As filed with the Securities and Exchange Commission on April 23, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:
Sendas Distribuidora S.A.
(Exact Name of Registrant as Specified in Its Charter)
The Federative Republic of | ||
(Translation of Registrant’s Name into English) | (Jurisdiction of Incorporation or Organization) |
(Address of Principal Executive Offices)
Telephone: +
Email:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||
(1) | Not for trading, but only in connection with the listing of the American Depositary Shares on the New York Stock Exchange. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2023:
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities.
Act.
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes ☐
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | Other ☐ | |
Standards as issued by the International | ||
Accounting Standards Board ☒ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
TABLE OF CONTENTS
i
INTRODUCTION
Except where the context otherwise requires, in this annual report, “Sendas,” “we,” “our,” “us,” “our company” or like terms refer to Sendas Distribuidora S.A.
In addition, unless otherwise indicated or the context otherwise requires, all references to:
● | “ABAAS” are to the Brazilian Cash and Carry Association (Associação Brasileira dos Atacadistas de Autosserviço); |
● | “ADSs” are to American Depositary Shares; |
● | “B3” or “São Paulo Stock Exchange” are to B3 S.A. – Brasil, Bolsa, Balcão; |
● | “Brazil” are to the Federative Republic of Brazil; |
● | “Brazilian Corporate Law” are to Brazilian Law No. 6,404/76, as amended; |
● | “Brazilian government” are to the federal government of Brazil; |
● | “Casino” are to Casino, Guichard-Perrachon S.A., a French corporation (société anonyme). Casino is our former controlling shareholder. |
● | “Casino Group” are to Casino and its subsidiaries; |
● | “CBD” are to Companhia Brasileira de Distribuição, a corporation (sociedade anônima) incorporated under the laws of Brazil; |
● | “Central Bank” are to the Central Bank of Brazil (Banco Central do Brasil); |
● | “CVM” are to the Brazilian Securities Commission (Comissão de Valores Mobiliários); |
● | “Éxito” are to Almacenes Éxito S.A., a Colombian corporation; |
● | “Exchange Act” are to the U.S. Exchange Act of 1934, as amended; |
● | “Extra Transaction” are to the transaction involving the assignment and conversion of 66 commercial points/stores operated by CBD under the Extra Hiper banner in several Brazilian states into cash and carry stores under the Assaí banner, among other transactions. For more information about the Extra Transaction, see “Item 4. Information on the Company—A. History and Development of the Company—History—Extra Transaction”; |
● | “FIC” are to Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, a Brazilian financial services company; |
● | “IBGE” are to the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística); |
● | “NYSE” are to the New York Stock Exchange; |
● | “SEC” or the “Commission” are to the U.S. Securities and Exchange Commission; |
● | “Securities Act” are the U.S. Securities Act of 1933, as amended: |
● | “Sendas ADSs” are to ADS, each representing five Sendas common shares; |
● | “Sendas ADS Custodian” are to Banco Itaú Corretora de Valores S.A., the Brazilian custodian of the Sendas common shares underlying the Sendas ADSs; |
● | “Sendas common shares” are to common shares of Sendas; |
● | “Sendas Deposit Agreement” are to the deposit agreement dated February 19, 2021, as amended on August 16, 2021, entered into between Sendas and the Sendas Depositary and the owners and holders from time to time of Sendas ADSs issued thereunder; |
● | “Sendas Depositary” means JPMorgan Chase Bank N.A., the depositary for the Sendas ADSs; |
● | “Spin-Off” are to the distribution of substantially all of the issued and outstanding Sendas common shares to holders of CBD common shares, including the depositary for the CBD ADS program, on a pro rata basis for no consideration. The Sendas common shares were distributed on March 3, 2021, and the Sendas ADSs were distributed on March 5, 2021. For more information about the Spin-Off, see “Item 4. Information on the Company—A. History and Development of the Company—History— Corporate Reorganization and Spin-Off.” |
ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
All references herein to “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “US$” are to U.S. dollars.
Financial Statements
Historical Financial Statements
We maintain our books and records in reais. This annual report includes financial information derived from our audited historical financial statements as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023, and the related notes thereto, which are included in this annual report. We refer to these financial statements and the related notes thereto collectively as our “audited financial statements.”
We have prepared our audited financial statements in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. Our audited financial statements have been audited in accordance with standards of the Public Company Accounting Oversight Board.
Translation of Reais into U.S. Dollars
We have translated certain amounts included in this annual report from reais into U.S. dollars. The exchange rate used to translate such amounts was R$4.8413 to US$1.00, which was the commercial selling rate at closing for the purchase of U.S. dollars on December 31, 2023, as reported by the Central Bank. The U.S. dollar equivalent information included in this annual report is provided solely for convenience of investors and should not be construed as representation that the real amounts represent, or have been or could be converted into, U.S. dollars at such rates or at any other rate.
Special Note Regarding Certain Operational Metrics
This annual report presents information regarding our:
● | total selling area; |
● | average selling area per store; |
● | same store gross sales; and |
● | average monthly gross revenue per square meter. |
We define total selling area as the sum of the selling area of each store at a period end. We define average selling area per store as the total selling area at a period end divided by total number of stores at a period end. Total selling area information and average selling area per store information are prepared and presented as important indicators of the size of our business. Moreover, we believe tracking average selling area per store enables our management to evaluate performance metrics per store and can provide useful information to investors, securities analysts and the public in their review of our operating performance.
We define same store gross sales as sales made in stores opened for at least 12 months and which have not been closed or remained closed for a period of seven or more consecutive days. Same store gross sales information is prepared and presented as an important indicator of the maturation of our stores. Tracking same store gross sales enable our management to evaluate the performance of our organic expansion and we believe can provide useful information to investors, securities analysts and the public in their review of our operating performance.
iii
We define average monthly gross revenue per square meter as gross revenue for the period allocated by store divided by the average selling area (in square meters) for the period taking into account our store opening schedule. Average monthly gross revenue per square meter is an important indicator of our operating performance on a unit basis and the efficiency of our operations and we believe can provide useful information to investors, securities analysts and the public in their review of our operating performance.
Information regarding total selling area, average selling area per store, same store gross sales and average monthly gross revenue per square meter should be analyzed in conjunction with other operating and financial metrics, and should not be considered as a measure of performance in isolation. Additionally, our calculation of these measures may be different from the calculation used by other companies, including our competitors. Because other companies may not calculate these measures in the same manner as we do, our measures may not be comparable to those of other companies.
Market and Industry Data
We obtained the statistical data and information relating to the markets where we operate from reports prepared by government agencies and other publicly-available sources, including the ABAAS and the IBGE. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under “Cautionary Statement with Respect to Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.”
Brands
This annual report includes trademarks, trade names and trade dress of other companies. Use or display by us of other parties’ trademarks, trade names or trade dress or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trademark, trade name or trade dress owners. Solely for the convenience of investors, in some cases we refer to our brand in this annual report without the ® symbol, but these references are not intended to indicate in any way that we will not assert our rights to our brand to the fullest extent permitted by law.
Rounding
We have made rounding adjustments to reach some of the figures included in this annual report. As a result, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.
iv
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, principally in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things:
● | global economic, political and social conditions, including, for example, the military conflict around the world and their impacts on the global economy and consumer spending patterns, particularly in Brazil (including, but not limited to, unemployment rates, interest rates, monetary policies and inflation rates); |
● | competition in the sectors in which we operate; |
● | Brazilian government regulation and tax matters; |
● | adverse legal or regulatory disputes or proceedings; |
● | our ability to implement our strategy, including our digital transformation initiatives; |
● | credit and other risks of lending and investment activities; |
● | the political instability related to the recent election of the President of Brazil with a mandate that started in 2023, including uncertainties in relation to the implementation by the new government of monetary, fiscal and social security policies and the political climate after the result of the election, which has resulted in massive demonstrations and/or strikes; |
● | our ability to expand our operations outside of our existing markets; and |
● | other risk factors as set forth under “Item 3. Key Information—D. Risk Factors.” |
The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.
v
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. | [Reserved] |
B. | Capitalization and Indebtedness |
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. | Risk Factors |
You should carefully consider the risks described below, together with all of the other information included in this annual report, in evaluating our company, the Sendas common shares and the Sendas ADSs. The following risk factors could adversely affect our business, financial condition, results of operations and the price of the Sendas common shares and the Sendas ADSs.
Risks Relating to our Industry and Us
The Brazilian cash and carry industry is sensitive to decreases in consumer purchasing power and unfavorable economic cycles.
Historically, the Brazilian cash and carry industry has experienced periods of economic slowdown that led to declines in consumer expenditures. The success of operations in the cash and carry sector depends on various factors related to consumer expenditures and consumer income, including general business conditions, interest rates, inflation, consumer credit availability, taxation, consumer confidence in future economic conditions, employment and salary levels. Reductions in credit availability and more stringent credit policies adopted by us and credit card companies may negatively affect our sales, especially for small home appliances offered in our stores. Unfavorable economic conditions in Brazil, or unfavorable economic conditions worldwide reflected in the Brazilian economy, may significantly reduce consumer expenditure and available income, particularly for lower income classes, who have less access to credit than higher income classes, more limited debt refinancing conditions and more susceptibility to be affected by increases in the unemployment rate. These conditions may have a material adverse effect on our financial condition and results of operations.
We face significant competition and pressure to adapt to changing consumer habits, which may adversely affect our market share and net income.
We operate in the cash and carry sector of the Brazilian retail industry, which is highly competitive. We compete with other retailers based on price, product mix, store location, store layout and services. Consumer habits are constantly changing and we may not be able to anticipate and quickly respond to these changes. We face intense competition from small and regional retailers, especially from those that operate in the informal segment of the Brazilian economy. We also compete with large chains in the cash and carry sector. In addition, in our markets, and particularly in the São Paulo and Rio de Janeiro metropolitan areas, we compete in the food retail sector with a number of large food retailers, general merchandise and cash and carry chains, as well as local supermarkets and independent grocery stores. See “Item 4. Information on the Company—B. Business Overview—Competition.” Acquisitions or consolidations within the industry may also increase competition and adversely affect our market share and net income.
1
If we are unable to compete successfully in our target markets (including by adapting our store format mix or layout, identifying locations and opening stores in preferred areas, and quickly adjusting our product mix or prices) or otherwise adjust to changing consumer habits and preferences, such as shopping on mobile devices, we may lose market share, which would adversely affect our financial condition and results of operations.
Our indebtedness could adversely affect our business.
As of December 31, 2023, we had total borrowings and debentures and promissory notes of R$14,910 million, of which R$2,067 million was classified as current borrowings and debentures and promissory notes and R$12,843 million was classified as non-current borrowings and debentures and promissory notes. If we are unable to repay or refinance our current or non-current borrowings and debentures as they mature, this would have a material adverse effect on our financial condition. Our combined indebtedness may:
● | make it difficult for us to satisfy our obligations, including making interest payments on our debt obligations; |
● | limit our ability to obtain additional financing to operate our business; |
● | require us to dedicate a substantial portion of our cash flow to serve our debt, reducing our ability to use our cash flow to fund working capital, capital expenditures and other general corporate requirements; |
● | limit our flexibility to plan for, and react to, changes in our business and the industry in which we operate; |
● | place us at a competitive disadvantage relative to some of our competitors that have less debt than us; |
● | make us more vulnerable to increases in interest rates, resulting in higher interest costs in respect of our floating rate debt; and |
● | increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates, lower cattle and hog prices or a downturn in our business or the economy. |
In addition, any business that we acquire by borrowing additional funds may increase our leverage and make it more difficult for us to satisfy our obligations, limit our ability to obtain additional financing to operate our business, require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund working capital, capital expenditures and other general corporate requirements, and place us at a competitive disadvantage relative to some of our competitors that have less debt than us.
Certain of our debt instruments contain covenants that could limit our ability to operate our business and have other adverse consequences.
Certain of our debt instruments contain financial covenants that require us to maintain specified financial ratios, measured on a quarterly basis. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness—Long-Term Indebtedness” for more information. Complying with these financial covenants may require that we take action to reduce debt or to act in a manner contrary to our business objectives. Events beyond our control, including changes in general business and economic conditions, may affect our ability to meet these financial ratios. We may not meet these ratios, and our creditors may not waive any failure to meet them.
Moreover, certain of our debt instruments contain restrictive covenants that limit our distribution of dividends in excess of the statutorily required minimum dividend, the transfer of our share control and the acquisition of our share control by third parties, among others corporate decisions.
2
Our failure to comply with any of these covenants could result in an event of default under the relevant credit facility, and any such event of default or resulting acceleration under such credit facilities could result in an event of default under other debt agreements. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt agreements if accelerated upon an event of default, which could compromise the continuity of our activities, and there is no guarantee that we would be able to repay, refinance or restructure the payments on those debt agreements.
Our systems are subject to cyberattacks and security and privacy breaches, which could cause a material adverse effect on our business and reputation. In addition, we may not be able to renew or maintain in force our software license agreements.
We are subject to a broad range of cyber threats, including attacks, with varying levels of sophistication. These cyber threats are related to the confidentiality, availability and integrity of our systems and data, including our employees’ and customers’ confidential, classified or personal information.
Our policy enforcement mechanisms, such as monitoring systems and management oversight to address these threats may not be sufficient to prevent, detect and respond to unauthorized activity in our systems, certain types of attacks, including cyberattacks.
Furthermore, some of our suppliers and service providers may have significant access to confidential and strategic data collected by our systems, including confidential information regarding our customers.
Any unauthorized access to, or release or violation of our systems and data or those of our customers, employees, suppliers or service providers could disrupt our operations, particularly our digital operations, cause information losses and cause us to incur significant costs, including the cost of retrieving lost information, which could have a material adverse effect on our business and reputation.
Our information systems may suffer interruptions due to factors beyond our control, such as natural disasters, hacking, failures in telecommunication and computer viruses, among other factors. Any of these types of interruption may adversely affect our operations, thereby impacting our cash generation and our financial condition.
We may not be able to renew or maintain in force our software license agreements. Such agreements may be suspended or terminated without cause, due to contract breaches by us (including late payments) or due to causes beyond our control, in which case we will be prevented from using the applicable software. We cannot ensure that we will be able to replace those software in a timely manner and without major impacts to our operations. The termination of any software license agreement, even if due to causes beyond our control, may result in material adverse impacts to our business, results of operations and financial condition.
Disruptions in our information technology systems, or the inability to update them, can adversely impact our operations and inventory control.
Our operations rely on our information systems, which serves as the primary tool for managing our manufacturing process, supply chain planning, sales tracking, and inventory management.
Accidents, human errors, malfunctions, or malicious acts can cause disruptions or failures in our information technology systems, which could have significant impacts on our corporate, commercial, and operational functions. This could cause a material adverse effect on our business, operational results and reputation.
3
We could be materially adversely affected by violations of the Brazilian Anti-Corruption Law, the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws.
Law No. 12,846, of August 1, 2013, or the Brazilian Anti-Corruption Law, Law No. 8,429, of June 2, 1992, or Administrative Improbity Law, Law No. 9,613, of March 3, 1998, or Money Laundering Law, Decree 2,848, of December 7, 1940, or the Brazilian Penal Code, the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-corruption law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.
The Brazilian Anti-Corruption Law, introduced the concept of strict liability for legal entities involved in harmful acts against the public administration, subjecting the violator to penalties both in administrative and civil law. The Brazilian Anti-Corruption Law considers that an effective implementation of a compliance program may be used to mitigate the administrative penalties to be applied as a consequence of a harmful act against the public administration.
Our policies mandate compliance with these anti-corruption laws. We cannot assure you that our internal control policies and procedures will protect us from reckless or criminal acts committed by our employees or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.
Failure to comply with anti-corruption laws to which we are subject or any investigations of misconduct, or enforcement actions may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits or other restrictions which could disrupt our business and have a material adverse effect on us and our reputation.
We may not be able to renew or maintain our stores’ and distribution centers’ lease agreements on acceptable terms, or at all, and we may be unable to obtain or renew the operational licenses of our stores or distribution centers in a timely manner.
All of our distribution centers and 90.3% of our stores are leased. Our lease agreements are negotiated for specific terms ranging from five to 25 years and have mandatory renewal clauses, pursuant to applicable law.
The strategic location of our stores and distribution centers is key to the development of our business strategy and, as a result, we may be adversely affected in the event that a significant number of our lease agreements is terminated and we fail to renew these lease agreements on acceptable terms, or at all. In addition, in accordance with applicable law, landlords may increase rent periodically, usually every year. A significant increase in the rent of our leased properties may adversely affect our financial position and results of operations.
Moreover, our lease agreements need to be annotated in the relevant leased property’s deed and registered with the competent real estate registry office to guarantee our contractual and preference rights if the leased properties is sold to a third party. Some of our leased properties do not have their respective lease agreements annotated and registered with the competent real estate registry offices, and, as a result, we may not be able to guarantee our right to continue using the leased properties if the acquirer (in the capacity of the new landlord) has no intention in continuing the lease agreement with us or if a potential renegotiated lease amounts become extremely onerous for us.
4
A parcel of our owned or leased real estate properties is subject to liens, encumbrances or legal restrictions annotated in their relevant property’s deeds. In the event of default on the underlying obligations, the relevant creditors may proceed with the foreclosure of the guarantees, in which case the properties may be sold at auction or transferred to the name of the creditor itself to satisfy the underlying debt, resulting in the transfer of the property to third parties with whom we have no relationship whatsoever. In this sense, in the event of such foreclosure, the continuity of our operations in the properties may not be possible and may cause a negative impact on our financial position and results of operations.
Each of our stores and distribution centers are also subject to certain operational licenses and inspection reports issued by the competent municipal authorities and fire department and are required for the development of our activities. Our inability to obtain or renew these operational licenses may result in the imposition of fines, loss of insurance coverage, and, as the case may be, in the closing of stores or distribution centers. Given that smooth and uninterrupted operations in our stores and distribution centers are a critical factor for the success of our business strategy, we may be negatively affected in the case of their closing as a result of our inability to obtain or renew the necessary operational licenses.
Our product distribution is dependent on a limited number of distribution centers and we depend on the transportation system and infrastructure in Brazil to deliver our products, and any disruption at one of our distribution centers or delay related to transportation and infrastructure could adversely affect our supply needs and our ability to distribute products to our stores and customers.
As of December 31, 2023, approximately 28% of our products were distributed through our 11 distribution centers and warehouses located in the Southeast, Midwest, North and Northeast regions of Brazil. The transportation system and infrastructure in Brazil are underdeveloped and need significant investment to work efficiently and to meet our business needs.
Any significant interruption or reduction in the use or operation of transportation infrastructure in the cities where our distribution centers are located or in operations at one of our distribution centers, as a result of natural disasters, fire, landslides, accidents, systemic failures, political protests, strikes (such as the May 2018 and October and November 2022 Brazilian truckers’ strike) or other unexpected causes, may delay or affect our ability to distribute products to our stores and may decrease our sales, which may have a material adverse effect on us.
Our growth strategy includes the opening of new stores which may require the opening of new distribution centers or the expansion of the existing ones to supply and meet the demand of additional stores. Our operations may be negatively affected if we are not able to open new distribution centers or expand our existing distribution centers in order to meet the supply needs of these new stores. For more information on our distribution and logistics operations, see “Item 4. Information on the Company—B. Business Overview—Distribution and Logistics.”
We are dependent on credit card sales. Any changes in the policies of merchant acquirers may adversely affect us.
We are dependent on credit card sales. For the years ended December 31, 2023, 2022 and 2021, 49%, 49% and 47%, respectively, of our net operating revenue was represented by sales in installments, principally in the form of credit card sales. In order to offer credit card sales to our customers, we depend on the policies of merchant acquirers, including fees charged by acquirers. Any change in the policies of acquirers, including, for example, their merchant discount rate, may adversely affect us.
Accidents in our stores and distribution centers could have a material adverse effect on our business, results of operations and image.
Our stores are public spaces and may be subject to a series of incidents on their premises and suffer consequences beyond our stores’ management control. Accidents and other unforeseeable events beyond our control, caused by human, mechanical, technological or any other events, may occur at any time in our stores and distribution centers. If any accident or other unforeseeable event occurs, it could result in inventory losses and damage to our assets, customers, employees or any persons in circulation on our premises, and our image. We may also be subject to civil and/or criminal liability, as well as to the obligation to compensate customers, including through the payment of damages. Our business, results of operations and image may be adversely affected as a result of such accidents, or as a result of the manner in which we address such accidents and/or events.
5
Failure to protect our employees, commercial partners, suppliers and customers database could have an adverse effect on our business, financial condition or results of operations.
We maintain a database of information about our employees, commercial partners, suppliers and customers. In Brazil, the General Data Protection Law No. 13,709/18, or LGPD, regulates the processing and limitation of personal data usage, the role of data processing agents, and created the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD. Before the LGPD, the matter was protected by the Brazilian Federal Constitution, the Brazilian Consumer Protection Code (Law No. 8,708/90), the Brazilian Civil Rights Framework for the Internet (Law No. 12,965/14) and other Brazilian laws.
The LGPD establishes, among other things, a legal framework related to:
● | Recording activities related to personal data processing, commonly referred to as data mapping. This involves surveying and organizing information on how personal data is collected, stored, and utilized; |
● | Identifying of risks associated with these activities; |
● | Implementing measures to mitigate these risks; |
● | Implementing measures to mitigate these risks; and |
● | Implementing measures to mitigate these risks. |
The ANPD has autonomy to establish rules, interact with public and private sectors and oversee the processing and use of personal data (whether through complaints or by deliberation). We must observe the LGPD in implementing security measures and processing of personal data (operations involving the collection, use, access, reproduction, processing, storage, and transfer of data that identify or make identifiable a particular person).
If we are not in compliance with the LGPD, we and our subsidiaries may be subject to penalties, separately or cumulatively, of a fine of up to 2% (two percent) of our, our group or our conglomerate revenue in Brazil considering our last fiscal year, excluding taxes, but up to the global amount of R$50 million per violation. Furthermore, we may be held responsible for material, moral, individual or collective damages caused by us and be held jointly and severally liable for such damages caused by our subsidiaries due to non-compliance with the obligations established by the LGPD.
As of February 19, 2024, the ANPD had inspected and penalized four institutions: one entity from the private sector received a fine of R$14,000.00 for non-compliance with ANPD directives, while three companies from the public sector were issued warnings and corrective measures for failing to implement security requirements and improper data usage.
Failures in our legal regime of personal data protection, as well as the non-compliance with the applicable legislation, may result in high fines, disclosure of the incident to the market, elimination of personal data from our database, and even the suspension of our activities, which may negatively affect our reputation, financial results and, consequently, the value of our securities.
We may be unable to attract or retain key personnel.
In order to support and develop our operations, we must attract and retain personnel with specific skills and knowledge. If we lose any of these key professionals, we may not be able to attract new professionals with the same qualifications. Our success also depends on the ability to identify, attract, hire, train, retain, motivate and manage highly qualified professionals in the technical, management, information technology, marketing and services areas. Competition for such highly qualified employees is intense, and we may not be able to successfully attract, hire, retain, motivate and manage such qualified professionals. If we are not capable of attracting or retaining qualified professionals to manage and expand our operations, we may not have the capacity to conduct our business successfully and, consequently, our operating and financial results may be adversely affected.
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Our sales depend on our effectiveness of advertising and marketing campaigns, which can impact our sales and profitability.
We allocate significant resources to advertising and marketing campaigns, primarily on television, which we believe is the most effective medium for reaching our target audience and promoting attractiveness to our sales channels. We may experience negative impacts on our sales and profitability or fail to achieve the desired brand appreciation if these campaigns do not to meet our expected goals and objectives.
Additionally, considering that a large portion of our campaigns are aired on television, our profitability may be impacted if there is an increase in the costs of this type of advertising. Furthermore, our sales may be adversely affected as we encounter challenges in identifying changes in consumer behavior and preferences.
We may not be able to provide sufficient volume and variety of products at competitive prices or properly manage our inventory, which could cause a material adverse effect on us.
