Atacadao SA

BOVESPA:CRFB3

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, everyone, and welcome to Group Carrefour Brasil's Q1 2023 Earnings Conference.

Joining us from Carrefour Brasil Group, our CEO, Stephane Maquaire; CFO, Eric Alencar; and IRO, Marcela Bretas, who will start the presentation.

We'd like to inform you that this conference is being recorded and will be available for replay at the company's IR website where the presentation can also be downloaded.

[Operator Instructions]

We'd like to state that the information contained in this presentation and any statement made during this call relating to business prospects, projections, operational and financial targets are based on beliefs and assumptions from Group Carrefour Brasil's administration as well as information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions, seeing as they refer to future events and therefore, rely on circumstances that may or may not come to pass. Investors must understand that general economic conditions, the state of the market and other operating factors may affect Carrefour Brasil Group's future performance and lead to results which are materially different than those expressed in such forward-looking statements.

Now let me turn the conference over to the company's CEO, Stephane Maquaire, to begin the presentation. Mr. Maquaire, please proceed.

[Stephane Maquaire, executive]

Good morning, everyone, and thank you for being with us once again as we discuss our results for the first quarter of 2023. Today, I'd like to start by welcoming Eric, our new CFO, who joined the group just over a week ago and is doing his first earnings conference with us.

The beginning of 2023 was defined by our team's incessant work and dedication to integrating the BIG Group and by the additional challenges we faced with the Brazilian macroeconomic environment. In lieu of this scenario, we still grew our market share by 1.8 percentage points, completing the conversion of all Maxxi stores, rounding out 23 BIG Group store conversions in the quarter and organically opening 3 new Atacadão stores.

As a result, in the first quarter of 2023, our revenue came to BRL 27.1 billion up 30.7% year-over-year with an adjusted EBITDA of BRL 1 billion. On the digital front, we also made significant strides. Our total GMV grew 43% year-on-year, with emphasis on Carrefour's 1P Food channel, which grew by 83%, underlining our efforts to always provide a better online shopping experience for our customers. At Banco Carrefour, customer acquisition via the digital channel continued to evolve, reaching nearly 30% penetration over the quarter.

On the ESG front, we once again reinforced our commitment to social inclusion and diversity. We opened the second class in Carrefour com ELLAS, our career acceleration program for women, which this year had 750 women enrolled, 50% more than last year. On the diversity front, we further reinforced our message of zero tolerance for racism. We launched the PODER program, a powerful support network, connecting over 500 employees across the country and promoting the personal and professional development of Black people. We also entered a partnership with the Zumbi dos Palmares University through which we will award higher education scholarships to 90 employees. In an unprecedented partnership with the Ministry of Social Development, we're offering jobs to beneficiaries of the Bolsa Familia Program and citizens listed on the Cadastro Único Registry, having hired 5 people on the program's launch day.

On Slide 4, we have an update on our integration process, which is still running at full speed. Work has been concluded in over 60% of the main integration fronts. Our store conversion plans or store conversion plan continues to move forward at an accelerated pace, and we expect to complete 42 more store conversions in the second quarter.

I'm very happy with this development.

As a result of all of this, at the end of June, we will have converted 124 stores from BIG to Carrefour 6 months ahead of the announced schedule. That way we will be free of this work on the second half of the year. On the procurement side, as we mentioned last quarter, we completed the integration of all processes within our store formats. As for indirect purchases, we have been positively surprised by the savings we've recorded, which have been higher than initially expected.

We also made significant headway in the integration and optimization of our logistics network and our systems. The sales performance of our converted stores was as expected with a positive highlight for the stores where we had format conversions and with a little more challenge in the stores where we only converted the banner. The realization of synergies is still on schedule and has the potential for positive surprises.

In total, our Q1 '23 P&L statement includes BRL 146 million in synergies, which is slightly more than we previously expected. We'd like to reiterate that our synergy guidance is of at least BRL 2 billion per year until 2025.

On that note, let me turn the conference over to Eric who will be talking about our financials. Eric?

[Eric Alencar, executive]

Thank you, Stephane, and good morning, everyone. It's a great pleasure for me to be joining the Carrefour Brasil Group team.

Now since you've already had the opportunity to look at our sales review and our earnings results and the release we published yesterday, I will quickly go through the presentation.

I'd like to start on Slide 6 with the sales performance for the quarter. Our gross sales exceeded BRL 27 billion, growing by over 30% over the previous year. Our LFL sales per business unit remained solid at 5.7% in both Atacadão and in retail despite the slowdown in food inflation during the quarter.

On the following slide, we show that our gross margin was stable despite any pressure arising from the integration process, showing gains in scale and inefficiency for the integration of our shopping experience.

In SG&A, as expected, we saw the impact of our integration and accelerated conversion of BIG stores, a 230 basis point increase in SG&A as a percentage of sales was over 80% explained by the addition of the costs from BIG and expenses relating to the integration. On the other hand, we are already starting to see the benefits of the synergies we're realizing in that transaction being reflected in our profitability, which contributed with a margin gain of 60 basis points in Q1.

