Belmiro Gomes: I think soon I’ll be talking about the new services. Some of these have higher levels of prioritization. So of course, there’s a series of new initiatives, and we should provide some new visibility. We should also see possibilities of gains and also execution, and also some will have some more solid data. But of course, also from the perspective of exploring some categories of products, we actually almost finished the refurbishing work we had to do now with the starting process of the increase of flows, and this will also help us with the allocation of this space. There’s an intention to explore these advertising spaces. So we can also see that in December we had 45 million people coming through stores. And so in total, we’re talking about 450 million.
So this represents an opportunity not only to explore major stores, but also stores that have big spaces and for the advertising media, and not only for our supplier, which is the Nestle products, et cetera., but even for companies in other segments. So considering also customers in Class A, B, C, and so yes, the company does expect to generate important raise, raise importance of revenue. And of course, in the maturity phase, the main focus initially was to guarantee the execution from a product sale perception. And that’s the core. Then now we’ll start seeing a focus of having a bigger volume for expansion. And this also leads to possibility of having more maturity in new categories. And so, as they can continue being a reference, I’ll pass this on to Anderson to talk about productivity gains as well.
Anderson Castilho: Well, Felipe, once again, thank you and good morning. Actually, when we look at expansion, we haven’t seen major volumes open, but in every store we open, we have like our top four. And the expectations are as they have a new team, it’s an experienced, but we always look at good level of service, which is a concern we have in our operation. As you mentioned already, previously, we tried to find in this value proposition ways to stand out. And so, we consider that we do have a big differential in this model. But of course, we had the experiences and the maturity and lessons out of the new services. There’s no major structure change. Actually, now I think we have a value proposition that is very positive already.
We’re going to focus on providing excellent services to customers. And when you open up a store, the level of maturity requires some natural changes and adjustments at some moment or another. And the store that sells more, you position more people there. If the store sells a little less you adjust the team. But at the same time, you have a lesson learned and gains and productivity in the operation. So I think we’ve been maturing positively. We’ve been working on this team to deliver more productivity. And the main point is productivity, scale gains, and so that we can deliver better services. So that’s what we’ve been working with over the years.
Felipe Rached: Thank you. Very clear.
Operator: Now, moving on, our next question is from João Soares, the sell-side analyst at Citi. João, we will enable your audio so you can proceed. Please, you may proceed.
João Soares: Okay. Thank you. Good morning. And first of all, I wanted to hear from about in regard to the organic expansion. And also when it comes to competition, one point I thought was interesting, as you mentioned, bringing customers from traditional retail and attracting these people. So where do you see bigger opportunities? Which states and markets do you think you can attract these kind of customers to do like their monthly shopping, also their replenishment shopping? And explore how we can see this mix evolving between B2B customers and B2C customers. And the second question is also about the CapEx. And it is clear that you’ll have smaller CapEx when you look at organic versus conversions. But I wanted to understand if we can quantify this and we have a number of about 70 million. I wanted to understand how you can compare this up ahead? And what’s the sustainable levels of the CapEx per batch?
Belmiro Gomes: So for the organic store network, and so I’ll say from all of the players in Brazil, is one of the players as the biggest expertise. We have stores with 1,400 square meters up until stores with 10,000 with all the differentials that this brings. So we have a group of stores that we mentioned in your Investor Day, and also other opportunities. And we can see that we have stores that are different sizes. So to give you an idea, the organic store network in this year we have stores that are 4,000 meters, but others that are even bigger, so or smaller. So in the southeast, the expansion here is really well distributed. But we have other expansions also in the north in Macapá, Belem, Manaus. And so even in Guarulhos, we have stores there.
So the store network is still — we want to highlight that the expertise to operate allows us to have a broader perception when it comes to organic growth. So we’re assessing projects that have 3,000 square meters, and even others that are 8,000 square meters. So the search for these kind of customers really grew with the inclusion of these new services and location of these other location stores as well, so most of the expertise with the extra stores will help us in the organic expansion as well. So we’re going to be opening up a store between [indiscernible] which is the first store in the region of 400,000 inhabitants. And so even in the southeast, our metropolitan region of Sao Paulo and Regina, we saw a major opportunity per se. In the other network stores, in the northeast and north of Brazil, where I say already has pretty good level of penetration, but there’s still room for growth such as Manaus, Belem, Macapá.