Our business depends on our ability to offer a diverse range of products at competitive prices. In our sector, we may purchase products in large quantities that we may not be able to sell efficiently and profitably, or in insufficient quantities to meet consumer demand, resulting in stockouts or unavailability of relevant merchandise.
Furthermore, we may face challenges associated with excess inventory, necessitating substantial discounts on products with limited market acceptance. We cannot guarantee that we will continue to accurately identify consumer demand and capitalize on purchasing opportunities, which could have a material adverse effect on our business and financial results.
Moreover, maintaining excessive inventory in our stores poses risks of product obsolescence, expiration, and damage due to improper handling. We are also exposed to theft and pilferage of goods in our distribution centers or during transport to our stores. The materialization of any of these risks could have a material adverse effect on our business and financial results.
We do not have a controlling shareholder or control group, which may leave us susceptible to shareholders’ alliances, conflicts among shareholders and other events arising from the absence of a controlling shareholder or control group.
We do not have a controlling shareholder or control group, in fact or in law, and we have dispersed shareholding, which may make us more susceptible to the appearance of a new group of shareholders acting jointly that may exercise control and define our operations.
As such, we are susceptible to hostile takeover attempts and conflicts arising therefrom, and certain resolutions requiring a minimum quorum for installation or approval may have a lengthy approval process or may even not be approved at all, delaying our decision-making process. If a control group emerges and has decision-making power, we may experience sudden and unexpected changes in our corporate policies and strategies, including a possible replacement of directors. Any sudden or unexpected change in our management, business plan or strategic direction, any attempt to acquire control or any dispute among shareholders regarding their respective rights may adversely affect our business and results of operations.
In addition, in the event control over us is acquired by an investor or group of investors, certain of our debt obligations may be accelerated, which could materially and adversely affect our financial condition. For additional information about our indebtedness and the applicable covenants, see “Item 3. Key Information—D. Risk Factors— Risks Relating to our Industry and Us—Certain of our debt instruments contain covenants that could limit our ability to operate our business and have other adverse consequences” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness—Long-Term Indebtedness” in the 2022 Form 20-F, which is incorporated by reference in this prospectus supplement.
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We were previously part of Casino’s economic group, which included other operational entities. We may be held jointly or severally liable in legal proceedings involving such entities.
Until June 2023, we were part of Casino’s economic group, alongside other operational entities. These entities are involved in legal proceedings as part of their normal business activities. If they are convicted, the outcome of such proceedings may impact us jointly or severally for actions or omissions that occurred during the period when we were under Casino’s common control. If we are held jointly or severally liable for such convictions, our operational and financial results and reputation may be adversely affected.
Unfavorable decisions in legal or administrative proceedings could have a material adverse effect on us.
We are party to legal and administrative proceedings related to civil, regulatory, environmental, tax and labor matters and may be a party to legal and administrative proceedings related to those or different matters in the future. We cannot assure you that pending legal proceedings will be decided in our favor. Our provisions (if made) may not be sufficient to cover the total cost arising from unfavorable decisions in legal or administrative proceedings. If all or a significant number of these proceedings have an outcome unfavorable to us, our business, financial condition and results of operations may be materially and adversely affected.
In addition, we are subject to inspection by federal, state and local authorities, including tax, labor and environmental authorities. These authorities may fine us and such fines may become administrative proceedings and, subsequently, judicial proceedings, which, if decided unfavorably to us, may have an adverse effect.
Similarly, an amount of R$1.5 billion related to a legal proceeding is identified as potential losses in note 17 of our audited financial statements included in this annual report and is guaranteed by CBD. This guarantee is a result of our previous corporate reorganization. In the event of adverse decisions, CBD may face challenges in reimbursing us, particularly in the case of economic distress.
In addition to financial provisions and the cost of legal fees associated with the proceedings, we may be required to post bonds in connection with the proceedings, which may adversely affect our financial condition. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings,” and note 17 to our audited financial statements included in this annual report for a description of our material litigation contingencies.
Our business depends on our brand Assaí. We may not be able to maintain and enhance our brand, or we may receive unfavorable customer complaints or negative publicity, which could adversely affect our brand.
We believe that our brand, Assaí, contributes significantly to the success of our business. We believe that maintaining and enhancing that brand is critical to expanding our base of customers, suppliers and vendors, which depends largely on our ability to continue to create positive customer experience, based on our competitive pricing and our large assortment of products. If we are unable to achieve it, our business and financial result may be adversely affected.
Customer complaints or negative publicity about our product offerings or services could harm our reputation and diminish consumer confidence in us. To maintain a good relationship with our customers, we must adequately train and manage our employees who are in a daily contact with our customers. We must also have a customer service team ready to efficiently and quickly solve problems and conflicts. The inability to manage or train our customer service team and our employees who are in a daily contact with our customers may compromise our ability to handle complaints effectively. If we do not effectively manage complaints, our reputation and business could be affected, as well as our customers’ confidence in us.
Publicity and media coverage have a significant influence on consumer behaviors. If we are the target of negative publicity that could cause our consumers to change their purchasing habits, either with respect to our stores or with respect to our products, including as a result of product recalls or scandals related to the handling, preparation or storage of food products in our stores, we may suffer a material adverse effect.
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We may not be able to protect our intellectual property rights.
Our future success depends significantly on our ability to protect our intellectual property assets, including trademarks, domain names, trade secrets and know-how.
We cannot guarantee that trademark and patent registrations will be issued by the Brazilian Institute of Intellectual Property (Instituto Nacional da Propriedade Intelectual – INPI) with respect to any of our applications. There is also a risk that we could inadvertently fail to renew a trademark or a domain name on a timely basis or that our competitors will challenge, invalidate or circumvent any of our existing or future intellectual property rights. Although we have put in place appropriate actions to protect our portfolio of intellectual property rights (including trademark registration and domain names), we cannot be certain that the steps we have taken will be sufficient or that third parties will not infringe upon or misappropriate our proprietary rights. Any failure in our ability to protect our proprietary rights against infringement or misappropriation could adversely affect our business, results of operations, cash flows or financial condition, and in particular, on our ability to develop our business.
In addition, third parties may claim that our products or services violate their intellectual property rights, which may lead to disputes and/or litigation related to intellectual property assets that, even if without merit, may be costly and time-consuming. Any claim related to intellectual property that is relevant to our activities may have a negative effect on our results of operations and reputation.
Our business is subject to substantial fluctuation due to the seasonal buying patterns of our customers.
Our sales and operating results may vary from quarter to quarter in accordance with seasonal fluctuations. Historically, we generate more net sales in the fourth quarter of each year, which includes the weeks leading up to and immediately following Black Friday and the Christmas sales season. Consequently, a reduction in consumer confidence in the weeks leading up to and immediately following Black Friday and the Christmas selling season would have a significant impact on our business.
Seasonality also influences our own purchasing patterns as we increase purchases of goods for seasonal activities prior to a season, which directly impacts cash flow, accounts payable and inventory levels.
In addition, seasonality affects our level of debt and working capital as we generally incur more debt during the first half of the year to finance our increased cash flow needs as a result of: (1) the payments maturity to suppliers for inventory acquired prior to the peak selling seasons; and (2) a decrease in the sales volume, which typically occurs after the Christmas sales season that extends into the first half of the following year. If we miscalculate the demand for the amount of products we will sell or the variety of products during the fourth quarter, our net sales may decline and consequently our financial performance. If our fourth quarter net sales are not high enough to fully recover our employees and advertising expenses or are lower than the targets used to determine inventory levels, such shortfall could adversely affect our operating results.
Our quarterly operating results may also vary significantly as a result of various other factors, including, among others, the timing of new product introductions and advertising and changes in product assortment. Any seasonal or quarterly fluctuations that we report in the future may not meet the expectations of investors and market analysts, and may adversely affect the price of our shares.
We face competition from internet sales, which may negatively affect sales through traditional channels, and we might not have an effective response to this competition.
In recent years, sales of food, clothing and home appliances over the internet have increased significantly in Brazil, and we expect this trend to continue as more traditional retailers enter into the online retail field or expand their existing infrastructure related to internet sales. For example, a large multinational e-commerce company recently announced that it would focus more resources on its Brazilian business. Internet retailers are able to sell directly to consumers, reducing the importance of traditional distribution channels such as cash and carry stores, supermarkets and retail stores. Certain internet food retailers have significantly lower operating costs than traditional hypermarkets and supermarkets because they do not rely on an expensive network of retail points of sale or a large workforce. As a result, internet food retailers are able to offer their products at lower prices than we do and in certain cases are able to bypass intermediaries in the cash and carry segment and deliver products directly to consumers. We believe that our customers are increasingly using the internet to shop electronically for food and other retail goods, and that this trend is likely to continue.
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Additionally, technology employed in retail sales of food and home appliances evolves constantly as part of a modern digital culture. We may not be able to adapt to these changes quickly enough to meet our customers’ demands and preferences, as well as standards of the industry in which we operate.
We cannot provide any assurance that our strategy will be successful in meeting customer demands or maintaining our market share in light of our competitors’ internet businesses. If internet sales in Brazil continue to grow, (i) consumers’ reliance on traditional distribution channels such as our cash and carry stores could be materially diminished, and (ii) revenues from our distribution channels may be significantly reduced, which could have a material adverse effect on our financial condition and results of operations.
Losses not covered by our insurance may result in a material adverse effect on our business.
We cannot guarantee that our insurance coverage will always be available or will always be sufficient to cover any damages arising from any type of claim. In addition, there are certain types of risks that may not be covered by our policies, such as accidents, war, force majeure or certain business interruptions. We cannot guarantee that when our current insurance policies expire, we will be able to renew them on favorable and sufficient terms.
Claims that are not covered by our policies or the inability to renew our insurance policies may adversely and substantially affect us. In the case of insured events, insurance policy coverage is conditional upon the payment of the related premium. Our failure to pay these premiums coupled with the occurrence of a claim could place us at risk, given that damages, even if insured, would not be subject to coverage by the insurer.
We may encounter difficulties in opening and operating new stores, which may hinder our expansion plans and adversely affect our sales and results of operations.
Our growth depends on our success in opening and operating new stores, as well as in the conversion of some of our existing stores to new formats. We are subject to risks and uncertainties regarding future events that may limit or prevent the opening of new stores, which may adversely affect the trading price of our securities.
The ability to successfully open and operate new stores depends on a number of factors, some of which are beyond our control. These factors include our ability to negotiate leases on acceptable terms and to identify suitable locations for new stores, which involves properly collecting and analyzing demographic and market data to determine whether there is sufficient demand for our products in such chosen locations. We may not be able to obtain financing on acceptable terms once our decision is made to open a new store.
We may also face difficulties in offering the right merchandise that meets our customers’ needs and preferences in those regions. In addition, the opening of new stores requires adjustments in stock levels, which may cause increase of our costs with new hiring, training and retention of qualified personnel for such stores. We may not be able to satisfactorily integrate new stores into existing operations or obtain the necessary government licenses. A failure to open new stores in a timely and cost-effective manner and in accordance with our strategic plans could adversely affect our business and results of operations.
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Unfavorable decisions or unfolding of investigations in judicial or administrative proceedings involving members of our board of directors or executive officers may have a material adverse effect on us.
Members of our board of directors or executive officers may become defendants and/or be summoned to testify in administrative or judicial proceedings, in civil, criminal, tax and labor lawsuits not related to us, but such initiation and/or results may adversely affect them and negatively impacting our reputation. A conviction in criminal proceedings could prevent them from exercising their functions for us.
If any future investigations, unfolding of any ongoing investigations or allegations involving members of our board of directors or executive officers emerge, the results of our operations and the price of our shares may be adversely affected.
We cannot guarantee that our service providers or suppliers do not engage in irregular practices.
Given the decentralization and outsourcing of our service providers’ operations and our suppliers’ production chains, we cannot guarantee that they will not have issues regarding working conditions, ethical and environmental matters, sustainability, outsourcing the provision or production chain and improper safety conditions, or that they will not engage in these irregular practices to lower service or product costs.
Furthermore, some of our partners use online services and are subject to Brazilian regulations and laws specifically governing the internet and electronic commerce. These regulations and laws may also cover taxation, user privacy, data protection, pricing, content, copyright, distribution, electronic contracts and other communications, customer protection, provision of online payment services, home internet access in broadband and characteristics and quality of products and services.
If we fail to comply with these regulations and laws or our partners are held accountable for such non-compliance, our image, reputation and consumers’ perception about our products could be damaged, which could adversely affect our net operating income, operating results, as well as the price of the Sendas common shares and the Sendas ADSs.
Some categories of products that we sell are principally acquired from a few suppliers and changes in this supply chain could adversely affect our business.
Some categories of products that we sell are principally acquired from a few suppliers. Notably, we procure our beverage and beef products mainly from five suppliers. The products provided by these suppliers represented approximately 16.1% of our total sales for the year ended December 31, 2023. If any of these suppliers is not able to supply the products in the quantity and at the frequency that we normally acquire them, and we are not able to replace the supplier on acceptable terms or at all, we may be unable to maintain our usual level of sales in the affected category of product, which may have a material adverse effect on our business and operations and, consequently, on our results of operations.
Restrictions of credit availability to consumers in Brazil and Brazilian government rules and interventions affecting financial operations may adversely affect our sales volumes and operations, and we are exposed to risks related to customer financing and loans.
Sales in installments are an important component of the result of operations for Brazilian non-food retailers. Despite a decrease in the unemployment rate in Brazil from 13.2% on December 31, 2021 to 9.3% on December 31, 2022 and 7.8% on December 31, 2023, such rate remained high. The high unemployment rate in Brazil, combined with relatively high interest rates (the basic interest rate in Brazil, the SELIC rate, reached 11.75% on December 31, 2023, as compared to 13.75% on December 31, 2022 and 9.25% on December 31, 2021) resulted in less credit availability to consumers in Brazil.
Our sales volumes, particularly for non-food products, and, consequently, our results of operations may be adversely affected if the credit availability to consumers is reduced, or if Brazilian government policy restricts the granting of credit to consumers.
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Additionally, we are involved through FIC in extending credit to customers through our partnership with Itaú Unibanco Holding S.A. FIC exclusively offers credit cards, financial services and insurance coverage at our stores. For more information on FIC, see “Item 4. Information on the Company—B. Business Overview—FIC.”
FIC is subject to the risks normally associated with providing financing services, including the risk of default on the payment of principal and interest and any mismatch of cost and maturity of our funding in relation to the cost and maturity of financing to customers, which could have a material adverse effect on us.
Furthermore, FIC is a financial institution regulated by the Central Bank and is therefore subject to extensive regulation. The regulatory structure of the Brazilian financial system is continuously changing. Existing laws and regulations may be amended, and their application or interpretation may also change, and new laws and regulations may be adopted. FIC and, therefore, we, may be adversely affected by regulatory changes, including those related to:
● | minimum capital requirements; |
● | requirements for investment in fixed capital; |
● | credit limits and other credit restrictions; |
● | accounting requirements; |
● | intervention, liquidation and/or temporary special management systems; and |
● | interest rates. |
Brazilian government rules and intervention may adversely affect our operations and profitability more than those of a competitor without financial operations.
We are subject to the risk of ratings reassessments.
If our operational performance deteriorates or there is a decline in our cash generation, our ratings may be negatively impacted. Downgrades in our ratings could lead to increased cost in raising new funds, reducing our investment capacity, which could negatively affect our operational results, reputation and the value of our securities.
We may be held responsible for consumer incidents involving adverse reactions after consumption of products sold by us.
Products sold in our stores may cause consumers to suffer adverse reactions. Incidents involving these products may have a material adverse effect on our operations, financial condition, results of operations and reputation. Legal or administrative proceedings related to these incidents may be initiated against us, with allegations, among others, that our products were defective, expired, damaged, adulterated, contaminated, do not contain the properties advertised or do not contain adequate information about possible side effects or interactions with other chemical substances. Any actual or possible health risk associated with these products, including negative publicity related to these risks, may lead to a loss of confidence among our customers regarding the safety, efficacy and quality of the products sold in our stores. Any allegation of this nature made against our brand or products sold in our stores may have a material adverse effect on our operations, financial condition, results of operations and reputation.
Health risks related to the food industry may adversely affect our ability to sell food products.
We are subject to risks affecting the food industry generally, including contamination or spoilage of food, evolving nutritional and health concerns by our customers, product adulteration, and the public perception of product safety for the food industry as a whole, including as a result of disease outbreaks or the fear of such outbreaks. Even in a scenario where the products we sell are not affected by contamination, the food industry could face negative publicity if the food from producers or other retailers were to be contaminated, which can result in negative public perception about the safety of food products, a fear of outbreaks, and a reduction in demand for food products in the affected category. The widespread loss of consumer confidence in the safety and quality of food products, and any related real or perceived health risks, could have a material adverse effect on us.
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Our inability to implement stakeholder- and community-oriented social measures where our stores are located, including promotion of respect, diversity and inclusion, could negatively affect our reputation.
In recent years, the regulatory and self-regulatory Brazilian capital markets authorities, investors and society have shown to be increasingly attentive to the adoption by the issuers of securities of: (1) environmental practices, as the implementation of measures to reduce impacts on the environment; (2) social practices, as the commitment toward their employees, suppliers and the community; and (3) governance practices, as the performance of actions to efficiently and responsibly apply financial and human resources (ESG). In the social aspect, the effective implementation of social practices depends on continuous, dynamic and systematic identification, as well as a thorough understanding of the main characteristics and demands of the stakeholders with whom the issuer relates and interacts, and with the communities that influence or are influenced by its business, in order to assess the potential risks and impacts generated by its operations on such people and communities.
If we are unable to implement effective social measures in the places where we operate, periodic training with employees to raise awareness about the importance of this subject, implement specific internal processes, hire and allocate teams dedicated to it, and perform coercive measures to prevent our stakeholders from practicing acts that are not aligned with the pillars of respect, diversity and inclusion, our reputation and our customers’ perception about us may be negatively impacted, which may adversely affect the results of our operations.
If we are unable to implement effective stakeholder- and community-oriented social measures where we operate, including those listed above, our reputation and perception of our customers about us may be negatively affected, which may adversely affect the results of our operations.
We are subject to environmental laws and regulations and any non-compliance may adversely affect our reputation and financial position.
We are subject to a number of federal, state and municipal laws and regulations relating to the preservation and protection of the environment. Among other obligations, these laws and regulations establish environmental licensing requirements and standards for the release of effluents, gaseous emissions, management of solid waste and protected areas. We incur expenses for the disposal and handling of wastes at our stores, distribution centers and headquarters.
Any failure to comply with those laws and regulations may subject us (and our officers and directors) to administrative and criminal sanctions, in addition to the obligation to remediate or indemnify others for the damages caused. According to the Brazilian Federal Decree No. 6,514, of July 22, 2008, such sanctions may include, among others, the imposition of fines ranging from R$50 to R$50 million, the cancellation of our licenses or revocation of authorizations, and the temporary or permanent suspension of our activities, besides to the obligation to repair any environmental damage we may have caused. Those sanctions may adversely affect the operation of our stores, as well as our reputation, cash availability and operating results.
We cannot ensure that these laws and regulations will not become stricter. If they do, we may be required to increase, perhaps significantly, our capital expenditures and costs to comply with these environmental laws and regulations. Unforeseen environmental investments may reduce available funds for other investments and could materially and adversely affect us.
Combating risks related to climate change requires continuous improvement of our environmental management practices.
The focus on environmental issues and how companies manage possible negative impacts on business have increased due to the actions of developed countries and the interests of a new class of investors. We are subject to extensive federal, state and municipal legislation related to the preservation and protection of the environment and to the environmental licensing and management of our stores and distribution centers. Among other obligations, such legislation establishes requirements and standards for licenses or authorizations related to effluents, refrigerant gases, solid waste management and protected areas.
Compliance with legislation, as well as combating risks related to climate changes, requires continuous improvement of our environmental management practices and has to be incorporated into our expansion strategy, as well as the modernization of our equipment, cleaner energy sources and increased energy efficiency, with investments in tropicalized technologies and management of our service providers (national and regions) that reflect our current growth challenge.
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We make use of refrigerated gases in the refrigeration systems in our stores. The maintenance required on the equipment and the replacement of gases results in emissions of gases that contribute to climate change. If we are questioned and eventually condemned as a result of such practices, we may be subject to sanctions, which may adversely affect our image and reputation.
In addition, when considering supply chain emissions, it is required extensive mapping and engagement regarding emissions calculation. We may be required to significantly increase our investments and costs in order to comply with such new standards and legislation, which may lead to significant disbursements for us.
Inadequate management of solid residues generated in our facilities and eventual contamination may adversely affect our business.
Pursuant to Brazilian Federal Law No. 12,305, of August 2, 2010, we are subject to the management of solid waste rules and are responsible for the segregation, storage, transportation and final disposal of our waste in an environmentally appropriate manner. We may have to repair any environmental damage resulting from the inadequate management of our waste.
If soil or underground water contamination is identified in the properties where we are located, we may be held liable and compelled to remediate such contamination, bearing the costs involved. The environmental legislation determines that the owner and/or possessor of a property that is located in a contaminated area may, regardless of whether it has actually caused such contamination, be held liable and compelled by both environmental agencies and the public prosecution service to perform the rehabilitation of the contaminated area through remediation and recovery of associated damage. Such remediation processes tend to extend over long periods of time and may involve the disbursement of significant amounts of money until it is concluded and a document is issued attesting the rehabilitation of the area for use, which may affect our business, operating results, and image.
Contracting third parties for collection, storage, transportation, treatment or final disposal of solid residues does not exempt us from the liability for damages that may be caused by their inadequate management. The non-fulfillment of any obligations related to the management of solid waste or the implementation of reverse logistics and/or cause pollution of any nature, may lead to the application of a fine, which may vary from R$5 thousand to R$50 million, as established in the Brazilian Federal Decree 6,514, of July 22, 2008, besides any potential liabilities and penalties established at the state or municipal level.
Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions may adversely affect us and the trading price of the Sendas common shares and the Sendas ADSs.
The Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes to monetary, credit, tariff, tax and other policies and regulations. The Brazilian government’s actions to control inflation have often involved, among other measures, increases and decreases in interest rates, changes in tax and social security policies, price controls, currency exchange and remittance controls, devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and the trading price of the Sendas common shares and the Sendas ADSs may be adversely affected by changes in Brazilian policy or regulations at the federal, state or municipal level involving or affecting various factors, such as:
● | economic, political and social instability; |
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● | increases in the unemployment rate; |
● | interest rates and monetary policies (such as restrictive consumption measures that could affect the income of the population and government measures that may affect the levels of investment and employment in Brazil); |
● | significant increases in inflation or strong deflation in prices; |
● | currency fluctuations; |
● | import and export controls; |
● | exchange controls and restrictions on remittances abroad (such as those that were imposed in 1989 and early 1990s); |
● | modifications to laws and regulations according to political, social and economic interests; |
● | efforts to reform labor, tax and social security policies and regulation (including the increase of taxes, both generally and on dividends); |
● | energy and water shortages and rationing; |
● | liquidity of domestic capital and lending markets; and |
● | other political, diplomatic, social and economic developments in or affecting Brazil. |
Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies. These uncertainties and other future developments in the Brazilian economy may adversely affect our business activities, and consequently our results of operations, and may also adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
Such factors are compounded by the overall health and growth of the Brazilian economy. Brazil’s gross domestic product, or GDP, increased by 2.9% in 2023, increased by 2.9% in 2022, increased by 4.6% in 2021 and decreased by 4.1% in 2020. Prior to 2020, Brazil was emerging from a prolonged recession after a period of a slow recovery, with only meager GDP growth in 2019 and 2018. Brazil’s GDP growth rates were 1.1% in each of 2019 and 2018. Our results of operations and financial condition have been, and will continue to be, affected by the weakness of Brazil’s GDP. Developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the demand for our products and services, which may adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
Political instability in Brazil has adversely affected and may continue to adversely affect our business, results of operations and the trading price of the Sendas common shares and the Sendas ADSs.