Now moving on to Slide 8. I will be talking about each one of those impacts later on. And I would like to state that in the next quarter, you will continue to see that. And as the end of our ramp-up stores you will start to see the reflection of that in the results of Q2.

Now moving on to Slide 9. We had a loss in the quarter mirroring the increase in financial expenses because of the higher indebtedness incurred in the acquisition of the BIG Group and the increase in interest rates. Moreover, we had an effect, which we expect to be temporary, relating to tax expenses. Seeing as the damage to the BIG legal entities ended up not being absorbed for the purposes of our overall tax calculations, which had an impact on the overall amount of taxes payable.

And more positive news, we saw a reversal in our provisions which totaled BRL 441 million in the quarter, BRL 214 million of which were referred to BIG and the remainder to tax cases within the group. These had no direct relation to what we announced in the market on April 11. Our operating cash generation for the year is still strong with a gross cash flow from operating activities totaling BRL 6.1 billion in the last 12 months. There was an increase in the group's net working capital primarily in the inventories line as a result of its accelerated pace of conversion and reopening of stores and also relating to the preparation for Atacadão's anniversary in April. We also invested about BRL 1.5 billion more in the period as we accelerated the efforts of in-store conversion and integration of BIG and continued executing our organic expansion plan with the opening of a Atacadão store.

Our free cash flow then totaled BRL 460 million. One important point that we should highlight here is that with those conversions, those tend to increase the company's cash flow in addition to the seasonal period, which is more positive in the next 3 months. On Slide 10 with regard to leverage, it ended Q1 at 2.44x our net debt-to-EBITDA ratio. Our leverage level reflects the acquisition of the BIG Group and also the strong seasonal period where we have historically seen shifts between the fourth and first quarters.

We negotiated a new credit line at [indiscernible] in January under very favorable conditions. We've also negotiated with Carrefour France to roll over our intercompany debt. We ensured a revolving line of BRL 6.3 billion, which can be withdrawn in up to 3 years at a cost of 14.95% a year, giving us a lot of confidence to continue with our investments.

Now I will talk a little bit about our quarterly results business unit by business unit, starting with the Atacadão on Slide 12.

As Stephane mentioned, we concluded the conversion of Maxxi stores in the quarter converting 23 stores to the Atacadão banner. We also made 13 conversion from hypermarket BIG to Atacadão in the second quarter. We also continued to execute our organic expansion plan for Cash & Carry opening 3 new stores.

Moving on to Slide 3 (sic) [ 13 ]. Our gross sales in Cash & Carry came to BRL 18.1 billion in the quarter, with double-digit organic growth despite the challenging environment. Our digital channel continues to make progress coming to 2.7% of Atacadão sales in the quarter. The converted stores have been showing expected sales performance with LFL growth of 27% in the quarter. And when we look at hyper BIG's performance that were converted to Atacadão , the increase in productivity was also 2x, which was something that's made us very satisfied.

On Slide 14, the gross margin remained virtually stable year-over-year. Our SG&A was 9.8% of net sales, up 116 basis points, which mirrors our store conversion process and also the opening of new stores. As a result, our adjusted EBITDA came to BRL 916 million, 5.6% margin. Excluding the impact of BIG, Atacadão's EBITDA margin would have been 6.8%, in line with what we had in Q1 of last year. I think this is important to underscore that our legacy margins are still healthy compared to what we had before and that the new stores opened between 2020 and 2021 grew by 37% in EBITDA margin in these last few months.

Now moving on from Cash & Carry to retail. The quarter was defined by solid growth in the non-food segment, continuing the trends we saw in Q3 and Q4 of last year, posting LFL growth by 9.3%. And our white label products once again showed their significance in our clients' -- our customers' baskets came to a new record of 20.8% of penetration in retail sales. Despite the initial challenges, especially with online sales and in the process of enrolling with the Carrefour card, our stores converted from hypermarkets have shown above a retail average like-for-like performance. We expect this to accelerate even further in the coming quarters as we address technical issues and increases loyalty and average ticket.

Moving on to Slide 17. We continue to see a solid performance in total sales within retail, which was up 35%. The strong growth in non-food like-for-like was offset by the slowdown in the food category, whose like-for-like was 2.6%.

Now moving on to Slide 18. We see that just as with Atacadão, our legacy business margin in retail also remain unchanged year-over-year. Our gross margin increased by 1.9 percentage points given the better commercial conditions or better sales conditions because of the negotiations we had with suppliers and the acquisition of the BIG group.

Our SG&A grew by 199 basis points because of 3 hypermarket stores which are closed to be converted into Atacadão plus investments in marketing and technology as well as inflation. Likely -- finally, actually, our EBITDA margin for the Carrefour, excluding BIG was still in line with what we had in Q1 '22 at 4.5%.

