UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR | ||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended |
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| OR | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR | ||
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number
_______________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
BRAZILIAN
DISTRIBUTION COMPANY
(Translation of Registrant’s name into English)
THE
FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)
_______________________________________________________________________
Phone:
(Address of principal executive offices)
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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 |
| Common Shares, without par value | - | New York Stock Exchange* |
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*Not for trading purposes, but only in connection with the listing on the New York Stock Exchange of American Depositary Shares representing
those Common Shares.
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 the period covered by the annual report:
As
of December 31, 2022, the registrant had outstanding common shares, no par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
¨ Yes x
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 x
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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.
¨ Yes x
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).
x
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.
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 ¨ |
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 x
TABLE OF CONTENTS
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INTRODUCTION
All references in this annual report to (i) “CBD,” “we,” “us,” “our,” “Company” and “Pão de Açúcar Group” are references to Companhia Brasileira de Distribuição and its consolidated subsidiaries, unless the context requires otherwise; (ii) the “Brazilian government” are references to the federal government of the Federative Republic of Brazil, or Brazil; (iii) “common shares” are references to our authorized and outstanding common shares (ações ordinárias), without par value; and (iv) “preferred shares” are references to our formerly issued preferred shares, all of which were converted into common shares on February 28, 2020. For more information on the conversion of our preferred shares into common shares, see “Item 9. The Offer and Listing—9A. Offer and Listing Details.” All references to “ADSs” are to American Depositary Shares, each representing one common share, without par value. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by J.P. Morgan Chase Bank N.A., the depositary bank for the ADSs. All references to “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars. All references to “€” or “euro” are to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended.
Presentation of Financial and Other Data
Financial Data
We have prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.
Our consolidated financial statements are presented in Brazilian reais. The rate used to translate the U.S. dollars amounts as of December 31, 2022 was R$5.2177 to US$1.00, which was the commercial selling rate of U.S. dollars in effect as of December 31, 2022, as reported by the Central Bank of Brazil, or the Central Bank. The U.S. dollar equivalent information presented in this annual report are solely for the convenience of investors and should not be construed as implying that the real amounts represent, or could have been or could be converted into, U.S. dollars at that rate or at any other rate.
Other Data
In this annual report:
| · | some of the financial data reflects the effect of rounding; |
| · | the term “audited consolidated financial statements” refers to our audited consolidated financial statements prepared in accordance with IFRS, as issued by the IASB, as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020, together with the corresponding reports of our independent registered public accounting firms, included elsewhere in this annual report; |
| · | the term “Casino” refers to Casino, Guichard-Perrachon S.A., a French corporation (société anonyme). Casino is our indirect controlling shareholder. It is ultimately controlled by Mr. Jean-Charles Naouri, the chairman of our board of directors. For more information on our direct and indirect shareholders, see “Item 7. Major Shareholders and Related Party Transactions––7A. Major Shareholders;” |
| · | the term “Casino Group” refers to Casino and Casino’s subsidiaries, including Rallye S.A., or Rallye, and Euris S.A.S., or Euris, Wilkes Participações S.A., Segisor S.A., King LLC, Geant International B.V. and Helicco Participações Ltda., which are ultimately controlled by Mr. Jean-Charles Naouri; |
| · | the term “Cnova” refers to CNova N.V., a Dutch corporation, and, where appropriate, its subsidiaries. Cnova was one of our consolidated subsidiaries until October 31, 2016 and, starting on November 1, 2016, we began recording our investment in Cnova according to the equity pick-up accounting method. For more information on our investment in Cnova, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Corporate Reorganization of E-commerce Operating Segment;” |
| · | the term “Cnova Brazil” refers to Cnova Comércio Eletrônico S.A., a Brazilian corporation (sociedade anônima), which until October 31, 2016 was a wholly-owned subsidiary of Cnova and operated and |
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owned the Brazilian non-food e-commerce businesses of CBD and Via, as defined below. Following the completion of the Cnova corporate reorganization on October 31, 2016, Cnova Brazil became a wholly-owned subsidiary of Via. For more information on the Cnova reorganization, see “Item 4. Information on the Company—4A. History and Development of the Company—Corporate Reorganization of E-commerce Operating Segment;”
| · | “Éxito” are to Almacenes Éxito S.A., a Colombian corporation, one of our subsidiaries; |
| · | “Grupo Éxito” are to Éxito and its consolidated subsidiaries. As of December 31, 2022, we have reported Grupo Éxito’s results of operations as discontinued operations. For more information on Grupo Éxito’s discontinued operations and its consequences on our audited consolidated financial statements, see Explanatory Note on “Item 4. Information on the Company—Item 4A. History and Development of the Company—Changes in our Business—Discontinued Operations for the Year Ended December 31, 2022—Grupo Éxito” and notes 1.2 and 33(a) to our audited consolidated financial statements as of and for the year ended December 31, 2022; |
| · | “FIC” are to Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, a Brazilian financial services company; |
| · | the term “GHG emissions” refers to greenshouse gas emissions; |
| · | the term “private label” refers to our own branded products, including Qualitá, Taeq, Cheftime, Casino, Club des Sommeliers, Fábrica 1959, Confraria, Finlandek and Nous; |
| · | the term “same-store-sales” refers to sales made in stores open for at least 12 consecutive months and that did not close nor remain closed for a period of seven or more consecutive days; |
| · | the term “Sendas” refers to Sendas Distribuidora S.A., a Brazilian corporation (sociedade anônima) and, where appropriate, its subsidiaries. Sendas was one of our subsidiaries until December 31, 2020 and it operated in the cash and carry business under the banner Assaí. The spin-off and separation of Sendas from CBD was completed on December 31, 2020. For more information on the spin-off and separation of Sendas, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment;” |
| · | the term “Sendas Spin-Off” refers to our separation from Sendas through the distribution of substantially all of the issued and outstanding Sendas common shares to holders of CBD common shares, on a pro rata basis for no consideration. For more information on the Sendas Spin-Off, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Spin-Off of Cash and Carry Operating Segment;” |
| · | the term “Stix” refers to Stix Fidelidade e Inteligência S.A., a Brazilian corporation (sociedade anônima), focused on loyalty programs, in which we hold 66.7% of the capital stock and Raia Drogasil S.A., or RD, a pharmacy retailer in Brazil, holds the remaining 33.3% of the capital stock; and |
| · | the term “Via” refers to Via S.A., a Brazilian corporation (sociedade anônima) and, where appropriate, its subsidiaries. Via was one of our subsidiaries until June 2019 and it operated in the home appliances business under the banners Ponto Frio and Casas Bahia. On June 14, 2019, we consummated the sale of all equity interest we held in Via. For more information on the sale of the operations of Via, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Sale of Home Appliances Operating Segment.” |
None of the information available on our website or on websites referred to in this annual report is incorporated by reference into this annual report.
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—3D. Risk Factors,” “Item 4. Information on the Company—4B. 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
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events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things:
| · | global economic and political conditions as well as geopolitical instability, including the military conflict between Russia and Ukraine and the potential outbreaks of transmissible diseases around the world, and their impacts on the global economy and consumer spending patterns (including, but not limited to, unemployment rates, interest rates, monetary policies and inflation rates in Brazil); |
| · | political instability relating to the election of the new president of Brazil, who took office in January 2023, and uncertainties relating to the monetary, fiscal and social security policies that will be adopted by the new government and the political turmoil that started after the election results, with demonstrations and strikes; |
| · | government interventions that affect the economy, incentive policies, tariffs and taxation, regulatory restrictions, as well as environmental regulations in Brazil; |
| · | changes in Brazil’s socioeconomic, political and business environment, including changes in inflation rates, interest rates, exchange rates, unemployment rates, population growth, consumer confidence and capital and financial markets liquidity; |
| · | our ability to sustain or improve our performance; |
| · | competition in the Brazilian retail industry in the sectors in which we operate; |
| · | 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; |
| · | our ability to expand our operations outside of our existing markets; |
| · | hedge risks; and |
| · | other risk factors as set forth under “Item 3. Key Information—3D. 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.
EXPLANATORY NOTE
Éxito Segregation Transaction
In February 2023, our shareholders approved the segregation of Grupo Éxito’s operations in Colombia, Argentina and Uruguay, from our business. The segregation of Grupo Éxito is expected to unlock value to our shareholders by enhancing the market value of the Company and Éxito separately, and will be achieved through a capital reduction of the Company in the amount of R$7,133.4 million, with the delivery to our shareholders of approximately 83% of the common shares issued by Éxito, which are owned by the Company, or the Éxito Segregation Transaction.
Éxito’s common shares will be delivered: (a) in the form of sponsored Brazilian Depositary Receipts Level II, or Éxito BDRs, admitted to trading in the B3, to holders of our common shares who do not have their investment in the Company registered as a direct investment under the terms of Law No. 4,131, dated September 3, 1962, as amended, or Law No. 4,131 CBD shareholders; and (b) in the form of American Depositary Receipts Level II, or Éxito ADSs, admitted to trading on the New York Stock Exchange, or NYSE, which are expected to begin trading in the NYSE on the third quarter of 2023, to (i) holders of our ADSs and (ii) to Law No. 4,131 CBD
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shareholders who chose to receive Éxito ADSs. The amount of Éxito common shares to be delivered to our shareholders and ADR holders through Éxito BDRs or Éxito ADSs, are set out below:
| · | One Éxito BDR will be delivered to holders of our common shares who are not Law No. 4,131 CBD shareholders for each common share of the Company held by each of them on a date to be determined in due course. Each Éxito BDR will represent four Éxito common shares; |
| · | One Éxito ADS will be delivered to our ADS holders for every two ADSs of the Company held by each of them on a date to be determined in due course. Each Éxito ADS will represent eight Éxito common shares; and |
| · | One Éxito ADS will be delivered to our Law No. 4,131 CBD shareholders who chose to receive Éxito ADSs for every two common shares of the Company held by each of them on a date to be determined in due course. |
Following the completion of the Éxito Segregation Transaction, which is expected to occur in the third quarter of 2023, the Company will retain a minority stake of approximately 13% of Éxito’s common shares and Casino will retain a voting stake, directly and indirectly, of approximately 47% of Éxito.
As of the date of this annual report, we have fulfilled the main requirements for the Éxito Segregation Transaction. Thus, in accordance with IFRS 5, we report the net result of Grupo Éxito for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution and discontinued operations, or the Grupo Éxito Discontinued Operations. Furthermore, in accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations (as defined below) in our audited consolidated financial statements.
For more information on the effects of the Éxito Segregation Transaction on our consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements.
Extra Hiper Discontinued Operations
In line with our strategy of focusing on the premium supermarket and proximity store segments, we decided to discontinue our hypermarket business, operated under the Extra Hiper banner, or the Extra Hiper Discontinued Operations. As part of that goal, in late 2021, the boards of directors of CBD and Sendas approved the conversion of a number of Extra Hiper stores operated by us and located in several states of Brazil into cash and carry stores to be operated by Sendas through the sale of certain assets, or the Extra Hiper Asset Sale.
The Extra Hiper Asset Sale consisted of (i) the transfer of commercial rights of 66 Extra Hiper stores to Sendas for R$3.9 billion to be paid by Sendas to CBD in installments and (ii) the sale of 17 Extra Hiper real estate properties stores to Barzel Properties, a Brazilian real estate investment fund, or Barzel, for R$1.2 billion. The 17 real estate properties were subsequently leased by Barzel to Sendas for a period of 25 years, renewable for the same term.
In August 2022, as part of the Extra Hiper Asset Sale, after the transfer of commercial rights of 61 stores to Sendas, we assigned certain receivables related to those stores to financial institutions, for approximately R$2 billion. The receivables consisted of R$1.2 billion maturing in 2023 and R$700 million maturing in January 2024, adjusted by the CDI rate, plus 1.2% per year. The cost of the receivables assignment was R$2.4 million, which we recorded in the line item “financial income (expenses), net” of our income statement. In the end of 2022, after the transfer of commercial rights of five additional stores to Sendas, we assigned the remaining receivables related to those stores to financial institutions. As of December 31, 2022, Sendas had paid all the amount due to CBD relating to the transfer of commercial rights of 66 Extra Hiper stores to Sendas.
Out of our remaining 37 Extra Hiper stores that were not part of the Extra Hiper Asset Sale, 23 stores were converted into Pão de Açúcar or Mercado Extra stores, 11 stores were closed or sold to other third parties and three stores remain under analysis for possible closure. As of the date of this annual report, we no longer operate under the Extra Hiper banner.
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In accordance with IFRS 5, we report the net result of the sale of our hypermarket business as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities of our hypermarket business are presented as held for sale and discontinued operations, or the Extra Hiper Discontinued Operations. Furthermore, in accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations in our audited consolidated financial statements.
For the year ended December 31, 2022, the Company recorded proceeds related to the Extra Hiper Asset Sale in the amount of R$3.9 billion, in addition to asset write-offs in the amount of R$1.0 billion and expenses of R$1.3 billion. The net result of the Extra Hiper Asset Sale, in the amount of R$1.5 billion, was recorded in our result of discontinued operations. As of December 31, 2022, we had received all amounts expected to be received under the Extra Hiper Asset Sale.
For more information on the effects of the Extra Hiper Discontinued Operations on our consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements.
PART I
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. | KEY INFORMATION |
3A. Reserved
3B. Capitalization and Indebtedness
Not applicable.
3C. Reasons for the Offer and Use of Proceeds
Not applicable.
3D. Risk Factors
An investment in the ADSs or our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this annual report before making an investment decision. The risks described below are those that we currently believe may materially affect us. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. This annual report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” The trading price of the ADSs and our common shares could decline due to any of these risks or other factors, and you may lose all or part of your investment. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks facing our Company described below and elsewhere in this annual report.
For purposes of this Item 3D. Risk Factors, when we state that a risk, uncertainty or problem may, could or will have an “adverse effect” on us or “adversely affect” us, we mean that the risk, uncertainty or problem could have an adverse effect on our business, financial condition, results of operations, cash flow, liquidity, prospects, reputation and/or the trading price of our common shares and ADSs, except as otherwise indicated. You should view similar expressions in this Item 3D. Risk Factors as having similar meanings.
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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 ADSs and our common shares.
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 our ADSs and common shares 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; |
| · | 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; |
| · | expansion or contraction of the Brazilian economy, as measured by gross domestic product, or GDP, growth rates; |
| · | 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; |
| · | public health, including as a result of epidemics and pandemics, such as the COVID-19 pandemic; 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 ADSs and our common shares.
Political instability has adversely affected and may continue to adversely affect our business, results of operations and the trading price of the ADSs and our common shares.
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, including the trading price of the ADSs and our common shares.
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Brazilian markets have experienced heightened volatility due to uncertainties from investigations related to allegations of money laundering, corruption and misconduct by government officials and legal entities and individuals from the private sector carried out by the Brazilian Federal Police and the Office of the Brazilian Federal Prosecutor. These investigations have adversely affected the Brazilian economy and political environment. We have no control over and cannot predict developments in these investigations nor whether future investigations or allegations will result in further political and economic instability, which could adversely affect the trading price of securities issued by Brazilian companies, including ours.
In October 2022, Brazil held elections for President, senators, federal legislators, state governors, state legislators and former President Luiz Inácio Lula da Silva was elected, representing distinctly opposing political ideologies as compared to those of the previous president Jair Bolsonaro. Political bipolarization between the left and right wings tends to enhance political instability, which could adversely affect the economy and therefore us.
The president of Brazil has the power to determine policies and issue governmental acts related to the Brazilian economy that affect the operations and financial performance of companies, including us. We cannot predict which policies the newly elected president will adopt or if these policies or changes in current policies may have an adverse effect on us or the Brazilian economy.
Uncertainty regarding political developments and the policies the Brazilian federal government may adopt or alter may have material adverse effects on the macroeconomic environment in Brazil, as well as on the operations and financial performance of businesses operating in Brazil, including ours. These uncertainties may heighten the volatility of the Brazilian securities market, including in relation to our ADSs and our common shares.
Brazilian government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm us and the trading price of the ADSs and our common shares.
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, the basic interest rate in the Brazilian banking system, 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 annual inflation, as measured by the general price index (Índice Geral de Preços – Mercado), or IGP-M index, was 5.5% in 2022, 17.1% in 2021 and 23.1% in 2020. Brazil’s Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or the IPCA, recorded inflation of 5.8%, 10.1% and 4.5% in 2022, 2021 and 2020, respectively, according to IBGE. As of December 31, 2022, 2021 and 2020, the SELIC rate was 13.75%, 9.25% and 2.00%, respectively. The Monetary Policy Committee (Comitê de Política Monetária), or COPOM, has adjusted the official interest rates in situations of economic uncertainty to meet the economic goals established by the Brazilian government. As of August 2, 2023, the COPOM decreased the official interest rates to 13.25%. As of the date of this annual report, the official interest rate in Brazil is 13.25%.
Inflationary pressures may 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 ADSs and our common shares. 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.
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. An increase in interest rates may affect not only the cost of new loans, but also the cost of our current indebtedness, increasing our financial expenses. This increase, in turn, may adversely affect our cash availability and ability to meet our financial obligations. In addition, tight monetary policies with high interest rates have restricted and may restrict Brazil’s growth and the availability of credit, which adversely affects our customers’ purchasing power and consequently our net operating revenue.
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 our financial expenses. Furthermore, interest rate decreases may affect our ability to maintain interest margins we charge on installment sales, which could have a negative effect on our net operating revenue.
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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 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 December 31, 2020, reaching R$5.5805 per US$1.00 as of December 31, 2021. In 2022, the real gained value against the U.S. dollar and, as of December 31, 2022, the U.S. dollar selling rate was R$5.2177 per US$1.00. As of August 15, 2023, the real-U.S. dollar exchange rate was R$4.9812 per U.S. dollar.
The real may substantially depreciate or appreciate against the U.S. dollar in the future. 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 ADSs and our common shares. As a result, we may be materially and adversely affected by real/U.S. dollar exchange rate variations.
Any further downgrading of Brazil’s credit rating may adversely affect the trading price of the ADSs and our common shares.
Credit ratings affect investors’ perceptions of risk and, as a result, the yields required on indebtedness 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. Downgrades in Brazil’s credit rating can lead to downgrades in our credit rating and increase the cost of our indebtedness as investors may require a higher rate of return to compensate a perception of increased risk.
In January 2018, Standard & Poor’s downgraded Brazil’s credit rating to BB- with a stable outlook, which it changed to positive in December 2019 and back to stable in April 2020. In June 2021, and in June 2022, Standard & Poor’s reaffirmed its rating. In June 2023, Standard & Poor’s adjusted its outlook to positive. In February 2018, Fitch downgraded Brazil’s credit rating to BB- with a stable outlook, which it affirmed in May 2019. In May 2020, Fitch adjusted its outlook to negative, which it reaffirmed in May 2021 and July 2022. In June 2023, Fitch upgraded Brazil’s credit rating to BB with a stable outlook. Since April 2018, Moody’s has maintained Brazil’s credit rating at Ba2 with a stable outlook.
We cannot assure you that rating agencies will maintain Brazil’s sovereign credit ratings. 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 trading price of Brazilian securities, including the ADSs and our common shares.
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 other countries may adversely affect the market value of securities of Brazilian issuers, including the ADSs and our common shares. Any financial crisis or significant developments, such as increase in interest rates in other countries, especially the United States, may decrease global liquidity and the interest of investors in securities of Brazilian issuers, adversely affecting the ADSs and our common shares. Moreover, geopolitical conflicts, such as the military conflict between Russia and Ukraine, have had and may continue to have an adverse effect on global capital markets and investors’ interest in securities issued by companies operating in emerging markets, which could have a negative impact on the trading price of the ADSs and our common shares.
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The outbreak of communicable diseases around the world has led and may continue to lead to higher volatility in the global capital markets, adversely affecting the trading price of ADSs and our common shares.
The COVID-19 pandemic and governmental responses thereto had a severe impact on global and Brazilian macro-economic and financial conditions, including the disruption of supply chains and the closures or interruptions of many businesses, leading to losses of revenues, increased unemployment and economic stagnation and contraction. The COVID-19 pandemic also resulted in materially increased volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads.
In Brazil, the stock market experienced automatic suspensions, known as “circuit-breakers,” as a result of significant volatility in stock trading caused by investors’ reactions to the uncertainty related to the COVID-19 pandemic in the global economy and recessionary effect on the Brazilian economy. The B3 dropped 36.9% from January 1, 2020, to March 31, 2020, following the downfall of international equity markets. The trading piece of our common shares was also adversely affected.
Measures taken by governmental authorities worldwide, including Brazil, to stabilize markets and support economic growth in the case of an outbreak of an epidemic or pandemic may not be sufficient to control volatility or to prevent serious and prolonged reductions in economic activity. These measures may have adverse macroeconomic effects and negatively influence the behavior of the consumer market and the population in general.
The effects of an outbreak of an epidemic or pandemic on our business will depend on, among other factors, the ultimate geographic spread of the disease, the duration of the outbreak and the extent and overall economic effects of the governmental response to it. In addition, the effects of the outbreak may exacerbate the effects of the other risk factors disclosed in this section of this annual report, including the effects on the price and performance of our common shares and ADSs.
Risks Relating to our Industry and Us
We face significant competition and pressure to adapt to changing consumer habits and preferences, which may adversely affect our market share and net income.
We operate mainly in the Brazilian food retail industry, which is highly competitive. We compete with other retailers based on price, product mix, store location and 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 other store formats and sub-segments within the food retail industry, especially the cash-and-carry sector, which has in recent years imposed significant competitive pressure on our stores. We also face competition from small and regional retailers, mainly in the retail segment, and especially from those that operate in the informal segment of the Brazilian economy. In addition, in our markets, particularly in the São Paulo and Rio de Janeiro metropolitan areas, we compete in the Brazilian retail sector with a number of large multinational retail food, general merchandise and cash and carry chains, as well as local supermarkets and independent grocery stores. Acquisitions or consolidations within the industry may also increase competition and adversely affect our market share and net income.