The Brazilian economy has been and continues to be affected by political events in Brazil, which have also affected the confidence of investors and the public in general, adversely affecting the performance of the Brazilian economy and increasing the volatility of securities issued by Brazilian companies.
Recent economic instability in Brazil has contributed to a decrease of market confidence in the Brazilian economy and to the worsening of the Brazilian political scenario. In addition, Brazilian markets have experienced heightened volatility due to uncertainties from ongoing investigations into money laundering and corruption conducted by the Brazilian Federal Police and the Office of the Brazilian Federal Prosecutor, including the Lava Jato investigation. These investigations adversely affected the Brazilian economy and political scenario. The effects of the Lava Jato investigation and other investigations of corruption had and continue to have an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy, political environment and capital markets. We have no control over and cannot predict whether the ongoing investigations or allegations will result in further political and economic instability, or if new allegations against government officials and/or companies will arise in the future.
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The Brazilian economy has experienced a sharp downturn in recent years due, in part, to the interventionist economic and monetary policies of the Brazilian government and the global decline in commodity prices. In addition, Brazil’s federal government has failed to implement significant and/or structural changes in Brazilian policy, tax structure, or regulation that could contribute to long-term growth in Brazil.
Furthermore, Luiz Inácio Lula da Silva was elected president in October 2022 for a four-year term beginning in 2023. After the results of the presidential election were announced, certain groups formed by extreme supporters of the defeated candidate organized public protests against the use of electronic ballot boxes and alleged certain electoral conspiracies. Any deterioration of the political environment in Brazil could affect the confidence of investors and the general public.
The President of Brazil has the power to determine policies and issue governmental acts related to the conduct of the Brazilian economy and, consequently, affect the operations and financial performance of companies, including us. We cannot predict which policies the President will adopt, much less whether such policies or changes in current policies may have an adverse effect on us or on the Brazilian economy.
Such events may have a material adverse effect on our business, results of operations, financial condition and prospects. Historically, the Brazilian political scenario has influenced the performance of the Brazilian economy. In particular, political crises have affected the confidence of investors and the general public, which has adversely affected the Brazil economic development and may adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
Changes in the Brazilian tax legislation, tax incentives, benefits, or different interpretations of Brazilian tax laws may adversely affect our operations.
Brazilian tax authorities frequently change tax regimes, potentially impacting us and influencing consumer demand for our products. These changes include adjustments in tax rates and the introduction of temporary or permanent taxes. Some of these changes may increase our tax burden, leading to higher prices for our products and restricting our ability to conduct business, which could adversely affect our profitability.
We cannot guarantee that we will be able to maintain our projected cash flow and profitability after an increase in taxes, or if tax incentives we benefit from are not maintained or renewed.
Furthermore, certain Brazilian tax laws may be subject to controversial interpretation. If the Brazilian tax authorities interpret such tax laws in a manner inconsistent with our interpretations, our operations could be materially impacted.
Brazilian government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm us and the trading price of the Sendas common shares and the Sendas ADSs.
Historically, Brazil has experienced high inflation rates. Inflation and certain actions taken by the Brazilian government to curb it, including the increase of the SELIC rate established by the Central Bank, together with the speculation about governmental measures to be adopted, have materially and adversely affected the Brazilian economy and contributed to economic uncertainty in Brazil, heightening volatility in the Brazilian capital markets and adversely affecting us. Brazil’s General Price Index (Índice Geral de Preços – Mercado), or IGP-M index, recorded deflation of (3.2)% in 2023, and inflation of 5.5% in 2022 and 17.8% in 2021. Brazil’s Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo) recorded inflation of 4.62% in 2023, 5.79% in 2022 and 10.06% in 2021, according to the IBGE.
Tight monetary policies with high interest rates have restricted and may restrict Brazil’s growth and the availability of credit. Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our business and increase the payments on our indebtedness. In addition, we may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure.
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During recent years there has been significant volatility in the official Brazilian base interest rate (Sistema Especial de Liquidação e Custódia, or SELIC rate, set by the COPOM, which ranged from 14.25%, on December 31, 2015, to 2.00% as of December 31, 2020, and 11.75% as of December 31, 2023. Any future measures adopted by the Brazilian government, including reductions in interest rates, intervention in the exchange market and the implementation of mechanisms to adjust or determine the value of the Brazilian real may trigger inflation, adversely affecting the overall performance of the Brazilian economy.
Furthermore, Brazilian government measures to combat inflation that result in an increase in interest rates may have an adverse effect on us, as our indebtedness is indexed to the interbank deposit certificate (Certificados de Depósito Interbancário), or CDI, rate. Inflationary pressures may also hinder our ability to access foreign financial markets or lead to government policies to combat inflation that could harm us or adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
Exchange rate volatility may adversely affect the Brazilian economy and us.
The real has historically experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. In May 2020, prompted by the COVID-19 crisis, the Brazilian real depreciated significantly in relation to the U.S. dollar, reaching to R$5.9372 to US$1.00 on May 14, 2020. In 2020, the real depreciated against the U.S. dollar in comparison to 2019, reaching R$5.1967 per US$1.00 as of December 31, 2020. In 2021, the real further depreciated against the U.S. dollar in comparison to 2020, reaching R$5.5805 per US$1.00 as of December 31, 2021. In 2022, the real appreciated against the U.S. dollar in comparison to 2021, reaching R$5.2177 per US$1.00 as of December 31, 2022. In 2023, the real appreciated against the U.S. dollar in comparison to 2022, reaching R$4.8413 per US$1.00 as of December 31, 2023. On March 29, 2024, the real/U.S. dollar exchange rate was R$4.9962 per US$1.00. There can be no assurance that the real will not depreciate against the U.S. dollar.
Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which negatively affects the growth of the Brazilian economy as a whole, curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation of the real against the U.S. dollar has also, including in the context of an economic slowdown, led to decreased consumer spending, deflationary pressures and reduced growth of the economy as a whole. Depreciation would also reduce the U.S. dollar value of distributions and dividends and the U.S. dollar equivalent of the trading price of the Sendas common shares and the Sendas ADSs. As a result, we may be materially and adversely affected by real/U.S. dollar exchange rate variations.
Global economic and political instability and geopolitical conflicts, such as the conflict between Russia and Ukraine and in the Gaza Strip, could adversely affect our business, financial condition or results of operations.
Our business could be adversely affected by unstable economic and political conditions and geopolitical conflicts, such as the conflicts between Russia and Ukraine and in the Gaza Strip. While we do not have any customer or direct supplier relationships in a country with current military conflicts, and related sanctions, as well as export/import controls or actions that may be initiated by nations including Brazil and other potential uncertainties could adversely affect our business and/or our supply chain, business partners or customers, and could cause changes in our customers buying patterns and interrupt our ability to supply products.
Inflation, energy and commodities costs may fluctuate as a result the geopolitical conflicts between nations and related economic sanctions and in the Gaza Strip. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our stores and costs to purchase products from our suppliers. A continual rise in energy and commodities costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our results of operations, financial condition and cash flows.
The ongoing military conflicts have already resulted in significant volatility in financial markets, as well as in an increase in energy and commodity prices globally. In the event geopolitical tensions fail to abate or deteriorate further, additional governmental sanctions may be enacted adversely impacting the global economy, its banking and monetary systems, markets or customers for our products.
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Any further downgrading of Brazil’s credit rating may adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
Credit ratings affect investors’ perceptions of risk and, as a result, the yields required on debt issuances in the financial markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, taking into account a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness and the prospect of change in these factors.
Standard & Poor’s (“S&P”) downgraded Brazil’s credit rating from BB to BB-minus in January 2018 with a stable outlook in light of doubts regarding the presidential election and social security reform efforts. In February 2019, S&P’s affirmed Brazil’s sovereign credit rating at BB-minus with a stable outlook. In December 2019, S&P’s affirmed Brazil’s sovereign credit rating at BB-minus with a positive outlook, further maintaining the sovereign credit rating at BB-minus, but revising the outlook on this rating from positive to stable in April 2020. As a result of the COVID-19 pandemic, in 2020, 2021 and 2022, S&P maintained the country’s credit rating at BB- with a stable outlook. On December 19, 2023, S&P upgraded Brazil’s sovereign credit rating at BB with a stable outlook.
Moody’s maintained Brazil’s sovereign debt credit rating at Ba2 in April 2028, but changed its prospect from negative to stable, maintaining it in September 2018, citing the expected new government spending cuts. In May 2019, Moody’s affirmed Brazil’s sovereign credit rating at Ba2 and changed the outlook to stable, which rating and outlook were further reaffirmed by Moody’s in 2020, 2021 and 2022.
Fitch downgraded Brazil’s sovereign credit rating to BB-minus, citing, among other reasons, fiscal deficits, the increasing burden of public debt and an inability to implement reforms that would structurally improve Brazil’s public finances. In November 2019, Fitch maintained Brazil’s sovereign credit rating at BB-minus, citing the risk of tax and economic reforms and political instability. In 2020, 2021 and 2022, Fitch reaffirmed Brazil’s sovereign credit rating at BB-minus and revised the outlook on this rating to negative as a result of the impact of the COVID-19 pandemic. On December 15, 2023 Fitch upgraded Brazil’s sovereign credit rating at BB with a stable outlook.
Any further downgrade of Brazil’s credit rating could heighten investors’ perception of risk and, as a result, increase the cost of debt issuances and adversely affect the trading price of our securities.
Developments and the perception of risk in other countries may adversely affect the price of securities of Brazilian issuers, including the Sendas common shares and the Sendas ADSs.
The market value of securities of Brazilian issuers is affected to varying degrees by economic and market conditions in other countries, including developed countries such as the United States and certain European and emerging market countries. Investors’ reactions to developments in these countries may adversely affect the market value of securities of Brazilian issuers, including the Sendas common shares and the Sendas ADSs. Trading prices on B3, for example, have been historically affected by fluctuation in interest rates applicable in the United States and variation in the main U.S. stock indices. Any increase in interest rates in other countries, especially the United States, may decrease global liquidity and the interest of investors in the Brazilian capital markets, adversely affecting the ADSs and our common shares.
Moreover, crises or significant developments in other countries, such as: (1) the financial crisis and any political instability in the United States; (2) the conflict between Russia and Ukraine; (3) a trade war between the United States and China; and (4) crises in Europe and other countries that affect the global economy may produce effects that directly or indirectly affect the Brazilian capital markets and broader economy, including price volatility of the securities of Brazilian issuers, including the Sendas common shares and the Sendas ADSs, diminished credit availability, supply chain disruptions, and inflation, among other consequences, which may adversely affect us, including the trading price of our securities, limiting or preventing our access to capital markets and to funds to finance our future operations at acceptable terms.
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The outbreak of communicable diseases around the world may lead to higher volatility in the global capital markets and recessionary pressure on the Brazilian economy. Any outbreak in Brazil could directly affect our operations, each of which may materially and adversely affect our business, financial condition and results of operations.
The outbreak of communicable diseases on a global scale may affect investment sentiment and result in higher volatility in global capital markets and may have a recessionary effect on the Brazilian economy.
Events beyond our control, including epidemics and pandemics, affect the prices of the products we sell, the lease paid by our tenants, alter labor contract regimes, reduce our personnel in operation, increase the rate of leaves of absence, among others, and may harm our operations and those of our suppliers, tenants and service providers, as well as have a negative effect on consumption or result in political or economic instability.
These events could cause the temporary or permanent closure of some of our stores and/or distribution centers, our tenants’ stores, delay or affect our ability to distribute products to our stores and our consumers, including in online sales deliveries, reduce demand for the products we sell, increase their price and decrease our sales, which could have a material adverse effect on our business and results of operations.
Risks Relating to the Sendas Common Shares and the Sendas ADSs
The volatility and illiquidity of the Brazilian securities markets and of the Sendas common shares may substantially limit your ability to sell the Sendas common shares underlying the Sendas ADSs at the price and time you desire.
Investing in securities that are traded in emerging markets, including in Brazil, often involves greater risk and are generally considered to be more speculative in nature than investing in securities traded in the securities markets of more developed countries. These investments are subject to certain economic and political risks, including: (1) changes in the regulatory, tax, economic and political environment that may affect the ability of investors to obtain a total or partial return on their investments; and (2) restrictions on foreign investment and return of capital invested.
The Brazilian securities market is substantially smaller, less liquid, more volatile and more concentrated than major international securities markets, including the securities market of the United States. Furthermore, the regulations of B3 may differ from what foreign investors are accustomed to seeing in other international exchanges. The characteristics of the Brazilian securities market may substantially limit the ability of holders of the Sendas common shares underlying the Sendas ADSs to sell them at the time and price they desire and, consequently, may adversely affect the market price of the Sendas common shares and the Sendas ADSs. If a liquid and active trading market is not developed or maintained, the trading price of the Sendas common shares and the Sendas ADSs may be negatively affected.
We cannot assure you that an active trading market will be sustained for the Sendas common shares or the Sendas ADSs or that we will be able to maintain our listing on the B3 or the NYSE. The trading volume of the Sendas common shares and the Sendas ADSs may be volatile, and holders of the Sendas common shares and the Sendas ADSs may not be able to sell their respective securities.
The Sendas common shares are listed on the Novo Mercado listing segment of the B3, and the Sendas ADSs are listed on the NYSE. The listing of the Sendas common shares and the Sendas ADSs on the B3 and the NYSE, respectively, does not guarantee that a market for the Sendas common shares or the Sendas ADSs will be sustained or that we will be able to maintain our listing on the B3 or the NYSE. No assurance can be provided as to the demand for or trading price of the Sendas common shares or the Sendas ADSs.
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The trading price of and demand for the Sendas common shares and the Sendas ADSs and the continued existence of a market and favorable price for the Sendas common shares and the Sendas ADSs will depend on a number of conditions, including:
● | the risk factors described in this annual report; |
● | general social, economic and political conditions internationally and in Brazil, including fiscal and monetary policies to be adopted by the new government in Brazil, changes in interest and exchange rates and impacts on the global economy resulting from the ongoing military conflicts between Russia and Ukraine; |
● | actual or anticipated fluctuations in our quarterly and annual results and those of our competitors; |
● | our businesses, operations, results and prospects; |
● | future mergers and strategic alliances; |
● | market conditions in the Brazilian cash and carry industry; |
● | changes in government regulation, taxes, legal proceedings or other developments; |
● | shortfalls in our operating results from levels forecasted by securities analysts; |
● | investor sentiment toward the stock of companies in our industry in general; |
● | announcements concerning us or our competitors; |
● | maintenance of acceptable credit ratings or credit quality; and |
● | the general state of the securities markets. |
Any of these factors may impair the sustainability of a liquid market for the Sendas common shares or the Sendas ADSs and the ability of investors to sell the Sendas common shares or the Sendas ADSs at an attractive price. These factors also could cause the market price and demand for the Sendas common shares and the Sendas ADSs to fluctuate substantially, which may negatively affect the price and liquidity of the Sendas common shares and the Sendas ADSs. Many of these factors and conditions are beyond our or our shareholders’ control.
If securities or industry analysts publish inaccurate or unfavorable research about us or our businesses, the price and trading volume of Sendas common shares and Sendas ADSs could decline.
The trading market for the Sendas common shares and the Sendas ADSs depends in part on the research and reports that securities or industry analysts publish about us or our businesses. If one or more of the analysts who cover us downgrade our securities or publish inaccurate or unfavorable research about our businesses, the price of the Sendas common shares and the Sendas ADSs would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for the Sendas common shares and the Sendas ADSs could decrease, which might cause the price and trading volume of the Sendas common shares and the Sendas ADSs to decline.
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Future sales, or the perception of future sales, of substantial amounts of the Sendas common shares on the B3 or the Sendas ADSs on the NYSE, or the anticipation of these sales, could adversely affect the market price of the Sendas common shares and the Sendas ADSs prevailing from time to time or their liquidity and could impair our ability to raise capital through the sale of equity securities.
None of us, our directors or officers or our shareholders are subject to any lock-up agreement that restrict or limit our or their ability to sell Sendas common shares or ADSs.
The market price of the Sendas common shares and the Sendas ADSs could decline significantly as a result of sales (or anticipated sales) of a large number of shares of the Sendas common shares on the B3 or the Sendas ADSs on the NYSE. The perception that these sales might occur could depress the market price of the Sendas common shares or the Sendas ADSs prevailing from time to time or adversely affect their liquidity. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. For more information about our principal shareholders, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.” As a result of, and immediately following, the Spin-Off, the shareholders of CBD became shareholders of Sendas.
If you exchange the Sendas ADSs for Sendas common shares, as a result of Brazilian regulations you may risk losing the ability to remit foreign currency abroad.
Holders of Sendas ADSs will benefit from the electronic certificate of foreign capital registration obtained by the Sendas ADS Custodian in Brazil for the Sendas common shares underlying the Sendas ADSs, which will permit the Sendas ADS Custodian to convert dividends and other distributions with respect to the Sendas common shares into U.S. dollars and remit the proceeds abroad. If you surrender your Sendas ADSs and withdraw Sendas common shares, you will be entitled to continue to rely on the Sendas ADS Custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the Sendas common shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell common shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration. If you do not qualify under the foreign investment regulations, you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, the Sendas common shares.
If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes. See “Item 10. Additional Information—D. Exchange Controls.”
Holders of Sendas ADSs are not entitled to attend shareholders’ meetings and may only vote through the Sendas Depositary.
Under Brazilian law, only shareholders registered as such in Sendas’s corporate books may attend Sendas’s shareholders’ meetings. All Sendas common shares underlying the Sendas ADSs are registered in the name of the Sendas Depositary. Consequently, a holder of Sendas ADSs is not entitled to attend Sendas’ shareholders’ meetings. Holders of Sendas ADSs may exercise the voting rights with respect to Sendas common shares only in accordance with the deposit agreement relating to the Sendas ADSs. There are practical limitations upon the ability of holders of Sendas ADSs to exercise their voting rights due to the additional steps involved in communicating with holders of Sendas ADSs. For example, Sendas is required to publish a notice of Sendas’s shareholders’ meetings in certain newspapers in Brazil. To the extent that holders of Sendas common shares are entitled to vote at a shareholders’ meeting, they will be able to exercise their voting rights by attending the meeting in person or voting by proxy. By contrast, holders of Sendas ADSs will receive notice of a shareholders’ meeting by mail from the Sendas Depositary following Sendas’s notification to the Sendas Depositary of the shareholders’ meeting and Sendas’s request that the Sendas Depositary inform holders of Sendas ADSs of the shareholders’ meeting. To exercise their voting rights, holders of Sendas ADSs must instruct the Sendas Depositary on a timely basis. In addition, investors may hold Sendas ADSs through broker or financial institution nominees and therefore may be required to rely on their procedures to be able to vote. This voting process will take longer for holders of Sendas ADSs than for holders of Sendas common shares. If the Sendas Depositary fails to receive timely voting instructions for all or part of the Sendas ADSs, the Sendas Depositary will assume that the holders of those Sendas ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their Sendas ADSs, except in limited circumstances. In addition, Sendas is not contractually required to request the Sendas Depositary to inform holders of Sendas ADSs about the shareholders’ meeting under the Sendas Deposit Agreement, which may result in holders of Sendas ADSs not being able to provide voting instructions to the Sendas Depositary.
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We cannot assure you that holders of Sendas ADSs will receive the voting materials in time to ensure that such holders can instruct the Sendas Depositary to vote the Sendas common shares underlying their Sendas ADSs. In addition, the Sendas Depositary and its agents are not responsible for failing to carry out voting instructions of the holders of Sendas ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of Sendas ADSs may not be able to exercise voting rights, and they will have no recourse if the Sendas common shares underlying their Sendas ADSs are not voted as requested.
Holders of Sendas ADSs may not be entitled to a jury trial with respect to claims arising under the Sendas Deposit Agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The Sendas Deposit Agreement provides that, to the fullest extent permitted by law, holders of Sendas ADSs irrevocably waive, to the fullest extent permitted by applicable law, the right to a jury trial with respect to any claim that they may have against us or the Sendas Depositary arising out of or relating to the Sendas common shares, the Sendas ADSs or the Sendas Deposit Agreement, including any claim under the U.S. federal securities laws.
If we or the Sendas Depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the Sendas Deposit Agreement, by a federal or state court in the City of New York, which has exclusive jurisdiction over matters arising under the Sendas Deposit Agreement with respect to any legal suit, action or proceeding brought by the holders of Sendas ADSs against or involving us or the Sendas Depositary. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the Sendas Deposit Agreement and the Sendas ADSs. It is advisable that you consult your legal counsel regarding the jury waiver provision before entering into the Sendas Deposit Agreement.
If you or any other holders or beneficial owners of Sendas ADSs bring a claim against us or the Sendas Depositary in connection with matters arising under the Sendas Deposit Agreement or the Sendas ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the Sendas Depositary. If a lawsuit is brought against us or the Sendas Depositary under the Sendas Deposit Agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the Sendas Deposit Agreement with a jury trial. No condition, stipulation or provision of the Sendas Deposit Agreement or the Sendas ADSs serves as a waiver by any holder or beneficial owner of Sendas ADSs or by us or the Sendas Depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
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You might be unable to exercise preemptive rights with respect to the Sendas common shares underlying the Sendas ADSs, as a result of which your investment may be diluted.
You will not be able to exercise the preemptive rights relating to the Sendas common shares underlying the Sendas ADSs unless a registration statement under the Securities Act is effective with respect to the securities to be issued upon the exercise of those rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement or to take any action to make preemptive rights available to holders of Sendas ADSs. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the Sendas Depositary or, if the preemptive rights cannot be sold, they will lapse and you will not receive any value for them. In addition, we may issue a substantial number of common shares as consideration for future acquisitions or for any other fundraising needs, and we may choose not to extend preemptive rights to holders of Sendas ADSs.
To the extent that you are not able (or choose not) to exercise pre-emptive rights granted in connection with an issue of Sendas common shares, your proportional shareholding in our company would be diluted.
Holders of Sendas common shares and Sendas ADSs may not receive any dividends.
According to our bylaws, we must pay our shareholders at least 25% of our annual net income as dividends, as determined and adjusted under the Brazilian Corporate Law. This adjusted income may be used to absorb losses or otherwise be appropriated as permitted by the Brazilian Corporate Law and may not be available to be paid as dividends. We may not pay dividends to our shareholders in any particular fiscal year if our board of directors determines that such distributions would be inadvisable in view of our financial condition. For further information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy” and “Item 10. Additional Information—B. Bylaws—Allocation of Net Profits and Distribution of Dividends—Distribution of Dividends” and “—Interest on Shareholders’ Equity.”
We are also subject to additional restrictions on dividends distributions in excess of the statutorily required minimum dividend imposed by some of our financial instruments. For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness—Long-Term Indebtedness.”
The Brazilian Congress is currently analyzing bills providing for the taxation on dividends and the alteration and/or extinction of the payment of interest on shareholders’ equity (juros sobre o capital próprio). Therefore, both distributed and received dividends may become taxed and the interest on shareholders’ equity (juros sobre o capital próprio) may be extinguished in the future, impacting the net amount to be received by our shareholders from our financial results.
U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose, and you may receive less information about us than you might otherwise receive from a comparable U.S. company.
We are a “foreign private issuer” under U.S. securities laws. Accordingly, the corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the Exchange Act that apply to foreign private issuers. The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. For example, we are required only to file an annual report on Form 20-F, but we are not required to file any quarterly reports. A U.S. registrant must file an annual report on Form 10-K and three quarterly reports on Form 10-Q. In addition, we are required to furnish current reports on Form 6-K, but the information that we must disclose in those reports is governed primarily by Brazilian law disclosure requirements and may differ from Form 8-K’s current reporting requirements imposed on a U.S. issuer. Also, any information furnished to the SEC will be subject to more limited liability provisions compared to information generally filed with the SEC by domestic issuers. Finally, we are not subject to the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are not subject to the short swing insider trading reporting and recovery requirements under Section 16 of the Exchange Act.
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Our status as a foreign private issuer exempts us from certain of the corporate governance standards of the NYSE limiting the protections afforded to investors.