Now moving on to Slide 20. The Sam's Club saw the highest like-for-like growth among our business units, 7.6%. The active customer base grew by 6.8%, where actually active member base year-over-year was up by 6.8%, given our efforts since the closing of our acquisition of the BIG Group, which underscores the acquisition via digital channel in the quarter.

Sam's Club has been developing its operational model so that it has a better structure with high efficiency levels. And higher growing stores in the coming quarters. Our adjusted EBITDA margin in the quarter was 4.3%, but we'd like to reinstate our conviction in the improvement of our EBITDA margin as we create initiatives to increase in the long term.

Now moving on to Slide 22. Our digital channel continued to show strong growth, 43% in Q1 versus last year. Our food GMV was up 65% despite some technical difficulties with last mile platforms in the context of integrating the BIG Group. Non-food GMV increased by over 24% during the quarter. We're still focused on developing our digital strategy, strengthening our teams and improving our user experience platform as well, obviously, as integrating the BIG Group store channels into our own.

On Slide 24, we talk about Banco Carrefour, where our revenue grew by almost 15%, driven by the migration of BIG Group customers. despite the more conservative credit approach. So we saw a double-digit growth despite being very conservative in our lending policy. Our off-us sales and cross-sell continue to show solid results. And I'd like to highlight what Stephane already mentioned at the beginning, which is penetration of our acquisitions via digital channels, which came to more than 29% in the quarter as well as Apag from Atacadão , which more than doubled TPV versus Q1 2022. The Sam's Club card, which we launched mid-December, grew by over 5x its invoicing on a sequential basis coming to 5.4% penetration in sales.

On Slide 24 (sic) [ 25 ], the delinquency reflects the natural seasonal period of the first quarter, which is obviously considered in our business plan. Income from financial intermediation increased by 13.8%. And the over 30 increased by 0.5 percentage points whereas the over 90 increased by 0.2%, a trend that we had already seen since last year, which made us more cautious in our lending policy.

Also by the Carrefour Bank on Slide 26, we see the consequences of the migration of our clients from BIG. We saw a 37% increase in our risk burden mirroring our portfolio growth. Customer acquisition costs and converted stores, which totaled BRL 70 million in the quarter, led our SG&A expenses to increase by 19.3%.

EBITDA in the quarter came to BRL 44 million, excluding the impacts related to the acquisition of big customers, our adjusted EBITDA would have been BRL 114 million. As you're already used to seeing at the bank, we have seen improvement every month in our results throughout the year. And I'd like to stress our financial results here and turn the conference back to Stephane for his concluding remarks for the presentation. Thank you so much.

[Stephane Maquaire, executive]

Thank you very much, Eric. First of all, I'd like to say that I'm very happy to have you here with us. I believe you will add a lot to our Carredfour Brasil Group's team right now, bringing your experience in publicly traded Brazilian companies and the integration of our acquisitions and also in the real estate sector, which is part of our larger plans.

Even though we started the year in a very challenging environment on the retail side, I'd like to underscore that we are very confident in the work that we are doing, integrating the big group stores and seizing at least BRL 2 billion in synergies by 2025.

Our legacy business continues to perform in a solid and profitable way. And the conclusion of the process of converting our stores by June and the ramp-up of our converted stores, we expect to have a very strong second half of the year and end 2023 with very positive results. Well, I'd like to thank you all very much for joining us, and we will now open the conference for your questions.

[Operator]

We will now open the floor for questions. [Operator Instructions] Our first question comes from Irma Sgarz, sell-side analyst with Goldman Sachs. Irma, we will now open your audio, so you can access to microphone.

[Irma Sgarz, analyst]

I have 2 very quick questions. First, at the beginning of your call, you mentioned the challenges which have been -- a few have been significantly larger in stores within the same banner. I understand that some challenges persist, you just changed the banner. But I wanted to understand a little bit more of what's behind that? What measures and what steps have you been taking to address that? And what were the factors behind those challenges?

And my second question has to do with the Carrefour Bank. I'd like to thank you for your comments. We know that you see repeated improvements in the next few quarters. But if you could just outline and give a little more color in terms of what you see for the rest of the year in terms of maybe higher funding costs or a higher risk cost, you are being more conservative. There's the integration. So what factors do you think will be responsible for your improved results? And when should we expect to start seeing those better results?

[Stephane Maquaire, executive]

Thank you, Irma, for your questions. I will take your first question and let Eric take the second one. Yes, when we talk about same banner conversions, we talk about the same format. So we have ensured 3 types of conversions. Maxxi to Atacadão. So Cash & Carry to Cash & Carry. BIG hypermarket to Carrefour hypermarket, so the same format as well, hypermarket to hypermarket and BIG hypermarket to Atacadão. And in this case, we have a change in format when we moved from retail to Cash & Carry.

