GRUPO CASAS BAHIA S.A. Q4'23 Results
Renato Franklin - CEO
Hello! Welcome to the presentaon of results of Grupo Casas Bahia, for the 4th quarter of 2023. This video is provided along with the earnings release. Tomorrow we will hold our live video conference for the quesons and answers session.
Q4'23 Highlights
The fourth quarter of 2023 was remarked by important advances in our Transformaon Plan, which priorizes robust free cash flow and improvement of the return on invested capital, above the cost of capital. Therefore, we have proceeded with the necessary restructuring in 2023, and should gradually harvest the benefits of these adjustments throughout 2024, which shall put us in a strengthened posion to grow in a structural and sustainable manner during 2025.
The iniaves have evolved within the planned schedule, with some acons being carried out ahead of schedule. An example thereof is the cost reducon front, where, in terms of personnel, we had an adjustment of more than 8 thousand posions reduced by Q4'23, seeking synergies and priorizing our core acvity - this includes a 42% reducon in senior leadership posions by simplifying structures, which brings more agility to our Company; we had the closure of 55 stores which detracted our contribuon margin; 30% annual reducon in markeng costs; we also carried out the resizing of 4 Distribuon Centers.
On the cost of capital front, adjustment to the purchasing plan and the reducon of excess inventory allowed the release of R$ 1.2 billion and a reducon in the storage period from 95 to 76 days - a record level for the Company, recalling that the inial purpose was to be below 90 days.
We launched the new Casas Bahia Ads plaorm, which explores the concept of retail media and contributes to increased revenue and margin. Our sellers and suppliers now have the enre ecosystem of Grupo Casas Bahia available for them, benefing from our omnichannel approach and our enre audience to use the most appropriate channel for their product. With full autonomy through the plaorm, sellers monitor and opmize their campaigns, reaching a qualified and segmented audience, consequently bringing greater visibility and conversion in sales.
In March 2024, we announced the extension of the debt profile, in the amount of R$1.5 billion for a period of 3 years - reinforcing the understanding and confidence of financial instuons on the evoluon of our Transformaon Plan. Thus, short-term maturies, which previously represented 59% of the indebtedness, now represent 30% of the total.
And I further highlight the generaon of R$778 million in liquidity in the quarter, which allowed us to close 2023 with R$3.6 billion - a healthy posion for short-term and medium-term capital requirements.
Despite the short period - considering review of the strategy, changes in management, concepon of the Plan, disclosure of this Transformaon Plan back on August 10 and most of the iniaves put in place in the 2H23 - we are convinced that we are in right path to making Grupo Casas Bahia increasingly perennial, resilient to adverse scenarios and with robust and sustainable liquidity for the coming years.
I now give the floor to Elcio for the financial highlights.
Elcio Ito - CFO Q4'23 Results
Thank you, Renato, and hello everyone!
My presentaon today essenally covers 3 parts. The first refers to the Transformaon Plan and its impacts on the financial statements. The second part is about our priority, which managing the Company through cash flow and liquidity. And the last one refers to the capital structure and the recent debt re-profiling.
For a beer understanding, we inially present the accounng values as reported, then the details of the non-recurring effects of the period and, for a beer basis of comparison, simulaon of the performance excluding these impacts.
We recall that in Q4'22, we had the effect of renewal of the co-branded credit card partnership, while in Q4'23 we had specific impacts from the Transformaon Plan, in addion to the tax provision relang to DIFAL 2022.
In terms of the gross revenue, we experienced 11.3% drop. It is essenal that we understand the reasons for that event: First: the sll challenging macroeconomic scenario. Second: the basis of comparison for the Q4'22 is high due to the FIFA World Cup, which generated an addional volume of sales, especially TVs, where our performance is remarkably strong. And there are 3 movements, associated with the transformaon plan, which despite having an impact on revenue, were carried out consciously, priorizing the profitability of the operaon: we stopped working in 23 categories in 1P, which reduces revenue, but we connued to serve our customer via 3P, earning a commission. We closed 55 stores throughout 2023, which in our understanding, were not adding value to the Company. We also reduced incenves in the B2B channel, consequently experiencing drop in sales volume.