As a foreign private issuer, we are entitled to rely on exceptions from certain corporate governance requirements of the NYSE. Under the NYSE listing rules, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that: (1) a majority of the board of directors consist of independent directors; (2) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities; (3) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities; (4) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken; and (5) we comply with all independence requirements applicable to U.S. audit committees, as exemplified below. Therefore, holders of Sendas ADSs do not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.
For example, as a foreign private issuer, we rely on an exemption under Rule 10A-3(c) of the Exchange Act with respect to our audit committee. For a further discussion of our statutory audit committee and the audit committee exemption, see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Board Committees—Audit Committee.”
Holders of Sendas common shares and Sendas ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
Sendas is incorporated as a corporation under the laws of Brazil, and substantially all of our assets are located in Brazil. In addition, all of our directors and executive officers reside outside the United States and all or a significant portion of the assets of such persons may be located outside the United States. As a result, it may not be possible for holders of Sendas common shares or Sendas ADSs to effect service of process within the United States or other jurisdictions outside Brazil upon such persons, or to enforce against such persons judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws or the laws of such other jurisdictions. Further, it is unclear if original actions against us, our directors or our officers predicated on civil liabilities based solely upon U.S. federal securities laws may be brought in courts outside the United States, including Brazil. In addition, payment must be made in reais in proceedings brought before the Brazilian courts seeking to enforce obligations against us and any judgment rendered in Brazilian courts in respect of any payment obligations would be payable in reais.
Holders of Sendas common shares are required to resolve disputes with us, our senior management and holders of Sendas common shares only through arbitration in Brazil.
In accordance with our bylaws, all disputes or claims based on our bylaws, the Brazilian Corporate Law or other relevant laws or administrative rules, and concerning matters between holders of Sendas common shares, us, or our directors or officers, must be submitted for arbitration at the Market Arbitration Chamber (Câmara de Arbitragem do Mercado) of the B3. The governing law for any such disputes or claims is Brazilian law. Accordingly, shareholders would be required to initiate such arbitration proceedings in Brazil, which could have the effect of discouraging shareholders located outside Brazil from bringing such claims. In addition, arbitration proceedings in Brazil are known to be costlier than other dispute resolution methods, such as court proceedings.
The protections afforded to minority shareholders in Brazil are different, and may be more difficult to enforce, than those in the United States and some European countries.
The protections afforded to minority shareholders in Brazil are different from those in the United States and some European countries. In particular, jurisprudence with respect to shareholder disputes is less developed in Brazil than in the United States and some European countries and there are different procedural requirements for bringing shareholder lawsuits, including shareholder derivative suits. There is also a substantially less active plaintiffs’ bar for the enforcement of shareholders’ rights in Brazil than there is in the United States. As a result, it may be more difficult in practice for our minority shareholders to enforce their rights against us, our directors or executive officers than it would be for shareholders of a U.S. or European company.
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Acquisition, ownership and disposal of Sendas common shares or Sendas ADSs could result in substantial U.S. tax liability for you.
You may be subject to U.S. federal income taxation in connection with the acquisition, ownership and disposal of Sendas common shares or Sendas ADSs. For more information, see “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences.”
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of the Sendas common shares and the Sendas ADSs.
In general, a non-U.S. corporation will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in any taxable year in which the corporation satisfies either of the following requirements:
● | at least 75% of its gross income is “passive income”; or |
● | at least 50% of the average gross fair market value of its assets is attributable to assets that produce “passive income” or are held for the production of “passive income.” |
Passive income for this purpose generally includes dividends, interest, royalties, rents and net gains from the disposition of property that gives rise to such income and of commodities. Based upon the composition of our income, our assets and the nature of our business, we believe that we were not treated as a PFIC for U.S. federal income tax purposes in 2023. However, there can be no assurance that we will not be considered to be a PFIC for any particular year. If we were considered to be a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences”) owned our common shares or ADSs, such U.S. Holder could be subject to significant adverse tax consequences. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to their investment in our common shares or ADSs. For more information, see “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company.”
Acquisition, ownership and disposal of Sendas common shares or Sendas ADSs could result in substantial Brazilian tax liability for you.
You may be required to pay Brazilian capital gains or other taxes in connection with the acquisition, ownership and disposal of Sendas common shares or Sendas ADSs. For more information, see “Item 10. Additional Information—E. Taxation—Material Brazilian Tax Consequences.”
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
General Corporate Information
Sendas Distribuidora S.A. is a corporation (sociedade anônima) organized under the laws of Brazil and registered with the Brazilian corporate taxpayers’ registry (CNPJ/ME) under registration number 06.057.223/0001-71. Sendas was formed on December 18, 2003 for an indefinite duration.
Sendas is domiciled in Rio de Janeiro, Brazil, and our headquarters are currently located in Rio de Janeiro, Brazil at the following address: Avenida Ayrton Senna, No. 6,000, Lote 2, Pal 48959, Anexo A, Jacarepaguá, 22775-005, Rio de Janeiro, RJ, Brazil. Our telephone number is +55 11 3411 5042.
History
We were founded in 1974, with the opening of the first Assaí Atacadista store, a wholesaler with a focus on supplying small businesses. In 2007, we were partially acquired by CBD, which was controlled by the Casino Group. In 2011, we became a wholly-owned subsidiary of CBD. Prior to CBD’s acquisition of us in 2007, we operated exclusively in the state of São Paulo. Following CBD’s acquisition, we began to expand geographically within Brazil. By the end of 2008, we expanded our operations to 28 stores in the states of São Paulo, Rio de Janeiro and Ceará, and by the end of 2011, we operated 59 stores in the states of São Paulo, Rio de Janeiro, Ceará, Tocantins, Pernambuco, Goiás and Federal District.
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In 2011, we began to invest in a new store format, with a larger assortment of goods, self-checkout and improved ambiance including covered parking, in-store Wi-Fi, air conditioning and natural lighting. By 2017, we became Casino’s largest brand worldwide (in terms of gross revenue), and in 2018 and 2019 we were named one of Brazil’s Top 25 Brands by Interbrand.
In 2016, CBD underwent a corporate reorganization as a result of which CBD transferred all of its cash and carry stores to us, and we transferred our retail stores to CBD. Following this corporate reorganization, CBD’s cash and carry operations were concentrated in our company.
In 2017, we launched Cartão Passaí, a branded credit card associated with the Assaí banner and began to offer financial services in our stores.
In 2019, we acquired 96.57% of the shares of Éxito, a food retailer operating in Colombia, Uruguay and Argentina, through the settlement of a cash tender offer for any and all of the outstanding shares of Éxito conducted through the Colombian Securities Exchange. We refer to this acquisition as the “Éxito Acquisition.” At the time of the Éxito Acquisition, Éxito was a publicly-held company located in Colombia, with Casino as its controlling shareholder. Casino tendered all of its shares of Éxito (representing a 55.3% equity interest in Éxito) to us in the public tender offer. The total purchase price for the shares of Éxito in the tender offer was 7,780.6 billion Colombian pesos, equivalent to approximately R$9.5 billion at the time of the acquisition. As a result of the Éxito Acquisition, we began to carry out retail operations in Colombia, Uruguay and Argentina.
Corporate Reorganization and Spin-Off
On December 31, 2020, CBD completed a corporate reorganization pursuant to which Sendas transferred all of its equity interest in Éxito, which included Éxito’s food retail businesses in Colombia, Uruguay and Argentina, to CBD. As a result of this corporate reorganization, our primary focus is our cash and carry business.
On March 3, 2021, CBD completed the Spin-Off, pursuant to which substantially all of the issued and outstanding Sendas common shares were distributed to holders of CBD common shares, including the depositary for the CBD ADS program, on a pro rata basis for no consideration. The Sendas ADSs were distributed to holders of CBD ADSs on March 5, 2021. The Sendas common shares began to trade on the B3 under the ticker symbol “ASAI3”. The Sendas ADSs began to trade on a “regular way” basis on the NYSE under the ticker symbol “ASAI” on March 8, 2021.
In connection with the Spin-Off, we entered into a Separation Agreement with CBD on December 14, 2020, as amended on June 30, 2021 and June 30, 2022, to effect our separation from CBD, which we refer to as the “Separation,” and provide a framework for our relationship with CBD following the Separation and the Spin-Off. The Separation Agreement provided, among other matters, that all agreements, arrangements, commitments and understandings with third parties that contemplate both CBD and us as parties, beneficiaries, guarantors and/or in any way create an obligation to both CBD and us, were to be terminated as soon as practically feasible after the completion of the Spin-Off. Although a majority of the obligations contemplated by the Separation Agreement have been fulfilled by us and CBD and a substantial part of the guarantees has already been released, a portion of the guarantees we provided to third parties in connection with CBD’s lease obligations, as well as a portion of the guarantees CBD provided to third parties in connection with our lease obligations are still in the process of being released and Assai has not incurred in any claims or losses in connection with such lease guarantee obligations. As a result of such guaranteed obligations, the party whose obligations are guaranteed must pay a remuneration to the guarantor on a quarterly basis corresponding to the unreleased guarantees and indemnify the guarantor for any amounts due in connection with the underlying obligations. The Separation Agreement is governed by the laws of Brazil. A copy of the Separation Agreement, including amendments, has been filed as an exhibit to this annual report.
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Sale and Leaseback Transaction
On July 19, 2021, we entered into an agreement with a fund managed by TRX Gestora de Recursos Ltda. for the sale, development and leaseback of five real properties located in the States of São Paulo, Rio de Janeiro and Rondônia, or the Sale and Leaseback Transaction, including one built property and four plots of land on which Assaí stores will be built.
In December 2021, we completed the sale of three such properties located in the States of São Paulo and Rondônia in the total amount of R$192 million, or 52.7% of the expected total sale amount of the five properties. We subsequently entered into 20-year renewable lease agreements with respect to these properties. In December 2022, we completed the remaining sale of two properties located in the States of Minas Gerais and Rio de Janeiro in the total amount of R$165 million. We subsequently entered into 20-year renewable lease agreements with respect to these properties.
Stock Split
On August 11, 2021, our shareholders approved a one-to-five stock split of Sendas common shares, or the Stock Split. Immediately following the Stock Split, our total number of issued and outstanding Sendas common shares became 1,346,499,295 common shares, and our total authorized capital stock increased to 2,000,000,000 common shares.
The purpose of the Stock Split was to increase the liquidity of the Company’s common shares on the B3, considering that a larger number of outstanding common shares potentially generates an increase in business, as well as to enable an adjustment in the Company’s stock price, making the price per common share more attractive and accessible to a larger number of investors.
In connection with the Stock Split, we changed our ADS ratio from one Sendas ADS representing one Sendas common share to one Sendas ADS representing five Sendas common shares. Accordingly, the Stock Split did not change the total number of Sendas ADSs issued. The ADS ratio change became effective as of August 16, 2021. Shares information for all periods presented has been presented on a split basis.
Digital Partnerships
In 2021, we began our digital expansion through partnerships with third party applications with the aim to bring more convenience to our customers. In September 2021, we entered into a partnership with Cornershop by Uber in more than 25 cities throughout Brazil, and in February 2022, we began a pilot program with the delivery service Rappi to sell our products through the Rappi website and app in six cities in the State of São Paulo. As a result of these partnership, our customers are able to digitally shop for the main items from our product catalogue. Delivery drivers then select, separate and deliver items identified by the users. As of the date of this annual report, our digital partnerships with Cornershop and Rappi are available in 61 cities in 17 states in Brazil.
Extra Transaction
In line with our expansion plan, on October 14, 2021, our board of directors approved a transaction involving the assignment and conversion of up to 70 commercial points/stores operated by CBD under the Extra Hiper banner in several Brazilian states into cash and carry stores under the Assaí banner. We refer to this transaction as the “Extra Transaction.”
The Extra Hiper stores were located on 17 properties owned by and 53 properties leased by CBD (of which 28 were leased from the Península fund). To the extent the assigned stores were located on properties leased from third parties, CBD also assigned the respective lease agreements to Sendas. On December 16, 2021, as amended on February 24, 2022, we entered into a definitive agreement with CBD governing the terms of the Extra Transaction. At the time of the agreement, the total estimated price of the transaction was nearly R$4.0 billion, payable by Sendas to CBD in installments between December 2021 and January 2024, adjusted by CDI + 1.2% per year, which may also involve the acquisition by Sendas of some store equipment.
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On August 17, 2022, Sendas and CBD approved the conclusion of credit assignment agreements with a financial institution, in anticipation of the installments between 2023 and 2024 due by Sendas to CBD. On December 23, 2022, Sendas and CBD approved the postponement of the installment that would be paid on December 29, 2022, to CBD in the amount of R$956 million to October 23, 2023. This postponement occurred for operational reasons, as the payment schedule of the installment to CBD considered the delivery of stores on certain dates and compliance with certain preconditions, such as obtaining consent from property owners and demobilization of stores by CBD. For this installment, a new credit assignment agreement with a financial institution was entered into by CBD and with our consent. Sendas, as the consenting party of the operation, evaluated the contractual terms of the assignment of receivables and, in accordance with IAS 1 - Presentation of financial statements, concluded that there was no modification in the conditions originally contracted with CBD, maintaining the characteristic of the terms, and the payments of the installments will be made directly by Sendas to the financial institution, maintaining the same due dates and interest previously agreed with CBD. Therefore, Sendas concluded that the characteristic of the operation was maintained as accounts payable for the acquisition of the commercial points of the Extra Hiper stores.
As of December 31, 2022, a total of 66 commercial points had been assigned by CBD to us, and CBD’s management has decided not to assign the remaining 4 commercial points, reducing the total price of the transaction by R$45 million. The Extra Transaction closed with a total of 66 commercial points, and the total price of the transaction was R$3.9 billion. In 2022, 47 commercial points were converted into Assaí stores, while 17 were converted in 2023.
Additionally, in the context of the Extra Transaction, CBD and the real estate fund Barzel Retail Fundo de Investimento Imobiliário, or the Real Estate Fund, entered into a memorandum of understanding, with Sendas as guarantor, for the sale of up to 17 properties owned by CBD to the Real Estate Fund, for a total sale price of R$1.2 billion. We guaranteed the Real Estate Fund’s payment obligations to CBD and agreed to purchase up to 17 properties should the Real Estate Fund not be able to fulfill its obligations. On February 25, 2022, we entered into definitive agreements with the Real Estate Fund for the sale of up to 17 properties owned by CBD to the Real Estate Fund and subsequent lease of such properties for an initial term of 25 years, renewable for an additional 15 years. The closing of the agreements with the Real Estate Fund was subject to antitrust approval. On April 13, 2022, the Brazilian antitrust authority (Superintendência-Geral do Conselho Administrativo de Defesa Econômica - CADE) approved the sale of the 17 properties to the Real Estate Fund. Of the 17 properties that were recorded under “Assets held for sale,” 16 properties were sold to the Real Estate Fund in 2022 and the remaining property was sold to the Real Estate Fund on July 11, 2023.
Our management believes that the Extra Transaction allowed us to accelerate our expansion through the conversion of stores in dense regions without significant overlap with our existing operations.
Casino Group Shareholding Interest
On December 2, 2022, Wilkes Participações S.A., Géant International B.V., and Helicco Participações Ltda., indirect subsidiaries of Casino, completed the sale of an aggregate of 140,800,000 our common shares, including 400,000 ADSs, through a global offering. Subsequently, the Casino Group’s ownership in our common shares decreased from 41.0% to 30.5%.
On March 21, 2023, Wilkes Participações S.A. concluded the sale of an aggregate of 254,000,000 our common shares, including 2,340,957 ADSs, in a second global offering with both international and concurrent public offerings with restricted selling efforts in Brazil. Following this transaction, the Casino Group’s ownership stake in our common shares decreased from 30.5% to 11.7%.
Additionally, on June 23, 2023, Wilkes Participações S.A., Géant International B.V., and Segisor S.A.S. finalized the sale of 157,582,580 our common shares, representing 11.67% of its share capital, through a block trade operation. This led to the Casino Group’s ownership stake decreasing to less than 0.01%, and currently, we do not have a controlling shareholder or control group.
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Election of New Board of Directors and Corporate Transformation
Following the divestiture of our common shares by the Casino Group in March 2023, we became a non-controlled corporation, marking a transformation in our governance structure. On April 27, 2023, we appointed a new board of directors, consisting of a majority independent members. For more information about the members of our board of directors and our corporate governance, see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
Capital Increases due to Exercise of Stock Options
In 2023, our board of directors approved issuances of new Sendas common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans (as detailed under “Item 6. Directors, Senior Management and Employees—B. Compensation—Share-Based Compensation”). The new Sendas common shares issued have the same characteristics and conditions and enjoy the same rights, benefits and advantages of existing Sendas common shares. Our board of directors approved the issuances as follows:
● | on February 15, 2023, our board of directors approved the issuance of 59,870 new common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans, increasing our total outstanding common shares to 1,349,225,264 common shares and our total capital stock by R$0.7 million, from R$1,263.2 million to R$1,263.9 million; |
● | on March 28, 2023, our board of directors approved the issuance of 1,031,232 new common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans, increasing our total outstanding common shares to 1,350,256,496 common shares and our total capital stock by R$1.1 million, from R$1,263.9 million to R$1,265.0 million; |
● | on August 18, 2023, our board of directors approved the issuance of 1,207,046 new common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans, increasing our total outstanding common shares to 1,351,463,542 common shares and our total capital stock by R$3.9 million, from R$1,265.0 million to R$1,268.9 million; |
● | on October 30, 2023, our board of directors approved the issuance of 213,458 new common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans, increasing our total outstanding common shares to 1,351,677,000 common shares and our total capital stock by R$1.6 million, from R$1,268.9 million to R$1,270.5 million; and |
● | on December 8, 2023, our board of directors approved the issuance of 156,200 new common shares due to the exercise of stock options granted to certain employees under the terms of our share-based compensation plans, increasing our total outstanding common shares to 1,351,833,200 common shares and our total capital stock by R$1.2 million, from R$1,270.5 million to R$1,271.7 million. |
Recent Developments
Management Changes
On March 13, 2024, our board of directors announced the resignation of Mrs. Daniela Sabbag as our chief financial officer and appointment of Mr. Vitor Fagá de Almeida as our vice-president of finance and investor relations with a term of office until the first meeting of our board of directors following the annual shareholder’s meeting to be held in 2026. In addition, Mrs. Gabrielle Helú remains in the position of Investor Relations Officer, which ceases to be a statutory position.
Ninth Issuance of Debentures
On March 28, 2024, we concluded our ninth issuance of non-convertible, unsecured debentures in a single series, in the amount of R$500.0 million, for distribution in Brazil to professional investors in accordance with Brazilian law. The proceeds of this issuance of debentures will be used for general corporate purposes, including to reinforce our cash position. These debentures accrue interest at a rate of CDI + 1.25% per annum, payable semi-annually through maturity in March 2029. The principal amount of the debentures will be paid in two equal installments, one in March 2028 and one at maturity.
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Proposed Changes to Management Compensation Structure
In connection with our transformation into a non-controlled corporation (see “—Election of New Board of Directors and Corporate Transformation” above), we have reviewed our management compensation structure to better align with the interests of our investors. The purpose of the new compensation model is to retain and motivate executives, rewarding the achievement of our performance goals aimed at creating value. To that end, our management has proposed a new compensation model that will be voted at our ordinary and extraordinary general shareholders’ meetings to be held on April 26, 2024. Highlights of the proposed changes to our management compensation structure include:
● | Short-term incentives (STI) - inclusion of a cut-off of 80% of the pre-IFRS 16 EBITDA target as a condition for the Profit Sharing Plan (PSP) to be triggered. |
● | Long-term incentives (LTI) – creation of a new long-term incentive plan via stock grants (Standard LTI) to replace the existing LTI programs, as follows: 20% in restricted stock (based on retention) and 80% in performance shares, with new performance metrics, including operating cash flows, ROIC and ESG metrics. For the CEO, 30% of his grant (restricted shares) will vest over 5 years, with partial releases of 33% in the 3rd year, 33% in the 4th year and 34% in the 5th year; the remaining 70% (performance shares) will vest in a single cliff over 5 years. For the other officers, a single vesting (cliff) of 3 years. |
● | Executive Partner Program - creation of a one-off grant of share rights for our CEO and Vice-Presidents of core areas (Operations and Commercial & Logistics), with a vesting period of seven years, complemented by a subsequent three-year lock-up, totaling a complete ten-year cycle of engagement and commitment. Total grants are limited to up to 2% of our capital stock and consists of: 20% in restricted stock (retention) and 80% in performance shares. The final determination of the performance shares granted will depend on the degree of achievement of the Earnings per Share (EPS) target, adjusted by the Brazilian Consumer Price Index (IPCA), considering a minimum EPS growth target of IPCA + 20% per annum. |
● | Stock Ownership Guidelines - the proposed Stock Ownership Guidelines stipulate that the CEO should hold shares in an amount equivalent to five times his annual fixed compensation and the other statutory officers should hold shares in an amount equivalent to three times their respective annual fixed compensation. In all cases, the CEO and statutory executive officers will have a period of up to five years to achieve the goals and target number of shares. Despite this deadline, the CEO currently has a number of shares that satisfy the policy’s requirement for his position. |
Capital Expenditures and Investment Plan
Our investments since January 1, 2021 have included:
Opening of new stores – From January 1, 2021 to December 31, 2023, we organically opened or converted 115 Assaí stores in Brazil. For more information about our stores, see “—B. Business Overview—Sales Channels—Our Stores.”
Renovation of existing stores – We usually remodel a number of our stores every year. Through our renovation program, we updated refrigeration equipment in our stores, created a more modern, customer-friendly and efficient environment and outfitted our stores with advanced information technology systems.
Improvements to information technology – We view technology as an important tool for efficiency and security in the flow of information among stores, distribution centers, suppliers and corporate headquarters. We have made significant investments in information technology in the last three years. For more information on our information technology, see “—B. Business Overview—Information Technology.”
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Improvements to distribution facilities and others – We own and lease distribution centers and warehouses located in the Southeastern, Midwestern and Northeastern regions of Brazil. The improvement in storage space enables us to further centralize purchasing for our stores and, together with improvements to our information technology, improve the overall efficiency of our inventory flow.
Extra Transaction – In 2021, in line with our expansion plan, we entered into an agreement with CBD for the assignment and conversion of 66 commercial points operated by CBD under the Extra Hiper banner in several Brazilian states into cash and carry stores under the Assaí banner. As of December 31, 2022, a total of 66 commercial points had been assigned by CBD to us, and CBD’s management has decided not to assign the remaining 4 commercial points. For more information, see “—History—Extra Transaction.”
In addition, in July 2021, we entered into an agreement with a fund managed by TRX Gestora de Recursos Ltda. for the sale and leaseback of five real properties located in the States of São Paulo, Rio de Janeiro and Rondônia. By December 2021, we completed the sale of three such properties located in the States of São Paulo and Rondônia in the total amount of R$192 million, and by December 2022, we completed the remaining sale of two properties located in the States of Minas Gerais and Rio de Janeiro in the total amount of R$165 million. We subsequently entered into long-term lease agreements with respect to these properties. For more information, see “—History—Sale and Leaseback Transaction.”
In 2023, R$2,609 million was paid for the acquisition of 66 Extra Hiper commercial points, currently being converted to Assaí. In 2023, we invested R$2,705 million in our operations, a decrease of 50.8% compared to R$5,496 million in 2022. This decrease was principally due to the reduction in the pace of expansion from 60 stores we opened in 2022 versus 27 stores opened in 2023, mostly explained by the conclusion of the majority of conversions from the acquired hypermarkets into Assaí stores. The 27 stores we opened in 2023 reinforced our confidence in the execution of our business strategy.
Our gross capital expenditures and investment plan for 2024 aims at building new units, renovating existing stores, improving logistics and technology, as well as other projects aimed at improving the shopping experience.