So the last type of conversion that I mentioned, hypermarket to Atacadão, we are seeing very quick improvement in sales with great momentum. And this is true since the beginning of our stores reopening, we closed those stores a very short time ago, and we're seeing a very quick ramp-up. We are seeing growth that's very significant month after month. And that's very significant because most of the synergies that we're pursuing. And we have built the entire plan for the big acquisition, considering a lot of these synergies and many of them come from this change in format from a hypermarket into cash & carry. And here, we expect to realize more synergies than we initially predicted.

Now for conversions within the same market, so Maxxi into Atacadão, hypermarket BIG to hypermarket Carrefour, we see slightly less synergies than we expected. And here, we're talking about just a few weeks or just a couple of months, and it takes time, at least 3 years to see sales in these converted stores to mature.

So we can't say that everything is lost at this point. We're obviously working on boosting the sales and improving the results within these converted stores. One thing that we'll be able to do, focusing on the stores, in Atacadão, for example, after we converted all stores, it will be easier, obviously, for the Atacadão team now that we've converted all Maxxi stores, we'll be able to focus on ramping up these stores.

So we will focus a lot on working those stores that we had already converted. And now that we are closing -- I mean we have already concluded Maxxi conversions and we are concluding the conversions of hypermarket into Atacadão, our team will be able to work on ramping up these stores. And I'm very confident that in Q2, we'll already be able to see improved performance from these converted stores, especially those that were converted from Maxxi into the Atacadão banner.

And the same thing can be said of the stores that were converted from BIG into Atacadão. Once we've concluded, we'll be able to focus more sharply on improving the performance of these stores. We're also looking into what was the performance of those hypermarkets we converted in Q1 2022 before we took over the big group.

Much of those sales, especially on cold meats, were driven by gross margin. And that's something that we don't want to see. So we've decided to lower the performance of those stores so that we can build a stronger sales base with our gross -- with an obviously positive gross margin.

So in Q1, even officially, I mean, we're seeing these stores that were converted from hypermarket BIG to hypermarket Carrefour even though they feel temporarily slightly weak, we already have a strong foundation because these stores are performing better than those converted into Carrefour hypermarket. I'm also confident that we are building a solid foundation with sales growing with positive margins, gross margins. So these stores are already adding positive contributions.

I'm sorry if I was a bit too wordy with my answer, but I'll let Eric take the second part of the question. Thank you.

[Eric Alencar, executive]

Thank you for your question. So let me talk a little bit from the banking perspective. I'll talk a little bit first about the working capital since in general. And then I'll be talking about the card specifically.

In terms of the card, it's natural that Q1 is weaker. There is a very specific seasonal effect here. So the markets tend to be a bit slower, but this is true for the market at large. Now what makes our perspective positive is because of our conservative approach, we are growing. This is item 1. And second, our delinquency rates peaked in Q3. And what we're seeing now is some stability. So there's no sign of deterioration, at least not so far, that makes us expect to do worse than what we've seen historically to this point.

And over and above that, there is a batch of new clients that are coming along. And when a new client enrolls with your card, you see some changes. And most of what you see now comes from sales. So these clients are now starting to buy. And once they do that, you start to offset that effect.

So if on the one hand, we will begin to see new clients coming in, and no one will want to let those clients go from -- they come into our sales pipeline. Those clients are also going to become more profitable. So what you're seeing is more of a customer acquisition cost. So we believe that our portfolio will become increasingly more profitable and healthier. And that's what gives us a very positive outlook for our bank.

[Irma Sgarz, analyst]

That was extremely clear. Thank you.

[Operator]

Moving forward, our next question comes from Thiago Macruz sell-side analyst with Itaú. Thiago, we will now open your audio so you can activate your microphone.

[Thiago Macruz, analyst]

I have a question about the competitive environment, both in Carrefour hypermarket and in Cash & Carry. Especially by reading your sales release, we had a feeling that you are seeing the environment as more competitive and it's tougher than expected. So I'd like to hear a little bit more about that. What type of evidence do you have in that sense? And if it's reasonable to think that your competition has been more aggressive in terms of price? And how do you expect to respond to that scenario? Thank you.

[Stephane Maquaire, executive]

Thank you, Thiago, for your question. Well, what we have to see here is, for example, on the Cash & Carry side, we've opened about 100 new Atacadão stores plus those that were converted from the Maxxi brand in the last 12 to 18 months.

Our main competitor has also opened and converted several new stores. Other regional competitors also opened a huge number of stores during this time. So we are coming into a time where we'll manage all of these stores, both our new organic stores. So here, we have an impact from the stores that we already had, and I'm talking about like-for-like sales and also the impact of all those converted stores that we're working on with different skills. I believe that, that will have an impact on our performance, until the last stretch of 2023.