If we are unable to compete successfully in our target markets (including adapting our store format mix or layout, identifying locations and opening stores in preferred areas, and quickly adjusting our product mix or prices under each of our banners and segments) or otherwise adjust to changing consumer habits and preferences, such as online shopping, including through mobile devices, we may lose market share, which would adversely affect our financial condition and results of operations.
Our traditional supermarkets and retail stores face increasing competition from internet sales, which may negatively affect sales of traditional channels, and our digital transformation strategy might not be an effective response to this emerging competition.
In recent years, traditional supermarkets and retail stores sales in Brazil have increased sales of food and clothing products over the internet. 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, in recent years, Amazon has been expanding its operations in Brazil. Growth in the internet retail business of our competitors would likely harm not only our retail operations but also our internet retail operations. Internet retailers are able
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to sell directly to consumers, reducing the importance of traditional distribution channels such as supermarkets and retail stores. Certain internet food retailers have significantly lower operating costs than traditional 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 costs than we do and, in certain cases, are able to bypass retailing intermediaries and deliver particularly high-quality and fresh products 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.
Additionally, technology employed in retail food sales 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 have a digital transformation strategy, but 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 retail businesses. If internet sales in Brazil continue to grow, consumers’ reliance on traditional distribution channels such as our supermarkets and retail stores could be materially diminished, which could have a material adverse effect on our financial condition and results of operations.
The Brazilian food retail industry is sensitive to decreases in consumer purchasing power and unfavorable economic cycles.
Historically, the Brazilian food retail industry has experienced periods of economic slowdown that led to declines in consumer spending. The success of operations in the food retail sector depends on various factors related to consumer spending 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 in Brazil, as well as more stringent credit policies adopted by us and credit card companies may negatively affect our sales. Unfavorable economic conditions in Brazil, or unfavorable economic conditions worldwide reflected in the Brazilian economy, may significantly reduce consumer spending 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 operation.
These factors are compounded as Brazil continues to slowly recover from a recession following the COVID-19 pandemic, with only meager GDP. Brazil’s GDP growth rates were 2.9% in 2022, 4.6% in 2021, (4.1)% in 2020. Negative developments in the Brazilian economy may affect its growth rate and, consequently, the sales of our products, which may adversely affect the trading price of our ADSs and common shares.
Because the Brazilian retail industry is usually perceived as essentially growth-oriented, we are dependent on the growth rate of the urban population and on the income levels of the Brazilian population. Any decrease or slowdown in these metrics may adversely affect our sales and our results of operations.
We cannot guarantee that our service providers or suppliers do not engage in irregular practices.
We engage in the ordinary course of business in commercial transactions with a significant number of service providers and suppliers. While we have policies and procedures in place to know the essential facts related to the operations of the service providers and suppliers with whom we enter into agreements, we cannot guarantee that they will not have issues, such as illegal working and improper safety conditions, environmental and sustainability matters, among other issues, nor that they will not engage in irregular practices. If our service providers or suppliers have issues related to those conditions or matters or engage in irregular practices, our reputation may be harmed and we could be subject to market scrutiny or legal proceedings, which may adversely affect the trading price of the ADSs and our common shares. In addition, our customers’ perception of our products may be adversely affected, causing a reduction in sales and in 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 results of operations for Brazilian non-food retailers. The increase in the unemployment rate combined with relatively high interest rates have resulted in an
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increased restriction of credit availability to consumers in Brazil. The unemployment rate in the country reached 9.3% in 2022 compared to 11.1% in 2021 and 13.9% in 2020.
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 the Brazilian government restricts the granting of credit to consumers.
Additionally, through FIC, we extend credit to customers in Brazil. FIC is our partnership with Itaú Unibanco Holding S.A., or Itaú Unibanco, one of the largest financial institutions in Brazil. 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—4B. Business Overview—Operations—Financial Services.”
FIC is subject to the risks usually 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 framework 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 increasingly dependent on credit card sales. Any changes in the policies of merchant acquirers may adversely affect us.
We are increasingly dependent on credit card sales. Sales to customers using credit cards accounted for 44.6%, 47.0% and 47.2% of our consolidated net operating revenue in 2022, 2021 and 2020, respectively. In order to offer credit card sales to our customers, we depend on the policies of merchant acquirers, including fees charged by these companies. Any change in the policies of merchant acquirers, including, for example, their merchant discount rate, may adversely affect us.
In addition, a portion of our sales is paid in installments offered by merchant acquirers. As a result, we depend on those merchant acquirers to be able to continue offering credit cards as a payment option to our customers. Any change in the policies of acquirers regarding installment payments and credit may adversely affect us.
Our business depends on strong brands. We may not be able to maintain and enhance our brands, or we may receive unfavorable customer complaints or negative publicity, which could adversely affect our brands.
We believe that our Pão de Açúcar, Extra and Compre Bem banners contribute significantly to the success of our business. We also believe that maintaining and enhancing those brands is critical to expanding our base of customers, which depends largely on our ability to continue to create the best customer experience, based on our competitive pricing and our large assortment of products.
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Customer complaints or negative publicity about our product offerings or services could harm our reputation and diminish consumer confidence in us. A reduction in the strength of our brands and reputation could adversely affect our business, financial condition and operating results.
Contingent obligations for the benefit of unrelated parties may cause a material adverse effect on our business and result of operations.
On June 14, 2019, we completed the sale of all of our equity interest in Via and Via ceased to be a consolidated subsidiary. Since then, we do not control Via nor have exercised influence over its management or operations, and, as a result, Via has no longer been our related party. However, certain transactions, previously existing between the Company and Via, when Via was part of the Pão de Açúcar Group, remained in effect, including guarantees we have granted for certain obligations of Via. While the vast majority of the guarantees have been terminated, we and Via are under discussions with respect to allegedly outstanding obligations under certain agreements. In the event of non-compliance by Via of these obligations, including as a result of non-payment, our business and results of operations may be adversely and materially affected. For more information on these transactions, see “Item 4. Information on the Company—4A. History and Development of the Company—Sale of Home Appliances Operating Segment.”
We may not be able to protect our intellectual property rights.
Our business strategy depends significantly on our ability to protect our brands and to defend our intellectual property rights, including trademarks, patents, domain names, trade secrets and know-how. We have been granted numerous trademark registrations covering our brands and products and have filed, and expect to continue to file, trademark and patent applications seeking to protect newly developed brands and products. We cannot assure that trademark and patent registrations will be issued with respect to any of our applications. There is also a risk that we could inadvertently fail to renew a trademark or patent on a timely basis or that our competitors will challenge, invalidate or circumvent any existing or future trademarks and patents issued to, or licensed by, us. Although we have put in place appropriate actions to protect our portfolio of intellectual property rights (including trademark registration and domain names), we cannot assure 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, our ability to carry out our business and implement our business strategy.
Our sales depend on the effectiveness of our advertisement and marketing campaigns, which may adversely affect our revenues and profitability.
To promote increased traffic of customers and attract them to our stores, we dedicate substantial resources to our advertisement and marketing campaigns. Our revenues and profitability depend on our ability to, among other things, identify our target consumers and decide on the marketing message and communication method to reach them most effectively. If we do not conceive, plan or execute our advertisement and marketing activities in order to successfully and efficiently increase revenues and market share, our profitability and financial position may be adversely affected.
We may not be able to renew or maintain our stores’ 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.
Most of our stores are leased. The strategic location of our stores 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 three years. A significant increase in the rent of our leased properties may adversely affect our financial position and results of operations.
Our stores and distribution centers are also subject to certain operational licenses. Our inability to obtain or renew these operational licenses may result in the imposition of fines 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.
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Our product distribution is dependent on a limited number of distribution centers and we depend on the Brazilian transportation systems and infrastructure 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.
Approximately 65% of our products are distributed through our 10 distribution centers and warehouses located in the Southeastern, Midwestern and Northeastern 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, accidents, systemic failures, strikes or other unexpected causes, may delay or affect our ability to distribute products to our stores and customers 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 to meet the supply needs of these new stores.
Factors associated with climate change could adversely affect us.
The long-term effects of global climate change present both physical risks, such as extreme weather conditions or rising sea levels, and transition risks, such as regulatory or technology changes, which are expected to be widespread and unpredictable.
Many of our operations are in locations that may be affected by the physical risks of climate change. Weather conditions, natural disasters, and other catastrophic events, such as tropical storms, floods, fires and droughts, in areas where we or our suppliers operate, or depend upon for continued operations, could adversely affect the availability and cost of commodities, including utilities, and certain products within our supply chain, affect consumer purchasing power, and reduce consumer demand. We also face the risk of losses incurred as a result of physical damage to stores or warehouses, loss or spoilage of inventory and business interruption caused by such events, all of which could adversely affect us.
We use natural gas, diesel fuel, gasoline and electricity in our operations, all of which could face increased regulation and cost increases as a result of climate change or other environmental concerns. Transitioning to alternative energy sources, such as renewable electricity or electric vehicles, could result in higher costs. Regulations limiting greenhouse gas emissions and energy inputs are expected to increase in coming years, which may increase our costs associated with compliance, tracking, reporting, and sourcing. We also sell fuel at our gas stations, the demand for which could be impacted by concerns about climate change and increased regulations. Furthermore, any failure to achieve our goals with respect to reducing our impact on the environment, or perception of a failure to act responsibly with respect to the environment, could adversely affect our reputation and results of operations. These events and their impacts could adversely affect us.
We rely on information technologies and systems to operate our business and any disruption to these systems may adversely affect our business. Moreover, failure to protect our database from violations and breaches could have an adverse effect on us.
We heavily rely on the accuracy, availability and security of our information technology systems, including systems used for websites and apps, data analytics, customer service, supplier connectivity, communications, fraud detection, enterprise resource planning, inventory management, warehouse management and administration. Disruptions to these systems, caused by obsolescence, natural disasters, energy interruptions, failures in telecommunication, technical failures, human input errors or intentional acts, such as hacker attacks, could affect the availability of our services and prevent or inhibit the ability of consumers to complete purchases on our stores, websites and apps. Problems with the reliability of our systems could prevent us from recording and earning revenue, result in loss of customers, harm our reputation and adversely affect our business.
In addition, we, like all business organizations in the digital world, have been subject to a broad range of cyber threats, including attacks, with varying levels of sophistication. These cyber threats may undermine the confidentiality, availability and integrity of our systems and database, including our customers’, suppliers’ and employees’ confidential, classified or personal information.
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We maintain what we believe to be reasonable and adequate technical security controls, policy enforcement mechanisms, monitoring systems and management oversight to address these threats. While these measures are designed to prevent, detect and respond to unauthorized activity in our systems, certain types of attacks, including cyberattacks, may occur.
Moreover, we maintain a database of information about our suppliers, employees and customers, which mainly includes, but is not limited to, data collected when customers sign up for our loyalty programs. If we experience a breach in our security procedures that affect the integrity of our database, including unauthorized access to any personal information of our customers, we may be subject to legal proceedings that could result in damages, fines and harm to our reputation.
Some of our suppliers and service providers 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, suppliers or service providers could disrupt our operations, particularly our digital retail 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.
We are subject to risks associated with non-compliance with the applicable data protection laws.
The processing of personal data in Brazil is regulated by Law No. 13,709/2018 (Lei Geral de Proteção de Dados), or the Brazilian General Data Protection Law, which became effective as of September 18, 2020. The Brazilian General Data Protection Law established a new legal framework for the treatment of personal data, which set forth rules relating to, among other subjects: (i) the rights of personal data owners; (ii) the legal basis applicable to personal data protection; (iii) the requirements to obtain consent to use personal data; (iv) the obligations and requirements related to security incidents involving personal data, (v) personal data leaks and transfers; and (vi) the creation of the Brazilian Data Protection Authority (Autoridade Nacional de Proteção de Dados).
If we fail to comply with the Brazilian General Data Protection Law, we may be subject to penalties, such as: (i) notifications; (ii) obligations to disclose the infraction; (iii) temporary blockage or deletion of personal data to which the infraction relates from our database; (iv) partial or total suspension to operate the database to which the infringement relates for a maximum period of six months; (v) partial or total prohibition to exercise activities related to data processing; and (vi) fines in amounts corresponding to up to 2% of our revenue or the revenues of our group or financial conglomerate in Brazil for the previous fiscal year, excluding taxes, limited to an aggregate amount of R$50.0 million per infraction. In addition, we may be held responsible for pecuniary, non-pecuniary, individual, or collective damages caused by us and jointly and severally liable in case these damages are caused by our subsidiaries, due to non-compliance with the obligations set forth in the Brazilian General Data Protection Law and in other sparse and sectoral legislation on data protection in effect in Brazil.
Accordingly, failures by us and our subsidiaries to comply with the Brazilian General Data Protection Law may result in penalties and damages which could have a material adverse effect on our business and reputation.
Our controlling shareholder has the ability to direct our businesses and affairs.
According to Brazilian Law No. 6,404, dated December 15, 1976, as amended, or Brazilian corporate law, our controlling shareholder, the Casino Group, has the power to (i) appoint the majority of the members of our board of directors, who, in turn, appoint our executive officers; and (ii) determine the outcome of the vast majority of actions requiring shareholder approval. Our controlling shareholders’ interests and business decisions may prevail over our other shareholders or holders of ADSs.
Unfavorable decisions in legal and administrative proceedings could have a material adverse effect on us.
We are party to legal and administrative proceedings related to civil, regulatory, tax and labor matters. We cannot assure you that these legal proceedings will be decided in our favor. We have made provisions for proceedings in which the chance of loss has been classified as probable by our external legal advisors, management and our audit committee. Our provisions may not be sufficient to cover the total liabilities 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
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be materially and adversely affected. In addition to provisions recorded on our financial statements 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—8A. Consolidated Statements and Other Financial Information—Legal Proceedings” and note 21 to our audited consolidated financial statements, for a description of our material litigation contingencies.
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. We face various challenges inherent to the management of a large number of employees over a wide geographical area. Key personnel may leave us for a variety of reasons and the impact of these departures is difficult to predict, which may hinder the implementation of our strategic plans and adversely affect our results of operations.
We could be materially adversely affected by violations of the Brazilian Anti-Corruption Law, U.S. Foreign Corrupt Practices Act, the Sapin II Law and similar anti-corruption laws.
Law No. 12,846, of August 1, 2013, or the Brazilian Anti-Corruption Law, introduced the concept of strict liability for legal entities involved in harmful acts against the public administration, subjecting the perpetrator to both administrative and civil penalties. Similar to the Foreign Corrupt Practices Act of the United States, to which we are also subject, 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.
Additionally, French Law No. 1,691, of December 2016, or the Sapin II Law, relates to transparency, preventing corruption and the modernization of economic activity, and determines that companies must establish an anti-corruption program to identify and mitigate corruption risks. Under the Sapin II Law, among others, any legal entity or individual may be held criminally liable for offering a donation, gift or reward with the intent to induce a foreign public official to abuse their position or influence to obtain an undue advantage. The Sapin II Law is applicable to companies belonging to a group whose parent company is headquartered in France and whose workforce includes at least 500 employees worldwide. As such, the Sapin II Law applies to us. The key anti-corruption provisions of the Sapin II Law have been in force since June 1, 2017.
Failure to comply with anti-corruption laws to which we are subject or any investigations of misconduct, or enforcement actions could subject us to fines, loss of operating licenses, and reputational harm as well as other penalties, including individual arrests, which may materially and adversely affect us, our reputation, and the trading price of the ADSs and our common shares.
Some categories of products that we sell are principally acquired from a few suppliers and over-concentration could disrupt the availability of these products.
Some categories of products that we sell are principally acquired from a few suppliers. If any supplier 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.
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, 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, especially our private label products. Any allegation of this nature made against our brands or products sold in our stores may have a material adverse effect on our operations, financial condition, results of operations and reputation.
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We are subject to environmental laws and regulations and any non-compliance may adversely affect our financial condition and results of operations.
We are subject to a number of federal, state and municipal laws and regulations relating to the preservation and protection of the environment, especially in relation to our gas stations. 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 prevention, control, reduction or elimination of releases into the air, ground and water at our gas stations, as well as in the disposal and handling of wastes at our stores and distribution centers. Any failure to comply with those laws and regulations may subject us to significant administrative and criminal sanctions, such as fines and shutdown of business and operations, in addition to the obligation to remediate or indemnify others for the damages caused. 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. Sanctions for non-compliance with environmental laws and regulations and unforeseen environmental investments could materially and adversely affect our financial condition and results of operations.
Risks Relating to the ADSs and Our Common Shares
ADS holders may find it difficult to exercise voting rights at our shareholders’ meetings.
ADS holders may only exercise their voting rights in accordance with the deposit agreement governing the ADRs. Holders of ADSs face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our common shares are able to exercise their voting rights by attending a shareholders’ meeting in person or virtually (whenever the shareholders’ meeting is held under a partial or 100% digital format), by means of the distance voting form (boletim de voto a distância) or by voting by proxy. By contrast, ADS holders will receive notice of a shareholders’ meeting by mail from the depositary bank for the ADSs if we give notice to the depositary requesting it to do so. To exercise their voting rights, ADS holders must instruct the depositary on a timely basis. This voting process necessarily takes longer for ADS holders than for holders of our common shares. If the depositary fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that those ADS holders are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, to the extent permitted by NYSE rules.
ADS holders also may not receive the voting materials in time to instruct the depositary to vote our common shares underlying the ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the ADS holders or for the manner of carrying out those voting instructions. Accordingly, ADS holders may not be able to exercise voting rights, and they have little, if any, recourse if the common shares underlying the ADSs are not voted as requested.
If you exchange the ADSs for common shares, as a result of Brazilian regulations you may risk losing the ability to remit foreign currency abroad.
As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by Itaú Corretora de Valores S.A., or the Custodian, for our common shares underlying the ADSs in Brazil, which permits the Custodian to convert dividends and other distributions with respect to the common shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the 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 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, our 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—10D. Exchange Controls.”
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You might be unable to exercise preemptive rights with respect to the common shares underlying the ADSs.
You will not be able to exercise the preemptive rights relating to the common shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended, or the Securities Act, is effective with respect to 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 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 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 ADSs.
The volatility and illiquidity of the Brazilian securities markets and of our common shares may substantially limit your ability to sell the common shares underlying the 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 (i) 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 (ii) 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 common shares underlying the ADSs to sell them at the time and price they desire and, consequently, may adversely affect the market price of our common shares. If a liquid and active trading market is not maintained, the trading price of our common shares may be negatively affected.
Holders of the ADSs and our common shares may not receive any dividends.
According to our bylaws, we must pay to our shareholders at least 25% of our annual net income as dividends, as determined and adjusted under Brazilian corporate law. This adjusted income may be used to absorb losses or otherwise be appropriated as permitted by 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 these distributions would be inadvisable in view of our financial condition.
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.
We are a “foreign private issuer” within the meaning of the NYSE corporate governance standards. 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 (i) a majority of the board of directors consist of independent directors, (ii) 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, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Therefore, ADS holders 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 chose to rely on an exemption under Rule 10A-3(c)(3) of the Exchange Act of 1934, as amended, or 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—6C. Board Practices—Committees of the Board of Directors—Audit Committee.”
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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.
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 file 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. 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.
| ITEM 4. | INFORMATION ON THE COMPANY |
4A. History and Development of the Company
We were incorporated in Brazil under the laws of this jurisdiction on November 10, 1981, as Companhia Brasileira de Distribuição. Our principal executive offices are located at Avenida Brigadeiro Luiz Antonio, 3142, São Paulo, SP, Brazil (telephone: +55-11-3886-0421). Our agent for service of process in the United States is CT Corporation, 28 Liberty Street, New York, New York, 10005.
We have been a pioneer in the Brazilian retail food industry, opening our first store, a pastry shop, in 1948 in the city of São Paulo under the name Pão de Açúcar. We established one of the first supermarket chains in Brazil, opening our first supermarket in 1959 and opening the first hypermarket in Brazil in 1971. Brazilian economic reforms implemented in 1994, including the introduction of the real as the Brazilian currency and the drastic reduction of inflation rates, resulted in an unprecedented growth in local consumer markets. This increase in available income and the resulting increase in consumer confidence broadened our addressable customer base and provided us with growth opportunities.
We responded to these changes by strengthening our capital structure, increasing our logistics and technology investments and implementing an expansion strategy focused on the different consumer preferences and needs of the Brazilian population. To support our expansion strategy, consisting of acquisitions and organic growth, we defined the format of our stores to tailor them to the expectations, consumption patterns and purchasing power of the different income levels in Brazil. Our stores have operated under different banners targeting the various income segments of the Brazilian population, aiming to provide comprehensive and targeted coverage of the regions where we operate. In order to implement this strategy and to increase our market share, throughout our history, we acquired important Brazilian supermarket chains, which were later and gradually converted into our banners. We also acquired or entered into an association with a financial institution, Itaú Unibanco, to offer credit cards and financial services.
Throughout the years, our principal banners included Pão de Açúcar (premium supermarkets), Extra (hypermarkets, supermarkets, drugstores and gas stations), Mercado Extra and Minuto Pão de Açúcar (proximity and neighborhood concept stores), Assaí (cash and carry stores), and Ponto Frio and Casas Bahia (home appliances). For more information on our current banners, see “—4B. Business Overview—Operations.”
In addition, we entered into a financial partnership called FIC with Itaú Unibanco to offer credit cards and financial services. For more information on FIC, see “—4B. Business Overview—Operations—Financial Services.”
In the end of the 2019, with the acquisition of Grupo Éxito, we started to have operations in Colombia, Uruguay and Argentina, through the following banners: (i) Viva Malls, Éxito, Carulla, Surtimayorista, Surtimax and Super Inter in Colombia, (ii) Devoto, Disco and Géant in Uruguay, and (iii) Libertad, Mini Libertad and Pasco Libertad Malls in Argentina.
