Sendas Distribuidora SA
BOVESPA:ASAI3
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Sendas Distribuidora SA
Earnings Call Analysis
Q4-2023 Analysis
Sendas Distribuidora SA
The company demonstrated a reliable operational performance with operational cash generation reaching JPY 4.6 billion in 2023, signifying a robust capacity to generate cash from core business activities. However, recent endeavors such as the conversion project and the acquisition of commercial points led to an increase in the company's debt. Despite this increased leverage, which reached 3.8% by the year's end, the company maintained a net income ratio of 1.9x per year. With the project's completion, a focus on deleveraging is expected, suggesting a more conservative financial structure moving forward.
Earnings have shown a positive trajectory with the company reaching BRL 736 million in earnings and a 20% increase in pre-IFRS EBITDA year-over-year, indicative of the company's profitability and operating efficiency. This culminated in a significant 33% uplift in the fourth quarter alone. Importantly, EBITDA remained stable across the board, even after accounting for new market expansions and changes in store geographies under post-IFRS stipulations. The acknowledgment of a stable EBITDA value suggests that the company's core earnings before interest, taxes, depreciation, and amortization are reliable and robust, providing a solid foundation for cash flow generation.
The company's growth narrative is clear as it expanded from 184 to 280 stores, asserting its position as a significant player in the Brazilian market. This growth is aligned with strong cash generation operations, which remain a central pillar of the business model. Additionally, the advancement in ESG, particularly in the fourth quarter, where Assai was featured prominently in the Sustainability Index, signifies a commitment to reducing environmental impact and taking social responsibility seriously. The company achieved significant strides, such as a 10% reduction in Scope 1 and 2 emissions and increased waste reuse, reflecting its sustainable and ethical business practices.
Looking into 2024, deleveraging is prioritized, signaling a strategic shift towards reducing the company's debt levels. While the recent completion of the conversion project necessitated increased debt, management conveyed that the debt levels in the upcoming first quarter should see a decline from the last quarter of the previous year. This implies that the company is transitioning from a period of significant investment back to financial prudence, with expectations set on a reduction in leverage as the company pivots towards sustaining and strengthening its financial health.
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[Interpreted] Good morning, everyone, and thank you for waiting. Welcome to the earnings call for the fourth quarter of 2023. [Operator Instructions] We'd like to let you know that this earnings call is being recorded and will be provided on the IR website of the company at ir.assai.com.br, where you can also find the earnings release. [Operator Instructions] All of the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts and operational targets at Assai represent beliefs and assumptions of the company's management as well as information that's currently available. Future statements are on insurance and performance. They involve risks, uncertainties and assumptions as they refer to future events and thus, you rely on circumstances that may or not occur. So investors should understand that other operational conditions and market conditions could affect the performance in Assai results that differ materially than those mentioned in future statements. Now I will pass on the floor to Gabrielle Helu, our Investor Relations Director at Assai.
[Interpreted] Welcome, everyone, to our earnings call for the fourth quarter at 2023. Today, we have with us Belmiro de Gomes, our CEO; Daniela Papa, CFO, Lamesa, our VP for Commercial VPN Logistics and Anderson Castilho, chief operating officer. Before I begin the presentation, I'll pass the floor to Belmiro for initial remarks.
[Interpreted] Thank you, Gabi. I would like to thank you all for being here in this earnings call as we present the numbers in the fourth quarter of '23. And of course, the closing of 2023 is a full year, which was very symbolic in as history and a year where we have the closing of an internal process with the expansion conversion of our stores. So the numbers we see now in our results during 2023, are numbers that are flat, the over 82,000 employees in our company that are operating in different stores and logistical centers and offices and administrative pensions as well as well as almost a part with the new management within your Board and throughout 2023 Assai became a true cooperation with the exit of the former control shareholder in a year where we have an environmental deflation in the food sector is very strong. So our prospection we ended the fourth quarter in a very positive way. The company is ending the fourth quarter with 16% growth in total throughout the year, where we had no inflation. And as you probably saw, the household inflation of 0.50, ending the year 2023. And the 16% are very relevant as they come along after the fourth quarter of 2022, where we had a total growth of 38% due to the fact that the growth in the fourth quarter of 2022 had an important cycle of openings with 38 new stores opened in the fourth quarter of '22 so the 16% really makes the company at the end of the fourth quarter reached a level of growth of 60% in 2 years. So when you add up both years of growth, and this is representing the growth of the fourth quarter represents an increase of BRL 2.7 billion, which were added on sales. The fourth quarter continues its process for expansion of the 27 stores opened last year and 12 of these were done in the fourth quarter. And then with this, Assai ended the year with 28 stores under operation. We're still missing 2 stores for the closing of the extra project, the main stores have already been opened. And in our vision, we'll provide some more details, the number of this imported project would be conversion from the perception of results and earnings and also the achieving of new customers, considering it as unique positioning demonstrates the company is really on the right track to perform this project, making us have a growth of almost 60% in 2 years and almost 90% when you look at the 3-year period where you actually had a strong cycle of expansion and new store openings that the company went through. So what we've seen throughout this fourth quarter is an improvement in the fourth quarter over since the second half of November. At around 2023, we saw an environment of deflation debt among consumers, greater caution to have the volumes of purchases but especially B2B public that at this moment when you have a drop in prices all it becomes a little more cautious with how they're going to set up their stocks, which impacts the volumes in the second and third quarters, and this is not repeated in the fourth quarter. So from the second half of November, we already noticed an improvement in volumes, and we ended the fourth quarter with a progression in sales of approximately 3% and an important market share gain in the fourth quarter, but also in the end of 2023 was a positive combination in the fourth quarter of growth in the sales of the same-store base and tickets as well as the volumes. And so of course, this scenario seen throughout 2023 makes us have cash & carry in Assai-3 not being immune to the economic scenario when it comes to debt in the families and the trade downs. But in our vision, they also got benefits when we look at the gains of customers and the amount of tickets that are performed. In this scenario, a more difficult and complicated economy, we can see that customers start searching for our channel as a source of supply. Those customers that need to keep their supplies in their business, but also families that are searching for ways to save even in a