Companhia Brslra Dst Adr

Good morning, everyone, and thank you for waiting.

Welcome to the video conference for GPA's second quarter's earnings. I would like to point out, if you need simultaneous translation, we have this tool available in this platform. Simply click on the interpretation button by using the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English. Again, for those who don't speak Portuguese, we have the English simultaneous translation that can be used by pressing the interpretation button represented by the globe icon on the bottom right corner of the screen. There's also an option to mute the original audio. We would like to inform you that this video conference is being recorded and it will be made available on the company's investor relations website where the complete earnings release material is available. You can also download the presentation by clicking on the chat icon. During the company's presentation, all participants will be in listen-only mode. Then we will begin the questions and answers session. If you would like to ask a question, click on the Q&A icon at the bottom of your screen and type in your question. When your name is announced, you will receive a prompt to activate your microphone, and you must then activate it to ask your question. We recommend that you ask all of your questions at once. We would like to emphasize that the information contained in this presentation and any statements made during the video conference about the company's business outlooks, projections, and operational and financial targets are simply the company's management beliefs and assumptions based on the information that is currently available. Statements about the future are not a guarantee of performance. They involve risks, uncertainties, and assumptions, as they refer to future events and therefore depend on circumstances that may or may not come to pass. Investors should understand that the general economic conditions, market conditions, and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in these statements about the future. With us today, we have the CEO, Marcelo Pimentel, and the CFO and Investor Relations Director, Rafael Russovski. I will now hand the floor to Marcelo Pimentel for his presentation. Thank you. Good morning, ladies and gentlemen, and thank you for joining us on this call. I'm very happy today to announce the results for the second quarter of 2024, which were marked by a significant acceleration in the conclusion of projects that make up the final year of the company's turnaround cycle, which began in 2022. We strengthened our vision of having continuous evolution by delivering this first three-year strategy. On slide four, I would like to begin with this quarter's highlights. We closed the period with another solid operational advance. We achieved the best gross margin since 2020, reaching 28.2%, an increase of 1.9 percentage points compared to the second quarter of 2023. Our adjusted EBITDA margin grew by 2.1 percentage points, reaching 8.8% this quarter. an increase of 34.8% in our adjusted EBITDA compared to the second quarter of 2023. This operational delivery takes place along with improving the company's capital structure with important events announced in recent months, ranging from the sale of non-core assets to the follow-on process, which culminated in a new corporate structure. We remind you of two of the most recent events in this process, which were announced recently. The sale of the company's administrative headquarters, a transaction that totaled 218 million Brazilian reals. And now in June, the sale of the fuel station network worth 200 million Brazilian reals. This latest operation marks the conclusion of our asset sale plan, which began in 2023 and has been delivered stage by stage with great consistency and discipline. The total value of the sales was 1.9 billion Brazilian reals. When added to the amount raised in our follow-on capture, we reached a total of 2.6 billion. This entire movement, along with an operational improvement, reduced our financial leveraging pre-IFRS 16 from 10.6 times to 2.8 times over one year, which is extremely relevant and important for the company. Our operational improvement is also represented by operating free cash flow generation after CapEx, which was 272 million in the last 12 months, an increase of 498 million compared to the previous year. Following the presentation, I would also like to comment on the increase in gross revenue. 