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More recently, our strategy has been to focus on the Brazilian food retail segment in the premium and proximity formats under the banners Pão de Açúcar, Minuto Pão de Açúcar and Mercado Extra.
We summarize below principal historical changes in our business related to acquisitions, divestitures and other significant developments.
Changes in Our Business
Discontinued Operations for the Year Ended December 31, 2022
Grupo Éxito
In February 2023, our shareholders approved the segregation of Grupo Éxito’s operations in Colombia, Argentina and Uruguay, from our business. The Éxito Segregation Transaction is expected to unlock value to our shareholders by enhancing the market value of the Company and Éxito separately.
Éxito’s common shares will be delivered: (a) in the form of Éxito BDRs, admitted to trading in the B3, to holders of our common shares who are not Law No. 4,131 CBD shareholders; and (b) in the form of Éxito ADSs, admitted to trading on the NYSE, which are expected to begin trading in the NYSE on the third quarter of 2023, to (i) holders of our ADSs and (ii) to our Law No. 4,131 CBD shareholders who chose to receive Éxito ADSs.
Following the completion of the Éxito Segregation Transaction, which is expected to occur in the third quarter of 2023, the Company will retain a minority stake of approximately 13% of Éxito’s common shares and Casino will retain a voting stake, directly and indirectly, of approximately 47% of Éxito.
As of the date of this annual report, we have fulfilled the main requirements for the Éxito Segregation Transaction. Thus, in accordance with IFRS 5, we report the net result of Grupo Éxito for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution. Furthermore, in accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction in our audited consolidated financial statements. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements.
The effect of assets and liabilities held for sale or distribution as of December 31, 2022, was R$20,809 million and R$11,260 million, respectively. The effect of the results of discontinued operations for the years ended December 31, 2022, 2021 and 2020, was a loss of R$7 million, a gain of R$532 million and a gain of R$228 million, respectively.
For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
Extra Hiper Stores
In line with our strategy of focusing on the premium supermarket and proximity store segments, we decided to discontinue our hypermarket business, operated under the Extra Hiper banner. As part of that goal, in late 2021, the boards of directors of CBD and Sendas approved the Extra Hiper Asset Sale.
The Extra Hiper Asset Sale consisted of (i) the transfer of commercial rights of 66 Extra Hiper stores to Sendas for R$3.9 billion to be paid by Sendas to CBD in installments and (ii) the sale of 17 Extra Hiper real estate properties stores to Barzel Properties, a Brazilian real estate investment fund, or Barzel, for R$1.2 billion. The 17 real estate properties were subsequently leased by Barzel to Sendas for a period of 25 years, renewable for the same term.
In August 2022, as part of the Extra Hiper Asset Sale, after the transfer of commercial rights of 61 stores to Sendas, we assigned certain receivables related to those stores to financial institutions, for approximately R$2 billion. The receivables assigned consisted of R$1.2 billion maturing in 2023 and R$700 million maturing in January 2024, adjusted by the CDI rate, plus 1.2% per year. The cost of the receivables assignment was R$2.4 million, which we recorded in the line item “financial income (expenses), net” of our income statement. In the
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end of 2022, after the transfer of commercial rights of five additional stores to Sendas, we assigned the remaining receivables to financial institutions. As of December 31, 2022, Sendas had paid all the amount due to CBD relating to the transfer of commercial rights of 66 Extra Hiper stores to Sendas.
Out of our remaining 37 Extra Hiper stores that were not part of the Extra Hiper Asset Sale, 23 stores were converted into Pão de Açúcar or Mercado Extra stores, 11 stores were closed or sold to other third parties and three stores remain under analysis for possible closure. As of the date of this annual report, we no longer operate under the Extra Hiper banner.
For the year ended December 31, 2022, the Company recorded proceeds related to the Extra Hiper Asset Sale in the amount of R$3.9 billion, in addition to asset write-offs in the amount of R$1.0 billion and expenses of R$1.3 billion. The net result of the Extra Hiper Asset Sale, in the amount of R$1.5 billion, was recorded in our result of discontinued operations. As of December 31, 2022, we had received all amounts expected to be received under the Extra Hiper Asset Sale. For more information on the effects of the Extra Hiper Discontinued Operations on our consolidated financial statements, see notes 1.1 and 33(a) to our audited consolidated financial statements.
For more information on the Extra Hiper Discontinued Operations and the Extra Hiper Asset Sale, see “Explanatory Note—Extra Hiper Discontinued Operations.”
Drugstores
In late 2021, we decided to close all of our drugstores as part of the actions adopted in the context of the Extra Hiper Discontinued Operations. By the end of the first quarter of 2022, we had closed and discontinued all of our drugstores.
Spin-off of Cash and Carry Operating Segment
On December 31, 2020, we segregated the cash and carry business from our business through a spin-off of our then wholly-owned subsidiary Sendas, which operated cash and carry stores under the Assaí banner, or the Sendas Spin-Off. After the Sendas Spin-Off, Sendas underwent a corporate reorganization.
Following the consummation of the Sendas Spin-Off, Sendas has become an independent and publicly traded company. As of the date of this annual report, Casino holds 11.7% of the equity interest in Sendas. Also, as of the date of this annual report, each of CBD and Sendas holds 50.0% of Bellamar Empreendimentos e Participações Ltda., or Bellamar, a holding company that holds an investment in 35.8% of the shares of FIC.
In connection with the Sendas Spin-Off, we entered into a Separation Agreement with Sendas, which provides a framework for our relationship with Sendas following the Sendas Spin-Off. For more information on the Separation Agreement, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Agreements with Sendas.”
Acquisition of Cheftime
In August 2022, we acquired the remaining equity stake previously held by minority shareholders in our subsidiary Cheftime, which is focused on ready-to-eat meals. Following this acquisition, Cheftime became our wholly-owned subsidiary, and its activities were transferred to our company.
Sale of Home Appliances Operating Segment
In 2009, we acquired a 98.8% of ownership interest in Globex (which later changed its corporate name to Via), a company which operated in the home appliances sector under the brand name Ponto Frio.
In 2010, through an association with members of the Klein family who represented the partners of Casa Bahia Comercial Ltda., or Casa Bahia Comercial, a Brazilian home appliances retailer which operated under the brand name Casas Bahia, we and the partners of Casa Bahia Comercial merged our respective businesses in the home appliances and e-commerce segments under Via, controlled by us.
Between December 2018 and June 2019, we sold, through a series of transactions, all of our equity interest in Via on B3 and we no longer exercise influence over Via’s management.
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After the consummation of the sale of all our equity interest in Via, certain transactions, previously existing between the Company and Via when Via was part of our group, remained in effect. While most of the transactions have been terminated, we and Via are under discussions with respect to allegedly outstanding obligations under certain agreements regarding their amicable termination or replacement.
Under our prior operating agreement with Via, which expired on October 21, 2021, Via had exclusive right to operate the e-commerce of electronic products through the website Extra.com. As of the date of this annual report, under our trademark licensing agreement with Via, Via is still allowed to use the Extra.com brand in its e-commerce activities, but has no exclusive rights to the use of that brand.
Before the sale of our equity interest in Via, we provided guarantees for obligations of Cnova Brazil and Via under certain agreements, including lease agreements, commercial agreements, insurance policies and agreements with financial institutions. We have since reached an agreement with Cnova Brazil and Via for the replacement of the most significant guarantees, which are no longer in effect as of the date of this annual report. As of the date of this annual report, we and Via are under discussions with respect to allegedly outstanding obligations under certain agreements regarding their amicable termination or replacement.
Indemnity with the Klein Family
Pursuant to the terms of our association agreement with the Klein family for the merger of our and the Klein family’s respective home appliances businesses under Via, dated December 4, 2009, Via had indemnity rights against us and Casa Bahia Comercial for certain claims existing as of November 9, 2010, the closing date of the transaction. The parties undertook to ascertain the balance of indemnity rights to be paid by one party to another, among other related expenses, six years after the closing of the transaction.
Accordingly, on July 4, 2017, we entered into an agreement with the original counterparties to the association agreement to, among other matters, ascertain the liabilities for losses and damages incurred by Via and the Klein family and consolidate the procedures for indemnification of these losses and damages. On October 24, 2018, we entered into an amendment to the agreement to improve the criteria for determination of the outstanding amount of indemnifiable losses, among other items.
As a result of these agreements, we are entitled to receive reimbursements from Via related to certain tax credits of our former subsidiary Globex, net of the amount of certain other tax, consumer, civil and labor related contingencies of Globex, for which we are liable. The reimbursement obligations of CBD related to contingencies arising from facts that occurred prior to the acquisition of Globex, in 2010, will remain outstanding for as long as the legal proceedings relating to these obligations remain pending.
The tax credits for which we are entitled to receive the reimbursements are related to the exclusion of the tax charged on the sales of the products (Imposto sobre Circulação de Bens e Mercadorias), or ICMS, from the calculation basis of the contribution to the social integration plan (Programa de Integração Social), or PIS, and the contribution for social security financing (Contribuição para o Financiamento da Seguridade Social), or COFINS, which are both taxes charged on gross revenues. As of December 31, 2022, the reimbursement rights amounted to R$573 million.
For more information on the reimbursement rights and tax credits, see notes 8, 21.6 and 21.9 to our audited consolidated financial statements.
Corporate Reorganization of E-commerce Operating Segment
Cnova Brazil was a wholly-owned subsidiary of Cnova and owned our and Via’s Brazilian non-food e-commerce businesses. Following the completion of the Cnova corporate reorganization in October 2016, Cnova Brazil became a wholly-owned subsidiary of Via, operating the websites Extra.com.br, Pontofrio.com and Casasbahia.com.br, and ceased to be a shareholder of Cnova.
Cnova has continued its e-commerce operations outside of Brazil, focusing entirely on Cdiscount. Also, we were no longer the majority shareholder of Cnova, remaining with a 34.2% equity interest in Cnova, which we started to recognize through the equity pick-up accounting method.
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The corporate reorganization of Cnova consisted of (i) a reorganization agreement entered into by and among Cnova, Cnova Brazil and Via, dated August 2016; and (ii) concurrent tender offers launched by Casino to purchase any and all Cnova common shares in the United States and in France in December 2016.
In connection with the Cnova corporate reorganization, Casino and CBD entered into commitment and support letters to govern the parties’ ongoing relationship in their capacity as shareholders of Cnova after the Cnova corporate reorganization. Casino submitted the commitment letter to CBD, pursuant to which it grants us certain governance and liquidity rights in relation to the interest held by CBD in Cnova, including, among others: (i) CBD’s right to designate at least one member to the board of directors of Cnova, taking into account the number of members proportional to CBD’s interest; (ii) CBD will have priority over Casino to sell its shares in a public offering for the distribution of shares with respect to 90% of the total shares to be offered in the secondary offering; (iii) CBD will have partial tag along rights in case Casino sells its Cnova shares and the sale does not constitute a change of control; in case of change of control, CBD will have the right to sell all of its shares; (iv) CBD will be treated pari passu in relation to Casino in any transfer of Cnova shares to any third party or in case of any reorganization or corporate transaction resulting in any exchange, redemption or another issuance of Cnova shares; and (v) in case of any reorganization or corporate transaction involving Cnova, Casino will use its reasonable measures to cause CBD to receive securities in exchange for Cnova shares that are as liquid as the Cnova shares currently held by CBD.
Digital Transformation
To advance our digital transformation and expand our investment in technology, in 2018, we acquired the delivery app James, a multiservice platform for ordering and delivering our products, connecting customers, deliverers and establishments. In late 2022, our James delivery operations were consolidated into the e-commerce operations of the Pão de Açúcar and Extra banners.
In 2019, we and Raia Drogasil formed Stix, the legal entity that operates the Stix Fidelidade loyalty program. The loyalty program was developed to better adapt to our customers’ demand for delivery and e-commerce services. In addition, the program allows its users to earn points on purchases made on associated retailers’ websites and stores, including us and Raia Drogasil, which are redeemable for products, services, discounts and other benefits. Stix Fidelidade also has Itaú Unibanco as a strategic partner responsible for enabling Itaú Unibanco’s clients to acquire points under Stix Fidelidade under certain terms and conditions.
For more information on our digital transformation, see “Item 5. Operating and Financial Review and Prospects––5A. Operating Results—Overview of the Fiscal Year Ended December 31, 2022” and “––5D. Trend Information.”
Repositioning our Private Label
In 2018, we started to focus on repositioning our private label portfolio, with a priority on improving quality and price competitiveness as an important process for building client loyalty in the markets in which we operate. As part of this initiative, we have started working more closely with suppliers, entering into long-term partnerships and ensuring higher production levels, which allow us to maintain our product launch rates and reach better margins. The portfolio underwent a renovation process and new products were launched, representing the entry in new categories.
Also, as of the date of this annual report, we are in the course of further improving our private label brands, an effort focused initially on our Qualitá and Taeq brands.
For more information on our private label brands, see “––4B. Business Overview—Private Label Products.”
Recent Developments
Social Contribution on Net Profits
On February 9, 2023, the Brazilian Supreme Court (Supremo Tribunal Federal), or STF, issued a ruling on the social contribution on net profits (Contribuição Social Sobre o Lucro Líquido), or CSLL. The CSLL is a federal tax levied on net profits at a rate of 9.0%. The decision issued by the STF determined that companies that had obtained prior final and unappealable decisions allowing the non-payment of CSLL on the basis that CSLL
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was unconstitutional were nonetheless subject to another ruling by the STF of 2007 that had determined that the CSLL was constitutional.
As a result, we: (i) revised the probability of loss in legal proceedings against us regarding non-payment of CSLL and the amounts of CSLL not paid in the last five years from remote to probable; (ii) recorded provisions in the amount of R$600 million related to these proceedings in our balance sheet as of December 31, 2022; (iii) recorded deferred tax credits from negative basis, temporary differences and taxes on profits abroad of R$312 million. Consequently, our total net CSLL expense for the year ended December 31, 2022, was R$288 million, of which R$180 million were originated from continued operations and R$108 million were originated from discontinued operations.
The full impact of the decision on our cash and cash equivalents will depend on the outcome of our ongoing proceedings involving CSLL. The STF’s decision has automatically increased by 9% the tax rate levied on net profits. For more information on the decision of the STF regarding CSLL, see “Item 8. Financial Information––8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Tax-Related Claims—Non-Payment of Social Contribution on Net Profits.”
Capital Increase and Capital Reduction
On February 14, 2023, our shareholders approved a (i) capital increase of R$2,605 million, through the use of reserves, without issuing new shares and (ii) a capital reduction in the amount of R$7,133.4 million through the delivery of common shares issued by Éxito owned by the Company, to our shareholders, as part of the Éxito Segregation Transaction.
Pursuant to Brazilian corporate law, the unsecured creditors of a company may raise an opposition to a capital reduction within a period of 60 days after the publication of the minutes of the shareholders’ meeting that approved the capital reduction. None of our unsecured creditors raised any opposition to the capital reduction relating to the Éxito Segregation Transaction within the 60-day period, which ended on April 16, 2023. However, the capital reduction will only be implemented and reflected in our capital stock upon completion of the Éxito Segregation Transaction, which is expected to occur in the third quarter of 2023.
For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
19th Issuance of Debentures
In February 2023, we issued non-convertible debentures in Brazil in the total principal amount of R$500.0 million, of which (i) R$376.6 million relate to the first series, which accrues interest at 1.0% per year plus the average CDI rate and matures on February 11, 2028, and (ii) R$123.4 million relate to the second series, which accrues interest at 1.2% per year plus the average CDI rate and matures on February 13, 2030. These debentures were granted as collateral under the 80th issuance of real estate receivable certificates of Virgo Companhia de Securitização.
Sale and Leaseback Transaction
On June 19, 2023, we entered into a real estate sale and leaseback agreement pursuant to which we sold two Mercado Extra and nine Pão de Açúcar stores to a private fund for US$330 million, as part of our plan to reduce our level of indebtedness for the years ending December 31, 2023 and 2024, and strengthen our capital structure. These stores were subsequently leased back to us pursuant to individual lease agreements that have terms ranging from 15 to 18 years, renewable for terms equal to the original lease agreement.
Capital Expenditures and Investment Plan
As part of our capital expenditures and investment plan, we have invested R$5.4 billion in our consolidated operations in the three years ended December 31, 2022, taking into account continued operations and discontinued operations. Our capital expenditures in our continuing operations increased by 53.7% % from R$0.7 billion in 2021 to R$1.1 billion in 2022.
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Our capital expenditures and investment plan in 2022 aimed to foster (i) the opening of new stores and store conversions; (ii) store renovations; (iii) improvements to information technology; and (iv) improvements to distribution facilities. We have historically financed our capital expenditures and investments mainly with cash flow generated from our operations and funded by third parties. For more information on the sale of Extra Hiper stores, see “—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores.”
Our investments in the last three years ended December 31, 2022 have included:
Opening of new stores and store conversions – We seek to rent real estate properties when there is an opportunity to open new stores under one of our banners or local supermarket chain acquisition opportunities that suit one of our formats.
In 2022, we opened 49 stores, 38 of which were Minuto Pão de Açúcar stores, six of which were Mini Extra stores and six of which were Mini Extra stores. We also converted 23 Extra Hiper stores into Pão de Açúcar or Mercado Extra stores.
In addition, as a consequence of the Extra Hiper Asset Sale, we (i) the transferred commercial rights of 66 Extra Hiper stores to Sendas and (ii) sold 17 Extra Hiper real estate properties stores to Barzel Properties.
Out of our remaining 37 Extra Hiper stores that were not part of the Extra Hiper Asset Sale, 23 stores were converted into Pão de Açúcar or Mercado Extra stores, 11 stores were closed or sold to other third parties and three stores remain under analysis for possible closure. As of the date of this annual report, we no longer operate under the Extra Hiper banner. For more information on the Extra Hiper Asset Sale, see “—Changes in our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper 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 outfit our stores with advanced information technology systems. In 2022, we invested R$31.8 million in the renovation of refrigeration equipment in our stores.
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, totaling R$620 million from 2020 through 2022 excluding the investments in information technology relating to Grupo Éxito’s discontinued operations. For more information on our information technology, see “—Item 4B. Business Overview—Information Technology” and for more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
Improvements to distribution facilities and others – We own and lease distribution centers and warehouses. 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. We have invested R$612 million in our distribution facilities from 2020 through 2022 excluding the investments in distribution facilities relating to Grupo Éxito’s discontinued operations. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
The following table provides a summary description of our principal capital expenditures for the periods indicated:
|
Year Ended December 31, | ||||
|
2022 |
2021 |
2020 |
2020-2022 | |
| (in millions of R$) | ||||
| Opening of new stores and store conversions | 217 | 73 | 1,111 | 1,401 |
| Renovation of existing stores | 479 | 312 | 562 | 1,353 |
| Information technology | 276 | 163 | 189 | 628 |
| Distribution facilities and other |
147 |
180 |
291 |
618 |
| Retail(1) | 1,119 | 728 | 2,152 | 3,999 |
| Grupo Éxito Discontinued Operations(2) |
507 |
539 |
338 |
1,384 |
| Total |
1,626 |
1,267 |
2,490 |
5,383 |
_________________
| (1) | The total of capital expenditures presented in the table for the year ended December 31, 2020 include capital expenditures that we made in Sendas during the period until the Sendas Spin-Off that occurred on December 31, 2020. The capital expenditures related to Sendas |
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totaled R$1,305.0 million in 2020. For more information on the Sendas Spin-Off, see “—Changes in Our Business—Spin-Off of Cash and Carry Operating Segment.” The total of capital expenditures presented in the table for the year ended December 31, 2020 also include capital expenditures that we made in the Extra Hiper stores. We classified the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements. For more information on the discontinuance of the Extra Hiper banner, see “—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores.”
| (2) | As disclosed in notes 1.2 and 33(a) to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as well as the assets and liabilities for Grupo Éxito, which are now classified as held for sale, as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.” |
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 are subject to a number of contingencies, many of which are beyond our control, including the continued growth and stability of the Brazilian economy, and our business and operations. 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.
For information on our (i) contractual obligations, see “Item 5. Operating and Financial Review and Prospects––5B. Liquidity and Capital Resources—Financial Instruments––Contractual Obligations,” (ii) off-balance sheet arrangements, see “Item 5. Operating and Financial Review and Prospects––5B. Liquidity and Capital Resources—Off-Balance Sheet Arrangements,” (iii) costs relating to the discontinuation of the Extra Hiper stores, including costs relating to the termination of employment agreements, see note 1.1 to our audited consolidated financial statements.