The following table provides a summary description of our principal capital expenditures for the periods indicated:
For the Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in millions of R$) | ||||||||||||
Opening of new stores | 1,999 | 4,206 | 2,064 | |||||||||
Renovation of existing stores | 291 | 263 | 228 | |||||||||
Information technology | 130 | 163 | 94 | |||||||||
Distribution facilities and other | 28 | 89 | 65 | |||||||||
Non-cash effects: | ||||||||||||
Financing assets | 257 | 775 | 38 | |||||||||
Total investments | 2,705 | 5,496 | 2,489 | |||||||||
Acquisition of commercial points - Extra Híper | 95 | 3,130 | 798 | |||||||||
Total investments (including acquisition of commercial points) | 2,800 | 8,626 | 3,287 |
We have historically financed our capital expenditures and investments principally with cash generated from our operations and, to a lesser extent, third-party funds, including bank financing and capital markets transactions, including the issuance of debentures and promissory notes. For more information about our indebtedness, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness.”
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We believe that existing resources and operating income will be sufficient for our capital expenditures and investment plan and to meet our liquidity requirements. However, our capital expenditures and investment plan is subject to a number of contingencies, many of which are beyond our control, including the continued growth and stability of the Brazilian economy. We cannot assure you that we will successfully complete all or any portion of our capital expenditures and investment plan. In addition, we may participate in acquisitions or divest asset that are not budgeted in the capital expenditures and investment plan and we may modify the plans.
Public Information
The SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. See “Item 10. Additional Information—H. Documents on Display.”
Our website is www.assai.com.br. Information contained on or obtainable through our website is not incorporated into, and does not constitute a part of, this annual report.
B. Business Overview
Overview
According to ABAAS, we were the largest pure cash and carry player in Brazil in terms of consolidated gross revenue in the year ended December 31, 2022 and the second largest retailer in Brazil. In 2023, we were recognized as the food company with the greatest presence in Brazilian households, found in one out of every four homes, an unprecedented achievement in the cash and carry sector. We were the most remembered brand in the sector in the Top of Mind award by Folha de S. Paulo and in the Marcas Mais award by Estadão in 2023. In addition, we were ranked as the 24th largest company in Brazil in 2023 according to the Exame magazine and recognized as one of the most valuable brands in Brazil, reaching the 13th place in the Brazil 100 ranking published by Brand Finance in 2023. Furthermore, we are the only food retail company recognized for the second consecutive year among companies with more than 10,000 employees for its safe and welcoming environment, respecting diversity, recognizing, developing and offering growth opportunities, according to Great Place to Work (GPTW).
We serve as an economic center for the regions in which we operate. Our cash and carry operations involve sales of more than 9,000 items of grocery, food, perishable, beverage, wrapping and hygiene products, among others. In addition, our stores offer ample parking, air-conditioned, well-lit environments and more than 200 stores have butcher services.
Our customers include prepared food retailers (including restaurants, pizzerias and snack bars), end users (including schools, small businesses, religious institutions, hospitals and hotels), conventional retailers (such as grocery stores and neighborhood supermarkets) and individuals.
We are evolving in our digital transformation through the development of a seamless buying experience. We are currently investing in: (1) Wi-Fi infrastructure in all of our stores; (2) self-check-out; (3) digital sales through partnerships with last-mile operators; and (4) developing the Meu Assaí (My Assaí) app, intensifying our “phygital” strategy to combine physical and digital experiences.
We also hold an indirect minority equity interest in FIC, a Brazilian company that operates financial services in our stores with exclusive rights to offer credit cards, financial services and insurance policies (except for extended warranties).
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Selected Operating Data
As of and for the year ended December 31, | ||||||||||||||||
2023 | 2023 | 2022 | 2021 | |||||||||||||
(in
US$, except as otherwise indicated)(1) | (in R$, except as otherwise indicated) | |||||||||||||||
Operating Data: | ||||||||||||||||
Number of employees at period end(2) | 77,370 | 77,370 | 73,898 | 55,979 | ||||||||||||
Number of stores at period end | 288 | 288 | 263 | 212 | ||||||||||||
Total square meters of selling area at period end(3) (in thousand square meters) | 1,455,641 | 1,455,641 | 1,306,724 | 963,784 | ||||||||||||
Net operating revenue (in millions of R$ or US$, as the case may be) | 13,737 | 66,503 | 54,520 | 41,898 | ||||||||||||
Net operating revenue per employee(4) | 177,543 | 859,540 | 737,774 | 748,459 | ||||||||||||
Average ticket amount | 47 | 229 | 233 | 220 | ||||||||||||
Average number of tickets per month (in millions) | 24.2 | 24.2 | 19.5 | 15.9 |
(1) | Solely for the convenience of the reader, Brazilian real amounts have been translated into U.S. dollars at an exchange rate of R$4.8413 per US$1.00, which was the commercial selling rate for U.S. dollars in effect on December 31, 2023, as reported by the Central Bank. The real/U.S. dollar exchange rate should not be construed as a representation that the real amounts represent, or have been or could be converted into, U.S. dollars at such rates or at any other rate as of that or any other date. |
(2) | Based on the full-time number of employees at stores, distribution and administrative centers (including active and absent employees). In 2022 and 2023, the number excludes interns and underage apprentices. |
(3) | Sum of the selling area of each store at period end. |
(4) | Calculated using the average of square meters of selling area on the last day of each month in the period. |
Principal Markets
We generate all of our operating revenue in Brazil.
Sales Channels
Our Stores
As of March 29, 2024, we operated a total of 292 stores under the Assaí banner in Brazil.
We are constantly evolving our Assaí standard stores, aiming to improve our customers’ purchase experience, by investing in lighting, air conditioning, improved ambiance and location. Our stores are strategically located in Brazil and are characterized by wide aisles, high ceilings and larger cold rooms, which facilitate loading and increase up to six times the storage capacity for goods, allowing for more accessible prices and lower operational costs. Other characteristic features of these standard stores include a larger assortment of goods, larger parking and in-store Wi-Fi. In addition, our in-store processes are automated, lowering our operating costs, allowing a better inventory management and breakdown levels.
We operate in different store formats, tailored to different regions and customer profiles, accommodating our business to local practices and customs. Of the 288 stores we operated as of December 31, 2023, 29 stores ranged from 1,000 to 3,000 square meters of selling area, a format we believe is best suited to enable our food service provider customers to quickly replace their supplies; 98 stores ranged from 3,000 to 5,000 square meters of selling area, a format we believe is best suited to big families in urban centers; and 161 stores ranged from 5,000 to 9,000 square meters of selling area, a format we believe is best suited for bulk purchases.
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The table below sets forth same store gross sales growth for the periods indicated. Same store gross sales are sales made in stores opened for at least 12 consecutive months and which have not been closed or remained closed for a period of seven or more consecutive days. For more information, see “Presentation of Financial and Other Information—Special Note Regarding Certain Operational Metrics.”
For the year ended December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||
Same store gross sales | 1.5 | % | 10.3 | % | 4.8 | % | 14.1 | % | 6.3 | % | 8.3 | % |
The table below sets forth our average monthly gross revenue per square meter for the period indicated, which is defined as gross revenue for the period allocated by store divided by the average selling area (in square meters) for the period taking into account our store opening schedule. For more information, see “Presentation of Financial and Other Information—Special Note Regarding Certain Operational Metrics.”
For the year ended December 31, | ||||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||
(in R$ thousands) | ||||||||||||||||||||||||
Average monthly gross revenue per square meter | 4.5 | 4.7 | 4.5 | 4.4 | 4.1 | 4.0 |
Number of Stores
The following table sets forth the evolution of our Assaí stores for the periods indicated:
Number of Stores | ||||
As of December 31, 2020 | 184 | |||
During 2021: | ||||
Opened | 24 | |||
Closed | — | |||
Converted | 4 | |||
As of December 31, 2021 | 212 | |||
During 2022: | ||||
Opened | 13 | |||
Closed | (4 | ) | ||
Converted | 42 | |||
As of December 31, 2022 | 263 | |||
During 2023: | ||||
Opened | 10 | |||
Closed | (2 | ) | ||
Converted | 17 | |||
As of December 31, 2023 | 288 |
The following table sets forth the number of stores, the total selling area, the average selling area per store and the total number of employees for our Assaí stores as of the dates indicated. For more information, see “Presentation of Financial and Other Information—Special Note Regarding Certain Operational Metrics.”
As of December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Number of Stores | 288 | 263 | 212 | |||||||||
Total Selling Area(1) (in thousand square meters) | 1,456 | 1,307 | 964 | |||||||||
Average Selling Area per Store(2) (in square meters) | 5,054 | 4,969 | 4,546 | |||||||||
Total Number of Employees(3) | 77,370 | 73,898 | 55,979 |
(1) | Sum of the selling area of each store at period end. |
(2) | Total selling area at period end divided by total number of stores at period end. |
(3) | Based on the full-time number of employees at stores, distribution and administrative centers (including active and absent employees). In 2022 and 2023, the number excludes interns and underage apprentices. |
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Geographic Distribution of Stores
Our stores are located throughout 24 Brazilian states and the Federal District. We operate mainly in the Southeast region of Brazil, in states of São Paulo, Rio de Janeiro and Minas Gerais. The Southeast region accounted for 57.4%, 55.7% and 56.6% of our net operating revenue for the years ended December 31, 2023, 2022 and 2021, respectively, while the other Brazilian regions (North, Northeast, Midwest and South), in the aggregate, accounted for 42.6%, 44.3% and 43.4% of our net operating revenue for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table sets forth the number of our Assaí stores by region as of the dates indicated:
As of December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
North | 17 | 17 | 14 | |||||||||
Midwest | 27 | 25 | 21 | |||||||||
Southeast | 152 | 138 | 113 | |||||||||
Northeast | 82 | 74 | 57 | |||||||||
South | 10 | 9 | 7 | |||||||||
Total | 288 | 263 | 212 |
Telesales (In-Store Pick-Up)
Our telesales channel is predominantly aimed at serving corporate customers, which allows our customers, when purchasing larger volumes, to directly negotiate better prices, volumes and payment terms. Selected products are separated and available for in-store pick-up. This channel represented approximately 9.9%, 9.6% and 9.4% of our total sales for the years ended December 31, 2023, 2022 and 2021, respectively.
Credit Sales
For the years ended December 31, 2023, 2022 and 2021, 49%, 49% and 47%, respectively, of our net operating revenue was represented by credit sales, principally in the form of credit card sales, as described below:
Credit card sales. All of our stores accept payment for purchases with major credit cards, such as MasterCard, Visa, Diners Club, American Express and co-branded credit cards issued by FIC. Our stores also accept virtual credit cards through methods such as Apple Pay. Sales to customers using credit cards accounted for 39%, 39% and 36% of our net operating revenue for the years ended December 31, 2023, 2022 and 2021, respectively. Of this total, sales through our FIC co-branded credit cards accounted for 4.2%, 4.4% and 4.5% of our net operating revenue for the years ended December 31, 2023, 2022 and 2021, respectively. An allowance for doubtful accounts is not required for these transactions as credit risks are assumed by the relevant credit card companies or issuing banks.
FIC
FIC is a Brazilian company that operates financial services in our stores with exclusive rights to offer credit cards, financial services and insurance policies, except for extended warranties. FIC has been operating for more than ten years, and as of December 31, 2023, 2022 and 2021, FIC had a portfolio of 3.2 million, 3.7 million and 3.5 million credit card accounts, respectively, from customers (including the portfolio of Cartão Extra, Cartão Pão de Açúcar, Cartão Passaí and Cartão Ponto Frio). Cartão Passaí is a branded credit card associated with the Assaí banner that offers cash and carry pricing on products for individual customers. As of December 31, 2023, approximately 2.7 million Cartão Passaí credit cards had been issued.
The table below sets forth the accumulated number of Cartão Passaí credit cards issued as of the dates indicated:
As of December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in thousands) | ||||||||||||
Number of accounts | 2,721 | 2,273 | 1,785 |
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We and CBD each hold 50% of Bellamar, a holding company the only asset of which is an investment in 35.76% of the shares of FIC. Itaú Unibanco and Casas Bahia hold 50% and 14.24%, respectively, of the shares of FIC. Itaú Unibanco determines the financial and operational policies of FIC and appoints the majority of its officers.
We maintain our strategy to increase the share of FIC’s credit cards and financial services at our stores as an important loyalty tool and mechanism to increase sales and additional profitability. FIC’s credit cards offer payment options for the cardholders at our stores, aiming to provide them with benefits and convenience.
Our Customers
Our customers include prepared food retailers (including restaurants, pizzerias and snack bars), end users (including schools, small businesses, religious institutions, hospitals and hotels), conventional retailers (such as grocery stores and neighborhood supermarkets) and individuals. We sell our products at our brick-and-mortar stores and via telesales (in-store pick-up).
We had approximately 290 million customers as of December 31, 2023, an increase of 24.1% from December 31, 2021.
The table below sets forth our total number of customers as of the dates indicated:
As of December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in millions) | ||||||||||||
Total number of customers | 289.9 | 233.7 | 190.4 |
As of December 31, 2023, approximately 49% of our customers were classified as Class C, 37% as Class A and Class B and 14% as Class D and Class E. For more information about the different income level classifications of Brazilian households, see “—Industry.”
Marketing
Our marketing strategy aims to retain our customers and attract new customers through our value proposition focused on competitive prices, a pleasant shopping experience and a significant assortment of products tailored to the regions where our stores are located. To this end, we promote integrated marketing campaigns aimed at our target audience of traders, processors, large users and end consumers.
Our marketing teams are composed of specialists in branding, media, planning, promotions, events, market intelligence and trade marketing. They are dedicated to developing quality offline and digital marketing campaigns.
For the years ended December 31, 2023, 2022 and 2021, we spent R$339.0 million, R$265.0 million and R$182.0 million, respectively, on advertising.
Suppliers
Aside from a few categories of products, as beverage and meat which we procure mainly from five suppliers, our purchasing of products is generally decentralized, with purchases being made directly from a large number of unrelated suppliers. As a result, we are not dependent on any single supplier.
Distribution and Logistics
To support the growth of our cash and carry business, we employ different store models adapted to operate in regions with challenging logistical realities in a country of continental dimensions such as Brazil. These models include stores whose products are entirely supplied directly by suppliers, as well as stores, usually in large urban centers, with 34% of their volume supplied by distribution centers. As of December 31, 2023, approximately 72% of our total product volume was supplied directly while 28% of our total product volume was supplied by our 11 distribution centers located in eight Brazilian states. Our distribution centers are strategically located within these states to allow us to supply low turnover items. These advantages are sustained by our distribution centers’ total storage area of 252,309 square meters as of December 31, 2023.
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Seasonality
We have historically experienced seasonality in our results of operations, principally due to traditionally stronger sales in the fourth quarter holiday season and “Black Friday” promotions, which are relatively new in Brazil, especially for the cash & carry segment, and help to boost fourth quarter sales. We also experience strong seasonality in our results for the months of March or April as a result of the Easter holiday, when we offer specialized products for the occasion, as well as during the month of our banner anniversary, when there is an increase in sales.
Information Technology
We invested R$130.0 million, R$163.0 million and R$94.0 million in information technology in the years ended December 31, 2023, 2022 and 2021, respectively, in connection with our operations. We are identifying opportunities and mapping efficiency gains by integrating services and functions across our operating segments, focusing on governance and our customers.
Intellectual Property
We consider our brand Assaí to be our most valuable asset and we have worked extensively to define the characteristics of the Assaí banner with respect to the expectations, consumption patterns and purchasing power of the different types of customers and income levels in Brazil. We believe that Brazilian customers associate the Assaí banner with a specific combination of products, services and price levels.
In Brazil, it is necessary to officially register a trademark with the National Industrial Property Institute (Instituto Nacional de Propriedade Industrial), or INPI, in order to acquire trademark rights. This registration gives the owner the exclusive right to use the trademark throughout Brazil for a specific period of time, which may be renewable.
As of December 31, 2023, we had 125 trademarks duly registered with INPI, including our trademark (Assaí), and 19 trademarks in the process of being registered. We did not have any registered patents as of December 31, 2023.
Our business relies on intellectual property that includes the content of our websites, our registered domain names and our registered and unregistered trademarks.
Industry
According to the Nielsen, a consulting firm specializing in audience measurement, data, and analysis, 73.0% of Brazilian homes made at least one purchase from cash and carry stores in 2023, and the sales in the segment reported an increase of 15.1% in 2023, as compared to 2022. The market share of cash and carry stores improved by 10.6% in comparison to January 2020, mainly due to the macroeconomic context and the strong expansion throughout the last five years, a period when 884 cash and carry stores were opened. The segment has a high number of small players in Brazil, and thus, still offers plenty of growth opportunity. In terms of relevance, the cash and carry segment represented in December 2023 only 24.0% of the Brazilian monthly purchases in the retail food industry (considering others such as beverage distributors and small grocery stores and super and hypermarkets that do not belong to large groups), while other small players such as small grocery stores and super and hypermarket that do not belong to large groups represents 58.0%.
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The chart below sets forth importance of the cash and carry segment in monthly purchases in the retail food industry in December 2023:
Cash & Carry Relevance in Monthly Purchases
(Dec/2023)
Source: NielsenIQ – December 2023
(1) | Beverage distributors and small grocery stores and super and hypermarkets that do not belong to large groups. |
In addition, the market share of the cash and carry segment relative to total sales from the retail food industry reached 48.3% in December 2023, according to the Nielsen. The market share for this segment has increased 10.6 percentage points since January 2020 (only considering chains that report to Nielsen).
The chart below sets forth growth of the cash and carry segment in the last 48 months, only considering brands that report to Nielsen:
Market Share Growth by Segment since January 2020
(Dec/2023)
Source: NielsenIQ – December 2023
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The cash and carry segment has been strengthening over the past few years in Brazil, with growth year after year. Such development has been achieved through major investments made by existing networks, as well as by the transformation of supermarkets and hypermarkets into wholesale stores.
According to the ABAAS, the Brazilian retail food industry represented approximately 7.0% of Brazil’s GDP in 2022, and the food retail industry in Brazil recorded gross revenues of approximately R$695.7 billion in 2022, representing a 13.8% increase compared to approximately R$611.2 billion in 2021.
In addition, according to the ABAAS, there are more than two thousand cash and carry stores in operation in Brazil. The segment reported total sales of R$239.0 billion in 2022 and accounted for 2.4% of the Brazilian GDP.
According to the CENSO IBGE survey of 2022, the total population of Brazil was approximately 203 million in December 2023, representing a 6.5% growth since December 2010. Also, according to the CENSO IBGE survey of 2022, 61% of the population lives in urban areas (where most of our operations are located). Our business is particularly well positioned to benefit from Brazil’s urban growth and economies of scale related to urban growth.
According to the CENSO IBGE survey of 2022, in 2022, the city of São Paulo had an estimated population of 11.5 million and the city of Rio de Janeiro had an estimated population of 6.2 million. These are the two largest cities in Brazil. The state of São Paulo has an estimated total population of 44 million, representing 21.8% of the Brazilian population and is our largest consumer market, with 104 stores as of December 31, 2023. The state of Rio de Janeiro is our second largest consumer market, with 39 stores as of December 31, 2023.
As of December 31, 2023, family consumption in Brazil increased 3.1% while the country’s GDP increased 2.9%. This GDP increase was mainly due to growth in the services segment, which represents more than 70% the country’s GDP.
The following table sets forth the different income levels of Brazilian households, according to the 2022 Consumption Potential Index (Índice de Potencial de Consumo), or IPC Maps 2022, published by IPC Marketing Editora.
Average Monthly Income | ||||
(in R$) | ||||
Income Level: | ||||
A | 21,826 | |||
B1 | 10,361 | |||
B2 | 5,755 | |||
C1 | 3,276 | |||
C2 | 1,965 | |||
D/E | 900 |
As of December 31, 2023, approximately 49% of our customers were classified as Class C, 37% as Class A and Class B and 14% as Class D and Class E.
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The charts below set forth the distribution of our customers by income levels as compared to the overall Brazilian population.
According to a study by IPC Maps 2022, Class A households account for only 2.5% of urban households, Classes B1 and B2 collectively represent 20.8% of all urban households, Classes C1 and C2, the most representative in Brazil, collectively represent 47.9% of all urban households and Classes D and E collectively represent 28.8% of all urban households. In recent years, the average purchasing power and number of Class C, D and E urban households have increased.
We expect that increased consumption by the lower income levels will occur over time as a result of gradual salary increases and a steadily growing population. The Brazilian monthly minimum wage increased 6.97% from R$1,320.0 in January 2023 to R$1,412.0 in January 2024.
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As set forth in the chart below, we are the second largest company in terms of total gross revenue in 2023, when compared with the main competitors in the Brazilian retail market.
Retail Ranking
Gross Operating Revenue
for the year ended December 31, 2023
(in R$ billions)
Sources: Companies’ public information.
(1) | Excludes CBD the operations of Grupo Éxito. |
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The chart below sets forth the food retail ranking in terms of gross revenue in 2023:
Food Retail Ranking
Gross Operating Revenue
for the year ended December 31, 2023
(in R$ billions)
Source: ABAAS.
For more information on the Brazilian economic environment, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Results of Operations—Brazilian Economic Environment.”
Competition
The Brazilian cash and carry industry is highly competitive and has grown over the past few years. This development has taken place through important investments made by existing chains, as well as the conversion of supermarkets and hypermarkets into cash and carry stores. For more information about risks related to competition, see “Item 3. Key Information—D. Risk Factors—Risks Relating to our Industry and Us—We face significant competition and pressure to adapt to changing consumer habits, which may adversely affect our market share and net income.”
Our main competitors are Atacadão, Grupo Mateus, Maxxi, Fort, Tenda and Roldão, as well as various regional players.
For more information about our competitive landscape, see “—Industry.”
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Regulatory Overview
We are subject to a wide range of governmental regulation and supervision generally applicable to companies engaged in business in Brazil, including federal, state and municipal regulation, such as labor laws, public health and environmental laws. In order to open and operate our stores, we need a business permit and site approval and an inspection certificate from the local fire department, as well as health and safety permits. Our stores are subject to inspection by city authorities. We believe that we are in compliance with all material respects with all applicable statutory and administrative regulations with respect to our business. In addition, we have internal policies that in some instances go beyond what is required by law, particularly with respect to environmental and sustainability requirements and social and community matters.
Our business is primarily affected by a set of consumer protection rules regulating matters such as advertising, labeling and consumer credit. We believe we are in compliance with all material respects with these consumer protection regulations.
Environmental, Social and Governance Matters
For us, sustainability is a strategic and transversal approach that encompasses all our activities and projects. We seek to balance economic, social, and environmental dimensions in our operations and the value chain, adopting the United Nations (UN) Sustainable Development Goals as guiding principles for our initiatives. We consider the global scenario, sustainability issues and the main ESG indices in the market, as well as the expectations and interests of our stakeholders through our materiality study.
Due to the capillarity and scope of operations, our responsibility is even greater. Therefore, our strategy is based on driving prosperity for all people through responsible, transparent operations and lower environmental impact. All these aspects are part of a joint action with our different constituencies, through an ethical and transparent relationship.
ESG Indices and Recognitions
In January 2023, we were included, for the first time, in B3’s Corporate Sustainability Index (ISE), which brings together companies with management processes committed to corporate sustainability practices. Maintaining the consistency of our strategy, we remained listed in the portfolio in 2024.
In 2023, we also became part of IDIVERSA B3, the first index in Latin America focused on diversity, launched in August 2023, racking public traded companies that stand out for their indicators elated to gender and racial inclusion.
Still in 2023, we joined a 16 Brazilian Companies Group that belong to the Bloomberg Gender Equality Index (GEI), which aims to measure the performance of gender issues in public traded companies based on five pillars: leadership and talent pipeline, equal pay and pay parity between men and women, inclusive culture, anti-sexual harassment policies and external branding.
In 2023, we achieved the Women On Board seal, attending a requirement for two women joining our board of directors.
We received the Age-Friendly Employer (CAFE) Certificate granted in Brazil by Maturi, official representative of the Age Friendly Institute program, which certifies companies committed to inclusion of professionals aged 50 or over.