In retail, we see pretty much the same impact. Last year, especially in the second quarter, we saw a number of extra hypermarket stores being closed, and they are now being reopened, which obviously has an impact on our stores because many of those stores of ours did not face any competition. And now some of them are having to deal with these stores that are being reopened. So it's a time of a number of shifts in the retail and Cash & Carry stores. So we are still steady and firm in our price positioning, nothing has changed. Atacadão has the best prices in the wholesale market. And with Carrefour, we'd like to remind you that this is something that we worked on Q1 2022 with very good sales results. And we continue to see the same growth levels. And with regard to the regional competitors, there's also no change in our pricing policy, considering what we did yesterday with Atacadão and in Cash & Carry, that was a winning strategy, so we are sticking with that in 2023. Thank you.

[Thiago Macruz, analyst]

That was excellent. Thank you.

[Operator]

Our next question comes from Felipe Cassimiro, sell-side analyst with Bradesco. Felipe, we will now activate your -- open your microphone. Please proceed.

[Felipe Cassimiro de Freitas, analyst]

First of all, I'd like to talk a little bit about the gross margin of Atacadão in the year-over-year sense. I think that despite the challenging environment, as you mentioned, with declining inflation, your margins are still healthy. So what can we expect from your margins in the next few quarters? I know that you've hinted at a few things, at least in terms of keeping your prices slightly more competitive.

And second, I'd like to understand the negative contribution from the BIG Group on your consolidated EBITDA in each of your units. If I'm not mistaken, this was a smaller contribution in Q1 than it was in Q4. But with a greater impact on your margins perhaps because of those weaker sales in Q1. So what can we expect in terms of negative contributions from BIG in the next few quarters?

[Stephane Maquaire, executive]

Thank you, Felipe, for your questions. Once again, I will take the first question and let Eric take the second one. We have talked about Atacadão's gross margin several times, and we believe and still believe that we are at the right gross margin level with Atacadão whether the environment is of higher inflation or lower inflation as what we've seen in the last few weeks. So what we expect for the next few quarters is for a steady gross margin on the Atacadão side and in the Atacadão stores that we already operated. And considering the continued improvement in the recently converted stores. So our price position and the gross margin levels that we've seen and which you said yourself are steady quarter-over-quarter, and we expect to remain that way in the next few quarters. Eric?

[Eric Alencar, executive]

Thank you for your question. Yours was an accurate take in this quarter, our EBITDA margin saw on average, a 2.5% decline versus 2.3% last quarter. And this was mostly because our -- the pace of our conversions was higher or was faster. So when you close 1 store and reopen another 1 at the same time. This process that's in full steam will continue to move forward in Q2. So in addition to the seasonal period that you said very well yourself, there's also the weight of conversion.

So what can we expect for the next few quarters? Because our conversions are running at full steam, and we expect to close our or to have all our converted stores in the second half of the year despite a very efficient conversion movement, we should see that in Q3 and Q2, and those legacy stores because they will be all converted in the second half of the year, we will start to see a better margin level, considering obviously the maturity that these stores will have at that point. But you still see this level temporarily because of all the investments we will continue to make.

[Operator]

Moving forward, our next question comes from João Pedro Soares, sell-side analyst with Citigroup. João, we will now activate your audio, so you can open your microphone. You may proceed now.

[Joao Pedro Soares, analyst]

I have 2 questions here. One of them, along the same lines of what you were mentioning about your nonrecurring expenses, I wanted to hear about your margins with your 3 business units. When we look at Cash & Carry and wholesale, it seems like your margins are still very far away from normal. And we are seeing both positive and negative impacts, you still have to realize those synergies in about BRL 2 billion. But on the negative side, as you said it yourself, Stephane, the competitive environment seems to be a bit worse for you, considering those extra stores that are now being reopening.

We have to look at those moving parts. So I wanted to hear from you how much can you tell us in terms of a long-term view with regard to your gross margins for all those 3 sides of your business. And also, I wanted to hear about your leverage. We saw an unfavorable shift in Q2 -- in Q1, but I think we have to understand your monetization front. We know that you want to bring in a minority shareholder to your real estate operation. So I wanted to hear about different ways where you could see improvements in your margins that way.

[Stephane Maquaire, executive]

Thank you, João. I will start answering some of your questions and let Eric take or jump in with a few additional comments later.

Well, about our nonrecurring expenses, one thing we must understand is that Q1 is the strongest quarter when we talk about nonrecurring expenses. Because we have the first batch of stores, 59 stores that we converted until the end of 2022 with obviously higher expenses than those -- the stores that are more mature. In this quarter, we converted 23 stores. Obviously, something that involves many nonrecurrent stores when we had to shut down a few stores and opening or relaunching them after some time.

We also announced that we had -- we'll have 42 new stores in Q2 and the work is already underway for those. So all of these larger expenses, let's say, of this conversion process are underway. We are already opening many of those 42 stores that we're converting in Q2. In Q2, we will see lower nonrecurring expenses, I mean the first stores that we converted in 2022 will see lower expenses. The stores that were converted in Q2 and completing this -- these 42 stores, this 1/3 of those 124 stores that we intend to open will be concluded. And in the following quarters, because we're moving forward very fast in our process of converting our new stores, which are months ahead of schedule, we will make room for great improvement without those nonrecurring expenses in the second half of 2023. So that's to your first question.

