

Now, about our working capital, we really feel we’re in a really snug place. It is fascinating to grasp that, though we now have decreased the corporate from BRL 29 billion to BRL 20 billion in earnings on the finish of 2021. We moved out of some main classes that generated a really unfavorable impression on working capital, particularly electronics, our non-food classes, our style and textile class, the place we had 115 to 120 days to cowl the inventory. So, though we have decreased about 30% when it comes to income, our inventories are about 50% smaller than or 50% decrease than what we had beforehand, which permits us a extra snug working capital — stage of working capital, not that snug, however actually extra snug than what we now have earlier than when negotiating with our suppliers.

I do not know you probably have something so as to add, Guillaume?

Guillaume Gras — Chief Monetary Officer and Investor Relations

[Foreign language] In fact. Properly, with regard to fee phrases to our suppliers on the meals facet, they continue to be the identical. We have seen no deterioration in fee phrases to suppliers. Now, on the stock stage, we now have began to readjust our stock ranges and the anticipated impression on our working capital in 2022 is about minus BRL 500 million due to the optimistic working capital we had, because of our hypermarkets and which we are actually concluding their demobilization.

So will probably be about minus BRL 500 million.

Gustavo Fratini — Goldman Sachs — Analyst

[Foreign language] Thanks. That was very clear.

Operator

[Foreign language] Our subsequent query comes from Joao Paulo Andrade, a sell-side analyst with Bradesco BBI. Joao Paulo, we are going to activate your microphone so you possibly can ask your query. Please, you could proceed.

Joao Paulo Andrade — Bradesco BBI — Analyst

[Foreign language] Good morning, and thanks for taking my query. It is a very fast and easy query. After we take into consideration the growth exterior of Sao Paulo, what are the primary challenges relating to logistics and buyer expertise and even margins, might you give us qualitative numbers or quantitative numbers? What’s your expectation right here?

Jorge Faical — Chief Govt Officer

[Foreign language] Joao, thanks on your query. Quantitatively, I am not going to say quite a bit as a result of there’s loads of — there are loads of issues in our pipeline. Our growth exterior of Sao Paulo in cities the place we have already got operations. That is our first technique.

The saturations, due to this fact, we now have fascinating operations in Brasilia. We even have good operations in Rio. We have now operations in Recife, Fortaleza, the place we have already got distribution facilities and a logistic community to extend the quantity of cities opened in these cities in these areas. I’d say that that is our predominant technique now to open operation the place we nonetheless would not have a logistic community is extra complicated, and this might be a second stage, really, and we are going to begin fascinated by this as of 2023.

So mainly, that is it. I do not know if I missed a part of your query. If I did, please. I do apologize.

Joao Paulo Andrade — Bradesco BBI — Analyst

[Foreign language] This – you are proper. It is glorious. Thanks.

Operator

[Foreign language] The Q&A session has come to an finish. Now, I want to hand it over for the ultimate remarks from our firm.

Jorge Faical — Chief Govt Officer

[Foreign language] Properly, as soon as once more, I want to thank all of you on your consideration. We have now an hour of — and half of conversations. Our enterprise as it’s a Brazilian and multinational enterprise. Properly, it’s extra complicated, proper? Subsequently, I do thanks on your time and your consideration.

Temporary remark. We’re going by means of a low gross sales state of affairs regardless of our restoration or rebound, we’re reacting as a brand new GPA. The macroeconomic state of affairs presents extra inflation. The inflation continues excessive.

The earnings of our inhabitants is recovering child steps. We have now presidential race forward of us. It is a 12 months filled with volatility till we will interpret the electoral 12 months, we are going to proceed amongst oscillations. There are additionally elements that hinder our debt that may be excessive rates of interest, promoting rates of interest are round 11%, 12%.

Subsequently, these are elements with a difficult surroundings within the brief run. Now, that is legitimate for GPA and for the market. This isn’t one thing that solely impacts us. This impacts your entire market.

Now, internally, we’re present process a transition, and we intend to undergo this transition, the quickest attainable. We had a wonderful supply from our staff once we closed the Further, however we nonetheless have 28 and 30 shops to be transformed till the primary half of the 12 months. The transition, the redimensioning of the corporate, decreasing our logistic community represents challenges internally. Subsequently, we’re going by means of a second of exterior and inner challenges.

Now, within the mid run, once we begin fascinated by the second semester, the place transition is left behind the place we can have a extra clear electoral scenario and the restoration or rebound of the inhabitants earnings, we’re reassured with our enterprise mannequin, and we’re constructing along with our companions and shareholders. It is a worth proposition, which is strong, targeted and worthwhile enterprise, targeted on worth to our customers, and we’re completely positive that as quickly because the financial system recovers, nicely, GPA will launch in — itself within the forefront. Along with all of our foundations, we shall be valued one thing that we contemplate honest. I want to thank everybody, thank the GPA staff.

I’m grateful for all your efforts and there’s nonetheless quite a bit to do from right here on. Thanks very a lot.

Operator

[Operator signoff]

Period: 82 minutes

Name contributors:

Guillaume Gras — Chief Monetary Officer and Investor Relations

Jorge Faical — Chief Govt Officer

Danniela Eiger — XP Inc. — Analyst

Marcella Recchia — Credit score Suisse — Analyst

Eric Huang — Santander Brasil — Analyst

Carlos Mario Moreno — Director

Joao Soares — Citi — Analyst

Joseph Giordano — J.P. Morgan — Analyst

Vinicius Strano — UBS — Analyst

Bob Ford — Financial institution of America Merrill Lynch — Analyst

Gustavo Fratini — Goldman Sachs — Analyst

Joao Paulo Andrade — Bradesco BBI — Analyst

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