Financial and Operating Data Highlights
The following table presents certain of our summary historical consolidated financial data for each of the periods indicated.
|
For the Year Ended December 31, | ||||
|
2022(*)(2)(3) |
2022(2)(3) |
2021(4) |
2020(1)(4) | |
| (millions of US$, except per share/ADS data) | (millions of R$, except per share/ADS data) | |||
| Statement of income and comprehensive income | ||||
| Net operating revenue | 3,320 | 17,321 | 16,298 | 16,796 |
| Cost of sales |
(2,495) |
(13,019) |
(11,942) |
(11,939) |
| Gross profit |
825 |
4,302 |
4,356 |
4,857 |
| Selling expenses | (517) | (2,699) | (2,572) | (2,809) |
| General and administrative expenses | (115) | (598) | (695) | (727) |
| Depreciation and amortization | (178) | (931) | (810) | (772) |
| Other operating expenses, net |
(83) |
(434) |
(168) |
343 |
| Operating expenses, net |
(893) |
(4,662) |
(4,245) |
(3,965) |
| Profit (loss) from operations |
(69) |
(360) |
111 |
892 |
| Financial income | 149 | 778 | 320 | 470 |
| Financial expenses |
(293) |
(1,528) |
(943) |
(804) |
| Finance expenses, net | (144) | (750) | (623) | (334) |
| Share of profit of associates |
(39) |
(205) |
(58) |
71 |
| Profit (loss) before income tax and social contribution |
(252) |
(1,315) |
(570) |
629 |
| Income tax and social contribution |
87 |
454 |
725 |
(318) |
| Net income (loss) for the year from continuing operations | (165) | (861) | 155 | 311 |
| Net income (loss) for the year from discontinued operations |
164 |
857 |
805 |
2,015 |
| Net income for the year |
(1) |
(4) |
960 |
2,326 |
| Attributed to controlling shareholders from continuing operations | (165) | (863) | 158 | 322 |
| Attributed to controlling shareholders from discontinued operations |
132 |
691 |
644 |
1,857 |
| Total attributed to controlling shareholders |
(33) |
(172) |
802 |
2,179 |
| Attributed to non-controlling shareholders from continuing operations | - | 2 | (3) | (11) |
| Attributed to non-controlling shareholders from discontinuing operations | 32 | 166 | 161 | 158 |
| 25 |
|
For the Year Ended December 31, | ||||
|
2022(*)(2)(3) |
2022(2)(3) |
2021(4) |
2020(1)(4) | |
| (millions of US$, except per share/ADS data) | (millions of R$, except per share/ADS data) | |||
| Total attributed to non-controlling shareholders |
32 |
168 |
158 |
147 |
| Other comprehensive income (loss) for the year, net of income tax |
(560) |
(2,924) |
(1,408) |
2,162 |
| Total comprehensive income (loss) for the year |
(561) |
(2,928) |
(448) |
4,488 |
| Attributed to controlling shareholders | (479) | (2,498) | (316) | 3,748 |
| Attributed to non-controlling shareholders | (82) | (430) | (132) | 740 |
| Per share data(5) | ||||
| Basic earnings per common share (weighted average for the year): | ||||
| Common – Continuing operations | (0.61) | (3.20) | 0.59 | 1.20 |
| Common – Total | (0.12) | (0.64) | 2.98 | 8.13 |
| Diluted earnings per common share (weighted average for the year): | ||||
| Common – Continuing operations | (0.61) | (3.20) | 0.59 | 1.20 |
| Common – Total | (0.12) | (0.64) | 2.98 | 8.13 |
| Weighted average number of common shares outstanding (in millions) | 269 | 269 | 269 | 268 |
| Dividends declared and interest on own capital per common share | - | - | 0.30 | 1.92 |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.2177 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2022, as published by the Central Bank. |
| (1) | The statement of income for the year ended December 31, 2020 presented in the table related to Sendas was classified in a single line as discontinued operations. For more information on the Sendas Separation, see notes 1.1 and 33(c) to our audited consolidated financial statements. For more information on the Sendas Spin-Off, see notes 1.3 and 33(c) to our audited consolidated financial statements and “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment.” |
| (2) | In accordance with IFRS 5, we report the net result of Grupo Éxito as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution and discontinued operations. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. |
| (3) | In accordance with IFRS 5, we report the net result of the sale of our hypermarket business as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities of our hypermarket business are presented as held for sale and discontinued operations. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see note 1.1 and 33(b) to our audited consolidated financial statements. |
| (4) | In accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations in our audited consolidated financial statements. For more information on the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.2 and 1.1 to our audited consolidated financial statements. |
| (5) | Until February 2020, each preferred share received a dividend 10% higher than the dividend paid to each common share. As a result of our migration to the Novo Mercado listing segment of B3 on March 2, 2020, we converted all of our preferred shares into common shares and started trading our common shares on the Novo Mercado listing segment of B3. See “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information—Dividend Policy.” We calculate basic earnings per share and diluted earnings per share on a converted basis to accommodate the fact that we no longer have outstanding preferred shares. |
The following table presents certain of our summary historical balance sheet data and other financial information as of the dates indicated and for each of the periods indicated.
|
As of and for the Year Ended December 31, | ||||
|
2022(*)(2)(3) |
2022 |
2021(4) |
2020(4) | |
| (in millions of US$) | (in millions of R$) | |||
| Balance sheet data | ||||
| Cash and cash equivalents | 719 | 3,751 | 8,274 | 8,711 |
| Property and equipment, net | 1,312 | 6,844 | 16,344 | 19,888 |
| Assets held for sale or distribution | 3,995 | 20,843 | 1,187 | 109 |
| Total assets | 8,402 | 43,839 | 49,443 | 53,295 |
| Current borrowings and financing | 192 | 1,001 | 1,470 | 2,309 |
| Non-current borrowings and financing | 932 | 4,862 | 7,582 | 6,842 |
| Liabilities on non-current assets for sale or distribution | 2,202 | 11,487 | 62 | - |
| Shareholders’ equity | 2,632 | 13,733 | 16,380 | 16,807 |
| Share capital | 1,123 | 5,861 | 5,859 | 5,434 |
| Other financial information | ||||
| Net cash provided by (used in): | ||||
| 26 |
|
As of and for the Year Ended December 31, | ||||
|
2022(*)(2)(3) |
2022 |
2021(4) |
2020(4) | |
| (in millions of US$) | (in millions of R$) | |||
| Operating activities | (41) | (216) | 2,728 | 4,742 |
| Investing activities | 543 | 2,834 | (77) | (4,291) |
| Financing activities | (901) | (4,703) | (2,743) | (281) |
| Capital expenditures(1) | (312) | (1,626) | (1,267) | (2,490) |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.2177 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2022, as published by the Central Bank. |
| (1) | Capital expenditures are comprised of cash used in purchases of property, equipment and intangible assets, as reflected in the consolidated statement of cash flows. |
| (2) | In accordance with IFRS 5, we report the net result of Grupo Éxito as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution and discontinued operations. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. |
| (3) | In accordance with IFRS 5, we report the net result of the sale of our hypermarket business as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities of our hypermarket business are presented as held for sale and discontinued operations. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see note 1.1 and 33(b) to our audited consolidated financial statements. |
| (4) | In accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations in our audited consolidated financial statements. For more information on the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.2 and 1.1 to our audited consolidated financial statements. |
The following table presents certain of our summary historical operating data as of each of the dates indicated.
|
As of December 31, | |||
|
2022 |
2021 |
2020 | |
| Operating data* | |||
| Number of employees at period end(1) |
37,325 |
50,515 |
53,068 |
| Total square meters of selling area at period end |
582,006 |
942,343 |
1,128,052 |
| Number of stores at period end(2): | |||
| Pão de Açúcar | 194 | 181 | 182 |
| Mini Extra and Minuto Pão de Açúcar | 281 | 240 | 236 |
| Mercado Extra and Compre Bem(3) | 183 | 174 | 175 |
| Extra Hiper Discontinued Operations (4) | 3 | 72 | 103 |
| Grupo Éxito Discontinued Operations (5) |
- |
- |
- |
| Total number of stores at period end |
661 |
667 |
696 |
_________________
| (1) | Based on the full-time equivalent number of employees, which is the product of the number of all retail employees (full- and part-time employees, including employees of the Extra Hiper stores as of December 31, 2020 and 2021, and excluding employees of Éxito) and the ratio of the average monthly hours of all retail employees to the average monthly hours of full-time employees. |
| (2) | Excludes gas stations and drugstores. By the end of the first quarter of 2022, we had closed and discontinued all of our drugstores. For more information on the discontinuance of our drugstores, see “—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores—Drugstores.” |
| (3) | In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. Accordingly, the operational information relating to the Mercado Extra and Compre Bem banners include the operations of the Extra Supermercado stores until December 31, 2020. |
| (4) | For more information on the Extra Hiper Asset Sale and the discontinuation of the Extra Hiper banner, see “––Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores.” The three remaining Extra Hiper stores as of December 31, 2022 are under analysis to be converted to another banner or closed. |
| (5) | For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.” |
The following table presents certain of our summary historical consolidated financial and operating data as of each of the dates indicated and for each of the periods indicated.
|
As of and for the Year Ended December 31, | ||||
|
2022(*) |
2022 |
2021(5) |
2020(5) | |
| (US$, except as indicated) | (R$, except as indicated) | |||
| Net operating revenue per employee(1): | ||||
| Pão de Açúcar | 92,791 | 484,158 | 487,646 | 561,755 |
| 27 |
|
As of and for the Year Ended December 31, | ||||
|
2022(*) |
2022 |
2021(5) |
2020(5) | |
| (US$, except as indicated) | (R$, except as indicated) | |||
| Mini Extra and Minuto Pão de Açúcar(2) | 136,765 | 713,601 | 649,884 | 581,231 |
| Mercado Extra and Compre Bem(2) | 88,231 | 460,360 | 440,418 | 455,973 |
| Gas Stations | 376,633 | 1,965,156 | 1,917,092 | 2,000,021 |
| Malls | 351,070 | 1,831,778 | 1,891,252 | 1,254,295 |
| Other Businesses | 694,247 | 3,622,371 | 1,165,327 | 1,018,602 |
| Discontinued operations | ||||
| Extra Hiper(3) | - | - | 773,117 | 731,431 |
| Drugstores | - | - | 436,647 | 349,971 |
| Grupo Éxito(4) |
- |
- |
- |
- |
| Total discontinued operations |
- |
- |
1,209,764 |
1,081,402 |
| CBD average net operating revenue per employee |
109,994 |
573,913 |
610,806 |
633,819 |
| Gross operating revenue by store format(6): | (in millions of US$) | (in millions of R$) | ||
| Pão de Açúcar | 1,463 | 7,636 | 7,080 | 7,560 |
| Mini Extra and Minuto Pão de Açúcar(2) | 475 | 2,476 | 2,082 | 1,678 |
| Mercado Extra and Compre Bem(2) | 1,039 | 5,423 | 5,017 | 4,921 |
| Gas Stations | 271 | 1,411 | 1,761 | 1,754 |
| Malls | 28 | 148 | 246 | 197 |
| Other Businesses | 69 | 359 | 360 | 929 |
| Discontinued operations | ||||
| Extra Hiper(3) | 166 | 864 | 10,199 | 11,935 |
| Drugstores | - | 2 | 189 | 244 |
| Grupo Éxito(4) |
4,825 |
25,176 |
24,357 |
22,034 |
| Total discontinued operations |
4,991 |
26,042 |
34,745 |
34,213 |
| Total gross operating revenue (million) |
3,511 |
18,319 |
48,924 |
48,372 |
| Average monthly net operating revenue per square meter(8): | ||||
| Pão de Açúcar | 486 | 2,534 | 2,528 | 2,677 |
| Mini Extra and Minuto Pão de Açúcar(2) | 642 | 3,352 | 3,010 | 2,407 |
| Mercado Extra and Compre Bem(2) | 407 | 2,125 | 2,123 | 2,042 |
| Gas Stations | 387 | 2,017 | 2,513 | 2,501 |
| Discontinued operations | ||||
| Extra Hiper (3) | 170 | 888 | 1,371 | 1,520 |
| Drugstores | - | - | 2,294 | 2,413 |
| Grupo Éxito(4) |
392 |
2,045 |
1,978 |
1,767 |
| Total discontinued operations |
562 |
2,933 |
5,643 |
5,700 |
| CBD average monthly net operating revenue per square meter |
440 |
2,297 |
1,913 |
2,003 |
| Average ticket amount: | ||||
| Pão de Açúcar | 16 | 85 | 89 | 91 |
| Mini Extra and Minuto Pão de Açúcar(2) | 10 | 53 | 49 | 38 |
| Mercado Extra and Compre Bem(2) | 10 | 55 | 53 | 49 |
| Gas Stations | 21 | 110 | 99 | 77 |
| Discontinued operations | ||||
| Extra Hiper(3) | 15 | 77 | 112 | 117 |
| Drugstores | 8 | 41 | 29 | 30 |
| Grupo Éxito (4) |
16 |
83 |
94 |
90 |
| Total discontinued operations |
39 |
201 |
235 |
237 |
| CBD average ticket amount |
14 |
70 |
81 |
81 |
| Average number of tickets per month: | ||||
| Pão de Açúcar | 7,492,058 | 7,492,058 | 6,662,197 | 6,907,432 |
| Mini Extra and Minuto Pão de Açúcar(2) | 3,894,180 | 3,894,180 | 3,510,029 | 3,634,276 |
| Mercado Extra and Compre Bem(2) | 8,271,102 | 8,271,102 | 7,881,444 | 8,328,330 |
| Gas Stations | 1,066,030 | 1,066,030 | 1,482,988 | 1,908,376 |
| Discontinued operations | ||||
| Extra Hiper(3) | 936,631 | 936,631 | 7,587,111 | 8,502,810 |
| Drugstores | 4,185 | 4,185 | 535,328 | 675,823 |
| Grupo Éxito(4) |
25,138,330 |
25,138,330 |
21,655,597 |
20,421,100 |
| Total discontinued operations |
26,079,146 |
26,079,146 |
29,778,036 |
29,599,733 |
| CBD average number of tickets per month |
21,664,186 |
21,664,186 |
27,659,097 |
29,957,048 |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.2177 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2022, as published by the Central Bank. |
| 28 |
| (1) | Based on the full-time equivalent number of employees, which is the product of the number of all retail employees (full- and part-time employees) and the ratio of the average monthly hours of all retail employees to the average monthly hours of full-time employees. |
| (2) | In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. Accordingly, the operational information relating to the Mercado Extra and Compre Bem banners include the operations of the Extra Supermercado stores until June 30, 2021. |
| (3) | In accordance with IFRS 5, we report the net result of the sale of our hypermarket business as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities of our hypermarket business are presented as held for sale and discontinued operations. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (4) | In accordance with IFRS 5, we report the net result of Grupo Éxito as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution and discontinued operations. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. |
| (5) | In accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations in our audited consolidated financial statements. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements and for more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (6) | Net operating revenue of each banner divided by total number of stores of the banner. |
| (7) | Includes Cheftime, James and Stix Fidelidade. |
| (8) | Calculated using the average of square meters of selling area on the last day of each month in the period. |
SEC Website With Disclosed Information
The SEC maintains a website (http://www.sec.gov) that contains all of our filed reports and information statements. We also maintain an investors’ relations website (http://www.gpari.com.br/en) that contains the latest updates and material developments of our business. This domain name is listed for informative purposes only and the information contained in this website is not incorporated by reference in this annual report.
4B. Business Overview
The Brazilian Retail Industry
According to the Brazilian Supermarket Association (Associação Brasileira de Supermercados), or ABRAS, the Brazilian retail food industry represented approximately 7.03% of Brazil’s GDP in 2022, and the food retail industry in Brazil had gross revenues of approximately R$611 billion in 2021, representing a 10.3% nominal increase compared to approximately R$554 billion in 2020.
The Brazilian retail food industry is highly fragmented. According to ABRAS, the ten largest supermarket chains that disclosed their revenues to ABRAS represented approximately 37.2% of the retail food industry in 2021, as compared to 37.5% in 2020 and 35.0% in 2019.
According to data published by IBGE, the volume of sales in the food retail sector slightly increased by 1% in 2022 compared to 2021.
According to the IBGE, the total population of Brazil was approximately 215 million as of December 31, 2022, representing a 1.2% growth compared to December 31, 2021. Given that approximately 85% of the population lives in urban areas (where most of our operations are located) and the urban population has been increasing at a greater rate than the population as a whole, our business is particularly well positioned to benefit from Brazil’s urban growth and economies of scale related to urban growth. According to an IBGE survey, in 2022, the city of São Paulo had an estimated population of 12 million and the city of Rio de Janeiro had an estimated population of 7 million. These are the two largest cities in Brazil. The state of São Paulo has an estimated total population of 46 million, representing 21% of the Brazilian population and is our largest consumer market in Brazil, with 592 stores as of December 31, 2022. The state of Rio de Janeiro is our second largest consumer market, with 66 stores as of December 31, 2022.
Brazil’s GDP increased by 2.9% in 2022 compared to 2021, while household consumption expenditure increased by 4.3% in relation to 2021, mainly due to purchases of goods and services, boosted by the loosening of restrictions related to the COVID-19 pandemic.
For more information on the Brazilian economic environment, see “Item 5. Operating and Financial Review and Prospects—5A. Operating Results—Macroeconomic Environment and Factors Affecting Our Results of Operations.”
| 29 |
Operations
We are among the largest traditional retailers in sales in the food segment in Brazil in terms of market share, according to Nielsen. We operate in the Brazilian retail industry, which consists of sales of food and, to a lesser extent, non-food products to individual consumers at (i) supermarkets through the banners Pão de Açúcar, Mercado Extra and Compre Bem; (ii) proximity and specialized stores through the banners Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado; and (iii) gas stations through the Pão de Açúcar, Mercado Extra and Compre Bem banners. We also record revenues related to rentals of commercial spaces in our stores and e-commerce sales.
Within the Brazilian retail food industry, we had a total market share based on same-store-sales of approximately 5.9% in 2022, according to information published by Nielsen, excluding the cash and carry segment. For the year ended December 31, 2022, our net operating revenue totaled R$17.3 billion. As of December 31, 2022, we operated 661 stores and 74 gas stations in 14 Brazilian states and in the Federal District, in addition to a logistics infrastructure supported by 10 distribution centers and warehouses located in the Southeastern, Midwestern and Northeastern regions of Brazil.
We operate in the retail of food products and, to a lesser extent, non-food products. Our food products include non-perishables, beverages, fruits, vegetables, meat, bread, cold cuts and dairy products. We also offer non-food products, such as cleaning supplies, disposable products, personal care products and pet supplies. In addition, we offer some of the products listed above under our private label brands and we sell our products through our websites.
We also provide services at our gas stations.
We classified the results of operations of Grupo Éxito, present in other Latin American countries and the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements. For more information on the discontinuance of Grupo Éxito, see “––4A. History and Development of the Company—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Grupo Éxito.”.
For more information on our operating segments, see note 30 to our audited consolidated financial statements.
Segment Revenue and Income Distribution
We measure the results of our operating segments in accordance with IFRS using, among other measures, each segment’s operating results.
The table below shows the breakdown of our consolidated gross sales and net operating revenue by banner and other operations for the year ended December 31, 2022
|
Year Ended December 31, 2022 | ||||
|
Gross Sales(1) |
Percentage of Total Gross Sales |
Net Operating Revenue |
Percentage of Total Net Operating Revenue | |
| (in millions of R$) | (%) | (in millions of R$) | (%) | |
| Banners and other operations | ||||
| Mercado Extra/Compre Bem(2) | 5,829 | 12.2 | 5,423 | 12.5 |
| Pão de Açúcar | 8,405 | 17.6 | 7,636 | 17.6 |
| Proximity stores(3) | 2,609 | 5.4 | 2,476 | 5.7 |
| Others(4) |
1,687 |
3.5 |
1,785 |
4.1 |
| Retail Continued |
18,531 |
38.7 |
17,320 |
39.8 |
| Other Discontinued Operations(5) |
1,020 |
2.1 |
999 |
2.3 |
| Grupo Éxito Discontinued Operations(6) |
28,337 |
59.2 |
25,176 |
57.9 |
| Total |
47,888 |
100.0 |
43,494 |
100.0 |
_________________
| (1) | We calculate gross sales by adding taxes on sales to net operating revenue. For a reconciliation of gross sales to net operating revenue, see note 25 to our audited consolidated financial statements. |
| (2) | Includes the banners Mercado Extra and Compre Bem. In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem |
| 30 |
stores. Accordingly, the operational information relating to the Mercado Extra and Compre Bem banners include the operations of the Extra Supermercado stores until June 30, 2021.
| (3) | Includes the banners Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado. |
| (4) | Includes gas stations, Cheftime, James, Stix Fidelidade and real estate business units. |
| (5) | It includes Extra Hiper, drugstores and the part of real estate business related to Extra Hiper. |
| (6) | As disclosed in note 1.2 and 33(a) to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as well as the assets and liabilities for Grupo Éxito, which are now classified as held for sale, as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.” |
The table below shows the breakdown of our consolidated operating income (loss) by reportable segment, taking into account the operating income from our retail segment, the Grupo Éxito Discontinued Operations and other operations. We present results of the reportable segments in accordance with IFRS, the measure used by management in evaluating the performance of and strategy for the segments listed below.
|
Year Ended December 31, 2022 | ||
|
Operating Income (Loss) |
Percentage of | |
| Reportable segment | (in millions of R$) | (%) |
| Retail(1) | (306) | (177)% |
| Grupo Éxito Discontinued Operations(2) | (174) | 101% |
| Other(3) |
(303) |
(176)% |
| Total |
(172) |
100% |
_________________
| (1) | Includes Pão de Açúcar, Extra Hiper, Mercado Extra, Compre Bem, Mini Extra, Minuto Pão de Açúcar, Aliados Minimercado and Pão de Açúcar Adega banners and GPA Malls our real estate business unit that operates in Brazil. |
| (2) | As disclosed in 1.2 and 2 to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as well as the assets and liabilities for Grupo Éxito, which are now classified as held for sale, as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.” |
| (3) | Includes Cheftime, James, Cdiscount and Stix Fidelidade. |
For more information on our net operating revenue and net income (loss) by reportable segment, see “Item 5. Operating and Financial Review and Prospects—5A. Operating Results—Results of Operations for 2022, 2021 and 2020.”