Now to your second question, I will talk about the real estate front. We are still working on the project of building a specific platform together with a partner on the real estate side. We're already working on organizing that before we open it for partners. We're also working on a sale and leaseback of a few assets, especially distribution centers, which will be part of this leverage leveraging process and is going on very quickly. Eric, would you like to add to that answer?

[Eric Alencar, executive]

I just wanted to add a few things. Thank you for your question. As you said, we ended the quarter with 2.4 leverage, 2.4x. Of course, there's a seasonal impact, but the mindset that our competition has is of deleveraging. We really believe in the cash conversion that we will have. Because of the conversions, we tend to see some of that in Q3. And also there is a historic improvement in performance, which makes the leverage of those converted stores to decrease. So these are the tools that we have, and this is our mindset, and we expect to have a lower leverage level until the end of the year.

[Joao Pedro Soares, analyst]

That was clear. Thank you, Eric and Stephane.

[Operator]

Our next question comes from Danniela Eiger, sell-side analyst with XP. Danniela, you may now open your microphone. You may proceed.

[Danniela Eiger, analyst]

First of all, I wanted you to give -- add a little more color to the food inflation situation and your prospects about same-store sales, both in Cash & Carry and Wholesale both in Q3 and throughout the year if food inflation could maybe drag out this reading.

And my second question is about BIG. If you could please talk a little bit more about what encouraged the adjustment that you announced last month if memory serves. And if you could please talk a little bit about headlines that have indicated the process involves labor costs as well. And if I could just follow up on 2 previous questions as well. First, the competition dynamics, you mentioned that the environment is a lot more -- is significantly more challenging because of those new stores. If you could talk about the strategy for organic growth? And how do you integrate that at the same level as before? And if you could also talk about the Carrefour stores. You always mentioned that as a possibility, but it felt more like a reality in that sense. And also on the bank side, I wanted to hear about the succession process for Mauad.

[Stephane Maquaire, executive]

Thank you for your many questions, Danniela. Very interesting questions. I'll take your first, third and fourth questions, I think.

First, about food inflation. What we saw in the first quarter of this year was a slowdown in inflation month-over-month in the last 12 months. And 12 months to date, the slowdown was absolutely expected because we had a strong bout of inflation in March, April and May of last year. So we knew that 13% interannual inflation was something that would go down, and it has. We should see about 8% in April. So much of that came in March. So we ended March with 7% inflation in food products. And month-over-month, in Q1, that's similar to what we will see and also in May, June and July. So Q2 will also see a lot of that -- of the impact from the slowdown in inflation -- in food inflation.

So the environment of lower inflation and even deflation should continue, which will open the opportunity for more products being sold in our stores, and it will always take some time for sales to see the impact from inflation into an increase in sales. But we will also see an impact in the increase of our activity. So in Q2, we will see results much in line with what we saw in Q1, with improvements coming over the course of the quarter.

As for your third question about the competition dynamics, especially with regard to historic conversions from hypermarket to Carrefour. Thank you so much for paying attention to that and for bringing it up. We mentioned in a bulletin that we're open to evaluating all or assessing all our Cash & Carry and Sam's Club stores to see within our ecosystem and within our platform, what's the best format for the clients in the -- in every specific region. And we've looked at all our hypermarkets and -- as we said, you saw some Carrefour hypermarket stores that would make more sense as Atacadão. So we've started a few of those conversions, 3 of them have been made. We have a few more stores that could potentially undergo the same type of conversion. We are open to that. And with the integration of BIG Group, we have about 140 hypermarket stores. And over the course of the years, we will be converting some of them into the Atacadão format.

So going back to our global expansion plan, we still see some room to grow with the Atacadão brand in the state of San Paulo, in the state of Rio de Janeiro and in a few smaller cities. We've already talked about that, where we have opened 1 store, and we could open maybe 2 or 3 more stores so that those cities see a higher market share for Atacadão. So we are being very careful with things such as the interest rate. I mean, we will have the Monetary Policy Committee meeting tonight, so we'll see how that goes. But on the long -- in the long term, we still see room for opening new Atacadão stores. This year, we'll be a bit more careful about that, focusing more sharply on converting the stores that we have planned. Now about your last question, with replacing Mauad, we are pretty much ready to announce the arrival of his replacement. We're very happy about that. And soon, we'll be able to give you more details.

I'll let Eric take your second question then.

[Eric Alencar, executive]

Danniela, I'll let Marcela talk about the adjustment itself. I just wanted to add something to what Stephane said. It's a good thing that you talked about the labor liabilities. Here at the Carrefour Group, we forecast for those things in a very conservative way. So at this point, there is no liability that management is aware of that we have not provisioned for. It's actually more the opposite of that. If you look at this quarter's results, nearly BRL 600 million of our provisions that were reversed come from labor liabilities. So in many cases -- many of those labor cases, they prescribed and we had to move back in our provisions.