We became part of B3’s Carbon Efficient Index (ICO2), which attests our commitment to transparency by disclosing carbon emissions and preparing companies for a low-carbon economy.
We received the Great Place to Work (GPTW) seal, already renewed for 2024. With the certification obtained by Great Place to Work (GPTW), in 2023 we were included in the IGPTW B3 index – that brings together all companies that were certified by GPTW and have assets traded on B3, the Brazilian stock exchange. In addition to expanding our visibility and credibility in the market, we further strength our employer brand.
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We advanced in the evaluation of the CDP Climate Change, the largest global initiative for reporting climate risks. We improved our rating from C in 2021 to B in 2022 and maintained our consistency in 2023.
Sustainability Strategy
At the end of 2023, we updated our Sustainability Strategy. The process was supported by a specialized consultancy and had the collaboration of a multidisciplinary team from our different hierarchical levels, including our board of directors and our executive board.
As a result, we have structured our sustainability strategy around the following purpose:
“Drive prosperity for all people with responsible, transparent operations and lower environmental impact” and which unfolds into the following pillars:
Efficient operations:
● | Climate change: improvement of refrigeration technologies and energy efficiency |
● | Waste management and circular economy |
● | Responsible supply chain: working conditions and impacts on biodiversity |
People and Community Development:
● | Qualification and training |
● | Diversity, inclusion and combating discrimination |
● | Assaí Institute: local development, through entrepreneurship, food security and sports |
● | Combating food wastage |
● | Strengthening small entrepreneurs |
● | People and Community Development |
Ethical and Transparent Management:
● | Ethics and Governance |
● | Personal data privacy and protection |
Efficient operations:
● | Climate change: improvement of refrigeration technologies and energy efficiency |
Our operations are complex and involve numerous suppliers to ensure the best supply of our stores and meet the needs of our customers. With sustainability as a strategic part of our business, we seek to identify, monitor, and reduce vulnerabilities and environmental impact on the operation. This way, we aim to create strategies to reduce such risks and make activities more responsible and suitable to face the climate emergency, raising the awareness of our audiences, including practices and processes that reinforce our commitment beyond compliance with current legislation.
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Our environmental management has as its main axis the fight against climate change, which is why we have targets for reducing carbon dioxide emissions by 38% (scopes 1 and 2) in our operations by 2030 in relation to our total emissions in 2015. These commitments are linked to the variable remuneration of all eligible leadership positions, which includes our CEO and other executive officers, in addition to the positions of consultants, coordinators and managers in our distribution centers and headquarters.
In line with our goals, 98% of our consumption energy was from renewable energy, including all store openings. As a complement to this strategy, we purchased I-REC (International Renewable Energy Certificate) which certifies part of the renewable energy consumed in our operations.
We have also invested in solar plants for the self-generation of distributed energy, taking advantage of areas (large store roofs) that are available but not useful for business, increasing our independence from local energy suppliers. There is a total of seven photovoltaic power plants in operation. We have also invested in the structures of the new stores, which feature eco-efficiency items such as electric vehicles charging stations and 100% of our stores operating with LED lighting, in addition to devices that save water and electricity.
Refrigerant gases have been replaced by other of lower global warming potential. In 2023, we reduced 25% of R-22 consumption in our stores, compared to 2021, which involves replacing (retrofit) old refrigeration systems with chillers that do not operate with R-22. This has allowed us lowering energy consumption due to thermal energy storage and better display of goods.
Waste Management and Circular Economy
We are committed to reducing the environmental impacts generated by waste. In 2023, 44% of our waste was reused and stopped being sent to landfills, which allowed reductions in gas emissions, such as methane, around 50,156 tons of CO2e, the result of internal negotiations that allowed the expansion of programs aligned with the accelerated pace of company growth.
Composting has been fundamental to achieving this goal. In 2023, we reached a total of 2,419 tons destined for composting, an increase of 50% compared to the 1,613 tons recorded in 2022. The number of stores that participated in this initiative reached 71.
We have been looking for other ways to optimize organic waste and, for this purpose, we developed a pilot project in 2023 using three different technologies in Bahia, Paraiba and São Paulo. Each pilot action had a context related to technologies and business models, which includes: composting and biodigestion, circular economy models (which includes the use of the compost generated in for small-scale, commercial and agricultural systems or for subsistence). The results of the pilot projects are driving our plans to achieve zero landfills in the future.
Better waste management has also contributed to other benefits, such as combating waste. Through the Destino Certo Program, we donated to partner institutions 2.3 thousand tons of perishable fruits, vegetables and greens not suitable for sale, but suitable for consumption, which is 32% more than in 2022. In all, 262 of our stores participated in this project throughout the year.
We have also worked to make use of waste from our value chain, to engage customers with the recycling. By December 2023, we had 41 active recycling stations in our stores, which, compared to 2022, represent an increase of 14%. The amount collected also shows a significant improvement of 33% — among paper, cardboard, plastic, metals in general, glass, long life boxes, electronics and used vegetable oil. In addition, we offer recycling bins to specific waste, such as light bulbs and batteries.
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Responsible Supply Chain: Working Conditions and Biodiversity Impacts
We operate in a rich and complex value chain composed of numerous suppliers, including producers, industries, distribution companies and services. We seek to know in depth all the links in the chain, increasing the traceability and monitoring of the process and, thus, identifying and mitigating possible socio-environmental risks in the raw material extraction and production stages, in addition to contributing to boosting our positive impact.
Our relationship with suppliers is guided by standards to be followed in areas such as the promotion of human rights, occupational health and safety, food safety, anti-corruption practices, protection of biodiversity and the environment, which are contained in our Code of Ethics, Diversity and Human Rights, Environmental Management Policy and Socio-environmental Policy for Beef Purchasing and Ethics Charter for Suppliers.
In 2023, we continued to carry out social audits of working conditions at our suppliers of Exclusive Brands and imported products whose production is in more critical countries, in accordance with the Compliance and Sustainability Initiative (ICS) protocol.
This protocol provides for visits to factories and analysis of documents, in addition to conducting anonymous interviews with employees on topics such as forced labor, human trafficking and immigrant workers, child labor, freedom of association, right to collective bargaining, discrimination, occupational health and safety, abuse and harassment, wages and benefits, hours worked and overtime. Each audit issues a report with the score obtained by the supplier, which determines whether or not it is able to establish a commercial relationship with Assaí.
In 2023, two maintenance audits were carried out at the factories of our national exclusive brand suppliers. We ended the year with 94% of exclusive brand suppliers with valid ICS audits. Also that year, we carried out eight ICS audits of fruit and vegetable (FLV) suppliers.
During 2023, two maintenance audits were carried out at international supplier factories located in socially vulnerable countries. We blocked three suppliers, ending 2023 with 100% of suppliers complying with our guidelines for monitoring working conditions, reaching the target established as a commitment.
Our Socio-Environmental Beef Purchasing Policy, published in 2016 and updated in 2022, establishes that all slaughterhouses and processors must fully comply with the document’s guidelines to remain Assaí suppliers. This requirement guaranteed the commitment of 100% of eligible suppliers in 2023.
People and Community Development
At Assaí, career management is carried out throughout the employee’s journey, from the candidate’s first contact with Assaí. We use a system that manages our career management model – Avance, generating autonomy for managers and a structured method that includes skills assessment, performance mapping, adherence to culture, career conversation, as well as career committees, and individualized development plans for leaders and specialists.
Qualification and Training
Since 2013, we have invested in a structured model of corporate education, Assaí University. It was created with the purpose of disseminating knowledge about our business model – Self-Service Wholesale and preparing our people for the challenges of growth and expansion of our business, all through various development programs and online and in-person courses.
Every day more, Assaí University has been seeking innovations aligned with the trends in the evolution of organizational learning and also digital transformation in education, always seeking to stay up to date with new ways and models of training and developing our more than 80,000 employees. Currently, Assaí University offers more than 79 training programs and around 36,000 courses, covered in five learning schools, available for different hierarchical levels and business areas.
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In 2023, Assaí University also made strides in multichannel approaches to facilitate employee learning, providing content through digital platforms, an app, WebApp, and kiosks at physical locations. Additionally, it utilizes ZapUA, an educational channel featuring the Intelligent Learning Multiplicator, Maia, a humanized robot that delivers personalized content and encourages pursuit of training.
Health and Safety
We believe that health and safety are non-negotiable and require an attentive, integrated approach that reflects Care for Our People.
Our Occupational Health and Safety Policy is aligned with the objectives and processes of SESMT (Specialized Service in Safety and Occupational Medicine). With the increase in the number of employees, we now have 11 healthcare clinics throughout Brazil. Each unit has an occupational physician and a nursing technician for occupational medical care.
In 2023, we launched VIVA+ Assaí - Health and Safety, a program composed of initiatives in the areas of health, medicine, security, benefits, and social services, which also supports employees on leave and provides social services.
In order to boost an organizational culture for workplace safety annually, we carry out MÊSPAT - Occupational Accident Prevention Month, a robust month-long program focused on the effectiveness of protocols and internal communication about safety.
In 2023, we held the 5th edition of MÊSPAT, covering 100% of our stores and DCs. MÊSPAT’s programming went deeper into four specific fronts, distributed in: Correct Use of PPE; Safety in Machines and Equipment; Occupational Safety in Butchers and Ergonomics in Material Handling.
Diversity, inclusion and combating discrimination
Each year, we reinforce our focus on diversity, inclusion, and respect for human rights through a strategic agenda aimed at promoting inclusion, respecting and valuing diversity, and combating all forms of violence and discrimination internally and throughout our value chain.
We work with five priority themes, ensuring the rights, respect, appreciation, and equity of all:
● | Racial Equity; |
● | Respect for LGBTQIA+ Rights; |
● | Gender Equity; |
● | Inclusion and Development of People with Disabilities; |
● | Age Diversity. |
In 2023, we reinforced our diversity and inclusion actions and programs, including affirmative actions, training sessions, dialogues, and compliance with internal laws and regulations, achieving the following results:
● | Gender Equality: Through inclusive hiring policies, training and development programs for women in middle management roles to advance their careers, and tailored benefits for mothers. In 2023, 25.0% of our leadership positions (management and above) were filled by women. |
● | People with Disabilities: We intensified our partnerships with consultants to expand and strengthen our actions. We also prepared a Normative Instruction with guidelines on hiring, inclusion and dismissal of people with disabilities. In 2023, 5.4% of our employees were people with disabilities. |
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● | Racial Equity: In 2023, we intensified the hiring of Black employees in all positions and business units. 65.5% of our employees are self-declared Black, 61.4% of our leadership positions were held by Black employees and 43.6% of our management positions and above were held by Black employees. |
● | LGBTQIA+: In 2023, we increased the inclusion of trans people, with a growth of more than 50.6% compared to the same period in 2022. |
Policies and Commitments
Our commitments and initiatives for promoting diversity and inclusion are guided by our internal policies, designed to ensure the rights, respect, appreciation, and equity of all. These policies include:
● | Diversity and Human Rights Policy: Published in 2020, in line with the international human rights principles covered by the UN Universal Declaration of Human Rights, ensuring the rights of all individuals regardless of race, color, sexual orientation, gender identity, religion, nationality, economic and social condition, or any other identity marker. |
● | Code of Ethics: Updated in 2022, the document summarizes the fundamental principles and guidelines that guide our activities and decisions, defining obligations for leaders, employees, suppliers, and other stakeholders, addressing conduct in business, relationships, and anti-corruption policies, among other aspects. The document also establishes procedures for the ombudsman, disciplinary measures, and management of the Ethics Committee. |
● | Diversity and Human Rights Clause: Implemented in 2021, reinforcing the code of ethics and diversity and human rights policy, requiring contractors to orient and train their teams – working in the units – and establishing sanctions and contract termination in case of non-compliance, valid for all existing contracts with our service provider partners. |
● | Ethnic Racial Equity Policy: Developed in 2021, with the aim of transparently positioning us and providing guidelines for action in the face of ethnic racial issues to all our employees, service providers, suppliers, or any other relationship public present in our business units. The policy also presents definitions and role and responsibility guidelines for leaders and non-leaders, as well as expected behaviors and behaviors not tolerated. |
Inclusive Culture
This front aims to intensify actions that promote knowledge, awareness and behavioral changes that impact self-development, people management and the relationship with employees, customers and stakeholders, expanding and consolidating the theme as strategy for the continuity and sustainability of our business, brand and reputation. Our programs and regular initiatives include: Diversity Program, Inclusive leadership and unconscious bias training, Dialogues about Diversity, Diversity Week, Women’s Week, Black Consciousness Month, Anti-Racism Guideline, among others.
Since 2021, we have been working with the Diversity Ambassadors Group, composed of employees from all hierarchical levels of our operations. The group discusses opportunities related to diversity, including LGBTQIA+ representation, beliefs, cultures, races, genders, generations, and people with and without disabilities. Ambassadors participate in workshops and online courses to deepen their knowledge on the subject.
In 2022, we conducted the first Diversity Census in partnership with the Instituto Identidades do Brasil (ID_BR) - a non-profit organization that assists in accelerating the promotion of racial equality in the job market. This census had a voluntary participation rate of 56.4% of employees. This allowed us to understand the profile and extent of our diversity, enabling the planning of specific actions based on the contributions of the employees themselves.
In 2023, we launched the Gender Self-Declaration Campaign. As a result, 65% of our employees have completed their gender self-declaration, contributing to the review and update of our people management systems with concepts that incorporate all gender diversity, generating visibility that will guide new awareness, literacy, equal opportunities, and rights actions for trans and non-binary individuals.
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Since 2022, our employees have had access to the Assaí Diversity and Inclusion Guidebook, which covers content on best practices for the empowerment of marginalized groups, combating discrimination, and includes a chapter dedicated to gender equality and the fight against violence against women.
Partnerships and Associations
We are signatories of initiatives and movements that aim to contribute to a more responsible, fair and inclusive society. We work together to overcome the main challenges of sustainable development, adopting the best retail practices. We sign the following commitments:
● | Seal Yes to Racial Equity: Since 2020, we have been part of this important initiative by the Brazilian Institute of Identities (ID_BR) and its objective is to strengthen the commitment and positioning of companies to eliminate discrimination, respect human rights and value racial diversity. |
● | Women’s Empowerment Principles: Since 2021, we have been part of UN Women and the UN Global Compact. The seven women’s empowerment principles have guidelines to further strengthen our gender equity practices for our employees and society. |
● | LGBTI+ Business and Rights Forum: This forum is a mobilization of companies committed to recognizing and promoting the rights of LGBTQIA+ people. |
● | Business Coalition to Eliminate Violence Against Women and Girls: The initiative, in which we have participated since 2021, aims to bring greater visibility to this issue and advance the agenda to combat violence against women. |
● | REIS – Business Network for Social Inclusion: This commitment reinforces our position in relation to the inclusion and development of the more than 3,000 employees with disabilities who are in our stores, distribution centers, offices, and corporate headquarters. |
● | Movimento Mulher 360 (Business Movement for Women’s Economic Development): Since 2022, we have been part of this movement, through which we intend to contribute to the discussion of the agenda on gender equity and female empowerment. We reinforce our commitment to respect, appreciation and inclusion among our employees and our relationship network. |
● | We adhere to the Open Letter to the Federal Executive Branch for the signing of Convention 190 for the Elimination of Violence and Harassment at Work, a movement led by the Business Coalition for the End of Violence against Women and Girls, of which we are a signatory. |
Affirmative Action
This front aims to intensify actions to maintain and advance existing programs and minority groups and implement new actions that favor the inclusion of other minority groups, including, (i) gender equality; (ii) people with disabilities; and (iii) racial equity.
Instituto Assaí
Our operating strategy is built to promote opportunities and paths of prosperity for people and communities. Based on this objective, in 2022 we launched the Assaí Institute, which reflects the relevance of the Social Responsibility agenda for the company and our commitment to social impact.
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The Assaí Institute allows us to act in an even more focused and structured way on three fronts: (1) fostering microentrepreneurs in the food; (2) fighting food insecurity; and (3) strengthening small institutions that promote sports activities.
In 2023, we worked on implementing each project, mapping challenges and partners and building our path, achieving the following results on each front:
(I) Entrepreneurship:
● | Academia Assaí: Activities on the entrepreneurship front are led by Academia Assaí (platform we created in 2017 and incorporated into the activities of Instituto Assaí, after the creation of the social organization), with the aim of supporting small entrepreneurs in the food sector. In 2023, Academia Assaí, through its training programs, issued 16,485 certificates to entrepreneurs, the online platform obtained more than 4.1 million accesses to its various communication channels, a growth of 51% compared to 2022. |
● | Academia Assaí Award: In 2023, Academia Assaí promoted the sixth edition of the Academia Assaí Award, financially supporting 2,100 microentrepreneurs with more than R$1.3 million. |
● | Afrobusiness: Initiative launched in 2023 that aims to boost Afro-entrepreneurship in the food segment through actions, partnerships and exclusive content. |
(II) Food Safety:
● | Food donation and fundraising campaigns: In 2023, we supported approximately 1.34 million families in vulnerable situations through our social impact actions, donating 2.6 thousand tons of food to 179 institutions and communities around our stores. The amount was donated through donations of basic food baskets, mobilizations with customers and the Destino Certo Program. |
● | Community Kitchens: Program launched in 2023, with the aim of providing the extremely vulnerable population, especially those living on the streets, with access to ready-made, healthy and appropriate meals, delivered by small and medium-sized community kitchens. Through the initiative, we served 189,000 meals with the support of two kitchens in São Paulo and others in Rio de Janeiro, Fortaleza (CE), Manaus (AM) and Dourados (MS). |
● | Mais Escolha Program: Implemented in 2023, the initiative consists of transferring income through the distribution of cards to, primarily, black women, who raise children alone and who live in extreme poverty. In the first pilot year of the project, 1,866 families in the cities of Santarém (PA) and Serrinha (BA) and in the metropolitan region of São Paulo (SP) benefited to receive a food card with a monthly credit of R$105.00 for buy food in Assaí stores for six months. |
(III) Sport and Citizenship:
● | Sport and Citizenship Notice: The first initiative of the Sport and Citizenship front led by the Assaí Institute, the notice was published in 2023, with the aim of strengthening small institutions that promote sporting activities with a social nature. 50 institutions from the North and Northeast of Brazil and the Metropolitan Region of São Paulo were selected to participate in pedagogical and sports management modules which, moving forward, can receive financial contributions of R$90,000 for each until the end of the project, in 2025. |
Integrated Management and Transparency
● | We follow the highest corporate governance standards required by Novo Mercado, the B3 segment of which we are part. We also meet the requirements of companies listed on the New York Stock Exchange (NYSE). By establishing a high level of corporate governance, we intend to create a healthy and safe business environment for all our stakeholders, based on ethical and transparent relationships, thus providing greater predictability to our actions and projects. |
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● | We also adopt sustainability practices and publish an annual Sustainability Report to report on our performance in the economic, social, and environmental areas. The themes and topics prioritized in this report are in accordance with the materiality study and the set of sustainability commitments aligned with the policies adopted globally, as well as the correspondence to the GRI themes (Global Reporting Initiative), the SASB (Sustainability Accounting Standards Board) indicators, the Task Force on Climate Related Financial Disclosures, to Integrated Report (IR) and to the following UN Sustainable Development Goals: zero hunger and sustainable agriculture, quality education, gender equality, decent work and economic growth, reduction of inequalities, sustainable cities and communities, responsible consumption and production, action against global climate change, life in the water, Earth life, and peace, justice, and effective institutions. An independent auditor performs a limited review of the indicators defined in our annual sustainability report. |
● | Since 2016, we have linked sustainability goals, through the ISD (Sustainability and Diversity Index), to the composition of the variable remuneration of leaders, including our chief executive officer and directors, managers, coordinators, consultants and specialists from corporate areas in addition to managers, assistant store managers, section heads, operations heads and those responsible for distribution centers. |
ESG Risk Management
We follow the international standards established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the ISO 31000:2018 standard – Risk Management Principles and Guidelines to guide our risk identification, assessment, treatment, monitoring and communication processes.
Our corporate risk management process is known as Enterprise Risk Management (ERM) and begins with a meeting to understand the business scenario and context, considering factors linked to our short and long-term strategic planning and our areas, aligned with the environment in which these objectives are inserted.
We have a risk matrix that identifies the main risks to which we are exposed in the different areas and which is updated annually. New emerging concerns identified over a period of time are included among the prioritized themes. In 2023, we work with 17 prioritized risks, 12 of which are traditional business risks and 5 are ESG-themed:
● | Fight against discrimination and diversity; |
● | Food waste; |
● | Climate change and transition risks; |
● | Environmental impacts on the supply chain; and |
● | Atmospheric emissions due to refrigeration. |
Assaí Integrity Program
Our program was prepared following the manual of the Comptroller General of the Union (CGU) and is based on five pillars: commitment and support from senior management; responsible body; risk profile analysis; rules and instruments; continuous monitoring.
In 2023, we completed the process of reformulating the program, which began in 2021, with the improvement of its scope of activities and the inclusion of new components, thus adapting to our new structure and new moment.
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The program is supervised by our senior management and complies with the Brazilian Anti-Corruption Law (Law No. 12,846/13) and the United States Foreign Corrupt Practices Act – FCPA, a North American law against corruption abroad.
C. Organizational Structure
The chart below sets forth our simplified corporate structure as of the date of this annual report. For information about our shareholders, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
D. Property, Plant and Equipment
As of December 31, 2023, we owned 28 stores. As of December 31, 2023, we leased the remaining 260 stores and the 11 distribution centers and warehouses we operate in Brazil and the real estate where our headquarters are located. Leases are for a term of five to twenty-five years, being most of them for twenty-year term, renewable for the same period. We have ten leases expiring in 2024, which are scheduled to expire in February, March April, June, August and October 2024. These leases are subject to an automatic 10-year renewal unless we decide to terminate them prior to their expiration. We do not expect to terminate these lease agreements. Based on our prior experience on Brazilian real estate law, we do not anticipate any material change in the general terms of our leases or any material difficulty in renewing them. Based on our management’s experience and knowledge of the Brazilian market, our management believes that our leases follow market standards.
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The following tables set forth the number and total selling area of our owned and leased stores, and the number and total storage area of our owned and leased warehouses as of the dates indicated:
As of December 31, 2023 | ||||||||||||||||||||||||
Owned | Leased | Total | ||||||||||||||||||||||
Number | Area | Number | Area | Number | Area | |||||||||||||||||||
(in square meters) | (in square meters) | (in square meters) | ||||||||||||||||||||||
Assaí stores | 28 | 127,596 | 260 | 1,328,045 | 288 | 1,455,641 | ||||||||||||||||||
Warehouses | — | — | 11 | 252,309 | 11 | 252,309 | ||||||||||||||||||
Total | 28 | 127,596 | 271 | 1,580,354 | 299 | 1,707,950 |
As of December 31, 2022 | ||||||||||||||||||||||||
Owned | Leased | Total | ||||||||||||||||||||||
Number | Area | Number | Area | Number | Area | |||||||||||||||||||
(in square meters) | (in square meters) | (in square meters) | ||||||||||||||||||||||
Assaí stores | 27 | 121,889 | 236 | 1,184,835 | 263 | 1,306,724 | ||||||||||||||||||
Warehouses | 1 | 3,700 | 11 | 253,976 | 12 | 257,676 | ||||||||||||||||||
Total | 28 | 125,589 | 247 | 1,438,811 | 275 | 1,564,400 |
As of December 31, 2021 | ||||||||||||||||||||||||
Owned | Leased | Total | ||||||||||||||||||||||
Number | Area | Number | Area | Number | Area | |||||||||||||||||||
(in square meters) | (in square meters) | (in square meters) | ||||||||||||||||||||||
Assaí stores | 26 | 115,628 | 186 | 848,156 | 212 | 963,784 | ||||||||||||||||||
Warehouses | — | — | 11 | 168,793 | 11 | 168,793 | ||||||||||||||||||
Total | 26 | 115,628 | 197 | 1,016,949 | 223 | 1,132,577 |
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read this discussion in conjunction with our audited financial statements prepared in accordance with IFRS as issued by IASB and the other financial information included in this annual report.