Stores
The following table sets forth the total number of stores in Brazil at the end of the periods indicated per store format, excluding gas stations and drugstores:
|
Pão de Açúcar |
Extra Hiper(1) |
Extra Super-mercado |
Mercado Extra |
Compre Bem |
Mini Extra |
Minuto Pão de Açúcar |
Total | |
| As of December 31, 2020(2) |
182 |
103 |
6 |
141 |
28 |
150 |
86 |
696 |
| During 2021 | ||||||||
| Opened | 1 | - | - | - | - | 1 | 12 | 14 |
| Closed | (2) | (31) | - | (1) | - | (8) | (1) | (43) |
| Converted (from)/to | - | - | (6) | 6 | - | (2) | 2 | 6 |
| As of December 31, 2021(2) |
181 |
72 |
- |
146 |
28 |
141 |
99 |
667 |
| During 2022 | ||||||||
| Opened | 5 | - | - | 0 | - | 6 | 38 | 49 |
| Closed | (5) | (46) | - | (1) | - | (1) | (2) | (55) |
| Converted (from)/to |
13 |
(23) |
- |
9 |
1 |
- |
- |
- |
| As of December 31, 2022 |
194 |
3 |
- |
154 |
29 |
146 |
135 |
661 |
_________________
| (1) | We classified the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements. For more information on the discontinuance of the Extra Hiper banner, see “Item 5. Operating and Financial Review and Prospects––5A. Discontinued Operations—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores.” As of the date of this annual report, the three remaining Extra Hiper stores under analysis for conversion into other banners or closure. |
| (2) | In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. |
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The following table sets forth the number of stores, the total selling area, the average selling area per store, total number of employees and the net operating revenue as a percentage of our consolidated net operating revenue for each of our store formats as of and for the year ended December 31, 2022:
|
Store Format |
Number of Stores |
Total Selling Area |
Average Selling Area Per Store |
Total Number of Employees(3) |
Percentage of Our Net Operating Revenue | |
| (in square meters)(1) | (in square meters)(2) | |||||
| Pão de Açúcar | Supermarket | 194 | 280,901 | 1,448 | 15,771 | 41.7% |
| Extra Hiper, Mercado Extra and Compre Bem(4)(5) | Supermarket | 186 | 231,354 | 1,244 | 11,780 | 34.3% |
| Mini Extra and Minuto Pão de Açúcar | Proximity Store | 281 | 69,751 | 248 | 3,470 | 13.5% |
| Gas Stations | Various | 74 | 58,301 | 788 | 718 | 7.7% |
| Malls | Various | - | - | - | 81 | 0.8% |
| Other Businesses(6) | Various | - | - | - | 99 | 2.0% |
| Grupo Éxito Discontinued Operations(7) | Various |
- |
- |
- |
- |
- |
| Total |
735 |
640,308 |
871 |
31,919 |
100.0% |
_________________
| (1) | Based on the sale area of each store of the banner. |
| (2) | Total sale area of banner divided by total number of stores of the banner. |
| (3) | Based on the full-time equivalent number of employees, which is the product of the number of retail segment employees (full- and part-time) and the ratio of the average monthly hours of retail segment employees to the average monthly hours of full-time employees. |
| (4) | In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. Accordingly, the operational information relating to the Mercado Extra and Compre Bem banners include the operations of the Extra Supermercado stores until June 30, 2021. |
| (5) | Includes three remaining Extra Hiper stores under analysis for conversion into other banners or closure. |
| (6) | Includes Cheftime, James and Stix Fidelidade. |
| (7) | As disclosed in notes 1.2 and 33(b) to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as well as the assets and liabilities for Grupo Éxito, which are now classified as held for sale, as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.” |
For a description of net operating revenue for each of our store formats, see “Item 5. Operating and Financial Review and Prospects—5A. Operating Results—Results of Operations for 2022, 2021 and 2020.”
Geographic Distribution of Stores
We operate mainly in the Southeast region of Brazil, in the states of São Paulo, Rio de Janeiro and Minas Gerais. The Southeast region accounted for 87% of our net operating revenue for the year ended December 31, 2022, while the other Brazilian regions (North, Northeast, Midwest and South), in the aggregate, accounted for 13% of our consolidated net operating revenue for the year ended December 31, 2022. In addition, none of the other Brazilian regions represents individually more than 9% of the consolidated net operating revenue.
The following table sets forth the number of our stores by region as of December 31, 2022:
|
Region |
Supermarket |
Proximity |
Total |
| North | 0 | 0 | 0 |
| Midwest | 17 | 0 | 17 |
| Southeast | 326 | 273 | 599 |
| Northeast | 37 | 8 | 45 |
| South |
0 |
0 |
0 |
| Total |
380 |
281 |
661 |
Operations
We have a multi-channel, multi-format and multi-region portfolio ensuring a strong position in offering products and services to our customers. We have been a long-standing player in the Brazilian retail market, and over the past few years, have adapted our positioning to meet changing consumer needs and preferences.
We operate under different formats and banners allowing us to reach customers from all socio-economic backgrounds in Brazil.
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We also operate in Colombia, Argentina and Uruguay through Grupo Éxito. As a result of the Éxito Segregation Transaction, the statement of income related to Grupo Éxito was classified as discontinued operations. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
Store Formats and Banners
Supermarkets
Pão de Açúcar
Our Pão de Açúcar banner is our premium supermarket chain and is considered a reference for innovation in the retail industry, providing high quality services, a wide assortment of products to our customers and promoting concepts of healthy living and sustainability.
Pão de Açúcar stores are supermarkets which are predominantly located in large urban areas such as the São Paulo metropolitan area, where over one-third of the Pão de Açúcar stores are located. We believe that the locations of the Pão de Açúcar stores are a competitive advantage for us as available sites for supermarkets in these urban areas are scarce. The Pão de Açúcar stores target the Brazilian class A and class B household consumers. The Pão de Açúcar stores aim to provide to customers a pleasant shopping environment, a broad mix of high-quality products, innovative service offerings and a high-quality service.
As of December 31, 2022, we had 194 Pão de Açúcar stores in 12 Brazilian states and the Federal District, with an average sales area per store of 1,448 square meters. Food products represented 99% of net operating revenue of Pão de Açúcar stores in 2022 and non-food products represented 1%. In 2022, we made layout adjustments at 50 stores and fully renovated six stores following a next-generation concept store, which present a multi-channel, multi-sensory and multi-solution space, focusing on the digital shopping experience; with more personalized, special and healthy products; and with interaction areas. Our stores renovated in recent years continue to have higher growth in sales compared to non-renovated stores, representing 68.5% of Pão de Açúcar banner’s net operating revenue.
The Pão de Açúcar banner recorded net operating revenue of R$ 7.6 billion in 2022 mainly due to ongoing initiatives, such as (i) the strong performance of our stores renovated to a next-generation concept store, (ii) operational improvements, and (iii) the evolution of omnichannel initiatives and expansion of our express delivery model.
Mercado Extra and Compre Bem Stores
As of December 31, 2022, we operated 154 Mercado Extra stores and 29 Compre Bem stores. In 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. As of December 31, 2022, we did not operate any Extra Supermercado stores.
These banners have a neighborhood supermarket format focused on middle-class customers, and offer a complete mix of food products, general merchandise, a wide range of household items and a complete portfolio of private label products which allows customers to purchase products at a more accessible price and increase the quality perception in the stores. Mercado Extra and Compre Bem stores are predominantly located in São Paulo.
These banners had an average sales area per store of 1,244 square meters, as of December 31, 2022. The sale of food products and non-food products represented 97% and 3%, respectively, of net operating revenue of Mercado Extra and Compre Bem stores in 2022.
Net operating revenue of the Mercado Extra and Compre Bem banners reached R$5.4 billion in 2022, representing a 8.1% increase compared to 2021, when the net operation revenue of these banners totaled R$5.0 billion.
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Proximity Stores
Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado
Our proximity stores operate under the Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado brands. These stores serve customers seeking for a convenience in their daily routines.
As of December 31, 2022, the Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado stores had an average sales area per store of 248 square meters. The sale of food products represented 100% of net operating revenue in proximity stores in 2022. Resuming the format’s expansion through the Minuto Pão de Açúcar banner is one of our priorities for the next three years.
Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado stores are predominantly located in the city of São Paulo. The Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado stores target all Brazilian classes.
Net operating revenue of the proximity stores in 2022 totaled R$2.5 billion, an increase of 18.9% compared to 2021, mainly due to the (i) effective value proposition in the neighborhood store formats Minuto Pão de Açúcar and Mini Extra and (ii) the expansion of Aliados Minimercado project. The proximity format reached 281 stores as of December 31, 2022, of which 146 were Mini Extra and 135 were Minuto Pão de Açúcar.
In 2016, we launched the “Aliados Compre Bem” project, which was renamed to “Aliados Minimercado” in 2018, a business model for neighborhood stores that consists of a partnership between us and independent retailers, in which we provide our operational expertise to meet and increase the sales potential of this market segment by supplying products to participating independent retailers.
Hypermarkets
Extra Hiper Stores
Until the third quarter of 2022, we operated hypermarkets under the Extra Hiper banner. In line with our strategy of optimizing store platform and allocating resources to accelerate the growth of our most profitable banners, we decided in late 2021 to discontinue the Extra Hiper banner. As of the date of this annual report, we no longer operate under the Extra Hiper banner and focus on the supermarket and proximity segments.
We classified the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ended December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5. Operating and Financial Review and Prospects––5A. Discontinued Operations—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores.”
Drugstores
In late 2021, we decided to close all of our drugstores as part of the actions adopted in the context of the Extra Hiper Discontinued Operations. By the end of the first quarter of 2022, we had closed and discontinued all of our drugstores.
Gas Stations
As of December 31, 2022, we operated 73 gas stations, the vast majority of which are located within the parking area of certain of our stores, mainly of Extra Hiper stores. We also have gas stations that operate under our Pão de Açúcar, Mercado Extra and Compre Bem banners.
Our gas stations located in the parking areas of Extra Hiper stores were assigned to Sendas under the Extra Hiper Asset Sale. For more information on the Real Estate Properties Assignment Transaction, see “––Item 4A. History and Development of the Company—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores” and “Item 7. Major Shareholders and Related Party Transactions––7B. Related Party Transactions—Agreements with Sendas—Extra Hiper Asset Sale.”
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We have a partnership with Ipiranga, one of the major gas station chains in Brazil. These partnerships allow us to offer co-branded gas stations, such as Extra-Ipiranga and Pão de Açúcar-Ipiranga, which we believe attracts more customers to the gas stations and gives us a competitive advantage.
The location of our gas stations allows our customers to shop in our stores and refuel their cars while they are on our premises. Our strategy for our gas stations is based on offering competitive prices and reliable and high-quality fuel.
E-commerce Food Delivery and In-Store Pick-Up
We are one of the leading players in the Brazilian food e-commerce segment through our food delivery platforms, including Pão de Açúcar Delivery, or PA Delivery, and Clube Extra Delivery, through which our customers can order their products online and receive them at home (within 24 hours for “conventional” delivery and four hours for “express” delivery). This service also allows us to expand and deepen our client base, reaching new clients through our app and website, while also furthering our omnichannel approach for existing clients. Through this service, we also offer our “Click and Collect” service, a purchasing option through which our customers are able to order online and choose the best time to pick up their food order at selected Pão de Açúcar and Extra stores.
As of December 31, 2022, we offered the “express” and/or “click and collect” concepts at 280 stores under the Pão de Açúcar, Minuto Pão de Açúcar, Mercado Extra and Compre Bem banners, in the Southeast, South, Midwest and Northeast regions of Brazil.
In December 2018, we launched Pão de Açúcar Adega, an online platform for the sale of special beers and wines with nationwide delivery and a brick-and-mortar store in the city of Sao Paulo, providing our customers with a truly omnichannel experience. Pão de Açúcar Adega offers our subscription service, Pão de Açúcar Viva Vinhos, through which customers can have our wines delivered directly to their homes.
In 2018, as part of our digital transformation strategy, we acquired the delivery app James, which is a multiservice platform for ordering and delivering our products, connecting customers, deliverers and establishments. In late 2022, the James operations were merged into the e-commerce operations of the Pão de Açúcar, Minuto Pão de Açúcar, Mini Extra and Aliados Minimercado banners.
Loyalty Programs
My Discount
The My Discount program, launched in July 2017 in Brazil, consists of a mobile app that provides personalized discounts to customers who are members of the loyalty programs of the Pão de Açúcar and Extra banners. For the year ended December 31, 2022, 68% of our net operating revenue were related to our loyalty programs. This number corresponds to approximately 48% of the net operating revenue of the Extra banner (Clube Extra) and 83% of the net operating revenue of the Pão de Açúcar banner (Pão de Açúcar Mais) in 2022.
Our two phone apps, Pão de Açúcar Mais and Clube Extra, are important tools to increase our customers’ digitalization and create ultra personalization, where we can give personalized discounts for each customer, and long-term relationships.
In March 2018, we added the My Rewards program to our mobile apps, providing personalized challenges to customers who are members of the loyalty programs of the Pão de Açúcar and Extra banners.
Stix Fidelidade
In 2019, we and Raia Drogasil founded Stix, a company that operates the largest coalition of loyalty program in Brazil. The Stix Fidelidade program allows its users to earn points through purchases made at participating retailers’ websites and stores, including our Pão de Açúcar and Extra banners, DrogaRaia and Drogasil. The points earned are redeemable for products, services, discounts and other benefits. The program evolved from our relationship platform, aiming to increase customers’ spending at our stores and to attract to our business new customers from other participant retailers. Stix Fidelidade has also partnered with Itaú Unibanco, allowing its clients to transfer points to the Stix Fidelidade program.
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The Stix Fidelidade loyalty program reached over four million customers as of December 31, 2022. The coalition model has proven successful, as 91% of customers have carried out transactions in the program in the last 12 months and 48% have earned points shopping at two or more participant retailers. In 2022, Sodimac and Polishop joined the Stix Fidelidade program. Sodimac a retailer in the home center segment in Latin America with 55 stores in the state of São Paulo, and Polishop is a retailer in the innovative products and electronics segment with more than 150 stores throughout Brazil and a television network broadcasted to more than 180 million Brazilians. The Stix Fidelidade loyalty program is present in more than 4,000 point-of-sales in Brazil.
Financial Services
We extend credit to customers through FIC, our partnership with Itaú Unibanco, one of the largest financial institutions in Brazil. FIC exclusively offers credit cards, financial services and insurance coverage at our stores.
We and Sendas each hold 50.0% of Bellamar, a holding company that holds an investment in 35.8% of the shares of FIC. Itaú Unibanco and Via hold 50.0% and 14.2%, respectively, of the shares of FIC. Itaú Unibanco determines the financial and operational policies of FIC and appoints the majority of its officers.
FIC operates financial services kiosks in our stores in Brazil 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, 2022, had a portfolio of 3.7 million credit card accounts from customers, including the portfolio of Cartão Extra, Cartão Pão de Açúcar, Cartão Passaí and Cartão Ponto Frio.
In 2022 and 2021, FIC’s net profit was R$264.9 million and R$245.2 million, respectively. We maintain our strategy to increase the share of FIC’s credit cards and financial services at our stores in Brazil 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 at providing them with benefits and convenience.
The table below sets forth the breakdown of FIC’s customers in 2022, 2021 and 2020:
|
Total number of clients |
2022 |
2021 |
2020 |
| (in thousands) | |||
| Retail | 2,096 | 1,952 | 1,873 |
| Sendas (1) | 1,146 | 1,010 | 732 |
| Via (2) |
458 |
538 |
631 |
| Credit cards |
3,700 |
3,500 |
3,236 |
_________________
| (1) | After consummation of the Sendas Spin-Off on December 31, 2020, Sendas remained as one of the members of FIC with an equity interest of 17.88%. |
| (2) | The sale of all of our equity interest in Via, consummated on June 14, 2019, did not have any impact on FIC’s clients relating to the Ponto Frio banner. Via remains as one of the members of FIC with an equity interest of 14.24%. |
Real Estate Business Units
GPA Malls is our real estate business unit responsible for the transformation and management of commercial spaces in Brazil.
As of December 31, 2022, GPA Malls was present in several Brazilian states and managed approximately 144 commercial galleries in Brazil. As of December 31, 2022, GPA Malls had more than 87,378 square meters of gross leasable area. The term “gross leasable area” refers to all of the area in our commercial spaces that are available for lease. We calculate our gross leasable area by subtracting the areas in our commercial spaces owned by third parties and not available for lease by us from our gross commercial area, which corresponds to all the commercial area in our commercial spaces.
Private Label Products
In 2018, we started to focus on repositioning our private label portfolio, with a priority on improving quality and price competitiveness as an important process for building client loyalty in the markets in which we operate. As part of this initiative, we have started working more closely with suppliers, entering into long-term partnerships and ensuring higher production levels, which allow us to maintain our product launch rates and reach
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better margins. The portfolio underwent a renovation process and new products were launched, representing the entry in new categories.
Our main private label brands are Qualitá, which offers high-quality food products at affordable prices, and Taeq, which focuses on the healthy food segment. Our portfolio of private label brands also includes Casino, Club des Sommeliers, Pra Valer, Finlandek, among other brands. As of the date of this annual report, we are in the course of further improving our private label brands, an effort which is initially focused on the Qualitá brand.
We launched the Taeq products in 2006 and recently modernized the brand and packaging to better appeal to our consumers. Its portfolio comprises healthy food products, including cereals, cereal bars, yogurts, teas, pasta, meats, juices, organic and natural products, among others. Taeq products are offered at our Pão de Açúcar and Extra stores (supermarkets and proximity stores) and at our websites. We also offer Taeq products in our stores in Colombia. Following the segregation of Grupo Éxito, the brand will continue to be sold in Grupo Éxito’s stores. On March 1, 2023, we entered into an agreement with Éxito pursuant to which we assigned the trademark registrations of Taeq in Colombia, Uruguay, Venezuela and Peru, including all rights to use and assign the trademark registrations in these countries, to Éxito, for US$1.1 million. For more information on the assignment of Taeq’s trademark registrations to Éxito, see “Item 7B—Related Party Transactions—Agreements with Éxito—Trademark Assignment Agreement.
We launched the Qualitá brand in 2008. Its portfolio comprises a variety of food products. In order to achieve the goal of keeping a high-quality in our products while selling them at affordable prices, Qualitá products undergo a strict standard of supply selection, logistics control and consumer testing before being offered to our clients. Qualitá products are offered at our Pão de Açúcar and Extra stores (supermarkets and proximity stores) and at our websites.
In the second half of 2023, we intend to relaunch our Qualitá brand, with new and modern packaging to better appeal to our customers. We conducted a customer survey that indicated that Qualitá is a strong brand and that our customers perceive it as a brand that offers good value for money, with potential for creating customer loyalty. As of the date of this annual report, Qualitá brand is among the main brands in Brazil in its category and is our most significant private label brand in terms of revenue.
Casino is a French brand that offers imported products. Club des Sommeliers is a wine brand that offers more than 120 wine labels from eleven nationalities. The Pra Valer brand is an entry-level brand offering affordable products at our Mercado Extra stores.
Seasonality
In Brazil, 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 help to boost fourth quarter sales in mainly non-food categories. In recent years, our average sales revenues during the fourth quarter have typically been approximately 14% above average sales revenues during the other quarters of the year.
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, as well as in FIFA World Cup years, when some of our event-focused products have an increase in sales.
Seasonality relating to the availability of some of our products (such as fruits and vegetables) generally does not affect our results due to the large and diverse selection of products we offer to our customers.
Products
We operate in the retail segment of food and, to a lesser extent, non-food products. Our food products include non-perishables, beverages, fruits, vegetables, meat, bread, cold cuts and dairy products. We also offer non-food products, such as cleaning supplies, disposable products, personal care products and pet supplies. In addition, we offer some of the products listed above under our private label brands and we sell our products through our websites.
We also include in the retail segment the non-food products sold at our gas stations.
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Until the end of the first quarter of 2022, we operated drugstores that sold other non-food products, such as medications and cosmetics. By the end of the first quarter of 2022, we had closed and discontinued all of our drugstores. For more information on the discontinuation of our drugstores, see “4A. History and Development of the Company—Changes in Our Business—Discontinued Operations for the Year Ended December 31, 2022—Extra Hiper Stores—Drugstores.”
Our products are mostly ready-for-sale products that we purchase and resell to our end-user customers. Only a portion of our products are produced at our stores, by our technical team for the development of perishables. In certain circumstances, we have entered into partnerships with suppliers who deliver semi-finished products that are finished at our stores.
The products manufactured or handled at our stores include: (i) fruits and vegetables, which are cut or packaged at our stores; (ii) meat (beef, pork, chicken and fish) as well as cold cuts and cheeses, which are cut, weighed and packaged at our stores; (iii) ready-to-eat meals sold at our deli counters; and (iv) bread, cakes and sweets made at the bakeries located within our stores.
We do not manufacture the products sold under our private label. These products are manufactured by suppliers who are carefully selected by us, after we have thoroughly evaluated the quality of their services and their capacity to meet our demand. The development of products carrying our private label is guided by a detailed process, involving various areas of our Company, aimed at standardizing our products and ensuring the products’ manufacturing and launch within the commercial and strategic targets of our brands and compliance with our quality standards.
Suppliers
The purchasing of food products for all of the banners is centralized through our logistics platform and subsequently delivered to our stores. We mostly purchase our food products on a spot or short-term basis from a large number of local and international unrelated suppliers. Consequently, we do not depend on one or a few suppliers.
The purchasing of 95% of the goods sold under our private label is made through our logistics platform and products are purchased from a large number of local and international suppliers.
The prices of the food products we purchase from our suppliers vary according to inflation.
Distribution and Logistics
In order to efficiently distribute perishable food products, grocery items and general merchandise, we operate ten distribution centers and warehouses strategically located across the country, with a total storage capacity of approximately 383,252 square meters. The locations of our distribution centers enable us to make frequent shipments to stores, which reduces the need of in-store inventory space and limits store inventories. Our distribution centers are significantly supported by pd@net, a business-to-business technology platform, which links our computer automated ordering system to our distribution centers and suppliers to automatically replenish our inventory.
Proximity Stores and Supermarkets
Brazil
As of December 31, 2022, the logistics process to supply our proximity stores, supermarkets and hypermarkets, included ten distribution centers located in the states of São Paulo, Rio de Janeiro, Ceará, Pernambuco and the Federal District, corresponding to a 383,252 square meter area including both our own and outsourced distribution centers. Our distribution process is performed by an outsourced fleet. As of December 31, 2022, our centralization rate (the percentage of revenue from the products supplied at our stores that comes directly from our distribution centers) was approximately 84%.