But as you balance things out with these stores and you bring them into more downtown regions with a bigger offering of services, Cash & Carry also stops being searched for only for like monthly shopping. So we’ve seen a bigger search for smaller shoppings as well for customers that used to mix our channel with other channels and even for customers that aren’t used to performing big purchases. So when you look at this public worker, government workers or people that receive monthly salary buying a big monthly shopping is more interesting. But there’s also a lot of people that are informal and they buy daily, right? They don’t have like a monthly salary. So we can also service this kind of customer now as they are used to buying smaller purchases here and there.
So our objective is to continue to penetrate, where about 25% penetration demonstrates this. And for CapEx effects, there’s a big variation. So if the project also has some variations in the sales area, organic stores, we should still be working with the R$70 million as you mentioned, with the projects that we expected for this year in 2024, where we hold on to a few stores. Besides this one in Guadalupe, we also want to highlight this large range is we’re going to be doing the reopening now with the store in Villa Maria, the first Cash & Carry in Brazil. And that we were able to renegotiate this with — it’s very important stores. While we also have a project for our store in Guadalajara, and with those Hays, these are other stores that are very heavy when it comes to investment perspectives.
So what’s the balance point for this project, right? They’re growing. When we look at the investment capital versus the expectation for sales and what we generate for cash versus working capital in these stores. And so we should probably give us — we should have a network of organic stores that’s going to be a little more mixed, so not only stores that are like 6,000 square meters, 7,000 square meters So we would see stores that are 3,000, 4,000. We see that there’s room to continue to advance. I think that my answer was a little long here, but I hope that was clear. I wanted to give you a little more info here.
João Soares: So maybe just a focus here. Do you think that this great investment versus competition, you guys have been investing more? And I wanted to understand a bit of this dynamic comparing with other players. So we see values that are a little smaller for some players.
Belmiro Gomes: In organic stores, no, because if it’s a comparable project, I don’t think there’s going to be a difference in the value between what we do or what another player can do. For organic stores, it’s a lot simpler than you have this variation according to the size of the project. So if you have a project for stores that are a lot greater, you have a big variation. So if you consider from a construction project perception, it’s going to cost maybe R$30 million. So to not only look at the average investment for a store, you have to look at the average. Well, is it possible to have a store with R$40 million? Yes, for some stores, they’re going to cost that. But of course, the volume of sales in the store is not going to be the same as a store that maybe costs R$70 million or R$80 million to build.
So the Guadalupe project is the big store there. It’s our first store there in Guadalupe. So it’s a store that we expect to sell about 380 million to 400 million. So that’s really important to look at, because we always have to consider the average revenue perspective per store. So we have 280 stores with over R$20 million in revenue, over R$20 million in revenue. So in the conversions, yes, we do have a greater investment cap rates in stores where you have a conversion of a store, you’re going to have to — you’re going to choose the stores that require less investments, which are normally ground level stores or smaller stores. So in the extra store network, when we looked at the competitors, for example, that the hypermarkets before that were ground level stores, the conversion cost is a lot lower than the conversion cost for a store that’s on multiple floors where you have underground parking and all of this.
So the cost to increase the load on the flooring to 300 or 400 tons — 3 or 4 tons is a lot higher, which is what we require in our store format. So what this estimates is the expectation and how this is. It can’t only be a metric, an isolated metric per store.
João Soares: Okay. Understood. Great. Thank you.
Operator: Next question is from Ruben Couto, sell-side analyst at Santander. Ruben, we will enable your audio so you may proceed. Please, Ruben, you can proceed.
Ruben Couto: Good morning, everyone and thank you for that question. I think all of my points were already covered, but I just have a last follow up here on the discussion of expenses to give us some tangibility here. I think you can quantify the relevance of the pre-op expenses in the fourth quarter of 2022 when you had a lot of store openings? And how much — and comparing this with how much this was now in ’23? Thank you.
Belmiro Gomes: Well, in ’23, it was very low. In ’23, you had pre-op expenses that were impacting. Of course, I wouldn’t be able to quantify this, but I think Gabriela can send you this information later. Because in ’23, it’s not that relevant, in ’22, it is. In ’22, we had an impact of our expenses. So we already expected that in the fourth quarter of 2022, there would be an impact. So then you have the effect of the store ramp up. Normally I’d say, it went up 14 stores to 288 stores. So, coincidentally, year-over-year, we were adding on a new store network, but of course, the proportional level was never that significant as it was in the end of ’22. So margins that are lower, and all of this, of course, reflects the ramp that was expected.