Gross profit reached R$2.1 billion, with a margin of 28.7%. This represents an improvement of 2 p.p. year over year. It is worth nong that the impact of the stock clearance sale on Q4 result was substanally lower than in Q3. Therefore, there was an increase of 4.6 p.p. in the accounng gross margin in relaon to Q3.
Expenses decreased by 4.4% year over year, already capturing part of the gains from the Transformaon Plan iniaves already implemented. The full benefit will be observed throughout 2024, as menoned by Renato. It is worth highlighng the 18% drop in personnel expenses, evidencing the efficiency and staff adjustment iniaves. It should be recalled that we reduced 20% of the Company's staff and 42% of senior leadership posions last year. Furthermore, we had a reducon in installment plan losses and an opmizaon of markeng expenses.
Therefore, adjusted EBITDA was R$276 million, with a margin of 3.7%, excluding the impact of 1.5 p.p. of specific and non-recurring effects.
The net financial expenses totaled R$711 million, sll reflecng the high level of interest rates. And, accordingly, we recorded a negave EBIT of R$844 million.
Inventory
In terms of inventory, we reduced the balance by R$1.2 billion compared to the previous year, closing at R$4.4 billion.
Compared to Dec/22, we have a 63% reducon in inventory over 90 days. In other words, this reducon movement had a specific focus on slower-moving and older inventory. With each passing month, this inventory had a carrying cost and a lower commercial sales value due to the technological lag.
Inventory below 90 days decreased by just 2%, in order to guarantee an adequate level to avoid sales disrupons. A simple formula, R$1.2 billion mulplied by the average cost of capital, we are talking about savings in financial expenses of around R$200 million per year.
Consequently, the average stock period decreased from 94 days in Q4'22 to 76 days in Q4'23. In other words, a reducon of 18 days, which is the lowest historical level ever recorded at the Company, even exceeding the Transformaon Plan's inial target of less than 90 days.
Capital Management
The movement towards reducing inventories combined with adequate management of suppliers led to an improvement of 11 days, year over year.
The investment level also reflects a moment of greater raonality and liquidity preservaon. Thus, capex went from R$1 billion per year to R$387 million last year due to the less expansionary moment and the terminaon of non-core projects for our strategy. It is important to note that we connue to invest in essenal projects, such as infrastructure and technology efficiency gains to improve the consumer experience on the website.
Taxes
In 2023, we accelerated the tax credit monezaon processes, which allowed a net impact on cash flow of R$1.3 billion in the year. This impact reflects the effort in sales of tax credits to third pares, reducon in structural inventory levels, focus on margin and profitability, and, finally, greater logiscal-tax efficiency in the operaon. We observed a reducon of R$1.2 billion in the balance of ICMS recoverable on the Company's balance sheet.
Labor Liabilies
In terms of labor liabilies, I reinforce that governance and controls are at very high levels. We rafied the enre process with external advisors to ensure this governance.
I shall now provide some details about what we call legacy liabilies and recurring liabilies. Legacies are lawsuits unl 2019, which have an average cket price for resolving cases that is 6x more expensive than a recurring lawsuit. We observed an annual reducon in these legacy lawsuits. As we finalize legacy lawsuits, the expense and cash disbursement of labor lawsuits as a whole tends to fall. Labor grievances totaled R$1.2 billion in 2023, the same level as the previous year. Of this amount, approximately 70% was aributed to legacy lawsuits.
Indirect Cash Flow
We have already referred to several iniaves that impacted cash flow. We had the best free cash flow in the year, generang R$721 million, which is enough to pay interest of R$625 million in the quarter. Added to the net inflows for the period, we went from a liquidity balance of R$2.8 to R$3.6 billion at the end of the year.
I also note that in 2023 we managed to achieve the best free cash flow in recent years. Thus, we went from a consumpon dynamic in the last 3 years to a posive generaon of R$648 million in 2023. Without a doubt, this is sll insufficient to meet debt service obligaons, but a very important reversal.