Orders made for our non-centralized products are made directly by the stores and delivered by the suppliers following the supply model known as “Direct Delivery.” As of December 31, 2022, approximately 16% of our stores sales corresponded to “Direct Delivery” products, especially ornamental plants, cigarettes, ice cream, yogurt and magazines.
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E-commerce Food Delivery
Since 2016, we have operated a dedicated distribution center in the city of São Paulo focused on our online operations. This distribution center is responsible for regular online delivery requests. Additionally, certain of our stores offer express delivery services, delivered within the range of 36 to 96 minutes.
Gas Stations
Our gas stations are supplied by one exclusive supplier in Brazil. Supply orders are made individually by each station, and fuel is requested through purchase orders or pre-agreed daily supply orders, pursuant to the service agreements entered into by each gas station. Fuel transportation is carried out exclusively by our supplier while unloading operations are closely followed by our employees for safety and quality control reasons.
The supply process for compressed natural gas (gás natural veicular), or GNV, involves direct delivery by regional suppliers to the gas stations using pipelines connected to the entrance boxes located at the gas stations and holding fuel meters installed and controlled by the dealers themselves. This equipment regularly measures the GNV volumes supplied. GNV is then sold to customers through dispensers attached to these entrance boxes, using specific pipelines.
Marketing
Our marketing policy aims at attracting and retaining our customers. To this end, we carry out integrated marketing campaigns that are specific to each store banner in which we operate and are structured and directed at the target customer market for each store banner. Our marketing teams are media experts dedicated to developing quality marketing campaigns to emphasize our strengths in terms of products assortment, service and competitive prices. We recognize marketing campaign expenses in our financial statements as sales expenses as they are incurred.
In 2022, 2021 and 2020, we spent R$201 million, R$383 million and R$663 million respectively, in advertising, representing 1.10%, 1.42% and 1.29% respectively, of total net operating revenue in each year.
Innovation
In 2017, we created GPA Labs, a program developed to foster innovation within our corporate structure and the development of innovative ecosystems. GPA Labs is largely focused on digitalizing the retail sector and improving our clients’ purchasing experience.
As of December 31, 2022, we had business partnerships with more than 100 startups that helped us to develop the following innovation fronts: (i) food technology (Foodtechs); (ii) business-to-client services (B2C); (iii) human resources (HR Techs); (iv) logistics (Logtechs); (v) data analysis (Data Analytics); (vi) mechanization of corporate processes; (vii) marketing and ads (Martechs and Adtechs) and (viii) services and general retail operations (Retail and Servicetechs).
We have a business partnership with Endeavor, the largest solution and entrepreneur developing nonprofit organization in Brazil, through our participation in Corporate Hub, a network of leaders in innovation and new businesses, and our support of scale-up acceleration programs focused on developing new solutions in the retail segment.
Also in 2022, we concluded the latest edition of our “Ambassadors of Innovation” program. The participants of the program are entrepreneurs who were divided into squads to work in strategic programs of ours. As of December 31, 2022, we had 65 ambassadors in our “Ambassadors of Innovation” program.
Credit Sales
In 2022, 44.6% of our net operating revenue segment was represented by credit sales, principally in the form of credit card sales, installment sales and food vouchers, as compared to 58.1% in 2021, as described below:
Credit card sales. All of our store formats and our e-commerce operations 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
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using credit cards accounted for 44.6%, 47.0% and 47.2% of our consolidated net operating revenue in 2022, 2021 and 2020, respectively. Of this total, sales through our FIC co-branded credit cards accounted for 2.9% of our net operating revenue in 2022. An allowance for doubtful accounts is not required as credit risks are assumed by the relevant credit card companies or issuing banks.
Food Vouchers. We accept food vouchers as payment at our stores. Food Vouchers are issued by third-party agents to participating companies that provide food vouchers to their employees as a fringe benefit. Food vouchers accounted for 9.3%, 11.1% and 9.8% of our consolidated net operating revenue in 2022, 2021 and 2020, respectively. The voucher-issuing companies assume the credit risk associated with these sales.
Information Technology
We invested R$264 million, R$177 million and R$179 million in information technology in 2022, 2021 and 2020, respectively, excluding investments in information technology relating to Grupo Éxito’s discontinued operations. Through a continuous improvement process, we have identified opportunities and mapped efficiency gains by integrating services and functions across our various operating segments, improving our tax systems, our ERP, focusing on governance and our customers. Our information technology department negotiates the reduction of costs on projects and contracts with service and software suppliers, based on sharing services between us and our subsidiaries, thus creating economies of scale.
In 2020, we improved our digital platform, including navigation and search features, customer service, in addition to updating the versions of our app: Pão de Açúcar Mais and Clube Extra and updating our internal systems, among other improvements.
In 2021, we improved our applications, tools, and processes, attracting new consumers to e-commerce and strengthening an omnichannel shopping profile, which combines face-to-face and digital experiences, including a marketplace, WhatsApp, our apps, and open collaboration platforms. For our operations of the Grupo Éxito, we continued implementing solutions that use contactless technologies, customer service, data analysis, logistics, and supply chain, and HR management in accordance with the strategy established for the period between 2021 and 2024.
Intellectual Property
We consider our brands to be one of our most valuable assets and we have worked extensively to define the characteristics of each of our banners (Mercado Extra, Mini Extra, Pão de Açúcar, Minuto Pão de Açúcar and Compre Bem) with respect to the expectations, consumption patterns and purchasing power of the different types of customers and income levels. We believe that our customers associate each of our banners 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, 2022, our most important trademarks (Pão de Açúcar, Extra, Qualitá, Taeq and Compre Bem, among others) were duly registered with INPI and we had approximately 1,873 trademarks registered or in the process of being registered, 1,736 of which are in Brazil. We did not have any registered patents as of December 31, 2022.
Our business relies on intellectual property that includes the content of our websites, our registered domain names and our registered and unregistered trademarks. We believe that the Pão de Açúcar, Extra and other domain names we use in our e-commerce business are valuable assets and essential to the identity of our business.
We own the following domain names, among others: www.extra.com.br, www.gpabr.com, www.paodeacucar.com.br, www.paodeacucar.com and www.deliveryextra.com.br. These domain names are listed for informative purposes only and the information contained in these websites is not incorporated by reference in this annual report.
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Competition
According to ABRAS, the three leading retail food companies in Brazil are controlled by companies headquartered abroad. Foreign presence in the Brazilian retail food industry started with the French retail food chain, Carrefour. Thus, the Brazilian retail food industry is highly competitive. For more information about risks related to competition, see “Item 3. Key Information—3D. Risk Factors—Risks Relating to our Industry and Us—We face significant competition and pressure to adapt to changing consumer habits and preferences, which may adversely affect our market share and net income.” Nonetheless, supermarket penetration levels in Brazil, in terms of the number of supermarkets in proportion to the country’s population and area, is estimated to be lower than the levels recorded in the United States, several Western European countries and some other South American countries.
Recently, leading retail food companies, including our Company, have pursued the following strategies:
| · | strengthening core competencies in the most profitable, and performing segments of operations; |
| · | expansion of omnichannel operations; |
| · | partnership with delivery (last milers) and marketplace players; |
| · | migration of large stores to smaller store formats, such as neighborhood or proximity stores; |
| · | expansion of small store formats; |
| · | investment in store renovations and in general asset quality; |
| · | investment in multi-channel strategy to reach more customers; |
| · | focus on loyalty programs for deeper understanding of consumer habits; and |
| · | development and strengthening of private label products. |
Our competitors vary depending on the regional location of the stores. Our main competitors in the state of São Paulo are Carrefour, Futurama, Mambo, Pastorinho, Sonda, Dia and St. Marche. In the city of Brasília, our principal competitors are Big Box, Carrefour, Super Cei and Super Maia. In the state of Rio de Janeiro, our principal competitors are Guanabara, Mundial, Prezunic and Zona Sul supermarkets. In the states of Paraíba, Pernambuco, Ceará and Piauí, our principal competitors are the local supermarkets, in addition to Bompreço and GBarbosa.
In our other regional markets, we compete not only with the organized Brazilian retail sector, but also with various small and medium-sized chains, family-owned companies and Brazilian retail businesses.
We are one of the leading players in food e-commerce in Brazil, through the operations of Pão de Açúcar and Extra banners. Our main competitors in this segment are Carrefour, Saint Marché, Mambo, Sonda and Zona Sul.
Regulatory Matters
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, 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, in 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, are even more strict than 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 in all material respects with these consumer protection regulations.
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Brazilian General Data Protection Law
On August 14, 2018, the Brazilian General Data Protection Law was enacted, and came into effect on September 18, 2021. The Brazilian General Data Protection Law administrative sanctions started to be applied by the Brazilian National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD, in August 2021. The Brazilian General Data Protection Law establishes a new legal framework to be observed in the processing of personal data, including that of our customers, suppliers and employees. The Brazilian General Data Protection Law establishes, among other things, the rights of personal data owners, the legal basis applicable to the protection of personal data, requirements for obtaining consent, obligations and requirements relating to security incidents, data leaks and data transfers, as well as the creation of the National Data Protection Authority. In the event of non-compliance with the Brazilian General Data Protection Law, we may be subject to the following penalties: (i) disclosure of the infraction after it has been duly investigated and confirmed, (ii) blockage of the personal data to which the infraction relates, (iii) deletion of personal data to which the infraction relates, and (iv) a fine, per infraction, of up to 2% (subject to a limit of R$50.0 million) of our revenue or the revenues of our group or conglomerate in Brazil in the last fiscal year, excluding taxes. ANPD may revise data protection standards and proceedings based on the Brazilian General Data Protection Law in the future. In addition, we may be held responsible for pecuniary, non-pecuniary, individual, or collective damages caused by us and jointly and severally liable for pecuniary non-pecuniary, individual or collective damages caused by our subsidiaries, due to non-compliance with the obligations set forth in the Brazilian General Data Protection Law.
Accordingly, in the event of non-compliance with the Brazilian General Data Protection Law or any other applicable law related to personal data, or in the event of a personal data breach, we may be subject to legal proceedings, fines and damage to our reputation, which may materially and adversely affect us. We are subject to uncertainties as to how Brazilian courts will apply and interpret the Brazilian General Data Protection Law, which may materially and adversely affect us.
Environmental and Social Matters
Our sustainability strategy comprises priority topics for planning and strategically developing our business.
The five pillars of our environmental, social and governance program are the following:
| · | Responsible supply chains for conscientious manufacturing and consumption: Participating in the construction of value chains committed to the protection of the environment and the welfare of people and animals; |
| · | Tackling climate change: Combating climate change by increasing the environmental efficiency of our operations and innovating; |
| · | Commitment to ethics and transparency: Consolidating social, environmental and best governance practices in our business model and ensuring ethics and transparency in our relationship with our stakeholders; |
| · | Promoting diversity and inclusion: Thriving to become a leading company in the promotion of diversity, inclusion, and sustainability among our employees; and |
| · | Social impact through the generation of opportunities: Promoting a more inclusive society with equal opportunities for all. |
All the initiatives and commitments, in each of the areas, are led by a dedicated internal team, with the support of other areas, and monitored by our executive board and our sustainability and diversity committee.
We summarize some of the information relating to our environmental and social commitments in this section, including information contained in our 2022 Sustainability Report, available on our website. The content of the Sustainability Report is not incorporated by reference into this annual report. Additionally, the statements contained in this section are not indicative of any future results.
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Responsible Supply Chains for Conscientious Manufacturing and Consumption
We seek to adopt a process of purchasing and selling products that contributes to a more socially conscious supply network and consumption pattern. Our relationship with our suppliers is guided by the promotion of human rights, occupational health and safety, food safety, anti-corruption practices, protection of biodiversity and the environment, and animal welfare. We map and monitor our critical chains and their associated social and environmental risks, in an effort to minimize the impacts related to the purchase and sale of products.
Some of the most important initiatives we have developed towards a more socially conscious supply network and consumption pattern are summarized below.
Biodiversity Protection
In order to protect biodiversity, we launched our Social and Environmental Purchasing Policy for Fish in October of 2022, setting forth the guidelines for business with suppliers, monitoring of suppliers and species, as well as inspection guidelines for endangered species, which aims to provide suppliers with guidance and promote awareness on the depletion of environmental resources and biodiversity. The policy also provides strategies to promote sustainable supply chains, as well as small family-run businesses and business models with positive social impact.
Animal Welfare
We were the first Brazilian food retailer to sign, in 2017, a commitment to animal welfare in the egg production chain, when we committed ourselves to sell 100% of our private label eggs from cage-free hens by 2025. Later, we set the goal of having 100% of the eggs that are sold in our stores, which include our private label eggs and eggs from other brands, originated from cage-free hens by 2028.
By the end of 2022, 47.9% of the private label eggs we sold and 40.2% of all the eggs we sold were originated from cage-free hens.
Combating Deforestation
The beef value chain comprises a complex array of production stages and players. Our aim is to build a deforestation-free value chain by implementing sound procurement policies and structured processes and engaging with each link in the value chain. Our “Responsible Beef Sourcing Policy” aims to ensure that our beef supply chain is transparent and traceable from the farms who are our direct suppliers to slaughterhouse, and that the beef we sell has not been raised in areas which have been subject to deforestation or conversion of native vegetation. Since 2020, all slaughterhouses aiming to supply beef to the Pão de Açúcar Group have been required to comply with the rules set forth in the “Beef on Track Protocol” (Protocolo Boi na Linha), a protocol created to combat deforestation in the Amazon.
As of December 31, 2022, (i) our direct beef suppliers were compliant with our Responsible Beef Sourcing Policy, (ii) our direct slaughterhouses suppliers were equipped with their own geomonitoring system and active traceability and (iii) 15,089 of our direct supplier farms have been reassessed in our social and environmental reassessment process to certify compliance with our Responsible Beef Sourcing Policy.
In case we verify any nonconformity of a supplier with our Responsible Beef Sourcing Policy, the farm of the nonconforming supplier will be barred from supplying products to the Pão de Açúcar Group and the nonconforming supplier will have to follow an action plan, comprehending educational, corrective and disciplinary action, as applicable.
From December 31, 2017 to December 31, 2022, we have found nonconformities at 22 Brazilian suppliers. We have implemented action plans for five of these nonconforming suppliers. The other 17 nonconforming suppliers remain barred from supplying products to us.
Tackling Climate Change
Our sustainability strategy is focused on promoting a low carbon economy. To accomplish this goal, we have defined targets and adopted systems and processes to combat climate change, which include reducing atmospheric emissions, increasing energy efficiency, and purchasing energy from renewable and clean sources.
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To further engage our employees with our sustainability strategy, the variable compensation of eligible leadership positions, which includes our chief executive officer and other executive officers, is tied to our environmental goals, specifically, with regards to the reduction of (i) scope 1 GHG emissions, which are direct greenhouse emissions from sources that are controlled or owned by a company, such as emissions associated with refrigerant gases, fuel combustion, generators or own vehicles, and (i) scope 2 GHG emissions, which are indirect greenhouse emissions related to the purchase of electricity.
Our main initiatives to reduce GHG emissions in our operations include: (i) monitoring of indicators to avoid refrigerant gas leakage in our stores; (ii) replacement of refrigerated islands in our remodeled and expanded stores using gases with lower global warming potential or natural gases (ten stores included in 2022); (iii) intensification of the migration of our stores’ energy consumption to the Brazilian free energy market; and (iv) continuous improvement of the logistics efficiency of our operation, with implementation of projects that contribute to lower emissions, such as a routing system, promoting multimodality, regionalization and use of a more eco-efficient fleet (electric).
As a result of our initiatives, we achieved a reduction of more than 40% in scope 1 and 2 GHG emissions compared to 2015, with approximately 35% of the reduction related to the discontinuation of our hypermarkets business, a major source of GHG emissions. We have surpassed our goal to reduce our scope 1 and 2 GHG emissions by 38% until 2030 compared to our 2015 emissions. As a result, we have updated our commitment to reduce the scope 1 and scope 2 GHG emissions in our operations and we expect to achieve a 50% reduction by 2025, compared to our 2015 emissions.
Waste Management and Waste Reduction
Our responsible waste management and waste reduction efforts are divided into six categories: (i) development with suppliers to increase the shelf life of products in our stores; (ii) quality and safety (e.g., efficiency and monitoring actions in orders and supply, employee training, and continuous updating of processes and procedures); (iii) sale of co-products; (iv) discounted prices for products close to expiration date; (v) food donations to social organizations and food banks; and (vi) separation and reuse of waste.
Commitment to Ethics and Transparency
Ethics and integrity are fundamental pillars that guide our daily routines and underpin a fair and transparent business practice based on 14 pillars, including: (i) senior management commitment; (ii) risk identification; (iii) communication and training; (iv) audits and controls; (v) application of disciplinary measures; and (vi) continuous monitoring and improving.
In 2022, we continued to disclose and communicate policies related to our ethics and compliance program through our communication channels, highlighting the policy of gifts, travel, and entertainment. We also launched a training for the code of ethics in our training and educational platform, which started in October 2022, and was completed by over 80% of our employees.
Promoting Diversity and Inclusion
We believe in inclusion and promoting diversity in all its forms. Our efforts towards reaching this objective rely on initiatives that promote the rights of all people, regardless of age, gender, gender identity, sexual orientation, origin, ethnicity, color, physical condition, religion, marital status, nationality, expression or any other identity marker, family situation, or any other characteristic. Our diversity and inclusion initiatives are guided by our “Diversity, Inclusion and Human Rights Policy,” which was updated in 2022, and is based on the principles set forth in the United Nation’s Universal Declaration of Human Rights and the commitments established by other Brazilian and international programs in which we participate, such as: UN Women, Unstereotype Alliance, Women 360 Movement (Movimento Mulher 360), Business Coalition to End Violence against Women and Girls, Business Coalition for Racial and Gender Equality, Movement for Racial Equality (MOVER), 10 Company Commitments to LGBTI+ Rights, Business Initiative for Racial Equality, and Compact for the Inclusion of People with Disabilities. In 2022, we launched the Inclusive Communication Policy and also joined the Generations and the Future of Work Forum. Our main diversity and inclusion programs in 2022 are summarized below.
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Diversity and Equality Trainings
In 2022, we launched two web series in our internal educational platform: “Generations,” and “Deconstructing LGBTphobia” and held an online training session with our team of diversity ambassadors team on diversity and non-violent communication for our operations teams at stores, distribution centers and gas stations. The training session had over 2,790 participations. In 2022, we launched the training “Diversity and Compliance: together for the new GPA” on our diversity pillars and the key points of our code of ethics. Diversity, inclusion, and whistleblowing content was included in all sessions of our succession programs, which are our strategic programs for training, retaining, and developing professionals with potential within the company, providing career and succession opportunities, and ensuring the meritocracy in internal promotions.
6th Diversity Week
In 2022, we held our 6th Diversity Week, addressing the five priority pillars of diversity and inclusion. We held lectures on gender and ethnic equality, LGBTQI+ inclusion and age diversity. Our 6th Diversity Week had over 2,700 participations and a net promoter score of 93 (zone of excellence).
Gender Equality
Our Female Leadership Development Program started in 2019 for all our officers and managers, was expanded to cover middle management in 2020, and further expanded to non-leaders via self-enrollment in 2021. The program has trained more than 460 female employees, with more than 100 of them having been promoted.
As of December 31, 2022, 38.3% of our leadership positions were occupied by women. Our goal is to achieve 40% of women in leadership positions by 2025. We were the only retailer chosen to be part of the select list of 13 Brazilian companies that are included in the 2022 Bloomberg Gender-Equality Index (GEI).
Racial Equality
In 2022, we were recognized in the Best Companies in Diversity Practices and Actions award, promoted by the Business Initiative for Racial Equality (IERE), in the Ascension of Black Professionals category as a result of our Black People Development Program.
As of December 31, 2022, we had 42% self-declared black employees in leadership positions, which are positions in our management or above, and 56% self-declared black employees in our overall workforce.
Social Impact Through the Generation of Opportunities
For more than 20 years, our social investment has been managed and guided by the GPA Institute, which has the objective of reducing social inequalities, by mobilizing resources and partners to support people in vulnerable situations.
In 2022, our main initiatives towards the reduction of social inequalities and generation of professional opportunities included: (i) the collection of more than 2,000 tons of food in our stores, together with our customers and employees, to benefit of more than 270 nonprofit entities; (ii) partnership with nonprofit entities, offering opportunities for 80 people living in the surroundings of our stores to experience the universe of bakery and pastry in basic and practical 40-hours learning courses; and (iii) contributing to the academic training of low-income students with high development potential by offering scholarships in undergraduate courses of highly renowned universities.
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4C. Organizational Structure
The chart below sets forth a summary of our organizational structure based on total capital stock as of the date of this annual report:
For more information on our subsidiaries, see note 12 to our audited consolidated financial statements.
4D. Property, Plant and Equipment
As of December 31, 2022, we owned 38 stores, one warehouse and a portion of the real estate where our headquarters are located. As of the same date, we leased the remaining 623 stores and nine distribution centers and warehouses we operated in Brazil and the remaining portion of the real estate where our headquarters is located. Leases are usually for a term of five to 25 years and provide for monthly rent payments based on a percentage of sales above an agreed minimum value. Based on our prior experience and Brazilian law and leasing practices, 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.
We are constantly looking for opportunities to sell our real estate properties in line with our strategy of monetizing mature assets, contributing to (i) the decrease of our net indebtedness, (ii) the strengthening of our capital structure and (iii) the increase of our return on capital expenditures. One of the means by which we sell our real estate properties is through sale and leaseback transactions pursuant to which we sell the real estate properties and lease the properties for a certain period.