period we have a drop in inflation, the volume of purchases were replenishment and home supplies kept very strong in the growth rates. So we ended the year with the growth of those markets as very positive, 79 million tickets in this fourth quarter, a total of 290 million tickets. And this represents a store flow of approximately 420 million people throughout the year '23. And from this volume, 45 million of people have been visiting our stores ever since December. So just as of all know, we went through an intense store opening process, organic stores, but all of our conversions, alongside this process, we also had important changes in our business model changes that, in our perception, keep the characteristics of us of Assai having a strategy and it's quite bold, anticipating any changes in the market and especially anticipate any purchase trends and movements in the end customers. So the penetration has been even greater in the Brazilian households and customers. And it comes from the strategy, the conversion process with actual stores and our entrance into more central regions to be closer to the mid- and high-income public and closer to customers that are in the food service sector was a strategy that was very precise. The innovation of the batteries and the coats and bakeries increasing service levels and improving customer service made us in 2023, have one of the biggest achievements in the year because we became the company for physical store commerce regardless of the sector most present in Brazilians households, we were able to reach 1 in every 4 households that are currently in Brazil. In some cities and regions, especially in the Southeast and major regions, we are already close to almost 50% penetration in the households, and we've been able to enter new social levels as well. So this combination and change in the business model, especially including new services, stores in more downtown regions and an increase in occupation costs in these stores also represented a possible issue where we were to lose the cash in care model, but I think this is very strong in the fourth quarter when we've seen the efforts in the team through grinding productivity gains, ongoing maturity of the stores. And due to the strong process and the expansion we went through, but also the culture in the company, which is a low-cost culture, searching for ways to do more with keeping up a strong balance and the Brazilian's experience really is demonstrated to the drop in expenses and expenses have a reduction compared to the fourth quarter of about 90 bps considering the productivity gains we had and the fact that the stores open and that cycle of new stores opened in the end of 2022 is already in this process for maturity. And this team effort made us have a better level of expenses, which also allowed us to invest more in our competitive advantages, especially in the stores that are reaching maturity. And so this is a reflex of our strategy. We had this impact of 50 bps and this is also impacted by the smaller volume of openings. As we can see, a strong expansion cycle, which increased the gross margins. So as you can see in our earnings release and this presentation, we're really focusing on our pre IFRS vision, considering that this in that perception reflects our operational performance better because it's a lot more connected to the cash generation, and it's the EBITDA that's already considering the lease. And when we close the fourth quarter, we reached 6.1% a nominal value that's above our increase in sales and especially considering that even with the impact of the second and third quarter at the end of 2023, brings in an EBITDA in a pre and post-IFRS vision that is really connected to what we've seen throughout 2022, fulfilling the guidance provided by this administration at the end of last year, where even in the environment we were in with deflation that could impact the EBITDA at a preoperational level. This would be stable compared to last year. And so the company, as you all know, went through a very important cycle of investment, but the total amount of investments in the years over BRL 5 billion through to the carryover we had with the CapEx of the stores overcut and all the rest of the payments as well that we had to be made to GPA, which ended now in January 2024. But the company, even in this process with strong expansion that's almost doubling in size, almost 60% growth in the last 2 years. The company kept its strong cash generation. And this operational cash generation reached JPY 4.6 billion in 2023. And we all know that the execution of this conversion project and the acquisition of the commercial points the organic stores and the investment costs increased our debt levels and Danny will talk about this a little more. And it also pressured the financial expenses considering the level of leverage in the company, but even with this entire cycle and a strong opening process, the net income reaches 1.9x and a total per year of 1.2%. And at this moment, when the company gets back to the closing of the project focused on deleveraging. This is a line that we think should have a strong increase from now on. You can advance on to the next page, please. So we did bring in a bit of this, considering the magnitude and relevance of the project, how the conversion network has been behaving. Now of course, the shift in it was important. And it's the first time, I think, that Cash & Carry cavity get into major regions in big cities and locations where due to restrictions in the real estate market and difficulty to get approvals. It becomes very difficult to add this organic store throughout 2023, even with this environment and this is not only the SELIC rate or the higher interest rate we see. So we have an average revenue of $20 million going to $28 million in the end of the fourth quarter, which is very close to those 3x we had mentioned, which was the objective for the company. And in our perception, we still have a lot of ramp-up and growth in our sales. So when we look at this in an isolated way, only in the food side to perimeter since we also don't sell home appliances, which is something that hypermarkets had it very strong. This multiple can reach over 3.8x, very close to the target of the project, which was about 3x more. So another behavior is that the growth in sales was also accompanied by maturity in the pre-IFRS and EBITDA vision. And as we all know, these stores do have big occupation costs that's higher. And so they also have an average ticket that's a lot higher. There's also the issues with the commercial galleries as we should also bring some important profitability gains leaving 2.6% in the first quarter to 5.6%, which is in the closing of the fourth quarter and also very close to the legacy network that here, we want to remind you that the higher cost is already affected in this margin perspective. So once again, covering the EBITDA pre-IFRS and also in the post IFRS business, which is the base for cash generation in the company. You can see the evolution of the maturity, we expense participate and the consistency and efforts of the commercial area, the get the product mix, which is very important to ramp up the stores, commercial dynamics, communication in our marketing teams, promotional campaigns. And then at the end, you can see this positive set of factors. And this also makes the company have an important leap in its growth, demonstrating how these conversions and how this expansion has been very precise, even though it did lead to a higher leverage level than what we imagined in the beginning of the project. So with this, the value of the EBITDA is completely stable. We've been with 115 stores. This percentage is quite stable. And we have an increase of 20% compared to the previous year and 33% when we look at this fourth quarter. So the post IFRS EBITDA also has a shift in geographies inside stores already operating and the leases we have are already completely operational. So now I would like to pass the floor to Danny as she talks about the net income and our leverage level.