3.4% in same stores and 2.1% in total stores in the quarter, with an increase in market share in São Paulo and maintaining the national level. The proximity format should be highlighted here, a 6.9% increase in same stores and 22.5% increase in total stores, as you can see in the graph on the left. It's also worth mentioning the 15.6% growth in our e-commerce business this quarter. We are the leader in food sales through this channel in Brazil, both with our own channels as well as on the main partner platforms. On the next slide, looking at each strategic pillar, we have the top-line advances. Total sales reached $4.8 billion in the second quarter, up 2.1%. The highlight this period was the proximity format with a growth of 22.5%, reflecting the rapid maturing of stores open from 2022 onwards, which continued to increase their contribution to the business's growth. It's no coincidence that our biggest advance in market share was in São Paulo, which is the focus of our premium business growth strategy. There, we had a gain of 0.7 percentage points year on year. The proximity format, on the other hand, had an even more significant increase in market share gains when compared to the small supermarket market in Greater São Paulo. which grew by 2.8 percentage points year on year. These advances confirm our strategy of expanding and refurbishing stores in São Paulo. This quarter, Pão de Açúcar also posted same-store growth of 2.7%, with an increase in volume and average ticket. which shows an improvement in our growth rate in May and June after a weaker month of April. Extra Mercado had a same-store increase of 3.4% as a result of advances in initiatives focused on improving customer experience in our stores. We expect to accelerate this growth in the next quarters with the implementation of a category management project and assortment and price reviews. Under the customers pillar, I'm delighted to say that we have reached a level of excellence with 83 NPS points, a record number for the company that celebrates the journey that we have trailed reconnecting with our customers. This figure reflects many work fronts that we have been carrying out since 2022. They include reinforcing store staff training, revitalizing poncha sukkah stores, and improving the customer experience overall, involving a reduction in out-of-stock items, price perception, queue time, availability of products on shelves, and others. This is also reflected in loyalty, which increased, and the share of wallet of our premium customers, which are essential to maintaining our business strategy. We've seen an increase of three percentage points in this group over the last 12 months, which adds to the growth of the premium and valuable customer base. Another important lever as part of our loyalty strategy is an increase in the share of own brand products, which continues to grow and now accounts for 23% of total sales at Banja Suka and 26.5% at Extra Mercado. In the first half of the year alone, we relaunched 347 products under the new Qualita brand, redefining their attributes and modernizing their packaging, and we have launched 102 new products during this time. To conclude with this slide, I have some excellent news about our digital sales channel. our e-commerce revenue grew by 15.6% this quarter, reaching 524 million with a 12.6% penetration rate in total sales. This represents an increase of 1.5 percentage points compared to last year. Perishables, which are the greatest differentiator in this business, already account for 34% of the channel's sales. up 8 percentage points compared to 2023. With this result, we are maintaining our leadership position in food e-commerce in Brazil and reinforcing that not only are we the market leaders, but we also have a profitable business with a contribution margin that has a positive impact on the company's results. I have to mention that we also received once again the diamond seal in the Nielsen-Ebbitt survey, which assesses customer experience in e-commerce. This is the highest position in the ranking, and it demonstrates the excellence of our work. The next slide shows a summary of the expansion project and how it has been advancing. It reflects the successful advancement of proximity stores, as we've mentioned. We opened 51 stores in the last 12 months, 10 of which took place in the second quarter, with nine proximity stores and one Ponca Sucre in Campinas. The new stores, opened since 2022, have brought in 657 million in incremental sales this quarter. It should be noted that our focus in expansion continues to be the premium proximity format with the Minuto Ponjasuka brand, which is maturing fast and is highly profitable. To conclude this slide, here are the highlights of the profitability pillar. Rafael will discuss more details about our financial performance and the advances and initiatives that led us to achieve this record gross margin of 28.2%, the best gross margin we have had since 2020, and an adjusted EBITDA margin of 8.8%, also the best margin in the last 10 quarters. Continuing with my last slide, here is our social, environmental, and cultural initiatives. In the social impact pillar, we donated 10 tons of food to the people affected by floods in Rio Grande do Sul through the GPA Institute, which was added to another 64 tons collected in a donation campaign with customers, partners, and employees. This was an initiative we took together with the Amigos do Bem NGO and nine other institutions. Regarding our commitment to transparency, we published our annual sustainability report for 2023, a report with the main business initiatives integrated into our sustainability agenda. and also the diversity and sustainability weeks, which were attended by more than 5,000 people. In the permanent agenda to combat climate change, we reduced Scopes 1 and 2 emissions by an additional 7% compared to the second quarter of 2023. This concludes my presentation, and I'll now hand over to Rafael for his comments on our financial performance. Thank you. Rafael, over to you.