The following table sets forth the number and total selling area of our owned and leased retail stores by store format, the number and total storage area of our owned and leased distribution centers and the total office area of our headquarters that we owned and leased in Brazil as of December 31, 2022, all of which relate to our continued operations:
|
Owned |
Leased |
Total(1) | ||||
|
Number |
Area |
Number |
Area |
Number |
Area | |
| (in square meters) | (in square meters) | (in square meters) | ||||
| Pão de Açúcar | 13 | 17,846 | 182 | 263,055 | 195 | 280,901 |
| Mercado Extra(2) | 23 | 30,755 | 162 | 200,600 | 185 | 231,354 |
| Proximity stores(3) |
2 |
347 |
279 |
69,405 |
281 |
69,751 |
| Total Stores | 38 | 48,947 | 623 | 533,059 | 661 | 582,006 |
| Warehouses |
1 |
13,198 |
9 |
376,484 |
10 |
389,682 |
| Total |
39 |
62,145 |
632 |
909,543 |
671 |
971,688 |
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________________
| (1) | Excludes gas stations and drugstores. |
| (2) | Includes Mercado Extra and Compre Bem stores. In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores. |
| (3) | Includes Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado. |
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 outfit our stores with advanced information technology systems.
As of December 31, 2022, GPA Malls managed approximately 144 commercial galleries. On the same date, GPA Malls had more than 87,378 square meters of gross leasable area.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
You should read this discussion in conjunction with our audited consolidated financial statements prepared in accordance with IFRS and the related notes thereto and the other financial information, included elsewhere in this annual report.
5A. Operating Results
Macroeconomic Environment and Factors Affecting Our Results of Operations
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.
For the period between the acquisition of Grupo Éxito in the end of 2019 and the completion of the Éxito Segregation Transaction, expected to occur in the third quarter of 2023, we also have operations in Colombia, Uruguay and Argentina. Thus, our results of operations for the period were affected by macroeconomic conditions in these countries, especially Colombia.
Brazilian Macroeconomic Environment
Brazilian macroeconomic conditions remain unstable. Developments relating to the COVID-19 pandemic in 2021 and 2022 had a severe and adverse impact on the global economy and on the Brazilian macroeconomic environment. These challenges included the increase in inflation, which continued rising, although at a slower pace, in 2022. In 2022, the annual inflation in Brazil increased by 5.5%, according to the IGP-M index, compared to an increase of 17.8% in 2021 and 24.5% in 2020. The IPCA increased 5.8% in 2022, 10.1% in 2021 and 4.5% in 2020. Inflation has a direct effect on the final prices we charge our customers for our products.
In recent years, there has been a significant fluctuation in the real/U.S. dollar exchange rate. In 2019, the real depreciated against the U.S. dollar in comparison to 2018, reaching R$4.0301 per US$1.00 as of December 31, 2019. In 2020, the real further 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 depreciated by 6.9% in relation to the U.S. dollar. As of December 31, 2021, the real/U.S. dollar exchange rate was R$5.581 per US$1.00. In 2022, the real gained value against the U.S. dollar and, as of December 31, 2022, the U.S. dollar selling rate was R$5.2177 per US$1.00. The depreciation of the real against the U.S. dollar may create inflationary pressures in Brazil, including in the category of food inflation, with possible effects on the cost practiced by our suppliers. Foreign exchange reserves held by the Brazilian government slightly decreased from US$362.2 billion as of December 2021 to US$324.7 billion as of December 2022.
Brazilian GDP increased by 2.9% in 2022, compared to an increase of 4.6% in 2021 and a decrease of 4.1% in 2020. The unemployment rate in Brazil reached 7.9% as of December 31, 2022, 13.2% as of December 31, 2021 and 13.9% as of December 31, 2020. These two indicators directly affect the purchasing power of the Brazilian workforce.
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An economic recession and an increasing unemployment rate in Brazil could lead to a decline in household consumption that could adversely affect our results of operations and financial condition.
The SELIC rate continued to increase in 2022, reaching 13.75% as of December 31, 2022, after having increased to 9.25% as of December 31, 2021, from 2.00% as of December 31, 2020.
Continued and prolonged increases in interest rates in Brazil could have an adverse effect on our results of operations and financial condition, as many of our rental contracts are partially indexed to Brazil’s national inflation index and the majority of our financial revenues and financial expenses are inclined to variable interest rates. Furthermore, in case increased interest rates in Brazil persist, there could be a further decrease in household consumption in Brazil, which could have an adverse effect on our results of operations and financial condition.
In order to mitigate the interest rate risk in Brazil, we maintain our cash and cash equivalents indexed to the CDI rate to partially neutralize the impact of the interest rate fluctuations.
The following table sets forth data on real GDP growth, inflation and interest rates in Brazil, and the Brazilian real/U.S. dollar exchange rate for the indicated periods:
|
As of and for the year ended December 31, | |||||
|
2022 |
2021 |
2020 |
2019 |
2018 | |
| GDP Growth (%)(1) | 2.9 | 4.6 | (4.1) | 1.4 | 1.8 |
| Inflation (IGP-M) (%)(2) | 5.5 | 17.1 | 23.4 | 7.3 | 7.5 |
| Inflation (IPCA) (%)(3) | 5.8 | 10.1 | 4.5 | 4.3 | 3.7 |
| CDI (%)(4) | 13.7 | 4.4 | 2.8 | 5.9 | 6.4 |
| TJLP (%)(5) | 5.3 | 5.3 | 4.6 | 5.6 | 7.0 |
| SELIC rate (%)(6) | 13.8 | 9.2 | 1.9 | 4.4 | 6.4 |
| Appreciation (depreciation) of real to U.S. dollars (%)(7) | (7.7) | 7.4 | (28.9) | 4.4 | 18.5 |
| Exchange rate (closing) R$ per U.S. dollars 1.00(8) | 5.218 | 5.581 | 5.197 | 4.031 | 3.875 |
_________________
| (1) | Source: IBGE. |
| (2) | The General Market Price Index (Índice Geral de Preços-Mercado), or IGP-M, is measured by FGV. |
| (3) | Extended National Consumer Price Index (Índice de Preços ao Consumidor Amplo), or IPCA, is a broad consumer price index measured by IBGE. |
| (4) | The CDI is the accumulated rate of interbank deposits in Brazil during each year. |
| (5) | The official long-term interest rate (taxa de juros de longo prazo), or TJLP, is charged by Brazil’s National Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or BNDES, on long-term financing (end of the period data). |
| (6) | Annual average interest rate. Source: Central Bank. |
| (7) | Average of exchange rates (for sale) of the period. Source: Central Bank. |
| (8) | Exchange rate (for sale) of the last day of the period. Source: Central Bank. |
We use derivatives, such as swaps, aiming to hedge the exchange exposure risk to U.S. dollar, converting the cost of debt into domestic currency and interest rates. We have a treasury policy to manage foreign exchange risk relating to U.S. dollar, principally by entering into swaps in reais for 100% of our U.S. dollar-denominated liabilities, which represented 8% of our total debt as of December 31, 2022. We engage in cross-currency interest rate swaps under which we enter into an agreement with the same counterparty that provides the original U.S. dollar-denominated financing. We sign a separate financial instrument at the time the loan agreement is consummated, pursuant to which we are then effectively liable for amounts in reais and interest at a percentage of the CDI rate. The reference amounts and maturity periods of these swaps generally correspond to the original U.S. dollar-denominated loan. This policy protects us against losses resulting from currency devaluations.
COVID-19
The COVID-19 pandemic and governmental responses thereto had a severe impact on global and Brazilian macro-economic and financial conditions, including the disruption of supply chains and the closures or interruptions of many businesses, leading to losses of revenues, increased unemployment and economic stagnation and contraction. The COVID-19 pandemic also resulted in materially increased volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads.
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As of December 31, 2022, we have assessed the impacts of the COVID-19 to our business and concluded that we do not expect to have material adverse changes to our revenues and other line items of our statement of income, and we did not need to record any COVID-19 related provisions.
The extent to which the coronavirus and/or other diseases affect us will depend on future developments, which are highly uncertain and cannot be predicted. No recent comparable events exist that provide us with guidance regarding the effects of a severe global pandemic. As a result, the final impact of the COVID-19 outbreak is uncertain and subject to changes that we cannot predict.
Discontinued Operations
Spin-Off of the Cash and Carry Operating Segment
On December 14, 2020, our board of directors approved a corporate reorganization in order to carry out the segregation of the cash and carry business through a spin-off of our then wholly-owned subsidiary Sendas, which operates under the banner Assaí. On December 31, 2020, the corporate reorganization proposal was submitted to and approved by the shareholders of CBD and Sendas at extraordinary shareholders’ meetings of both companies. Our shareholders also approved the delivery of the common shares issued by Sendas that were owned by CBD directly to CBD shareholders, at a ratio of one common share of Sendas for each common share issued by CBD. The Sendas Spin-off included the transfer of the equity interest currently held by Sendas in Almacenes Éxito S.A. to the Company.
On February 26, 2021, our shareholders received shares issued by Sendas, in proportion to their respective holdings in the capital stock of CBD. The distribution occurred after the listing of Sendas’ common shares on the Novo Mercado segment of B3 and after the approval of listing of ADRs representing Sendas’ shares on the NYSE. We expect Sendas to follow substantially similar corporate governance standards as those currently adopted by the Company.
For more information on the spin-off of our cash and carry business, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment.”
Discontinued Operations for the Year Ended December 31, 2022
Grupo Éxito
In February 2023, our shareholders approved the segregation of Grupo Éxito’s operations in Colombia, Argentina and Uruguay, from our business. The segregation of Grupo Éxito is expected to unlock value to our shareholders by enhancing the market value of the Company and Éxito separately and will be achieved through the Éxito Segregation Transaction.
For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
Extra Hiper Stores
In line with our strategy of focusing on the premium supermarket and proximity store segments, we decided to discontinue our hypermarket business, operated under the Extra Hiper banner. As part of that goal, in late 2021, the boards of directors of CBD and Sendas approved the Extra Hiper Asset Sale.
For more information on the Extra Hiper Discontinued Operations and the Extra Hiper Asset Sale, see “Explanatory Note—Extra Hiper Discontinued Operations.”
Overview of the Fiscal Year Ended December 31, 2022
We believe that 2022 was an important year in our recent history, as we made the strategic decision to focus on six pillars in the operation of our business: (i) increase our revenue growth; (ii) increase our net promote score; (iii) promote our digital expansion; (iv) promote our organic expansion; (v) increase our profitability; and (vi) disseminate ESG practices and strengthen our corporate culture. In addition, after the sale of the Extra Hiper stores, we are completely focused on our supermarket and proximity formats, which operate under our Pão de Açúcar and Extra banners.
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Also, in 2022, we initiated material changes, such as the segregation of Grupo Éxito, which is expected to unlock value to our shareholders.
Despite a challenging economic scenario in which consumption was sharply affected by high unemployment rates, and increasing inflation, our consolidated net operating revenue in the retail segment increased by 6.3% in 2022 from 2021, totaling R$17.3 billion.
The net operating revenue of Grupo Éxito increased by 33.6% in 2022 in spite of the increase in the official interest rates in the countries in which it operates, having benefited from the quick and solid improvement of the Colombian economy and the easing of the COVID-19 related restrictions in Colombia, Uruguay and Argentina.
We improved our portfolio of store formats in the retail segment to better meet our clients’ needs by renovating or converting our stores, which reinforced consumers’ power of choice and ensured a better presentation of our products and services. In 2022, 129 stores in Brazil were renovated, converted, opened or repositioned.
We materialized our focus on improving our clients’ shopping experience by renovating Pão de Açúcar stores to a next-generation concept store, focused on perishable products, services and improvement of portfolio, presenting a multi-channel, or sales in different channels, including brick and mortar stores and e-commerce, among others; multi-sensory and multi-solution space, offering different shopping experience in terms of store layout, variety of products, service quality, and social hubs, among others. By the end of 2022, we renovated 60% of the Pão de Açúcar stores, reaching the total number of 116 renovated stores in 2022, which delivered outstanding performance in terms of sales for the year.
The proximity store business continues to soar, mainly due to its effective value proposition in the neighborhood format and the expansion of the Aliados Mini Mercado program and Minuto Pão de Açúcar, as evidenced by the continuous increase in sales, for ten consecutive quarters, and profitability gains throughout the year.
In 2022, we also improved the portfolio of our private label brands, an important part of the loyalty building and profitability of our business, launching 78 products in Brazil, and increasing the categories of products we offer under our private label brands. This improvement was responsible for the increase in sales of the products under our private label brand and contributed to a more integrated strategy for our businesses.
We also invested in our digital transformation strategy by means of the continuous integration of our e-commerce and brick-and-mortar stores, reaffirming our leadership in the e-commerce food segment. The net operating revenue of our digital retail operation in Brazil in 2022 increased by 15.4% compared to 2021, mainly due to (i) the increase of the product assortment, especially perishable products, (ii) greater availability of delivery times for fast delivery and (iii) the growth of our partnerships with delivery services companies.
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Results of Operations for 2022, 2021 and 2020
The following table presents the consolidated results of operations in accordance with IFRS for the periods indicated, as included in our audited consolidated financial statements.
|
Year Ended December 31, | ||||||
|
2022(2) |
% of Net Operating Revenue(2) |
2021(2) |
% of Net Operating Revenue(2) |
2020(1) (2) |
% of Net Operating Revenue(1) (2) | |
| Results of Operations | (in millions of R$, unless otherwise noted) | |||||
| Net operating revenue | 17,321 | 100.0 | 16,298 | 100.0 | 16,796 | 100.0 |
| Cost of sales |
(13,019) |
(75.2) |
(11,942) |
(73.3) |
(11,939) |
(71.1) |
| Gross profit | 4,302 | 24.8 | 4,356 | 26.7 | 4,857 | 28.9 |
| Selling expenses | (2,699) | (15.6) | (2,572) | (15.8) | (2,809) | (16.7) |
| General and administrative expenses | (598) | (3.5) | (695) | (4.3) | (727) | (4,3) |
| Depreciation and amortization | (931) | (5.4) | (810) | (5.0) | (772) | (4.6) |
| Other operating expenses, net |
(434) |
(2.5) |
(168) |
(1.0) |
343 |
2.0 |
| Operating expenses, net |
(4,662) |
(26.9) |
(4,245) |
(26.0) |
(3,965) |
(23.6) |
| Income (loss) from continuing operations |
(565) |
(3.3) |
53 |
0.3 |
963 |
5.7 |
| Financial income | 778 | 4.5 | 320 | 2.0 | 470 | 2.8 |
| Financial expenses |
(1,528) |
(8.8) |
(943) |
(5.8) |
(804) |
(4.8) |
| Financial expenses, net | (750) | (4.3) | (623) | (3.8) | (334) | (2.0) |
| Share of profit of associates |
(205) |
(1.2) |
(58) |
(0.4) |
71 |
0.4 |
| Income (loss) before income tax and social contribution |
(1,315) |
(7.6) |
(570) |
(3.5) |
629 |
3.7 |
| Income tax and social contribution |
454 |
2.6 |
725 |
4.4 |
(318) |
(1.9) |
| Net income (loss) from continuing operations | (861) | (5.0) | 155 | 1.0 | 311 | 1.9 |
| Net income (loss) from discontinued operations |
857 |
4.9 |
805 |
4.9 |
2,015 |
12.0 |
| Net income for the year |
(4) |
(0.0) |
960 |
5.9 |
2,326 |
13.8 |
| Attributed to controlling shareholders from continued operations | (863) | (5.0) | 158 | 1.0 | 322 | 1.9 |
| Attributed to controlling shareholders from discontinued operations |
691 |
4.0 |
644 |
4.0 |
1,857 |
11.1 |
| Total attributed to controlling shareholders |
(172) |
(1.0) |
802 |
4.9 |
2,179 |
13.0 |
| Attributed to non-controlling shareholders from continued operations | 2 | - | (3) | - | (11) | (0.1) |
| Attributed to non-controlling shareholders from discontinued operations |
166 |
1.0 |
161 |
1.0 |
158 |
0.9 |
| Total attributed to non-controlling shareholders |
168 |
1.0 |
158 |
1.0 |
147 |
0.9 |
_________________
| (1) | The statement of income for the year ended December 31, 2020 related to Sendas were classified as “discontinued operations,” as indicated in note 33(c) to our audited consolidated financial statements. |
| (2) | The statements of operations for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito and the Extra Hiper banner were classified as “discontinued operations.” For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
In addition, we present the results of our operating segments in the same manner management evaluates the performance of and strategy for the segments listed below. For more information on the segments, see note 30 to our audited consolidated financial statements.
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The following tables contain a breakdown of our statement of income by segment for each of the periods indicated:
|
Year Ended December 31, 2022 | ||||
|
Retail (1) |
Grupo Éxito Discontinued Operations (1) |
Other businesses(2) |
Total | |
| (in millions of R$) | ||||
| Statement of Income – Segments | ||||
| Net operating revenue |
17,250 |
- |
71 |
17,321 |
| Gross profit | 4,228 | - | 74 | 4,302 |
| Depreciation and amortization | (911) | - | (20) | (931) |
| Operating income | (311) | - | (49) | (360) |
| Financial expenses, net | (747) | - | (3) | (750) |
| Share of profit of associates |
44 |
- |
(249) |
(205) |
| Income (loss) before income tax and social contribution |
(1,014) | - | (301) | (1,315) |
| Income tax and social contribution |
456 |
- |
(2) |
454 |
| Net income (loss) – continuing operations | (558) | - | (303) | (861) |
| Net income (loss) – discontinued operations |
864 |
(7) |
- |
857 |
| Net income (loss) for the year |
306 |
(7) |
(303) |
(4) |
_________________
| (1) | The statements of operations for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito and the Extra Hiper banner were classified as “discontinued operations.” For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (2) | Includes equity pickup of the Company in Cnova and Cheftime. |
|
Year Ended December 31, 2021 | ||||
|
Retail |
Grupo Éxito Discontinued Operations (1) |
Other businesses(2) |
Total | |
| (in millions of R$) | ||||
| Statement of Income – Segments | ||||
| Net operating revenue |
16,268 |
- |
70 |
16,298 |
| Gross profit | 4,297 | - | 59 | 4,356 |
| Depreciation and amortization | (797) | - | (13) | (810) |
| Operating Income | 207 | - | (96) | 111 |
| Financial expenses, net | (620) | - | (3) | (623) |
| Share of profit of associates |
47 |
- |
(105) |
(58) |
| Income (loss) before income tax and social contribution |
(366) | - | (204) | (570) |
| Income tax and social contribution |
718 |
- |
7 |
725 |
| Net income (loss) – continuing operations | 352 | - | (197) | 155 |
| Net income (loss) – discontinued operations |
273 |
532 |
- |
805 |
| Net income (loss) for the year |
625 |
532 |
(197) |
960 |
_________________
| (1) | The statements of operations for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito and the Extra Hiper banner were classified as “discontinued operations.” For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (2) | Includes equity pickup of the Company in Cnova and Cheftime. |
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|
Year Ended December 31, 2020(2) | |||||
|
Retail |
Grupo Éxito Discontinued Operations |
Other businesses(1) |
Discontinued operations |
Total | |
| (in millions of R$) | |||||
| Statement of Income – Segments | |||||
| Net operating revenue |
16,747 |
- |
49 |
- |
16,796 |
| Gross profit | 4,835 | - | 22 | - | 4,857 |
| Depreciation and amortization | (766) | - | (6) | - | (772) |
| Operating Income | 1,029 | - | (137) | - | 892 |
| Financial expenses, net | (332) | - | (2) | - | (334) |
| Share of profit of associates |
118 |
- |
(47) |
- |
71 |
| Income (loss) before income tax and social contribution | 815 | - | (186) | - | 629 |
| Income tax and social contribution |
(325) |
- |
7 |
- |
(318) |
| Net income (loss) – continuing operations | 490 | - | (179) | - | 311 |
| Net (loss) income– discontinued operations |
784 |
228 |
- |
1,003 |
2,015 |
| Net income (loss) for the year |
1,274 |
228 |
(179) |
1,003 |
2,326 |
_________________
| (1) | Includes equity pickup of the Company in Cnova. It also includes Cheftime, James and Stix Fidelidade. |
| (2) | The income statement for the year ended December 31, 2020 related to Sendas was classified as “discontinued operations.” For more information on the sale of our discontinued operations, see notes 1.1 and 33(c) to our audited consolidated financial statements. |
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Consolidated
Net operating revenue. Net operating revenue increased by 6.3%, or R$1,023 million, from R$16,298 million in 2021 to R$17,321 million in 2022, mainly as a result of the increase of 2.6% in same-store sales in 2022, and, to a lesser extent, due to the opening of new stores and conversion of existing stores from the Extra Hiper banner to the Pão de Açúcar and Mercado Extra banners in the year. In addition, macroeconomic conditions, such as the increase in inflation and interest rates, adversely affected consumers’ purchasing power and, consequently, our sales.
Cost of Sales. Cost of sales increased by 9.0%, or R$1,077 million, from R$11,942 million in 2021 to R$13,019 in 2022 mainly due to the increase in inflation in the period and a more challenging macroeconomic scenario to negotiate with our suppliers.
Gross profit. Gross profit decreased by 1.2%, or R$54 million, from R$4,356 million in 2021 to R$4,302 million in 2022, mainly due to the impact of inflation on food products.
Selling expenses. Selling expenses increased by 4.9%, or R$127 million, from R$2,572 million in 2021 to R$2,699 million in 2022, mainly due to the increase in inflation in Brazil in 2022 partially offset by greater operating efficiencies at our stores, which led selling expenses to increase less compared to revenue. Selling expenses represented 16% of our net operating revenue in 2021 and 2022.
General and administrative expenses. General and administrative expenses decreased by 14.0%, or R$97 million, from R$695 million in 2021 to R$598 million in 2022, mainly due to the resizing of our headquarters after the Extra Hiper Asset Sale. General and administrative expenses represented 4% of our net operating revenue in 2021 and 2022.
Depreciation and amortization. Depreciation and amortization increased by 14.9%, or R$121 million, from R$810 million in 2021 to R$931 million in 2022, mainly due to the increase in the investments made during the year in the remodeling and expansion of our stores.