Leverage and Liquidity
Our gross indebtedness ended the year at R$3.9 billion. Regarding the amorzaon schedule, I would like to emphasize the extension of the debt profile previously menoned by Renato, in the amount of R$1.5 billion and a 3-year term.
Thus, short-term maturies, which previously represented 59%, now represent 31% of the indebtedness in the new amorzaon schedule.
The short-term liquidity rao, represented by total liquidity divided by short-term debt, was 1.5x in Q3 and we ended the year at 2.9x post debt extension.
It is important to reinforce that we are in compliance with the financial covenants. And we connue working to reinforce and strengthen the Company's capital structure.
I give the floor back to Renato. Thank you all.
Renato Franklin - CEO
Main Messages from 2023
Thank you Elcio. In 2023, we took important steps towards building a profitable and long-lasng Company. We revisited our strategy towards a specialist player approach, focusing on what we have experse in and know how to operate with profit. Our categories we call core. We changed our corporate name to Grupo Casas Bahia and brought back the 'Totally Dedicated to You' culture, confirming the "back to basic" mentality internally and the recognion of thousands of customers. We also count on the engagement of our enre Grupo Casas Bahia super team.
As previously menoned, we have structured and advanced in the execuon of the Transformaon Plan, which will allow addional gains of R$1.5 to R$1.6 billion in EBT in opportunies already structured and parally implemented for capture in the short term.
We raised significant amounts of R$ 623 million through follow-on, R$ 682 million in CCB and agreement and ended the year with R$ 3.6 billion in liquidity posion, behind the previous year, solely due to market events that reduced CDCI limits and supplier agreement. I emphasize once again the lengthening of short and medium term debt and that we have a sasfactory liquidity posion for the Company's requirements.
Short Term Vision
The macro scenario connues to be challenging in 2024, with demand sll suppressed by market condions for granng credit and interest rate levels.
Resilience of the employment level and the sign of a drop in interest rates, with an impact on the reducon of financial expenses and the historical correlaon in the sales of products in our core category, could bring opportunies to be captured by the Company throughout the year. Accordingly, we maintain our focus on the operaon of our Company, our deliveries and operaonal efficiency, irrespecve of external factors. Our Transformaon Plan is being well executed by the team, carrying out important acons that will generate benefits captured every quarter. We are close, aligned and have the support of partner instuons for the short term.
I am confident in the execuon of the plan, and I emphasize that there is the possibility of advancing some objecves that were planned for Q3'24 for the Q2'24, which reassures that we are on the right path to achieving the targets set out in the Transformaon Plan.
Prospects for 2025
Regarding the prospects for 2025, we are undergoing a gradual process of operaonal, financial and capital structure improvement so that Grupo Casas Bahia becomes a benchmark in value generaon and return on invested capital in 2025.
Our goal is to be the largest specialist electronics and furniture retailer in Brazil. This posion is only achieved by maintaining the status of leader in the core categories, but with GMV growth and greater scale, gaining online market share in these categories and exploring markets in the physical channel, which are sll lile penetrated currently.
We want to offer a comprehensive, uncomplicated and customized purchasing journey to our customers through a complete porolio of products in these core categories, offering services that are also related to these categories, excellence in assisted sales and using our enre database to assist in conversion of sales.
We aim to generate value for our stakeholders with an efficient, lean operaon, which provides robust margins for the sector and sustainable cash generaon through high-return assets.
This should all be accomplished in a diverse environment, with strong corporate governance and which values good ESG pracces on a daily basis, fostering a culture of collaboraon, high performance, recognion and growth based on meritocracy.
We are opmisc about the future, very confident that we are on the right path and very clear about our targets. I would like to take this opportunity to thank all our customers, our employees, suppliers, financial instuons and other stakeholders. We will connue to be Totally Dedicated to You! Thank you all very much and see you tomorrow at our video conference.
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Grupo Casas Bahia SA published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 March 2024 05:02:06 UTC.