[Interpreted] Good morning, everyone. And now we're going to move on to Slide 5, where we get into our earnings and our net income. So in the fourth quarter, our earnings reached BRL 736 million. And if we exclude interest on the liability on the lease interest, the results reached almost 2.6% of the net sales and BRL 478 million. So this increase is about a bit more than BRL 200 million year-over-year. And in the full year, we have a financial result of BRL 1.8 billion and BRL 800 million more. Now when we get into the effect, the main effects, we can see a bigger volume in the gross debt, especially when we consider the maturities of the debts and the commitments in 2023. But throughout the year, we were able to have a PRI in July, and we had some fundraising for the maturities in '24 in December and some other debt rollout processes that we also operationalize. So then we also have a smaller effect from an accounting perception, which is the capitalized interest due to the final phase of the conversion project. And in the quarter, we have a capitalized interest that's lower, and all the rest is in the IFRS 16. And in the year, this effect is over BRL 400 million and in the cost of the net debt is BRL 344 million.So in the year, we have the impact of the average interest, which also affects our debt and went from 12.4% and '22 to approximately 13% in this average interest in '23. So these are the main effects. And of course, we have an impact in our net income, which ended the quarter with BRL 3.3 million and the greatest level in the year with a margin of 1.9% with all of the seasonality in the quarter. And we also had operational leverage that was very important in the quarter as it was very positive, and we have the quality of expansion maturity of these 115 stores in the last 3 years also helps a lot and leads to this net income in the quarter. So with this, we can also demonstrate the resilience of our business model and even in a context with deflation in '23 and interest rates so high. And in our year, our profit, which is BRL 776 million and a margin of BRL 1.2 million. Then we reached the cash generation side and leverage. And so as Belmiro mentioned, BRL 4.6 billion and this is a growth of BRL 453 million year-over-year. So this result comes from the growth of the pre-EBITDA that grew 20% leverage by everything we had already discussed with the sales growth, maturity of the stores and the control of expenses, as you mentioned, and it's important to highlight the improvement of our cash cycle, which, at the end of the day, is translating into our need for working capital. And we can see this generation is sufficient to fund all of the investments in the expansion and the payments. And however, we still have this high level of interest that affects the cost of the debt of BRL 1.8 billion. So we'll end the year with a net debt of 13.1% and our leverage reached 3.8%. And the results you see on the blue line of this graph, the 3.8 and this leverage came above what we expected, especially due to this operational generation and everything we mentioned with the maturity. And we had mentioned that in the Investor Day, we had talked about how the leverage in in the end of '22 was representing a reduction of 0.3x. So this drop of 0.6% year-over-year is even higher than this sign presented data. And so here everything we've seen from analysts, we get really surprised. And when we consider the leverage as between 0.8%, 0.9% on receivables, and this number includes the receivables in the company. When we look at the grey line, we have the vision we presented here that we norms to disclose until the second quarter. But here, we don't have the receivables and also the payment of the commercial real estate and also in '23, we paid BRL 2.4 billion in the installment and the acquisition of a commercial stock. And in January, we already paid off the last installment, which was BRL 900 million. So in the concept of the covenants or financial contracts, our leverage was 179, which was a lot lower than the limit we have 3x, which represents a difference of almost BRL 6 billion compared to our very comfortable position with our covenants. And so when we get into the deleveraging process for '24, it should be continuing this process to intensify the deleveraging of the company with an ongoing and growing cash generation and the end of the payment as well, as I mentioned previously, as well as a lower level of investments that we have for '24 or 15 stores due to last factor that contributed to the deleveraging, which is also a lower level of interest in 20. So now I finished my slide here, and I'll pass it on to Belmiro to finish our presentation.