So I think that in ’22, we had about 0.70 or 0.50 bps of pre-operational expenses. But I think Gabriela can get back to you with this information in greater precision. And not only pre-op, but also there’s another aspect that we also highlighted. But because we have new stores, you have costs that are a lot higher at the beginning of the operation and you’re searching for ways to attract customers in stores that are more downtown regions. Customers also have a sales curve that is gradual. And then, of course, it makes you — you have to work with this higher expense level initially. So, yes, I can also get the rest of the information with Gabriela on. But also, I think this point really calls our attention, which is where these expenses actually helped you guys to make the decision to invest a little more on your competitive advantages in this quarter.
And I think this is a pretty different dynamic compare to what you guys were discussing throughout the year, where the elasticity and price investments wasn’t really bringing major returns that would be equivalent.
Ruben Couto: So you guys weren’t working on this that much. So could you notice what changed from that one to have this elasticity? Is it something related to the profile of stores and the socioeconomic level?
Belmiro Gomes: So, of course, we were balancing out this process throughout the quarter, but the perception in the fourth quarter, considering that we already estimated this, considering the volume of sales, where you would have a dilution in expenses, and then we would have room for investments. And so you can notice that there’s more caution from customers throughout the entire year. In December, you have the festivities, and of course, you have parties and celebrations. So, if there’s a moment where you could use this strategy, there was a little different. The investments that we had in markets and prices, it would sell at the lower margin, but you wouldn’t bring any impacts on the volume. But in November, with the entrance of the 13th salary people received, and also in December, this equation would maybe be a little different. And that’s what happened. So it was really supported by the lower expenses with the stores and the conversion.
Operator: So the next question is Alexandre Namioka, sell-side analyst at Morgan Stanley. We will enable your audio. You may proceed. Please, you may proceed.
Alexandre Namioka: So thanks for taking my question. I think most of the questions are already asked and answered, but I wanted to talk about regarding the forfeit. And in the fourth quarter, it was 1.5 million. And this was related to suppliers of products. But then when you compare these 1.5 or 1.1, compared to the numbers that you guys had provided in the third quarter. We can see that there’s an increase in this forfeit factor. And this was mostly related to the point with products. So, I just wanted to show that if the effect for the third to the fourth quarter was something that’s more seasonal? Or if there’s something different involved that impacted this?
Belmiro Gomes: Okay, great. So this is not our decision. Supplier, that decides to do this. But the deadlines and contracts and terms, but our suppliers, of course, obviously, this is something where they can decide to discount this, which doesn’t depend on our agreements. So we register these operations. So our perception is that we have high interest, the cash position is tight for everyone. And it’s natural that these fires will have an increase of their volumes and discounts to be able to handle expenses in the end of the year, especially in the 13th salary. So this is an operation with the supplier. So we just monitor these activities, considering the agreements we have. But this is a decision from the supplier, as well as — so the discount on receivables is one of the oldest kind of operations in the history, right?
So it’s something we created in the market. But this is a decision of the suppliers. And so that they can define the anticipation, and so we search for this with the banks we have agreements with.
Alexandre Namioka: Okay, perfect. Very clear.
Operator: So our last question comes from Joseph Giordano of the sell-side analyst. Joseph, we will open the line, so you can proceed.
Joseph Giordano: Thank you, guys. So I wanted to explore this issue with their price. What you guys have seen as a GAAP? And we’ve been starting to see how Assai is transferring less prices as they may in competitor, a lot more in line with transfer prices from the regionals. So then the second question is about the working capital. We’ve seen an extension about 10 days, excluding the forfeit and also in the suppliers. So I wanted to understand if this is structural, if we should see these 75 days, we’ve seen get back to those 60 or lower than 60?
Gabrielle Helu: Okay, thank you. Belmiro will answer this.
Belmiro Gomes: Remember, forfeit is a decision of the supplier, so just about competition here. Obviously, we look at these competitive movements. And for competition, we have the variation store-over-store, cluster-over-cluster. So it could be that in a certain period, it depends. It’s kind of like you have to consider two or even more that according to competition, whether it’s national or major, it doesn’t matter from a competitive perspective. The company becomes more competitive, so it’s a lot more individualized. So, the size of the company and the amount of places we’re located in, you can’t say it’s a single policy. The strategy is operated according to the region’s reign, and if you have a regional competitor that’s more competitive, it will also be more competitive.
Operator: It seems like we had an issue with the connection. We’ll be coming back in just a few seconds. We did have a technical issue here with the connection. We’ll all be hopping back in just a second.