Thank you, Marcelo. Good morning to everyone joining us for this conference. Starting with slide 9, we reported GPA's total earnings, which came to R$ 4.8 billion in the second quarter of 2024. This accounted for 2.1% growth versus Q2 2023. I'd like to highlight the proximity format, which was the focus of our expansion and which grew by 22.5% during this period. The increase was due to an increment in same-store sales, excluding the calendar effect, by 3.4%, as well as the opening of 51 new stores in the last 12 months, 10 of which took place in the second quarter of this year. overall growth also had the impact of contrarial effects with the closing of seven stores during this quarter five extra mercado stores as well as the rebalancing of the aliados format Both these trends were focused on optimizing our operations and increasing profitability. We should also highlight that during this quarter we saw a major seasonal impact, seeing as Easter took place in the first quarter of the year, which led to a downturn in food retail demand in the month of April. Conversely, in the months of May and June, as you may see in the monthly growth in same-store sales on the chart, we've reversed the decrease recorded in April with remarkable increases by 6.7% and 5.8% respectively. We also noticed some markets promoting strong promotional sales, especially in April. Against this backdrop, we continued with our discipline in executing the plan to continuously improve our customer experience as well as the profitability of our operations. Palo de Sucre grew by 2.7% in same-store sales, mirroring significant improvements in the growth rates for May and June after a weaker April, as we mentioned before. This increase was driven both by the volume in sales as well as the increase in the average price of brand mix as well as in-store traffic. The proximity format showed growth in same-store sales by 6.9%, with strong recovery from the previous quarters. Stores opened from 2022 on continued to increase their contribution to the business, with same-store sales sales growth by two digits, which shows the quality of our expansion projects in the last few years, as well as our investment strategy. We should also mention the remarkable increase by 2.8 percentage points in our market share for this format, compared with that of small grocery stores in the São Paulo area. In Extra Mercado, At same store, sales increased by 3.4%. And just as with the Pão de Açúcar brand, we saw growth rates recover in the months of May and June. These were also positive highlights in the perishables categories as well as complementary groceries. Lastly, once again, we saw a significant increase in e-commerce sales, which came to 15.6%, with earnings by 524 million in Q2 2024. This channel's overall penetration in total sales was by 12.6%, up 1.5 percentage points versus the same period last year. One pillar of our differentiation in this channel is our focus in perishables, which led to the high quality of our products as well as the picking process. All of that leveraged by the confidence our customers show in our brands. That way, 34% of our e-commerce sales was in perishables, up 8 percentage points versus one year ago. In addition to the accelerated growth, we have also been able to increase our profits with the digital channel, which this quarter saw its contribution margin grow to two digits, helping to dilute the expenses in our stores in a 100% ship from store operation. On slide 10, we saw the profitability measured by gross profit and adjusted EBITDA. The second quarter of 2024 shows once again the efficacy and consistency of the initiatives we've introduced over the course of 2023, as well as the first results of our 2024 projects. As you can see in the chart on the upper hand side, gross profit came to $1.3 billion with a record breaking margin of 28.2%. up by a robust 1.9 percentage points versus Q2 2023 and 1 percentage point over Q1 2024. As we've been saying in previous releases, we are sticking to our strategic discipline, evolving our profitability by realizing the gains via the projects we've initiated in 2023. We'd also like to stress In this result, the beginning of the promotional efficiency project, which starting from our active customer base, targets the most appropriate offers to each profile so as to optimize customer experience and profitability. We should also mention the increase in our retail media revenue, which positively contributes to the increase in profitability. Our adjusted EBITDA came to $396 million with an 8.8% margin, reflecting a strong 2.1% point increase versus Q2 2023. I'd also like to stress the increase in adjusted EBITDA over the previous year by 34.8%. Just as an illustration, the annualized adjusted EBITDA for the first quarter of 2024, historically weaker six months of the year for the industry, was 1.534 billion Reais versus 1.305 billion Reais in 2023 as a whole. Moving on to slide 11, we come to our financial performance with the net profit. As you can see on the chart to the right, in Q2 2024, we saw a 100 million real impact, referring to the non-activation of revenue, tax credits, and CSLL over our losses in the period. which we adjusted by comparison with the same period of last year when a larger share of these credits was activated. Adjusting this effect, the net loss would go to $272 million rise in Q2 2023, or from $272 million in Q2 2023 to $173 million in Q2 2024, an improvement by $95 million. Lastly, in Q2 2024, the net loss of the discontinued activities was 60 million reais, largely impacted by the labor contingencies with ExtraHyper that most of you already know. Moving on to slide 12, we see the managerial cash flow for the last 12 months. In this period, we generated free operational cash flow of R$ 272 million, a R$ 498 million improvement versus the LTM that ended in the second quarter of 2023. As you can see, the higher result stems largely from the larger adjusted EBITDA pre-IFRS 16, considering the payment of rents and the smaller capex. The cash flow after the sales of assets came to $1.8 million in these 12 