[Interpreted] All right, Danny, thank you so much, and I'll go back to highlighting what this 3-year period was all about considering we had the decision to search for stores in downtown regions include more services on this happened in 2020 and 2021. We had a whole other reality in interest rates in Brazil we knew that it was a low rate, but the movement we had that was quite old and strategic to position new stores, demonstrates projection of Brazil. That was a very positive movement. We had a strong level of investments the company invented the cost of debt and what we already had in previous debt, we total amount about BRL 16 million, but the company was able to generate over BRL 11 billion. We have a strong cash generation operation, and some of the important milestones in the company, and this makes this level of leverage fund a project at the beginning, mid and end. And when we complete this project, we'll start seeing the deleveraging process in period. But all of this allowed the company went from 184 stores to 280 stores with BRL 39 billion and over BRL 73 million as one of the biggest companies in Brazil, one of the biggest private employers in Brazil, and we're able to keep our strong cash generation. So in '23, although there have been turbulent in the year and the maintenance of the pre IFRS EBITDA really gives us the certainty interest on the strong deleveraging trend we're facing in the near future. We can move on. About ESG, as we also need to highlight Assai in the reference, we had many highlights now throughout the fourth quarter. And Assai was kept very present in Sustainability Index. We also kept our carbon efficiency index. We had in advance of over 10% reduction in the emissions of Scope 1 and 2, with an increase in the reuse of waste. I want to thank all of our sustainability team and different departments involved. This is all part of the culture of the company and part of our business model within the decisions that really made the company keep on a sustainable trend, but also be sustainable when it comes to social responsibility in our role of responsibility with over 480 tonnes of deleveraged over the social organizations. Some work that continued in 2023. Besides the strong work we've done during the period of pandemic with all of the efforts that Assai performed in the committees in Brazil. But we also had an important SEO, which is available on board. We have important advances to be made as well as the inclusion of people that are over 50. So the indicators in the company, of course, represent ongoing improvements, and they had an important evolution of 42% of black individuals, 25% women in leadership positions. And the amount of employees that have disabilities, which is about the legal quota minimums 5.4%, and that's an important achievement with a company that's over 82,000 employees. This year, you'll see in the report as of our strategic pillars in this revision of the work we've performed. And this is all based on 3 pillars. So the operations that are efficient, we just see our climate impact, of course, always promoting the guarantee of responsible supplies, continuing our work with the development of people and communities that where we are present in a country that has a lot of social inequality like Brazil and a big difference from one reason to another. And then, of course, we always try to encourage entrepreneurs, and we perform many different projects with the Assai Academy, and we try to also implement a very entrepreneurial vision, of course, keeping the ethics and transparency in our business based on the best practices mentioned in the overall market. Moving ahead in 2024, we have a strong focus to deleverage. We've been highlighting a conversion project, which had the beginning, middle one end. And now we've completely finished in the last part of the stores of the installment we had to pay we paid in January. But the level of debt in the company in the first quarter should drop compared to the fourth quarter, which allows us to set a positive secure in the leverage position, and we expect that at this moment, we'll see a reduction in the leverage considering the indicator index that we had already highlighted in the Investor Day we had in 2023. And this is due to the fact that we ended our payments to GP. We have a reduction in the levels of investments and expansion. We have 15 stores expected between '24. And so we have a huge difference when it comes to the level of investments the company performed in the last few years to this level we're in now. And when we add this all up alongside what we've already seen in the fourth quarter, the growth of the sales maturity of the stores, leading to greater cash generation combined with the rate that's also part of the expectation the reduction in the interest rates today that allow us to have improvements in our net income and also the reduction of the financial cost and deleveraging of the company. So when you look at the macro scenario, you can see the levels of expenses we delivered in the first quarter, which are, of course, a result of the operational efficiency, and they're sustainable in the long run. And then, of course, the company will continue to balance of its competitive advantage the ramp up of the stores, and this will also lead to an abolition of the EBITDA margin in 2024 compared to what we had now in 2023 with a series of opportunities with profitability of the assets as well as in this network of stores. We have a lot of stores. And our maturity and this gives us the opportunity to explore our galleries better and include new categories of products adjustments in the evolution also in the service areas. And of course, we can estimate a scenario that's more positive in '24 than what we had in 2023. Besides our continuity in the strategy. So from my side on the presentation, this is pretty much it. I'll pass the floor back to Gabrielle Helu, our IR Director.
[Interpreted] So thank you, Belmiro. [Operator Instructions] Our first question comes from Thiago Macruz from Corretora de Valores at Itau.
[Interpreted] My question is related to sales in the beginning of the year. We've read some feedback that the return of the food inflation has helped with the sales in the beginning of the year. But I wanted to ask you guys, if you guys have experimented something like this, if you guys have seen this happen. And if there is an expectation of a possible recovery in the stock levels of the B2B customers, do you guys consider this to be reasonable that this would happen in the next period in 2024. And finally, a great work controlling expenses this quarter but I just wanted to understand, if we can imagine that this is a whole new journey and that these expenses really changed in the levels they had before.
[Interpreted] The beginning of the year has been a lot more positive and in line with what we saw. And the fourth quarter was a little more positive also. And now we want to pass the floor on to Walmir we talked about expectations for inflation and stocks and others to also talk about our expenses as we had an important reduction in the fourth quarter. We invested more in our competitive advantages and have been working on being more aggressive in this process. And this is really connected to expense discipline, Walmir you can start.
[Interpreted] Thank you for the question, Thiago. When it comes to question here, we have an expectation this year of about 4% to 5% inflation. We still see a scenario of volatility in commodities, which is a reality ever since forever. But when we look at the industrialized products, we have an expectation for inflation. But of course, the inflation helped in the first days of the year. So just as we grow in our volumes in the fourth quarter, this is something that's very important for us because customers are buying at the same store base. And so when we looked at the stock in B2B, we still have to be a little bit careful. I believe that the purchase moment taking care of the working capital, the small entrepreneurs will be kept. I don't think we're going to have like greater stock than normal. But of course, the improvement in the sales and the economic scenario will make them by greater volumes. But I don't think we're going to have any problems with this. Now I'll pass the floor back to Anderson, so he can talk about expenses.
[Interpreted] Thank you, Walmir. I think expenses are a big highlight, and it demonstrates our discipline in our team and the stores. And we know it's always about controlling line after line. So we have another point that's very important that we mentioned with the maturity of the stores, we worked over 60 stores last year plus the year before. And we still have important productivity gains in the stores with the value proposition we presented in our stores in the past few years with more services like pottery, cafes, all of this really brought greater maturity and experience and lessons learned. So this helped us control more of our costs, so it can be a low-price operator. So we think this cost reduction is sustainable. Of course, we always have to control the expenses on an ongoing base. So we always have to be as efficient possible to be able to keep our expenses in line. And so I think it is feasible, and we are super controlled when it comes to expenses, but I think that may afford with the team is to store productivity being more efficient so that we can keep these levels of expenses low. And I think that's pretty much it.