So considering what we know so far, many -- much of that is actually being reversed. So there's nothing to disclose here, everything that you need to know about has been provisioned for and is in our release.

[Unknown Executive]

Hello, and good morning, everyone. Marcela here. So with regard to what we disclosed as a material fact on April 11. As you know, and as it is common in any M&A transaction, you run a due diligence during the acquisition and throughout that process, a complete assessment of the asset is conducted. But before you take ownership of the asset, which for us took place in June of last year, you have the opportunity to dig a little bit deeper in your assessment of every aspect relating to the company you're acquiring. And we conducted extensive work in partnership with our legal aides. We ran through all of the accounting records and potential contingencies and the result of that work is mirrored in our 2022 financials.

It's also natural in M&A processes to see a few protection devices for the sellers, if after the process, any adjustment is deemed required. And in our case, that was done via a price adjustment. So throughout that process that we had in 2022, we sat down with the selling shareholders and came to the agreement that was stated in the material fact that we disclosed on April 11.

This does not have anything to do with the operation or the transaction per se. And no additional adjustment, any significant adjustment should be expected when we look at the amounts that were provisioned for the BIG transaction. Everything that we had was seen in our disclosures in 2022. So with this additional cash of up to BRL 1 billion, BRL 350 million should come in, in April, and the rest should come about a year from now.

So if there's any additional questions, please feel free to ask us. But this is everything that we can talk about this transaction.

[Danniela Eiger, analyst]

That was perfect. Thank you so much for answering all my questions, everyone.

[Operator]

Moving forward, our next question comes from Nicolas Larrain, sell-side analyst. We will now activate your microphone so you can move forward. Nicholas, you may now proceed.

[Nicolas Larrain, analyst]

Thank you for taking our question from JPM. If you could please add a little more color about the refinancing of your debt. We know that there's something going on with Carrefour Finance. If you could please talk about the refinancing of other maturities that you're working with? And what do you see in the market in that sense moving forward.

[Stephane Maquaire, executive]

Thank you for your question, Nicolas. Eric?

[Eric Alencar, executive]

Nicolas, thank you for your question. This year, we have BRL 13 billion to refinance. This is a debt that should mature in the near term. Yesterday, we released a material fact about the revolving credit that we have with our holding in France. This is an intercompany loan with the company in France. This is incredible news to us because this involves a lot of confidence for us because we could go to the market where we could work with them. And this is a significant amount of what we have to refinance this year. And one of our goals is or one of the benefits that we enjoy is to be part of this larger group and to enjoy their confidence in the work that we're doing and part of that comes in the form of revolving credit.

From these BRL 13 billion, BRL 6 billion will mature this year and about BRL 6 billion early next year? So what we're seeing now -- I mean, it varies a lot because we take BRL 4.1 billion overseas with a CDI of less than 4. There's also CRI and CRA that we are evaluating, but all of them with rates that are similar to other companies, which were AAA rating at S&P. These are listed AAA companies.

Just another point is we are absolutely comfortable and confident with the refinancing of our debt this year with those BRL 6 billion. We will now be looking at how to best adjust our price for that.

[Operator]

Moving forward, our next question comes from Vinicius Preto, a sell-side analyst with Bank of America. Vinicius, we will now activate your microphone, so you may proceed.

[Vinicius Preto, analyst]

Thank you for taking our question. I just wanted to follow up on the question about the competitive environment. You mentioned that your policy hasn't changed and Atacadão still practices the best prices. But now with food inflation slowing down and growth in the industry as a whole. What has -- what do you think the competition price policy looks like? And what have you been doing to keep Atacadão as the lowest -- the one offering at the lowest prices? And how do you see growth in your different formats moving forward?

[Stephane Maquaire, executive]

Thank you for your questions. We did not see many significant changes in the market in terms of price positioning. We are looking at that store by store, of course, a few stores are feeling a greater impact than others. So this really is a really thin coming of the operations and how we position ourselves in the market. So we have not seen any impact in Atacadão's gross margin so far that should come in the next few quarters.

Now we had very strong results last year, especially in Atacadão because of the 60-year anniversary initiatives. And I talked about this in our Q4 conference that we are working on very strong initiatives for April this year. We were able to outperform the very high basis of comparison. So we still expect strong growth in April compared to what we saw in the first half of the year. So nothing new for April. So in addition to a very strong sales base from last year.

[Vinicius Preto, analyst]

That was perfect.

[Eric Alencar, executive]

I just wanted to add something here, Vinicius. This is Eric, one thing about price is that it's not just about lowering prices. We have a margin policy that comes from the partners that we have in distribution, and we're able to offer them unbeatable prices because our scale is also unbeatable. So we try to be competitive, not only in pricing but also in procurement so that we have healthier margins, which is one of our most significant policies.