months, impacted largely by the sales of non-core assets and our follow-on offering. We should mention that this result includes a non-recurring cash outlet of $133 million relating to the Acordo Paulista in Q2-24. reinforced the 208 million real improvement in the net financial cost, largely the result of the significantly smaller debt that we've reported. On slide 13, we have more details about our reduced debt. As you can see on the chart, we reported a decrease by 1.2 billion in our net debt between the second quarter of 2023 and the second quarter of 2024. This was a result of the positive effects that I mentioned in the last slide, with the generation of 272 million reais in operational free cash flow, as well as the strong execution of our non-core asset sales and the funds raised during our follow-on offering. The reduced financial leverage was also very significant. We went from leverage considering the adjusted EBITDA pre-IFRS 16 of 10.6 times in Q2 2023 to 2.8 times in Q2 2024. This result keeps the result on track for healthier and healthier leverage, seeing as we've substantially improved our capital structure by selling our assets and with our follow-on offering, and we continue to evolve our operational results. We should also remember that this quarter we've concluded the sale of our corporate headquarters and announced the sale of our gas stations operation, concluding the non-core asset sales for the company. Cash from the sale of gas stations will also come in over the next few quarters, helping to further reduce our leverage. and that includes the cost of CDI plus 160 basis points. This was a transaction that ended at the end of July and was reported as a consequential asset operation. On that note, I conclude my presentation and open the floor for questions. We will now begin our question and answer session. Remember that in order to ask a question, you should click the Q&A button located at the bottom side of your screen and type in your question to enter the queue. Once your name is announced, a request to activate your microphone will pop up on your screen. You should then unmute yourself to ask your questions. We kindly ask that all questions be asked at once. Our first question comes from Clara Lustosa, cell site analyst with Itaú. Clara, we will now open your microphone so you may ask your question. Please, you may proceed. Good morning, everyone. Congratulations on your results and thank you for taking our questions. We have two questions. First of all, I'd like to talk about the progress in your gross margin, more specifically about the latest initiatives with retail media as well as the promotional sales project. Could you add a little bit more color about that? how much these projects have contributed to the margins we've seen this quarter. And if you could also guide us through at what stage in the process you are. I know that you're still in the early stages, but if you could also qualify that and also talk about the potential you see for these projects. That would be the first question. And the second is a quicker one. The deductions as a percentage of gross sales, we see that they have come back to normal, but they are still below the levels we saw last year. How could we think about this line moving on? Is this a level that should be stabilized now? We know that there are fluctuations quarter by quarter, but we just wanted some help with our modeling here. Thank you. Thank you, Clara. I will take your first question and then turn over to Rafael for the second. So with regard to the gross margin, I think it's important to stress, Clara, that this comes with a continued improvement. So what we would like to underscore is how important this continuous movement is. So we are building on a very solid foundation, so we're not seeing very dramatic peaks or troughs. What we could talk specifically about retail media and promotional efficiency, these two are strategic projects for the business. And as you very well said, they are at very different stages of maturity. So when you look at retail media, this is a project that's further along with clear contributions to the business. And just to add some context, the contribution from retail media this quarter was already three times the equivalent to what we had in the same quarter last year. And what retail media brought to us during these first six months is already more than what we had in 2023 overall. And the process is still ongoing. As you may remember, we've talked before about the purchase of the CDP tool. We are now in the process of leveraging this tool in a more clear way, meaning we are bringing more customization in our interactions with customers. So virtually 80% of the entire digital marketing push is now involving the CDP, which has allowed us to have some progress when it comes to exclusive campaigns. So campaigns, first of all, with Pão de Açúcar, where brands will have their launches exclusively within Pão de Açúcar. and also the progress by over two, nearly three screens that we've already installed in our stores, as well as the personalization of push notifications according to the customer's purchase behavior. So we're speaking to the customer precisely about what's relevant to them. This adds more assertiveness to the business, which is why we're seeing this substantial increment in the participation of retail media. And what we expect is for this project to continue growing and for this channel to continue growing. growing when it comes to the contribution to gross profit and gross margin, not only the next few months, but we actually believe this is a project that will continue to progress in the next few years. As for promotional efficiency, this is a project that's in earlier stages than that of retail media. We're already seeing gains in the categories and stores where we're running the pilot And now as of the second half of the year, we will roll them out to the rest of the chain. So it's still a smaller impact, but we tend to notice it more clearly starting in Q3 and Q4 when this project will begin to be rolled out to other stores. Rafael?