[Interpreted] Our next question is from Felipe Cassimiro, our sell-side analyst at Banco Bradesco BBI.
[Interpreted] First question here is, could you give us a little more details on the drivers and the drop of the gross margin in the fourth quarter, just so we can understand the trend up ahead. So the fourth quarter is very seasonal. And this time, the gross margin went below 17%.
[Interpreted] The fourth quarter has 2 combinations of factors. We were setting from our operational efficiency. So as we saw, we would have an important reduction in expenses we had a mix of investments in advantage. We also have an impact from the previous year, considering that the stores we open up in the end of '22, considering that we had a new mix of services and many different agreements with suppliers as well will further strengthening. And we want to consider the drop in margins, we have approximately 0.40 or 0.30, which would be equivalent to the agreements with the store openings and the fourth quarter of 2022 was had a huge amount of stores open, especially actions where we had some important renegotiations and we highlighted in the call that from a deadline perception and also support the suppliers we have achieved some gains and our perception is positioning brings us an opportunity that's very important to have a lower cost format and large sales for individuals and businesses. So obviously, having a cash & carry store, such as the Golgotare store. When you have an amount of almost 10,000 SKUs and so this also represented a lot in the fourth quarter. Always, we just have to expect to maintain the gross margin, then they also have the store maturity. So you have a big amount of stores still. And the objective of these stores, the main objective is, of course, to consider our EBITDA curve free IFRS will always search for sales improvements, and that's why it's going to be more important than expense. So there's also an effect in the gross profit as we search for ways to be more competitive. But we do imagine a stable level on the gross margin.
[Interpreted] Okay. Perfect. And then my second and last question is about CapEx. We think this has been a very recurring topic. And in the last quarter, we saw EUR 80 million per store. I think this was in the year. So is there another initiative to reduce expenses per store in the next 2 years, for example?
[Interpreted] Yes. Okay. Thank you, Filipe. We do have initiatives, and I think we also have to look into the fact that we have the store conversions. And when we look at this, we have had quite a bit of expertise with the conversions. We had in an initial batch. But Assai was still a GPA subsidiary and stores that came from extra stores for example, store has over 40,000 square meters built areas. So these stores have a structure reinforcement process that is more expensive. This normally doesn't happen in an organic store. So there's, of course, pressured the investment line with the amount of ABLs or the actual stores and gatherings we have at the stores. But what we try to do in the conversions of these stores is that even if there was an investment, they would have an OpEx to maintenance level that's just as an organic store work. So we didn't leave anything for later when it comes to execution. Even though we would have to handle a higher investment, we could even postpone certain services that would have to be done a year or 2 later, but it would be a lot more expensive to do this with the store open sell the switch of the fire-fighting system, which is different, but especially when it comes to the stores that require higher investments, considering the size. So this amount, of course, changes a lot according to the store network. And then you also have the exclusion of organic stores, which are stores with a big area. We have stores that are being built with over 15,000 or 16,000 square meters plus the hypermarket. So yes, there have been many initiatives to reduce CapEx. We had a really high cycle due to food and also construction materials, but also other equipment like pallet ports, metals, air conditioning and fire-fighting systems that also were impacted. So this is also connected to the size of the stores. If you notice our average sale per store, how that grows as well. So this is connected to the size as well. If we have a store that's 4,000 square meters, it's one amount or 9,000 will be another amount. So of course, it's the high investment, but we must also consider that this store network adds on an area in the sales area, but also the contracted area, gatherings and especially taking areas. So a lot of the projects we have for the new stores are mainly because, on average, an organic store have 400 parking spots. And the stores that came from extra had an average of 800 parking spots. So this allows us to work in other categories about bottlenecks that we would see in certain cash & carry stores where there's a lack of parking spot on the weekends, for example.
[Interpreted] Next question is from Vinicius Strano he is our subside analyst at UBS.
[Interpreted] You are presenting major evolution, the maturity of the conversions stores, but I wanted to know more about the organic stores. So for example, do you think you could give us a little more detail on the performance of these stores, the legacy stores compared to these conversion stores? And any comments on same-store sales or possible cannibalization in stores and any kind of perception towards the future about the store network would be great. And another point also that called our attention, in the quarter, it was a reduction of the stock level. So could you also explore some of the drivers in the stock improvements and how we can consider the dynamics for working capital up ahead?
[Interpreted] I'll start answering, and then I'll pass it on to Walmir to talk about the staff. So cannibalization was something that we already expected would happen in the beginning of the project, although it was low in our perception due to the fact that historically, Assai will not have stores close to where the extra hypermarkets were because we used to be part of the same group. But even so B2B customers that represent about 40% of our sales, and these kinds of customers sometimes drive a little further to find cheaper prices. So customers sometimes would buy at a store [Indiscernible] , which was organic, then we now can buy closer [Indiscernible] we had an impact of about 2% to 3% of cannibalization in the legacy network that was impacted by the extra project, which was already expected by the company's numbers. Part of the same-store sales, you have of the stores that already material influences it. So most of the store openings that were done in '22 in the fourth quarter took place in a sequential manner between October, November, December, so most of them in November, December. And this should be a higher impact on our same stores with the first quarter of 2024, but the legacy network is still stable. So when you look at the fourth quarter, if we were to exclude the store maturity factor, we still have the same store that's positive, of course, not in the total amount that we presented here. But what's important to highlight is that for the store network converted that use the expertise we have the organic network, but also the organic start now it will also be benefiting from the conversion project act. So most of the services, including an as I mentioned, that were highlighted within the extra store network will now be replicated also in the organic store. So same dynamics of category even other realities of suppliers and commercial conditions that also benefit the organic network. So the legacy stores organic stores also receive benefits from the extra stores. Even if we just consider the maturity effect, there was still a positive impact, although it's still a small percentage. So cannibalization is in line with what we expected. The expectations for '24 is that as most of the services that we included in the organic stores. We saw a big batch to be delivered will also lead to growth in the store network before the extra conversion project. And I'll pass the floor on to Walmir just talk about the stock a bit now. Well, I will answer the rest of this, but I can give you a little bit of the inputs on the stock. I think Walmir had some issues, technologies, but the stock has like a normalization line in the fourth quarter, considering that especially in the end of '22, with the new stores, you open up with a higher amount of employees and stock and a high level of expense, bad margins that are lower growth. But when you look at the pre-EBITDA curve that we demented throughout the quarter and the first time we show this kind of ramp-up due to the importance that the conversion stores had to investors, but this also happens in the opposite side of the stock until you balance things out between categories, product mixes, well, we sell more in one store or the other makes you have to have a higher stock initially. But in our vision, now we reach the normalization and level that is sustainable for stock levels. I hope that's clear.