[Vinicius Preto, analyst]

That was very clear.

[Operator]

Our next question comes from Vinicius Strano, sell-side analyst with UBS. Vinicius, we will now open your microphone, so you may proceed.

[Vinicius Strano, analyst]

I'd like to go into non-food retail especially home appliances. If you could please talk a little bit of the drivers of the increase that we saw? And how do you see the trend for non-food sales moving forward?

[Stephane Maquaire, executive]

Thank you for your question. Last year, we talked about reorganizing our home appliances and non-food products, a full reorganization that's going digital first. So focusing more on digital sales. And what we saw last year quarter-by-quarter was a very positive trend in terms of sales of home appliances. And we continue to see this new positive trend in Q1. Even though the basis for comparison is slightly weaker than what we will have for the following quarters of the year.

So starting in Q2 and Q3, the basis will be slightly higher. But we have a very strong team that is very much capable of outperforming those advantages. So we're very confident in this team's ability to continue to grow within a slightly less competitive environment than what we had before during Q1. So what we had prepared for on the non-food side, especially in home appliances, we're very confident in the trend for non-food sales over the course of the year. That was it. Thank you.

[Operator]

Our next question comes from Ruben Couto, sell-side analyst with Santander. Rubin, we will now activate your audio, so you can proceed.

[Ruben Couto, analyst]

Good morning, everyone. I'd like to go back to your organic conversions. These 10 to 15 with Atacadão, some of them hyper Carrefour. I just wanted to see if I understood that those were 3 conversions within those 10 to 15. And while we're on this topic, when you look at your portfolio, how many more conversions like this do you believe we could see in the next few years? And within these 10 to 15 organic conversions, is this a pace that we can expect for the next few years as well?

[Stephane Maquaire, executive]

Thank you for your questions, Ruben. So yes, 3 Carrefour hypermarkets that we are in the process of converting to Atacadão. We expect those to open in the next few months. And we will follow that same trend whenever we feel like it will be better for the clients in the area to have an Atacadão store more so than having a hypermarket store. Some stores, as I've said, there are 6 stores that we will have following the following process of integrating the BIG Group and converting their stores. We will transfer a few of those stores to the Atacadão or the Sam's Club format or maybe a combination of that because ours is a unique platform, and we see a position -- the opportunity to work with that. And we will also take the opportunity of having 2 stores in places where before we had only 1.

So talking about Atacadão, we already see 2023 as a year when we'll have a few organic stores being opened. And over the course of the year, we will be assessing what the competition -- what the competitive environment looks like and also the country's economy and our ability to perform so that we can decide how many stores in the Atacadão format we will open in the next few years.

We are hungry for new Atacadão stores. We have the opportunity to open more Atacadão stores, but we will be adjusting that to what we feel is right, in terms of the pace of new organic stores in the Atacadão brand for the next few years. Thank you.

[Operator]

Moving forward, the next question is in English. It will be asked by Andrew Ruben, sell-side analyst with Morgan Stanley. Andrew, we will now open your microphone, so can proceed. Andrew?

[Andrew Ruben, analyst]

I'm interested on the synergies. You're tracking ahead of the plan. Is that more timing? Or has the magnitude of some of the items exceeded your expectations? And then also if you could provide an update on how you're thinking about the cost to achieve the synergies or any required reinvestment.

[Stephane Maquaire, executive]

Thank you, Andrew. I'll be answering that in Portuguese. Thank you so much for your question. Well, you're right. We have a few integration fronts where we see more synergies. And we believe it's too early to see what the synergies in our store conversions will be. So we are treading very carefully in terms of what we expect for the future in terms of realizing those synergies. We so far have been able to realize more than we expected initially. So we're very confident and we'd like to underscore that we should have over BRL 2 billion in synergies by 2025. But it's early to say in terms of what we have gained in terms of indirect sales and logistics and organization. We expect to keep the gains that we've had so far in the course of the next few months. So we ask you all to please be patient, but we will definitely reach BRL 2 billion in synergies by 2025. Thank you.

[Operator]

With no further questions, we end our question-and-answer session. I would now turn the conference back to the company for their final remarks.

[Stephane Maquaire, executive]

Thank you so much. I'd like to thank all of you for your questions. These were very good questions. I'd also like to thank all of our teams here at Carrefour Brasil. It's a very intense effort what we're making to ensure that all of this takes place in a much shorter time than we expected. This involves having the entire company a lot more sharply focused on realizing synergies and developing their activities. I'm very happy about that and confident that we will deliver great results in 2023 and once again be able to achieve BRL 2 billion synergies by 2025. Thank you very much, and we'll see you soon.

[Operator]

Carrefour Brasil Group's Q1 2023 Earnings Conference has now concluded. The company's IR department is available for any additional questions. I'd like to...

[Statements in English on this transcript were spoken by an interpreter present on the live call.]