A. | Operating Results |
Principal Factors Affecting Our Results of Operations
Brazilian Economic Environment
All of our operations are located in Brazil. Accordingly, our results of operations are affected by macroeconomic conditions in Brazil, including inflation rates, interest rates, Brazilian GDP growth, employment rates, wage levels, consumer confidence and credit availability.
The economic environment remained challenging for our operations during throughout the last 3 years. The Brazilian GDP, as published by the IBGE, increased by 2.9% in 2023, increased by 2.9% in 2022, increased by 4.6% in 2021 and decreased by 4.1% in 2020, the first year of the COVID-19 pandemic. Prior to 2020, Brazil was emerging from a prolonged recession after a period of a slow recovery, with only meager GDP growth in 2019 and 2018. Brazil’s GDP growth rates were 1.1% in each of 2019 and 2018. The rate of growth of Brazilian GDP has a direct effect on consumer demand, which we believe affects demand for our products and services and, consequently, our net operating revenue.
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In addition, our results of operations are affected by the level of Brazilian unemployment. As of December 31, 2023, Brazilian unemployment, as measured by the monthly National Household Sample Survey (Pesquisa Nacional por Amostra de Domicílios Contínua), or PNAD, published by the IBGE, was 7.4%, compared to 9.3% as of December 31, 2022 and 13.2% as of December 31, 2021. As with GDP, the level of Brazilian unemployment has a direct effect on consumer demand, which we believe affects demand for our products and services and, consequently, our net operating revenue.
In 2023, Brazilian inflation, as measured by the General Market Price Index (Índice Geral de Preços - Mercado), or IGP-M, published by Fundação Getúlio Vargas, or FGV, a private organization, recorded deflation of (3.2)% during 2023, compared to inflation of 5.45% during 2022 and 17.8% during 2021. In 2023, Brazilian inflation, as measured by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Ampliado), or IPCA, published by the IBGE, decreased to 4.62%, compared to 5.79% during 2022 and 10.06% during 2021. Brazilian inflation has a direct effect on the final prices we charge our customers when they acquire our products, as well as effects on the cost to us of many of these products that we source in Brazil, our operating costs (in particular personnel costs), and our leasing costs as many of our lease agreements are partially indexed to Brazil’s national inflation indexes.
Our results of operations are affected by changes in the exchange rates of the real against the U.S. dollar. During 2023, the real appreciated against the U.S. dollar by 9.4%, following a depreciation of 6.5% during 2022 and a depreciation of 7.4% during 2021. The depreciation of the real against the U.S. dollar may create inflationary pressures in Brazil, particularly in the category of food products. In periods of significant inflation, we may not be able to pass through our increased cost of goods to our customers to our customers and demand for our products may contract. As we do not have any indebtedness denominated in U.S. dollars, fluctuations in exchange rates do not have a direct impact on the carrying costs of our indebtedness or the cost of servicing our indebtedness.
A substantial portion of our indebtedness bears interest at rates linked to the CDI rate. As of December 31, 2023, the CDI rate was 13.03%, reflecting an increase from the CDI rate of 12.39% as of December 31, 2022, and an increase from the CDI rate of 4.4% as of December 31, 2021. Fluctuations in the CDI rate have direct effects on our debt service costs, as well as indirect effects on the Brazilian economy as a whole and consumer demand for our products and services.
An economic recession and growth of the unemployment rate could lead to a decline in household consumption which could adversely affect our results of operations and financial condition. In order to mitigate this risk, we emphasize the adaptation of our stores’ mix of products in order to offer our customers products in line with the evolving economic environment.
The following table sets forth data on real GDP growth, unemployment, inflation and interest rates, and the U.S. dollar exchange rate for the indicated periods:
As of and for the year ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | ||||||||||||||||
GDP growth (%) (1) | 2.9 | 2.9 | 4.6 | (4.1 | ) | 1.1 | ||||||||||||||
Unemployment (%) (2) | 7.4 | 9.3 | 13.2 | 13.5 | 11.9 | |||||||||||||||
Inflation (IGP-M) (%) (3) | (3.2 | ) | 5.5 | 10.8 | 23.1 | 7.3 | ||||||||||||||
Inflation (IPCA) (%) (4) | 4.6 | 5.8 | 10.1 | 4.5 | 4.3 | |||||||||||||||
CDI (%) (5) | 11.7 | 12.4 | 4.4 | 2.8 | 5.9 | |||||||||||||||
(Depreciation) appreciation of the real against the U.S. dollar (%) | 9.4 | (6.5 | ) | (7.4 | ) | (28.9 | ) | (4.4 | ) | |||||||||||
Exchange rate (closing) of the real to the U.S. dollar (6) | 4.841 | 5.218 | 5.581 | 5.197 | 4.031 | |||||||||||||||
Average exchange rate the real to the U.S. dollars (6) | 4.995 | 5.165 | 5.395 | 5.158 | 3.946 |
(1) | Source: IBGE. |
(2) | Source: IBGE. |
(3) | Source: FGV. |
(4) | Source: IBGE. |
(5) | Source: Central Bank. |
(6) | Source: Central Bank. |
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Our Expansion Plan
We began operating 2022 fully independently and with more visibility following our Spin-Off from CBD in 2021. We exceeded our announced expansion plan, opening 60 new stores during 2022, 47 of which by conversion of hypermarkets. The opening of those stores is a historic achievement for our company, as we believe that the conversion of 47 stores and the construction of 13 new large surface organic stores in a single year is unprecedented in the Brazilian cash and carry market.
As of December 31, 2022, we operated 263 stores, 12 distribution center and 11 regional offices. In addition, we operated 100 stores in the State of São Paulo, making us the largest self-service wholesale chain in the state. With our growth, we reached 1.3 million square meters in sales area as of December 31, 2022, an increase of 36% as compared to December 31, 2021.
Our commercial galleries also add value to our business model by driving customer traffic and diluting costs. As of December 31, 2023, our commercial galleries registered occupancy of approximately 70% of total gross leasable area available, generating revenues of R$93.0 million in 2023, an increase of 69% as compared to 2022.
In a year marked by instability, we delivered robust growth and revenues with a gain in market share. We maintained a high level of profitability and improved our debt profile as a result of the Spin-Off, ensuring quality in the financial management of our business. We generated 16 thousand new jobs in 2022 (including active and absent employees, interns, and underage apprentices), as compared to 11 thousand in 2021.
In 2023, our strategic expansion also marked significant progress in our growth plan. We successfully converted 17 commercial points into Assaí stores and built 10 new organic stores, expanding our sales area by an additional 152 thousand square meters. As of December 31, 2023, our total sales area reached more than 1.4 million square meters, an increase of 15.4% as compared to December 31, 2022. This growth also led us to achieve more than 80.000 employees. Our commitment to fostering employment opportunities and supporting community development remained a core aspect of our expansion strategy.
As of December 31, 2023, our operational network comprised 288 stores, reflecting a 9.5% increase from the previous year. Looking ahead, we are aware of the challenges of 2024. For this reason, we consider the maintenance of our characteristics essential, i.e, efficient, decentralized, and low-cost operations to offer the best prices and the best shopping experience to our diversified customer base. We aim to open approximately 15 new stores in 2024.
Financial Presentation and Accounting Policies
Presentation of Financial Statements
We have prepared our audited financial statements in accordance with IFRS as issued by the IASB. Our audited financial statements have been audited in accordance with auditing standards of the Public Company Accounting Oversight Board.
Business Segments and Presentation of Segment Financial Data
We evaluate and manage business segment performance based on information prepared in accordance with IFRS. As of the date of this annual report, we report our results as a single segment, which includes our cash and carry business in Brazil.
Significant Accounting Policies and Estimates
The preparation of our financial statements, in accordance with IFRS as issued by the IASB requires our management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, as well as the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
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For more information about the key assumptions and judgments concerning the future, and other key sources of uncertain estimates at the reporting date that have a significant risk of causing a material impact to the carrying amounts of assets or liabilities within the next financial year, see note 5 to our audited financial statements included elsewhere in this annual report.
Internal Control over Financial Reporting
We maintain internal control practices that seek to keep an adequate monitoring of our internal control environment related to operational and financial processes.
As of the date of this annual report, we have several internal control practices, such as training for employees about our main compliance rules, the development of action plans with our business areas to mitigate potential reputational risks and relevant future financial losses, the periodic assessment of the main risks related to our technological environment and operational processes, among others. Each of these practices is under the primary responsibility of one of our control areas.
Our internal audit area, which reports to our audit committee, acts independently and objectively to assess the quality and effectiveness of our risk management, control, and governance processes. The current audit plan is reviewed and validated by our chief executive officer and audit committee, and its compliance is supervised by our audit committee and reported to our board of directors.
Our risk management area periodically evaluates the risks inherent to our processes and maintains a matrix of risks and controls with the proper validations by the process owners and our management, which is submitted, annually, for evaluation of internal audit procedures.
In addition, we hire an independent firm to perform the controls testing for Sarbanes-Oxley Act purposes under our management’s supervision, in order to support the conclusion on internal controls.
Our management has concluded that our disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In addition, the independent registered certified public accounting firm who audited our financial statements included elsewhere in this annual report has concluded that we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. For additional information, see “Item 15. Controls and Procedures.”
Overview
Despite a challenging economic scenario in which consumption was sharply affected by high unemployment rates, our continuing operations, which consist of our legacy cash and carry business, continued to experience strong growth in 2023, demonstrated by an increase of 22.0% in net operating revenue to R$66,503 million, from R$54,520 million in 2022. This growth was driven by the performance of the 27 stores we opened in 2023, consisting of 10 new stores and 17 store conversions, the maturation of stores opened in prior years, and a 1.6% growth in same store sales. Same store sales are sales made in stores opened for at least 12 consecutive months and which have not been closed or remained closed for a period of seven or more consecutive days. As of December 31, 2023, our total sales area was 1,456 thousand square meters. Management expects stores to mature between three and five years depending on the region in which the store is located. As discussed below, our net income decreased by 41.8% to R$710 million in 2023 from R$1,220 million in 2022.
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Results of Operations for Years Ended December 31, 2023 and 2022
The following table sets forth the components of our income statement, as well as the percentage of revenue represented by each component and the change from the prior year, for the periods presented.
For the year ended December 31, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
(in millions of R$) | % of net operating revenue | (in millions of R$) | % of net operating revenue | % change | ||||||||||||||||
Net operating revenue | 66,503 | 100.0 | 54,520 | 100.0 | 22.0 | |||||||||||||||
Cost of sales | (55,682 | ) | (83.7 | ) | (45,557 | ) | (83.6 | ) | 22.2 | |||||||||||
Gross profit | 10,821 | 16.3 | 8,963 | 16.4 | 20.7 | |||||||||||||||
Selling expenses | (5,411 | ) | (8.1 | ) | (4,379 | ) | (8.0 | ) | 23.6 | |||||||||||
General and administrative expenses | (831 | ) | (1.2 | ) | (787 | ) | (1.4 | ) | 5.6 | |||||||||||
Depreciation and amortization | (1,394 | ) | (2.1 | ) | (919 | ) | (1.7 | ) | 51.7 | |||||||||||
Share of profit of associates | 51 | 0.1 | 44 | 0.1 | 15.9 | |||||||||||||||
Other operating expenses, net | 49 | 0.1 | (72 | ) | (0.1 | ) | (168.1 | ) | ||||||||||||
Operating profit | 3,285 | 4.9 | 2,850 | 5.2 | 15.3 | |||||||||||||||
Financial revenues | 281 | 0.4 | 394 | 0.7 | (28.7 | ) | ||||||||||||||
Financial expenses | (3,012 | ) | (4.5 | ) | (1,909 | ) | (3.5 | ) | 57.8 | |||||||||||
Net financial result | (2,731 | ) | (4.1 | ) | (1,515 | ) | (2.8 | ) | 80.3 | |||||||||||
Income before income taxes | 554 | 0.8 | 1,335 | 2.5 | (58.5 | ) | ||||||||||||||
Income tax and social contribution | 156 | 0.2 | (115 | ) | (0.2 | ) | (235.7 | ) | ||||||||||||
Net income for the year | 710 | 1.1 | 1,220 | 2.2 | (41.8 | ) |
Net operating revenue. Our net operating revenue consists mainly of gross revenue derived from our product sales reduced by taxes and products returns. Net operating revenue increased by 22.0%, or R$11,983 million, to R$66,503 million in 2023 from R$54,520 million in 2022, mainly as a result of: (1) an increase in sales volume of 20.7% due to the opening of 27 new stores (including 17 hypermarket conversions) in the last 12 months, which accounted for a 12% growth in our sales area; (2) an increase in same store sales of 1.6%, boosted by the fast maturation of the converted stores; and (3) the maturation of stores opened in prior years. In addition, our attractive and successful business model with continuous advances in improving the shopping experience, revising the product mix and including services to meet the demand and the profile of the customers around each store, has resulted in increased store traffic.
Gross profit. Gross profit increased by 20.7%, or R$1,858 million, to R$10,821 million in 2023 from R$8,963 million in 2022, mainly as a result of the fast maturation of stores opened in prior years. Our gross margin decreased by 0.1 percentage points, to 16.3% in 2023, from 16.4% in 2022, mainly explained by the lower expansion in the period, with 27 new stores in the last 12 months (compared to 60 new stores in the corresponding period in 2022).
Selling expenses. Selling expenses increased by 23.6%, or R$1,032 million, to R$5,411 million in 2023 from R$4,379 million in 2022, mainly as a result of the opening of 27 new stores in the last 12 months. As a percentage of the net operating revenue, selling expenses increased by 0.1%, as compared to 2022, primarily due to the maturation of new stores and cost-cutting efforts.
General and administrative expenses. General and administrative expenses increased by 5.6%, or R$44 million, to R$831 million in 2023, from R$787 million in 2022, mainly as a result of an increase in costs linked to inflation (especially personnel), which increased by 4.4% as measured by the IPCA. As a percentage of the net operating revenue, general and administrative expenses decreased by 0.2%, as compared to 2022, primarily due to the maturation of new stores and cost-cutting efforts.
Depreciation and amortization. Depreciation and amortization increased by 51.7%, or R$475 million, to R$1,394 million in 2023 from R$919 million in 2022, mainly as a result of the accelerated process of opening of stores and the hypermarket conversions in 2021 and 2022.
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Other operating revenue (expenses), net. Other operating revenue (expenses), net, increased by R$121 million, to R$49 million of revenue in 2023 from R$72 million of expenses in 2022. In 2023, other operating revenue (expenses) consisted primarily of a positive (non-cash) accounting effect of R$65 million due to the write-off of the terminated rental agreement. This effect was triggered by the exit of the former controlling shareholder (Casino Group), given the existence of a clause that establishes the possibility of early termination of rental agreements of 28 stores leased from the Península fund that led to the negotiation of new rental agreements. Other operating revenue (expenses) also includes the sale of fixed assets. In 2022, our other operating revenue (expenses) included provisions related to (i) write-off of assets from closed stores due to the hypermarket conversions and (ii) the conclusion of certain asset sale.
Operating profit. Operating profit increased by 15.3%, or R$435 million, to R$3,285 million in 2023 from R$2,850 million in 2022, mainly as a result of the R$1,862 million increase in gross profit, which was partially offset by the increase of R$1,035 million in selling expenses, as explained above.
Net financial results. Net financial results, expenses, increased by R$1,216 million to R$2,731 million in 2023 from R$1,515 million in 2022, primarily as a result of: (1) an increase in interest rates, with an increase of the CDI in the period; (2) the lower effect of capitalized interest (R$257 million in 2023, as compared to R$694 million in 2022); and (3) an increased balance of total indebtedness (current and non-current borrowings plus current and non-current debentures and promissory notes), which debt increased to R$15,183 million as of December 31, 2023 from R$12,591 million as of December 31, 2022, primarily as a result of expansions in 2023, especially for the conversion of hypermarkets.
Income before income taxes. As a result of the foregoing, income before income taxes from continuing operations decreased by 58.5%, or R$781 million, to R$554 million in 2023 from R$1,335 million in 2022.
Income tax and social contribution. Our effective tax rate was 28.2% in 2023 compared to 8.6% in 2022, resulting in a decrease of income tax and social contribution of 58.5%, or R$271 million, to R$156 million of benefit in 2023 from R$115 million of expenses in 2022. The effective tax rate decreased primarily as a result of tax incentives related to grants for investments in 2023 which, under Complementary Law 160/17 and Law No. 12,973, are excluded from the calculation of our Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) and totaled R$939 million in 2023.
Net income for the year. As a result of the foregoing, net income for the year decreased by 41.8%, or R$510 million, to R$710 million in 2022 from R$1,220 million in 2022.
Results of Operations for Years Ended December 31, 2022 and 2021
The following table sets forth the components of our income statement, as well as the percentage of revenue represented by each component and the change from the prior year, for the periods presented.
For the year ended December 31, | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
(in millions of R$) | % of net operating revenue | (in millions of R$) | % of net operating revenue | % change | ||||||||||||||||
Net operating revenue | 54,520 | 100.0 | 41,898 | 100.0 | 30.1 | |||||||||||||||
Cost of sales | (45,557 | ) | (83.6 | ) | (34,753 | ) | (82.9 | ) | 31.1 | |||||||||||
Gross profit | 8,963 | 16.4 | 7,145 | 17.1 | 25.4 | |||||||||||||||
Selling expenses | (4,379 | ) | (8.0 | ) | (3,334 | ) | (8.0 | ) | 31.3 | |||||||||||
General and administrative expenses | (787 | ) | (1.4 | ) | (588 | ) | (1.4 | ) | 33.8 | |||||||||||
Depreciation and amortization | (919 | ) | (1.7 | ) | (638 | ) | (1.5 | ) | 44.0 | |||||||||||
Share of profit of associates | 44 | 0.1 | 47 | 0.1 | (6.4 | ) | ||||||||||||||
Other operating expenses, net | (72 | ) | (0.1 | ) | (53 | ) | (0.1 | ) | 35.8 | |||||||||||
Operating profit | 2,850 | 5.2 | 2,579 | 6.2 | 10.5 | |||||||||||||||
Financial revenues | 394 | 0.7 | 188 | 0.4 | 109.6 | |||||||||||||||
Financial expenses | (1,909 | ) | (3.5 | ) | (918 | ) | (2.2 | ) | 108.0 | |||||||||||
Net financial result | (1,515 | ) | (2.8 | ) | (730 | ) | (1.7 | ) | 107.5 | |||||||||||
Income before income taxes | 1,335 | 2.5 | 1,849 | 4.4 | (27.8 | ) | ||||||||||||||
Income tax and social contribution | (115 | ) | (0.2 | ) | (239 | ) | (0.6 | ) | (51.9 | ) | ||||||||||
Net income for the year | 1,220 | 2.2 | 1,610 | 3.8 | (24.2 | ) |
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Net operating revenue. Our net operating revenue consists mainly of gross revenue derived from our product sales reduced by taxes and products returns. Net operating revenue increased by 30.1%, or R$12,622 million, to R$54,520 million in 2022 from R$41,898 million in 2021, mainly as a result of: (1) an increase in sales volume of 20.6% due to the opening of 60 new stores (including 47 hypermarket conversions) in the last 12 months, which accounted for a 36% growth in our sales area; and (2) a 10.3% increase in same store gross sales, primarily due to our attractive and successful business model. In addition, our continuous advances in improving the shopping experience, with revisions of product mix and inclusion of services to meet the demand and the profile of the customers around each store, has resulted in increased store traffic.
Gross profit. Gross profit increased by 25.4%, or R$1,818 million, to R$8,963 million in 2022 from R$7,145 million in 2021, mainly as a result of the opening of 60 new stores in the last 12 months (as compared to 28 new stores in the corresponding period in 2021), the maturation of stores opened in prior years and an effective and consistent commercial strategy in 2022. Our gross margin decreased by 0.7 percentage points, to 16.4% in 2022, from 17.1% in 2021, mainly due to the effective commercial strategy amid increased competition and our historic expansion.
Selling expenses. Selling expenses increased by 31.3%, or R$1,045 million, to R$4,379 million in 2022 from R$3,334 million in 2021, mainly as a result of: (1) the opening of 60 new stores in the last 12 months; (2) an increase in costs linked to inflation (especially personnel), which increased 5.8% as measured by the IPCA; and (3) pre-operational expenses. As a percentage of the net operating revenue, selling expenses remained the same in 2022 at 8.0%, as compared to 2021.
General and administrative expenses. General and administrative expenses increased by 33.8%, or R$199 million, to R$787 million in 2022, from R$588 million in 2021, mainly as a result of: (1) an increase in costs linked to inflation (especially personnel), which increased 5.8% as measured by the IPCA; and (2) strengthening our corporate areas to support the speed of store openings. As a percentage of the net operating revenue, general and administrative expenses remained the same in 2022 at 1.4%, as compared to 2021.
Depreciation and amortization. Depreciation and amortization increased by 44.0%, or R$281 million, to R$919 million in 2022 from R$638 million in 2021, mainly as a result of the opening of stores and the hypermarket conversions in 2022.
Other operating expenses, net. Other operating expenses, net, increased by R$19 million, to R$72 million in 2022 from R$53 million in 2021. In 2022, other operating expenses consisted primarily of restructuring expenses and other, which consisted primarily of: (1) provisioning of store assets to be closed as planned and other costs related to the Extra Transaction; and (2) the result of the sale of fixed assets.
Operating profit. Operating profit increased by 10.5%, or R$271 million, to R$2,850 million in 2022 from R$2,579 million in 2021, mainly as a result of the R$1,818 million increase in gross profit, which was partially offset by the increase of R$1,045 million in selling expenses, as explained above.
Net financial results. Net financial results, expense, increased by R$785 million to R$1,515 million in 2022 from R$730 million in 2021, primarily as a result of an increase in interest rates, with an increase of approximately two times of the CDI in the period, and an increased balance of total indebtedness (current and non-current borrowings plus current and non-current debentures and promissory notes), which debt increased to R$12,591 million as of December 31, 2022 from R$8,033 million as of December 31, 2021, primarily as a result of expansions in 2022, especially for the conversion of hypermarkets.
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Income before income taxes. As a result of the foregoing, income before income taxes from continuing operations decreased by 27.8%, or R$514 million, to R$1,335 million in 2022 from R$1,849 million in 2021.
Income tax and social contribution. Our effective tax rate was 8.6% in 2022 compared to 12.9% in 2021, resulting in a decrease of income tax and social contribution of 51.9%, or R$124 million, to R$115 million in 2022 from R$239 million in 2021. The effective tax rate decreased primarily as a result of tax incentives related to grants for investments in 2022 which, under Complementary Law 160/17 and Law No. 12,973, are excluded from the calculation of our Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) and totaled R$753 million in 2022.
Net income for the year. As a result of the foregoing, net income for the year decreased by 24.2%, or R$390 million, to R$1,220 million in 2022 from R$1,610 million in 2021.
B. Liquidity and Capital Resources
Our principal cash requirements have historically consisted of the following:
● | working capital requirements; |
● | servicing of our indebtedness; |
● | capital expenditures related to the expansion of our network of stores; and |
● | dividends on our shares, including in the form of interest attributable to shareholders’ equity. |
We have historically financed our capital expenditures and investments principally with cash generated from our operations and third-party funds, including bank financing and capital markets transactions, including the issuance of debentures and promissory notes.
We recorded cash and cash equivalents of R$5,459 million as of December 31, 2023 and R$5,842 million as of December 31, 2022. We had negative working capital (consisting of current assets less current liabilities) of R$1,810 million as of December 31, 2023 and R$2,237 million as of December 31, 2022. We maintain negative working capital as part of our merchandise management strategy. To the extent we maintain terms with our suppliers that are longer than our average inventory rotation period and average accounts receivable, we obtain a source of funding for our operations.