[Interpreted] Our next question is from Luiz Poli Guanais, our sell-side analyst BTG.
[Interpreted] My question is about competition. Could you talk about this competitive environment from the end of last year as well as the beginning of this year with that scenario of the acceleration of the inflation that you mentioned at the beginning of the call, but also hopping into the second question that's related is, if you could help us think about this growth at a marginal level, when we consider this year and the next years as well, what do you think will be taking place in the share gains or productivity gains? And now you also mentioned some initiatives that are taking place in the stores. So if you could mention this.
[Interpreted] Okay. Yes, sure. Thank you, Guanais. What we expect is when we look at other competitors in cash & carry, the value proposition is very unique compared to the rest of the market. And so when it comes to entering higher social levels and also supply of B2B customers good service where we have high focuses. Our vision is that this will help us attract customers from 3 different segments. Competitors offering the same format as us and also have an unfortunate impact in the retail processes considering that these new stores including cafes, high levels of service, lighting, cleaning makes the store become more attractive for the replenishment purchases as well. So we've seen this increase in the flow, especially in these stores that are more central in the Extra stores with very strong customers coming into retail, but also in the supermarket. So we also see another factor that supports us and helps us with this, which is the increases in logistical costs in Brazil, which if you've seen in the last year, there was a decision of the Supreme Court about the measure of the new truck driver law that also impacts a series of obligations in companies and industries that operate store-to-door that makes the advantages and logistical costs for delivery door-to-door, especially in big cities, making us become more attractive for these B2B customers that buy with us that also have an advantage of not having such a big working capital demand. So competition is always very intense. The sector went through an intense movement with high growth with regional players. And in our vision, the numbers we saw in the fourth quarter demonstrate that although we're in a challenging environment with more competitive scenario, Assai was able to reach its levels of sales per square meter and cash generation makes competition adjusting its policies and trying to find ways to find the best performance in the market but the market is always very competitive. So this, of course, support from innovation. We do have a difference in inflation rate in 2024, but that's not that relevant, especially when we take a look at the beginning of 2024, gains are coming mostly related to volumes than inflation. And this also allows us to estimate that the actual consumers and customers would have a little more resources, considering that we've gone through 3 years with a huge trade-down effect switch in brand and product trade downs, which is about 10% to 12%. So we do expect an improvement in the economic scenario and the interest rates that are really high at the moment. But part of this will also allow us to capture what we've seen at least now in the beginning of the year.
[Interpreted] Our next question is from Felipe Rached sell-side analyst at Goldman Sachs.
[Interpreted] I wanted to start off with a quick follow-up on Marcuz's question at the beginning of the call to get into more details the line of personnel, seems to have grown way below revenue. So I wanted to get into a little more details and that we should consider. And any details you can mention would be great. So moving on to a different topic here in the Investor Day at the end of last year, we talked about some initiatives and to increase monetization based on this initiatives you already have. And so when you consider this process, commercialization of the division spaces, but also some aspects related to financial services. And so maybe creating new products, considering receivables of B2B customers, credit in the stores and other initiatives that are very interesting. I want you to give us an update on how you expected initiatives to move on in 2024. This is a different focus. And any other details would be very important.
[Interpreted] I think I'll be talking about the new services. Some of these have higher levels of prioritization. So of course, there's a series of new initiatives, and we should provide some new visibility and we should also see the possibilities of gains and also execution. And we'll have some more solid data. But of course, also from the perspective of exploring some CAGRs and products, we actually almost finished the refurbishing work we had to do now with the starting process of the increase of growth. And this will also help us with the allocation of this space. There's an intention to explore these advertising spaces. So we can also see that in December we had 45 million people coming through our stores. And in total, we're talking about 450 million. So this represents an opportunity not only to explore major stores, but also stores that have big spaces and for the advertising media and not only for our supplier, which is the Nestle products, et cetera, but even for companies in other segments. So considering also customers in Class A, B, C. And so yes, the company does expect to raise importance of revenue. And of course, in the maturity phase. The main focus initially was to guarantee the execution from a product sale perception, and that's the core then now we'll start seeing a focus of having a bigger volume for expansion. And this also leads to a possibility of having more maturity in new categories. And so that Assai can continue being a reference. I'll pass the Anderson he can talk about productivity gains as well.
[Interpreted] Actually, when we look at expansion, we haven't seen major volumes open. But in every store we open, we have like to full. And the expectations as a new team, it's an experienced, but we always look at good level of service, which is a concern we have in our operation. As we mentioned already previously, we tried to find in this value proposition ways to stand out. And so we consider that we do have a big differential in this model. But of course, we had the experiences and the maturity and lessening in the new services. There's no major structure change. Actually now, I think we have a value proposition that is very positive already. We're going to focus on providing excellent services to customers. And when you open up a store level, maturity requires some natural changes and adjustments at some moment or another and the store that sells more you position more people there if the store sells it like to adjust the team. But at the same time, we have a lesson learned and gains in the productivity in the operations. So I think we've been maturing positively. And we've been working on this team to deliver more productivity. And the main point is productivity, scale gains and so that we can deliver better services. So that's what we've been working with over the years.
[Interpreted] Now moving on to next question from João Soares, the sell-side analyst at Citi.
[Interpreted] First of all, I wanted to hear from about you in regards to the organic expansion. And also when it comes to competition, one point, I thought it was interesting, is that you mentioned bringing customers from traditional recap and attracting the people. So where do you see bigger opportunities, which states or markets do you think you can attract the kind of customers to do like the one shopping off of the replenishment shopping and explore how we can see this mix evolving between B2B customers and B2C customers? And the second question is also about the CapEx. I think it's clear that you have smaller CapEx when you look at organic versus conversions. But I wanted to understand if we can quantify this, and we have a number of about BRL 70 million I wanted to understand how you can compare this up ahead. And what's the sustainable levels of the CapEx per batch.
[Interpreted] So for the organics store network, Assai and all of the players in Brazil is one of the players has the biggest expertise. We have a store of 1,000 or 100 square meters of adjusters to 10,000 with all the differentials that this brings. So we have a group of stores that we mentioned in the Investor Day and also other opportunities. And we can see that we have stores that are different sizes. So to give you an idea on the organic store network this year, we have stores that are 4,000 meters but others that are even bigger or smaller. So in the Southeast, the expansion here is really well distributed, but we have other expansions also in the North, in Macapa, Pelen, Manaus. And so even in Barueri, we have stores there. So want to highlight that the expertise to operate allows us to have a broader perception when it comes to organic growth. So we're assessing projects that have 3,000 square meters and others that are 8,000 square meters. So the search for these kind of customers really grew with the inclusion of these new services other location stores as well. So most of the expertise with the access stores will help us in the organic expansion as well. So we're going to be opening up the store in [indiscernible] which is the first store in the region of 400,000 habitants. And so even in the Southeast region of Sao Paulo and Regeneron, we have major opportunities for Assai. In the other network stores in the Northeast and Northern Brazil, where Assai has already has a pretty good level of penetration, but there's still room for growth, such as Manaus, Pelen and Macapa. But as you balance things out with these stores and you bring them into more downtown regions with a bigger offering of services, cash & carry also stops being search for only for like monthly shopping. So we've seen a bigger search for smaller shopping as well for customers that used to mix our channel with other channels and even for customers that aren't used to performing big purchases. So what you look at is public worker government workers or people that receive monthly salary buying a big monthly shopping is more interesting. But there's also a lot of people that are informal and they buy daily, right? They don't have like a monthly salary. So we can also service this kind of customer now as they are used to buying smaller purchases here and there. So our objective is to continue to penetrate about 25% penetration demonstrates this. And for CapEx effects, there's a big variation. So the project also has some variations in the sales area, organic stores, we should still be working with the BRL 70 million, as mentioned, with the projects that we expected for this year in 2024, where we held on to a few stores. Besides Guarulhos, we also want to highlight the such dances we're going to be doing the reopening now with the store in Vila maria, the first cash and carry in Brazil and that we were able to renegotiate, it's a very important store as well, we also have project for our store in [indiscernible]. These are other store that are very heavy when it comes to investment perspectives. So what's the balance point for this project, right? The ROIC when we look at the invested capital versus the expectation for sales and what we've done in cash versus working capital in these stores. And we should have a network of organic stores, that's going to be a little more mixed. So not all stores that are like 6,000 meters, 7,000 square meters. So we would see stores at 3,000, 4,000, and we see that there's room to continue to advance. I think the answer was a little long here, but I hope that was clear. I wanted to give you a little more info here.
[Interpreted] So maybe just a focus here. Do you think this greater investment versus competition, you guys have been investing more. And I wanted to understand a bit of this dynamic comparing with other players. So we see values that are a little smaller for some players.
[Interpreted] In organic stores no, because if it's a comparable project, I don't think there's going to be a difference in the value between what we do or what another player could do. For organic stores, it's a lot simpler. Then you have this variation according to the size of the project that we have a project for stores that are a lot greater. There will be a big variation. So if you consider from a construction project perfection, it's going to cost maybe BRL 30 million. So to not only look to the average investment per store yet look at the average -- well, is it possible to have a start with BRL 40 million? Yes. There some stores that are going to cause that. But of course, the volume of sales in the store is not going to be the same as a store that maybe cost $70 million or $80 million to build. So the Juarez project is the big store, there is our first store there in Juarez, it's a store that we expect to sell about 380 million to 400 million units. So that's really important to look at because we always have to consider the average revenue perception perspective per store. So we have 280 stores with over BRL 20 billion in revenue. So in the conversion, yes, we do have a great investment in CapEx in stores where you have a conversion of a store, you're going to choose the stores that require less investments, which are on the ground level stores or smaller stores. So in the Extra network, when we looked at the competitors, for example, that the hypermarkets before that were ground-level stores, the conversions cost is lower than the conversions cost store that's on multiple floors where you have underground parking all this. So the cost increase the load on the floor in to 3 or 4 tonnes is a lot higher, which is what we require in our store environment. So what this estimates is the expectation and how this is there can only be an isolated metric, right, per store.
[Interpreted] Next question is from Ruben Couto our sell-side analyst from Santander Investment.