Management believes that our cash position and operating cash flows from the cash and carry segment will be enough to meet our short-term obligations as well to finance our capital expenditures aligned with our investment plan primarily related to the opening of new stores and store renovations. Additionally, as part of our cash management strategy, we can discount a portion of our credit card receivables with financial institutions in order to improve our cash position, without recourse or related obligation.
We anticipate that we will be required to spend approximately R$54.1 billion to meet our long-term contractual obligations and commitments, including borrowings, debentures and promissory notes, derivative financial instruments, lease liabilities and trade payables. See “—Contractual Obligations” below for more information. We expect to meet these obligations primarily by refinancing our debt in the bank credit market and fixed income capital markets.
Cash Flows
The following table sets forth certain information about our cash flows for the periods presented.
For the years ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
(in millions of R$) | ||||||||||||
Net cash generated by operating activities | 5,963 | 5,144 | 3,272 | |||||||||
Net cash used in investing activities | (3,055 | ) | (3,790 | ) | (3,276 | ) | ||||||
Net cash generated by (used in) financing activities | (3,291 | ) | 1,938 | (978 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (383 | ) | 3,292 | (982 | ) | |||||||
Cash and cash equivalents at the beginning of the year | 5,842 | 2,550 | 3,532 | |||||||||
Cash and cash equivalents at the end of the year | 5,459 | 5,842 | 2,550 |
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We have historically financed our capital expenditures and investments principally with cash generated from our operations and, to a lesser extent, third-party funds, including bank financing and capital markets transactions, including the issuance of debentures and promissory notes. For more information about our indebtedness, see “—B. Indebtedness.”
Year Ended December 31, 2023
Net cash generated by operating activities was R$5,963 million for the year ended December 31, 2023 compared to net income of R$710 million for the period, primarily due to: (1) our incurrence of interest and monetary variation charges of R$2,853 million; (2) a net increase in accounts payable to suppliers of R$1,498 million; (3) our incurrence of non-cash depreciation and amortization charges of R$1,476 million; and (4) a net decrease in inventory of R$735.0 million in 2023 compared to R$2.505 billion in 2022 due to the reduced number of store opened in 2023 (27 stores) compared to 2022 (60 stores). The effects of these factors were partially offset primarily by: (1) an increase in recoverable taxes of R$352.0 million in 2023 compared to R$336.0 million in 2022, which reflects the monetization of ICMS, PIS, and COFINS.; and (2) an increase in the variation of trade receivables of R$640 million due to our expansion.
Net cash used in investment activities was R$3,055 million in 2023. In 2023, our primary use of cash for investment activities was related to: (1) the purchases of property, plant and equipment of R$3,116 million related to our expansion of our network of stores, compared to R$3,524 million in 2022; and (2) the purchases of intangible assets of R$169 million related primarily to the acquisition of commercial points from CDB in connection with the Extra Transaction and other commercial points. The effects of these factors were partially offset by the sale of assets held for sale of R$211 million, including the sale of real estate assets to a real estate fund in connection with the Extra Transaction.
Net cash used in financing activities was R$3,291 million in 2023. In 2023, we received R$3,250 million of borrowings, principally consisting of our seventh and eighth issuances of debentures and bank loans. The effects of the new borrowings were partially offset by: (1) payments of R$262 million with respect to our leasing liabilities; (2) payments of interest on leasing liabilities of R$977 million; (3) payments of borrowings of R$1,499 million; (4) payments of interest on borrowings of R$1,085 million; (5) distribution of dividends and interest on shareholders’ equity of R$118 million; and (6) payments related to the acquisition of Extra stores of R$2,609 million.
Year Ended December 31, 2022
Net cash generated by operating activities was R$5,144 million for the year ended December 31, 2022 compared to net income of R$1,220 million for the period, primarily due to: (1) our incurrence of non-cash interest and monetary variation charges of R$1,827 million; (2) a net increase in accounts payable to suppliers of R$3,175 million; (3) our incurrence of non-cash depreciation and amortization charges of R$990 million; (4) a net increase in related party transactions payable of R$196 million; and (5) an increase in non-cash provision for allowance for inventory losses and damages of R$418 million. The effects of these factors were partially offset primarily by: (1) a net decrease in inventory of R$2,505 million.
Net cash used in investment activities was R$3,790 million in 2022. In 2022, our primary use of cash for investment activities was related to: (1) the purchases of property, plant and equipment of R$3,524 million related to our expansion of our network of stores, compared to R$2,231 million in 2021; (2) the purchases of intangible assets of R$636 million related primarily to the acquisition of commercial points from CDB in connection with the Extra Transaction; and (3) the acquisition of assets held for sale in the amount of R$250 million including the purchase of one property from CBD in connection with the Extra Transaction in the amount of R$95 million, which we expect to sell to a real estate fund. The effects of these factors were partially offset by the sale of assets held for sale of R$620 million, including the sale of real estate assets to a real estate fund in the amount of R$505 million, in connection with the Extra Transaction.
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Net cash generated by financing activities was R$1,938 million in 2022. In 2022, we incurred R$3,959 million in indebtedness under borrowings and financings, principally consisting of our fourth, fifth and sixth issuances of debentures, our first and second issuances of commercial paper notes and bank loans. The effects of the new borrowings were partially offset by: (1) payments of R$126 million with respect to our leasing liabilities; (2) payments of interest on leasing liabilities of R$772 million; (3) payments of borrowings of R$183 million; (4) payments of interest on borrowings of R$783 million; and (5) distribution of dividends and interest on shareholders’ equity of R$168 million.
Year Ended December 31, 2021
Net cash generated by operating activities was R$3,272 million for the year ended December 31, 2021 compared to net income of R$1,610 million for the period, primarily due to: (1) our incurrence of non-cash interest and monetary variation charges of R$911 million; (2) a net increase in accounts payable to suppliers of R$884 million; (3) our incurrence of non-cash depreciation and amortization charges of R$687 million; (4) a net increase in related party transactions payable of R$391 million, which relates mainly to the acquisition of 20 commercial points from CDB in connection with the Extra Transaction in the amount of R$201 million; and (5) an increase in non-cash provision for allowance for inventory losses and damages of R$302 million. The effects of these factors were partially offset primarily by: (1) a net decrease in inventory of R$943 million; and (2) an increase in income tax and social contribution paid of R$374 million.
Net cash used in investment activities was R$3,276 million in 2021. In 2021, our primary use of cash for investment activities was related to: (1) the purchases of property, plant and equipment of R$2,231 million related to our expansion of our network of stores, compared to R$1,562 million in 2020; (2) the purchases of intangible assets of R$854 million related primarily to the acquisition of 20 commercial points from CDB in connection with the Extra Transaction in the amount of R$1 billion; and (3) the purchases of six properties from CBD in connection with the Extra Transaction in the amount of R$403 million, which we expect to sell to a real estate fund by November 2022 and recorded as assets held for sale on our balance sheet as of December 31, 2021. The effects of these factors were partially offset by proceeds from the sale of property, plant and equipment of R$212 million related to our sale of three properties located in the States of São Paulo and Rondonia to a fund managed by TRX Gestora de Recursos Ltda. We subsequently entered into long-term lease agreements with respect to these properties.
Net cash used in financing activities was R$978 million in 2021. In 2021, we: (1) repaid R$6,479 million of borrowings, including the prepayment of our first issuance of debentures, the partial repayment of the principal amount of our first issuance of promissory notes and the payment of interest on our second and third issuances of debentures, first and second issuances of promissory notes and bank loans; (2) made payments of R$460 million with respect to our leasing liabilities; and (3) paid dividends and interest on shareholders’ equity of R$148 million. In addition, in 2021, we received R$6,090 million of borrowings, principally consisting of our second and third issuances of debentures, our second issuance of promissory notes and bank loans.
Indebtedness
Our indebtedness was R$15,184 million as of December 31, 2023, and R$12,591 million as of December 31, 2022. Considering U.S. dollar-denominated debt that was converted to real-denominated debt using currency swaps, as of December 31, 2023, 100% of our indebtedness was denominated in reais, and as of December 31, 2022, 98% of our indebtedness was denominated in reais and 2% was denominated in U.S. dollars.
As of December 31, 2023, our real-denominated indebtedness bore interest at an average rate of CDI plus 1.48% per annum. As of December 31, 2023, 100% of our indebtedness bore interest at floating rates.
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Short-Term Indebtedness
Our short-term debt was R$2,115.0 million as of December 31, 2023 (or 13.9% of our total indebtedness) and R$1,260 million as of December 31, 2022 (or 10.0% of our total indebtedness).
Long-Term Indebtedness
Our principal long-term borrowings and financings are:
● | debentures issued in the Brazilian market; |
● | promissory notes issued in the Brazilian market; |
● | commercial notes issued in the Brazilian market; and |
● | a working capital facility incurred by Sendas. |
Financial covenants
Our debentures, promissory notes, commercial notes and working capital facilities require that we maintain the following financial ratios on a quarterly basis:
● | Consolidated net debt (defined as debt minus cash and cash equivalents and trade accounts receivable)/shareholders’ equity ratio lower than or equal to 3.0; and |
● | Consolidated net debt/EBITDA ratio lower than or equal to 3.0. |
Restrictive covenants
In addition, the instruments governing our debentures, promissory notes, commercial notes and other indebtedness contain restrictive covenants that limit our ability to sell assets, conduct certain corporate reorganizations (such as mergers and spin-offs) and distribute dividends in excess of the statutorily required minimum dividend should we not be able to fulfill our obligations under those instruments. Moreover, certain of our debt instruments contain cross-default and cross-acceleration provisions that provide for the acceleration of such debts as a result of a default or acceleration of indebtedness in amounts equal to or above certain amounts that vary between R$50.0 million and R$75.0 million.
The holders of debentures, including CRIs, promissory notes and commercial notes, in a meeting held between March 30, 2023 and April 11, 2023, approved the prior consent in case of an eventual change of control, provided that (1) we no longer have a controlling shareholder or (2) if we do have a new controlling shareholder: (i) our shares remain listed on the B3, (ii) the change of control does not imply a rating downgrade, (iii) the new controlling shareholder does not have a history of default; (iv) the new controlling shareholder has not violated anticorruption laws; (v) the new controlling shareholder complies with the laws related to the non-use of child labor, labor analogous to slavery, encouragement of prostitution and violation of the rights of forest dwellers, and adopts the best practices of protection to the environment, safety and health at work, including the compliance with the social and environmental legislation (vi) the new controlling shareholder is not engaged in practices contrary to anti-corruption laws; (vii) the new controlling shareholder is not a politically exposed entity or person; and (viii) as applicable, the new controlling shareholder is not a restricted counterparty or incorporated in a sanctioned territory or is not a subsidiary of a restricted counterparty.
Restrictions on the transfer of control
In March 2023, Casino Group divested our common shares, resulting in our status as a non-controlled corporation. Certain of our debt instruments included provisions for early maturity payment in the event of a transfer, sale, or acquisition of equity participation, should the Casino Group cease to be our controlling shareholder. These provisions applied irrespective of whether we secure a new controlling shareholder or experience dilution of our share capital.
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Consequently, we were required to seek waivers from the holders of our debt instruments, which encompassed debentures, promissory notes, commercial papers, CRIs, and other bilateral loans, incurring an approximate cost of R$93.0 million. Additionally, we obtained prior approval and executed contractual amendments with financial institutions such as The Bank of Nova Scotia, Banco do Brasil, Banco Safra, Banco BTG Pactual and Banco Itaú.
None of our significant long-term debt instruments are secured by pledges of our assets. For each of the years ended December 2023, 2022 and 2021, no default or event of default has resulted in the acceleration of our debt.
The table below sets forth our principal long-term indebtedness as of December 31, 2023 and 2022.
As of December 31, | ||||||||||||
2023 | 2022 | Maturity | Interest Rate | |||||||||
(in millions of R$) | ||||||||||||
Second issuance of debentures: | ||||||||||||
1st series | 949 | 957 | May 2026 | CDI + 1.70% | ||||||||
2nd series | 666 | 671 | May 2028 | CDI + 1.95% | ||||||||
Third issuance of debentures: | ||||||||||||
1st series – CRI(1) | 914 | 929 | October 2028 | IPCA + 5.15% | ||||||||
2nd series - CRI(1) | 474 | 486 | October 2031 | IPCA + 5.27% | ||||||||
Fourth issuance of debentures | ||||||||||||
Single series | 2,008 | 2,021 | November 2027 | CDI + 1.75% | ||||||||
Fifth issuance of debentures: | ||||||||||||
Single series – CRI(1) | 253 | 253 | March, 2025 | CDI + 0.75% | ||||||||
Sixth issuance of debentures: | ||||||||||||
1st series– CRI(1) | 73 | 74 | September 2026 | CDI + 0.60% | ||||||||
2nd series– CRI(1) | 55 | 56 | September 2027 | CDI + 0.70% | ||||||||
3rd series– CRI(1) | 464 | 461 | September 2029 | IPCA + 6.70% | ||||||||
Seventh issuance of debentures: | ||||||||||||
1st series– CRI(1) | 150 | 0 | July 2026 | CDI + 1.00% | ||||||||
2nd series– CRI(1) | 903 | 0 | July 2027 | 11.75% | ||||||||
3rd series– CRI(1) | 48 | 0 | July 2028 | CDI + 1.15% | ||||||||
Eighth issuance of debentures: | ||||||||||||
1st series | 399 | 0 | December 2027 | CDI + 1.85% | ||||||||
2nd series | 399 | 0 | December 2028 | CDI + 1.95% | ||||||||
First issuance of promissory notes: | ||||||||||||
4th series | 0 | 318 | July 2023 | CDI + 0.72% | ||||||||
5th series | 289 | 254 | July 2024 | CDI + 0.72% | ||||||||
6th series | 289 | 254 | July 2025 | CDI + 0.72% | ||||||||
Second issuance of promissory notes: | ||||||||||||
1st series | 1,676 | 1,460 | August 2024 | CDI + 1.47% | ||||||||
2nd series | 1,678 | 1,461 | February 2025 | CDI + 1.53% | ||||||||
First issuance of commercial paper notes: | ||||||||||||
Single series | 786 | 790 | February 2025 | CDI + 1.70% | ||||||||
Second issuance of commercial paper notes | ||||||||||||
Single series | 457 | 400 | December 2025 | CDI + 0.93% | ||||||||
Sendas working capital facilities | 1,989 | 1,570 | CDI + 1.64% |
(1) | These debentures were used as collateral for the issuance of Real Estate Receivables Certificates (Certificados de Recebíveis Imobiliários), or CRIs. |
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The following discussion briefly describes certain of our significant outstanding indebtedness as of December 31, 2023.
Debentures
Second Issuance
In June 2021, we concluded our second issuance of non-convertible, unsecured debentures in two series, in an aggregate amount of R$1.6 billion, with restricted placement efforts in Brazil in accordance with Brazilian law. The proceeds of this issuance of debentures were used for general corporate purposes, including to reinforce our cash position. The principal amount is R$940 million for the first series and R$660 million for the second series. The debentures of the first series accrues interest at a rate of CDI + 1.70% per annum, payable semi-annually through maturity in May 2026. The principal amount of the debentures of the first series will be payable in two equal installments, one in 2025 and one at maturity. The debentures of the second series accrues interest at a rate of CDI + 1.95% per annum, payable semi-annually through maturity in May 2028. The principal amount of the debentures of the second series will be payable in two equal installments, one in 2027 and one at maturity.
Third Issuance
In October 2021, we concluded our third issuance of non-convertible, unsecured debentures in two series, in an aggregate amount of R$1.5 billion. These debentures are a private placement between Sendas and True Securitizadora S.A, in accordance with Brazilian law, and were used as collateral for the issuance of Real Estate Receivables Certificates (Certificados de Recebíveis Imobiliários), or CRIs. The proceeds raised through the CRIs were used to reimburse real estate expenses and future investment in expansion, maintenance and construction of real estate projects owned by Sendas. The principal amount is R$983 million for the first series and R$517 million for the second series. The debentures of the first series accrue interest at a rate of IPCA + 5.1531% per annum, payable semi-annually through maturity in October 2028. The debentures of the second series accrue interest at a rate of IPCA + 5.2662% per annum, payable semi-annually through maturity in October 2031. The principal amount of the debentures of the second series will be payable in three equal installments, in October 2029, October 2030 and October 2031. Both series are swapped to CDI, with an average rate of CDI + 0.86% per annum.
Fourth Issuance
On January 7, 2022, we concluded our fourth issuance of non-convertible, unsecured debentures in a single series, in the amount of R$2.0 billion, with restricted placement efforts in Brazil in accordance with Brazilian law. The proceeds of this issuance of debentures will be used for general corporate purposes, including to reinforce our cash position. These debentures accrue interest at a rate of CDI + 1.75% per annum, payable semi-annually through maturity in January 2028. The principal amount of the debentures will be paid in two equal installments, one in January 2027 and one at maturity.
Fifth Issuance
On March 5, 2022, our board of directors approved the fifth issuance of non-convertible, unsecured debentures in a single series, in the amount of R$250 million, with restricted placement efforts in Brazil, entered into between the Sendas and True Securizadora S.A., in accordance with Brazilian law. The net proceeds of this issuance of debentures were used entirely and exclusively by us to reimburse expenses and expenditures related to the expansion and/or maintenance of certain properties described in the relevant indenture. These debentures accrue interest at a rate of CDI + 0.75% per annum, payable semi-annually through maturity on March 28, 2025.
Sixth Issuance
On August 22, 2022, our board of directors approved the sixth issuance of non-convertible, unsecured debentures in three series, in an aggregate amount of R$600 million, with restricted placement efforts in Brazil, entered into between Sendas and True Securitizadora S.A., in accordance with Brazilian law. The net proceeds of this issuance of debentures were used entirely and exclusively by us to reimburse expenses and expenditures related to the expansion and/or maintenance of certain properties described in the relevant indenture. The principal amount is R$73.0 million for the first series, R$55.2 million for the second series and R$471.8 million for the third series. The first series debentures accrues interest at a rate of CDI + 0.60% per annum, payable semi-annually through maturity in September 2026. The second series debentures accrues interest at a rate of CDI + 0.70% per annum, payable semi-annually through maturity in September 2027. The third series debentures accrue interest at a rate of IPCA + 6.70% per annum, payable semi-annually through maturity in September 2029. The third series is swapped to CDI at an average rate of CDI + 1.19% per annum. The principal amount of the third series debentures will be paid in two installments, being 50% in September 2028 and 50% in September 2029.
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Seventh Issuance
On June 26, 2023, our board of directors approved the seventh issuance of non-convertible, unsecured debentures in three series, in an aggregate amount of R$1,000 million, with restricted placement efforts in Brazil, entered into between Sendas and True Securitizadora S.A., in accordance with Brazilian law. The net proceeds of this issuance of debentures were used entirely and exclusively by us to reimburse expenses and expenditures related to the expansion and/or maintenance of certain properties described in the relevant indenture. The principal amount is R$145.7 million for the first series, R$878.5 million for the second series and R$46.6 million for the third series. The first series debentures accrues interest at a rate of CDI + 1.00% per annum, payable semi-annually through maturity in July 2026. The second series debentures accrues interest at a rate of 11.75% per annum, payable semi-annually through maturity in July 2027. The third series debentures accrue interest at a rate of CDI + 1.15% per annum, payable semi-annually through maturity in July 2028. The second series is swapped to CDI at an average rate of CDI + 1.31% per annum.
Eighth Issuance
On December 4, 2023, our board of directors approved the seventh issuance of non-convertible, unsecured debentures in three series, in an aggregate amount of R$800.0 million, with restricted placement efforts in Brazil, in accordance with Brazilian law. The net proceeds of this issuance of debentures will be used for general corporate purposes, including to reinforce our cash position. The principal amount is R$400.0 million for the first series and R$400.0 million for the second series. The first series debentures accrues interest at a rate of CDI + 1.85% per annum, payable semi-annually through maturity in December 2027. The second series debentures accrues interest at a rate of CDI + 1.95% per annum, payable semi-annually through maturity in December 2028.
Promissory Notes
First Issuance
In June 2019, our officers approved the first issuance of commercial promissory notes in six series for public distribution with restricted efforts in Brazil. We are required to pay a waiver fee to the promissory note holders in connection with amendments to the promissory notes, in the amount of 0.73% per annum of the outstanding amount under the promissory notes, payable semi-annually.
The proceeds of each of the first and second series of these promissory notes was R$50 million and accrued interest at the average CDI rate plus 0.72% per annum, payable at maturity in July 2020 and July 2021, respectively.
Each of the other series of these promissory notes accrues interest at the rates set forth in the table above, payable at the maturities set forth in the table above in the following principal amounts:
● | Fifth series: R$200 million; and |
● | Sixth series: R$200 million. |
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Second Issuance
In August 2021, we concluded our second issuance of commercial promissory notes in two series for public distribution with restricted efforts in Brazil, in the aggregate amount of R$2.5 billion. The proceeds of this issuance of promissory notes were used to prepay the 4th series of the first issuance of debentures, in the amount of R$2.0 billion, with the remainder to reinforce our cash position. The first series accrues interest at a rate of CDI + 1.47% per annum, payable on maturity in August 2024. The second series accrues interest at a rate of CDI + 1.53% per annum, payable on maturity in February 2025.
Commercial Notes
First Issuance
On February 10, 2022, we completed our first issuance of unsecured commercial notes in a single series, in the total amount of R$750 million, with restricted placement efforts in Brazil in accordance with Brazilian law. The proceeds of this issuance of commercial notes will be used for general corporate purposes, including to strengthen our cash position in connection with our activities with producers of agricultural products or inputs. These commercial notes accrue interest at a rate of CDI + 1.70% per annum, payable semi-annually through maturity in February 2025. The principal amount will be paid in one installment at maturity.
Second Issuance
On December 26, 2022, we completed our second issuance of unsecured commercial notes in a single series, in the total amount of R$400 million, with restricted placement efforts in Brazil in accordance with Brazilian law. The proceeds of this issuance of commercial notes were used for general corporate purposes, including to strengthen our cash position. These commercial notes accrue interest at a rate of CDI + 0.93% per annum, payable semi-annually through maturity in February 2025. The principal amount will be paid in one installment at maturity.
Sendas Working Capital Facilities
We have borrowed funds for working capital pursuant to credit facilities with several financial institutions, including a R$283 million facility with Scotiabank and a R$300 million facility with Banco BTG Pactual S.A. Loans under these facilities accrue interest at an average rate of CDI+1.64% and contain the same financial and restrictive covenants as the debentures and promissory notes described above. As of December 31, 2023, the aggregate principal amount outstanding under these working capital facilities was R$1,989 million. As of the date of this annual report, we do not have any unused credit lines available.
Recent Development
Ninth Issuance of Debentures
On March 28, 2024, we concluded our ninth issuance of non-convertible, unsecured debentures in a single series, in the amount of R$500.0 million, for distribution in Brazil to professional investors in accordance with Brazilian law. The proceeds of this issuance of debentures will be used for general corporate purposes, including to reinforce our cash position. These debentures accrue interest at a rate of CDI + 1.25% per annum, payable semi-annually through maturity in March 2029. The principal amount of the debentures will be paid in two equal installments, one in March 2028 and one at maturity.
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Contractual Obligations
The following tables summarize our significant contractual obligations and commitments as of December 31, 2023.
As of December 31, 2023 | ||||||||||||||||
Payments Due by Period | ||||||||||||||||
Contractual obligations | Less than 1 year | 1 to 5 years | More than 5 years | Total | ||||||||||||
(in millions of R$) | ||||||||||||||||
Borrowings | 611 | 1,797 | — | 2,408 | ||||||||||||
Debentures and promissory notes | 3,026 | 13,256 | 1,241 | 17,523 | ||||||||||||
Derivative financial instruments | 111 | (299 | ) | (368 | ) | (556 | ) | |||||||||
Lease liabilities | 1,435 | 6,364 | 14,549 | 22,348 | ||||||||||||
Trade payables | 9,759 | 40 | — | 9,799 | ||||||||||||
Trade payables - Agreements | 1,459 | — | — | 1,459 | ||||||||||||
Trade payables – Agreements – Acquisition of Extra stores | 894 |