[Interpreted] I think all of my points are already covered, but I just have a last follow-up here on the discussion of expenses to give us some tangibility here. Do you think you can quantify the relevance of the preop expenses in the fourth quarter of '22, where you had a lot of store openings? And comparing this with how much this was now in '23.
[Interpreted] Well, in '23, it was very low. In '23, you had pre-op expenses that were impacting of course. I wouldn't be able to quantify this, but I think Gabriella can send you this information later because in '23 it's not that relevant, in '22 it is. In '22, we had an impact of our expenses also we already expected that in the fourth quarter of '22, there will be an impact. So then you have the effect of the store ramp-up on Assai one of our 14 stores to 288 stores. So with Zitney, year-over-year, we were adding on a new store network. But of course, the proportional level as ever that significant as it was in the end of 2022. So margins that are lower all of this, of course, reflects the ramp that was expected. So I think that in 2022, we had about 0.70 or 0.50 bps of preoperational expenses that I think Gabriella can get back to you with this information in greater precision. And not only pre-out also there is another aspect that we also highlighted. But because we have new stores, you have costs that are a lot higher at the beginning of the operation, and you're searching for ways to attract customers in stores that are more out on downtown regions. Customers also have a sells curve that is gradual. And then, of course, you have to work with this higher expense level initially.
[Interpreted] Yes, I can also getting the rest of the information with Gabriella later on. But also, I think this point really caused our attention, which is where these expenses actually helped you guys to make the decision to invest a little more higher competitive advantages in this quarter. And I think this is a pretty different dynamic compared to what you guys were discussing throughout the year where the elasticity and price investments wasn't really bringing major returns that would be equivalent. So you guys weren't working on this that much. So could you notice what changed from now on to have this elasticity? Is it something related to the profile of stores and the socioeconomic level?
[Interpreted] Of course, we were balancing out this process throughout the quarter, but the perception in the fourth quarter, considering that we already estimated this cause the volume of sales where you would have a dilution in expenses and that we would have room for investments. And so you can notice that there's more caution from customers throughout the entire year. In December, you have the facilities. And of course, we have parties and celebrations. So if there's a moment where you could use the strategy, that was a little different. The investments that we had in markets and prices, you would sell at a lower margin, but you wouldn't bring any effect on the volume. But in November, with the entrance of the monthly salary people received and also in December, this equation may be a little different, and that's what happened. So it was really supported by the lower expenses with the stores in the conversions.
[Interpreted] The next question is Alexandre Namioka, analyst at Morgan Stanley.
[Interpreted] I think most of the questions are already asked answered, but I wanted to talk about regarding the forfeit fee. And in the fourth quarter, it was $1.5 million, and this was related to suppliers of products, but then when you compare these 1.5% or 1.1% compared to the numbers that you guys have provided in the third quarter, we can see that there's an increase in this forfeit factor, and this is mostly related to the point with products. So I just wanted to understand if the effect for the third to the fourth quarter was something that's more seasonal or if there's something different involved that impacted this.
[Interpreted] Okay. Great. So this is not our decision, supplier that decides to do this with the deadlines and contracts in terms, but our suppliers, of course, obviously, this is selling where they can decide to discount this, which doesn't depend on our agreement. We registered these operations, so our perception is that we have high interest, cash position is tight for everyone, and it's natural that these players will have an increase of their volumes, discounts to be able to handle expenses in the end of the year, especially in the 13th salary. So this is an operation with the supplier. So we just monitor these activities, considering the agreements we have, but this is a decision from the supplier as well as. So the discount on receivables is under all this kind of operations in the history, right? So it's something we created in the market, but decision at the suppliers and so that they can define the anticipation. And so we search for this with the banks we have agreements with.
[Interpreted] So our last question comes from Joseph Giordano, the analyst from JPMorgan.
[Interpreted] So I wanted to explore this issue with the price what you guys have seen as a gap and we've been starting to see how Assai is transferring less prices as the main competitor, a lot more in line with the transfer prices from the regionals. So then the second question is about the working capital. We've seen an extension of about 10 days, excluding the forfeit and also the suppliers. So I wanted generates structural. If we should see these 75 days, we've seen get back to the 60% or lower than 60%?
[Interpreted]. Remember, for a phase decision of these are sees about competition here. Obviously, we look at these competitive movements. And for competition, we have the variation store-over-store, cluster-over-cluster. So it could be an uncertain period. It depends. So it's kind of like you have to consider 2 or even more than according to competition, whether it's national or major, it doesn't matter from a competitive perspective, the company becomes more competitive. So it's a lot more individualized. So the size of the company and the amount of places were located in, you can't say it's a single policy, right? The strategy has operated according to the regions range you have a regional competitor that's more competitive, that will also be more competitive. [Technical difficulty]
[Interpreted] The company continues to work with deleveraging and we're continuing to search for ways to consider growth, and this is a positive expectation for 2024. So I want to thank all of my team for the work has been done throughout 2023, as I mentioned, I didn't discuss all of the numbers here, but this is all because of the 450 million people that visited our stores and bought from us and also our daily efforts done by the major team we have to able to dip a company that tripled in size in the past 3 years with a growth CAGR of 28% and capital grew with its own cash generation ever since we switched the Assai model. We never received any investments from former controllers like this company has always generated strong deleveraging capacity. And now we consider that we'll be able to deleverage as we already invested an important differential, our value proposition and what we have been working towards to keep for this kind of differential in the market. [
[Interpreted] Thank you all so much. The earnings call for the fourth quarter at Assai 2023 is officially ended. The Investor Relations department is willing to answer any future questions that may exist. Please have a wonderful day, and thank you for participating.