Other operating expenses, net. Other operating expenses, net, increased by 158.3%, or R$266 million, from R$168 million in 2021 to R$434 million in 2022, mainly as a result of (i) the reassessment of ICMS contingencies due to the recent STF ruling relating to the treatment of energy credits for purposes of ICMS, which resulted in our recording of a provision for this matter amounting to R$285 million in 2022, (ii) the increase of provisions for labor contingencies, and (iii) expenses relating to the restructuring and resizing of the personnel of our headquarters. For more information on the decision of the STF relating to the treatment of energy credits for purposes of ICMS, see “Item 8. Financial Information––8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Tax-Related Claims.”
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Financial expenses, net. Financial expenses, net increased by 20.4%, or R$127 million, from R$623 million in 2021 to R$750 million in 2022, mainly as a result of higher cost to service our debt due to the increase in interest rates in Brazil in 2021, partially offset by the increase in our monetary restatement gain, from R$238 million in 2021 to R$640 million in 2022.
In 2022, we recorded a monetary restatement gain relating to ICMS tax credits of R$201 million as a result of a reassessment of a provision due to recent judicial decisions that have granted the right to obtain amounts relating to the interest accrued over certain ICMS tax credits from certain Brazilian states which were recorded in preceding fiscal years. For more information on our ICMS tax credits, see note 10.1 to our audited consolidated financial statements.
In 2021, we recorded a monetary restatement gain of R$109 million relating to the tax credit arising from a favorable decision, issued in 2020, in a lawsuit to which we were a party declaring the exclusion of ICMS from the calculation basis of PIS and COFINS. For more information on this decision and its impact on our financial condition, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Exclusion of ICMS from the Calculation Basis of PIS and COFINS” and notes 20 and 21 to our audited consolidated financial statements.
Share of profit of associates. Share of profit of associates decreased by 253.4%, or R$147 million, from a loss of R$58 million in 2021 to a loss of R$205 million in 2022, mainly as a result of an increase in losses in the amount of R$403 million from our share of profit in Cnova.
Income tax and social contribution. Income tax and social contribution decreased by 37.4%, or R$271 million, from an income of R$725 million in 2021 to an income of R$454 million in 2022. In addition to the effect of the increase in loss before income tax in 2022, this decrease in income tax and social contribution can be attributed to: (i) the impact, in 2022, of the STF’s decision regarding the effects of its 2007 ruling on CSLL. For more information on the decision of the STF regarding CSLL and its impact on our results of operations, see “Item 8. Financial Information––8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Tax-Related Claims—Non-Payment of Social Contribution on Net Profits;” and (ii) our recording, in 2021, of R$427 million in tax credits (compared to R$138 million in 2022) due to a tax incentive that allows us to exclude certain state tax subsidies from the calculation basis of income tax under certain conditions, which include transferring these subsidies to our tax incentive reserve account. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements.
Net income (loss) from continuing operations. As a result of the foregoing, net income (loss) from continuing operations decreased by R$1,016 million, from an income of R$155 million in 2021 to a loss of R$861 million in 2022.
Net income from discontinued operations. Net income from discontinued operations increased by 6.5%, or R$52 million, from R$805 million in 2021 to R$857 million in 2022, mainly due to the net income from the Extra Hiper Asset Sale offsetting the negative impact on Éxito’s net result caused by the increase in the tax rate from 10% to 15% on occasional gains (ganancia occasionala) in Colombia.
Net income (loss) for the year. As a result of the foregoing, net income for the year decreased by R$964 million, from an income of R$960 million in 2021 to a loss of R$4 million in 2022.
Segment Information
Retail Segment
Our retail segment in 2022 consisted of sales of food and non-food products to individual consumers in Brazil at (i) supermarkets through the banners Pão de Açúcar, Extra Supermercado, Mercado Extra and Compre Bem; (ii) hypermarkets through the banner Extra Hiper; (iii) proximity stores through the banners Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado; and (iv) gas stations that operate under our Pão de Açúcar, Mercado Extra and Compre Bem banners. The retail segment also includes the revenues related to rentals of commercial spaces and e-commerce sales.
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In 2022, we converted 25 Extra Hipermercado stores into Pão de Açúcar and Mercado Extra stores, and opened 49 new stores, of which 38 were Minuto Pão de Açúcar, six were Aliados Minimercado and five were Pão de Açúcar.
Net operating revenue. Net operating revenue increased by 6.3%, or R$1,022 million, from R$16,228 million in 2021 to R$17,250 million in 2022, mainly as a result of the increase of 2.6% in same-store-sales in 2022, and, to a lesser extent, due to the opening of new stores and conversion of existing stores from the Extra Hiper banner to the Pão de Açúcar and Mercado Extra banners in the year. In addition, macroeconomic conditions, such as the increase in inflation and interest rates, adversely affected consumers’ purchasing power and, consequently, our sales.
Cost of Sales. Cost of sales remained relatively stable, from R$11,939 in 2020 to 11,942 million in 2021.
Operating Income. Operating income decreased by R$518 million, from an income of R$207 million in 2021 to a loss of R$311 million in 2022, mainly due to the increase of R$1,022 million in our net operating revenue and the decrease of R$521 million in our other operating income, which were partially offset by the decrease of R$1,077 million in our cost of sales and the decrease of R$30 million in selling expenses and general and administrative expenses.
Financial expenses, net. Financial expenses, net, increased by 20.5%, or R$127 million, from R$620 million in 2021 to R$747 million in 2022, mainly as a result of higher cost to service our debt due to the increase in interest rates in Brazil in 2021, partially offset by the increase in our monetary restatement gain, from R$238 million in 2021 to R$640 million in 2022.
In 2022, we recorded a monetary restatement gain relating to ICMS tax credits of R$201 million as a result of a reassessment of a provision due to recent judicial decisions that have granted the right to obtain amounts relating to the interest accrued over certain ICMS tax credits from certain Brazilian states which were recorded in preceding fiscal years. For more information on our ICMS tax credits, see note 10.1 to our audited consolidated financial statements.
In 2021, we recorded a monetary restatement gain of R$109 million relating to the tax credit arising from a favorable decision, issued in 2020, in a lawsuit to which we were a party declaring the exclusion of ICMS from the calculation basis of PIS and COFINS. For more information on this decision and its impact on our financial condition, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Exclusion of ICMS from the Calculation Basis of PIS and COFINS” and notes 20 and 21 to our audited consolidated financial statements.
Income (loss) before income tax and social contribution. As a result of the foregoing, income loss before income tax and social contribution increased by 177.0%, or R$648 million, from R$366 million in 2021 to R$1,014 million in 2022.
Income Tax and Social Contribution. Income tax and social contribution decreased by 36.5%, or R$262 million, from an income of R$718 million in 2021 to an income of R$456 million in 2022. In addition to the effect of the increase in the loss before income tax in 2022, this decrease in income tax and social contribution can be attributed to: (i) the impact, in 2022, of the STF’s decision regarding the effects of its 2007 ruling on CSLL. For more information on the decision of the STF regarding CSLL and its impact on our results of operations, see “Item 8. Financial Information––8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Tax-Related Claims—Non-Payment of Social Contribution on Net Profits;” and (ii) our recording, in 2021, of R$427 million in tax credits (compared to R$138 million in 2022) due to a tax incentive that allows us to exclude certain state tax subsidies from the calculation basis of income tax under certain conditions, which include transferring these subsidies to our tax incentive reserve account. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements.
Net income for the year. As a result of the foregoing, net income for the year decreased by 51.0%, or R$319 million, from R$625 million in 2021 to R$306 million in 2022.
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Grupo Éxito
As disclosed in note 1.2 to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Consolidated
Net operating revenue. Net operating revenue decreased by R$498 million, from R$16,796 million in 2020 to R$16,298 million in 2021, mainly as a result of the loss of the revenues caused by the demobilization of Extra Hiper stores, which started in the beginning of the fourth quarter of 2021. In addition, macroeconomic conditions, such as high inflation and interest rates, adversely affected consumers’ purchasing power and, consequently, our sales.
Gross profit. Gross profit decreased by 10.3%, or R$501 million, from R$4,857 million in 2020 to R$4,356 million in 2021, mainly due to the impact of the recognition of R$834 million in ICMS tax credits as costs of sales in 2020 due to a favorable decision in a lawsuit to which we were a party declaring the exclusion of ICMS from the calculation basis of PIS and COFINS, which did not occur in 2021. For more information on this decision and its impact on our financial condition, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Exclusion of ICMS from the Calculation Basis of PIS and COFINS” and notes 20 and 21 to our audited consolidated financial statements.
Selling expenses. Selling expenses decreased by R$237 million, from R$2,809 million in 2020 to R$2,572 million, due to the reduction in selling expenses related to the reduction in marketing expenses partially offset by the increase in expenses as a result of the increase in inflation in the period.
General and administrative expenses. General and administrative expenses decreased by R$32 million, from R$727 million in 2020 to R$695 million in 2021 due to reduction in personnel expenses caused by the closing of Extra Hiper stores, partially offset by the increase in expenses as a result of the increase in inflation in the period. Selling expenses and general and administrative expenses represented, in the aggregate, 20.0% of our net operating revenue in 2020 and 2021.
Depreciation and amortization. Depreciation and amortization increased by 4.9%, or R$38 million, from R$772 million in 2020 to R$810 million in 2021, mainly due to the renovation and maintenance of stores, renewal of lease agreements and IT projects and investments in platforms to increase our productivity, partially offset by the demobilization of our Extra Hiper stores and drugstores, which started in the fourth quarter of 2021.
Other operating expenses, net. Other operating expenses, net, varied by R$511 million, from an income of R$343 million in 2020 to an expense of R$168 million in 2021, mainly as a result of one-time events that had a positive effect on our results of operations and occurred in 2020 (i) R$518 million gain from the sale of real estate properties and sale and leaseback of stores as part of our strategy to focus on our core assets and (ii) a R$513 million gain related to the revaluation of our equity participation in Bellamar, a holding company that holds an investment in 35.8% of the shares of FIC, net of costs. Those events were partially offset by (i) a R$333 million decrease in tax contingencies in 2021 due to the provision we made in 2020 of R$283 million as a result of an unfavorable decision relating to taxes on industrialized products (Imposto Sobre Produtos Industrializados), or IPI, requirement on the resale of imported products, which did not occur in 2021, and (ii) a R$84 million decrease in the expenses incurred as a result of the COVID-19 pandemic in 2021 when compared to 2020.
Financial expenses, net. Financial expenses, net, increased by 86.5%, or R$289 million, from R$334 million in 2020 to R$623 million in 2021, mainly as a result of the (i) decrease in our monetary restatement gain of R$168 million mainly related to the reassessment of the provision we made relating to a lawsuit to which we were a party under which the ICMS was excluded from the calculation basis of PIS and COFINS as a result of a decision that decreased the amount of interest accrued over the amounts awarded to us, and (ii) increase in the average CDI rate in Brazil from 2.8% in 2020 to 4.4% in 2021, which had a positive effect on our revenue from financial investments, while adversely affecting financial expenses as certain of our financings are indexed to the CDI rate. For more information on the lawsuit to which we were a party under which the ICMS was excluded
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from the calculation basis of PIS and COFINS, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Exclusion of ICMS from the Calculation Basis of PIS and COFINS” and notes 20 and 21 to our audited consolidated financial statements.
Share of profit of associates. Share of profit of associates decreased by 181.7%, or R$129 million, from a gain of R$71 million in 2020 to a loss of R$58 million in 2021, mainly as a result of (i) an increase in losses in the amount of R$57 million from our share of profit in Cnova, due to the deterioration of the results of operations of Cnova in 2021; and (ii) a decrease in our share of profit in FIC in the amount of R$71 million, mainly due to the reduction of our participation in Bellamar, after the Sendas Spin-off, to 18% in 2021 from 36% in 2020.
Income tax and social contribution. Income tax and social contribution increased by R$1,043 million, from an income tax and social contribution expense of R$318 million in 2020 to an income of R$725 million in 2021. In addition to the effect of the increase in the loss before income tax in 2021, this decrease in income tax and social contribution can be attributed to: (i) our recording, in 2021, of R$427 million in tax credits due to a tax incentive that allows us to exclude certain state tax subsidies from the calculation basis of income tax under certain conditions, which include transferring these subsidies to our tax incentive reserve account. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements; and (ii) a decision issued by the STF, in September 2021, which declared the unconstitutionality of the collection of income tax levied on interest indexed to SELIC rate arising from overpayments of tax in previous periods. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements.
Net income (loss) from continuing operations. As a result of the foregoing, net income from continuing operations decreased by 50.2%, or R$156 million, from an income of R$311 million in 2020 to an income of R$155 million in 2021.
Net income (loss) from discontinued operations. Net income (loss) from discontinued operations decreased by R$1,210 million, from an income of R$2,015 million in 2020 to an income of R$805 million in 2021, mainly due to the decreases, from 2020 to 2021, in the net revenue of Sendas and Extra Hiper of R$1,003 million and R$424 million, respectively, which were offset by the increase in the net income of Grupo Éxito of R$304 million during the same period.
Segment Information
Retail Segment
Our retail segment in 2021 consisted of sales of food and non-food products to individual consumers in Brazil at (i) supermarkets through the banners Pão de Açúcar, Extra Supermercado, Mercado Extra and Compre Bem; (ii) hypermarkets through the banner Extra Hiper; (iii) proximity stores through the banners Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado; and (iv) gas stations that operate under our Pão de Açúcar, Mercado Extra and Compre Bem banners. The retail segment also includes the revenues related to rentals of commercial spaces and e-commerce sales.
In the first semester of 2021, we converted six Extra Supermercado stores into Mercado Extra stores, concluding the process of conversion of all Extra Supermercado stores into Mercado Extra and Compre Bem stores.
Net operating revenue. Net operating revenue decreased by 3.1%, or R$519 million, from R$16,747 million in 2020 to R$16,228 million in 2021, mainly as a result of the loss of the revenues caused by the demobilization of Extra Hiper stores, which started in the beginning of the fourth quarter of 2021. In addition, macroeconomic conditions, such as high inflation and interest rates, adversely affected consumers’ purchasing power and, consequently, our sales.
Operating Income. Operating income decreased by 79.9%, or R$822 million, from an income of R$1,029 million in 2020 to an income of R$207 million in 2021, as a result of the decrease of R$519 million in our net operating revenue and the decrease of R$547 million in our other operating income, which were partially offset
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by the decrease of R$19 million in cost of sales and the increase of R$261 million in selling, general and administrative expenses.
Financial (expenses), net. Financial expenses, net, increased by 86.7%, or R$288 million, from R$332 million in 2020 to R$620 million in 2021, mainly as a result of the (i) decrease in our monetary restatement gain of R$168 million mainly related to the reassessment of the provision we made relating to a lawsuit to which we were a party under which the ICMS was excluded from the calculation basis of PIS and COFINS as a result of a decision that decreased the amount of interest accrued over the amounts awarded to us, and (ii) increase in the average CDI rate in Brazil from 2.8% in 2020 to 4.4% in 2021, which had a positive effect on our revenue from financial investments, while adversely affecting financial expenses as certain of our financings are indexed to the CDI rate. For more information on the lawsuit to which we were a party under which the ICMS was excluded from the calculation basis of PIS and COFINS, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Exclusion of ICMS from the Calculation Basis of PIS and COFINS” and notes 20 and 21 to our audited consolidated financial statements.
Income (loss) before income tax and social contribution. As a result of the foregoing, income (loss) before income tax and social contribution decreased by R$1,181 million, from an income of R$815 million in 2020 to a loss of R$366 million in 2021.
Income Tax and Social Contribution. Income tax and social contribution changed by R$1,043 million, from an expense of R$325 million in 2020 to an income of R$718 million in 2021. In addition to the effect of the increase in the loss before income tax in 2021, this decrease in income tax and social contribution can be attributed to: (i) our recording, in 2021, of R$427 million in tax credits due to a tax incentive that allows us to exclude certain state tax subsidies from the calculation basis of income tax under certain conditions, which include transferring these subsidies to our tax incentive reserve account. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements; and (ii) a decision issued by the STF, in September 2021, which declared the unconstitutionality of the collection of income tax levied on interest indexed to SELIC rate arising from overpayments of tax in previous periods. For more information on our tax incentive reserve account, see “Item 10. Additional Information––10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Appropriation of Net Profits—Tax Incentive Reserve Account” and notes 20.1 and 24.2 to our audited consolidated financial statements.
Net income for the year. As a result of the foregoing, net income for the year decreased by 50.9%, or R$649 million, from an income of R$1,274 million in 2020 to an income of R$625 million in 2021.
Grupo Éxito
As disclosed in note 1.2 to our audited consolidated financial statements, the statement of income for the years ended December 31, 2022, 2021 and 2020 related to Grupo Éxito was classified in a single line as “discontinued operations,” as a result of the Éxito Segregation Transaction. For more information on the Éxito Segregation Transaction, see “Explanatory Note—Éxito Segregation Transaction.”
5B. Liquidity and Capital Resources
Cash Flows
The following table sets forth information related to our cash flows as of and for the periods presented:
|
As of and for the Year Ended December 31, | ||||
|
2022(*)(2)(3) |
2022(2)(3) |
2021(3)(4) |
2020(1)(4) |
|
| (in millions of US$) | (in millions of R$) | |||
| Other financial information | ||||
| Net cash provided by (used in): | ||||
| Operating activities | (41.4) | (216) | 2,728 | 4,742 |
| Investing activities | 543.2 | 2,834 | (77) | (4,291) |
| Financing activities | (901.4) | (4,703) | (2,743) | (281) |
| Capital expenditures(5) | (311.6) | (1,626) | (1,267) | (2,490) |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.2177 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2022, as published by the Central Bank. |
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| (1) | The statements of operations for the years ended December 31, 2020 presented in the table related to Sendas were classified in a single line as discontinued operations. For more information on the Sendas Spin-Off, see notes 1.3 and 33(c) to our audited consolidated financial statements, included elsewhere this annual report, and “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment.” |
| (2) | In accordance with IFRS 5, we report the net result of Grupo Éxito as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities are presented as held for sale or distribution and discontinued operations. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. |
| (3) | In accordance with IFRS 5, we report the net result of the sale of our hypermarket business as of and for the year ended December 31, 2022, after taxes, in one single line item in the statement of income and the balances of assets and liabilities of our hypermarket business are presented as held for sale and discontinued operations. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (4) | In accordance with IFRS 5, for comparative purposes, the statement of income and the explanatory notes related to our income for the years ended December 31, 2021 and 2020 were restated to account for the effects of the Éxito Segregation Transaction and the Extra Hiper Discontinued Operations in our audited consolidated financial statements. For more information on the effects of the Éxito Segregation Transaction on our audited consolidated financial statements, see notes 1.2 and 33(a) to our audited consolidated financial statements. For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements. |
| (5) | Capital expenditures are comprised of cash used in purchases of property, equipment and intangible assets, as reflected in the consolidated statement of cash flows. |
Sources of Funds
We have funded our operations and capital expenditures mainly from our cash flow provided by operating activities and the sale of receivables at a discount to financial institutions (banks and credit card merchant acquirers). Additionally, we have issued debentures in the local markets and entered into loans and financing agreements with financial institutions.
In 2022, we continued selling our receivables to financial institutions and credit card merchant acquirers at a discount, without a right to recourse or any related obligation. For more information on the discount on receivables, see note 7 to our audited consolidated financial statements. We believe that our sources of funds are suitable to our debt profile and sufficient to meet our working capital and investment needs.
Our primary sources of liquidity have historically been cash flows provided by our operating activities. Cash used in operating activities, including continuing and discontinued operations, was R$216 million in 2022. Cash used by operating activities, including continuing and discontinued operations, was R$2,728 million and R$4,742 million in 2021 and 2020, respectively. From 2021 to 2022, the decrease of R$2,944 million in net cash provided from operating activities was mainly due to a decrease of R$964 million in net income and decrease of R$2,183 million in interest and monetary variations. From 2020 to 2021, the decrease in net cash provided from operating activities was primarily due to a decrease of R$1,366 million in net income.
Net cash from investment activities was R$2,834 million, R$(77) million and R$(2,911) million for the years ended December 31, 2022, 2021 and 2020, respectively. In 2022, 2021 and 2020 our net cash used in investment activities was mainly related in 2022 to, to store openings, store renovations, purchases of equipment and intangible assets and the sale of the Extra Hiper stores, while in 2021 it was related to store renovations, purchases of equipment and intangible assets, and, in 2020, to the cash of de-consolidation of Sendas. In addition, in 2022, 2021 and 2020, we used net cash in operating activities primarily for investments in our capital expenditures program, totaling R$(1,626) million, R$1,267.0 million and R$2,490.0 million, respectively. Proceeds from sales of property and equipment in 2022 generated a cash flow of R$4,560 million mainly due to the Extra Hiper Asset Sale.
Net cash (used in) financing activities, was net cash used of R$4,703 million, net cash used of R$2,743 million and net cash (used) of R$(281) million for the years ended December 31, 2022, 2021 and 2020, respectively. From 2021 to 2022, the decrease was due to a decrease in our demand for new indebtedness. Our year-end current and noncurrent borrowings and financing decreased by 25%, or R$$1,942 million, from R$7,805 million as of December 31, 2021 to R$5,863 million as of December 31, 2022, and consisted of:
| · | R$5,402 million in real-denominated loans; and |
| · | R$461 million in U.S. dollar-denominated debt, swapped to real-denominated loans. |
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From 2020 to 2021, the decrease was due to a decrease in our demand for new indebtedness. Our year-end current and noncurrent borrowings and financing increased by 3.1%, or R$237 million, from R$7,568 million as of December 31, 2020 to R$7,805 million as of December 31, 2021, and consisted of:
| · | R$7,349 million in real-denominated loans; and |
| · | R$455 million in U.S. dollar-denominated debt, swapped to real-denominated loans. |
Our year-end total cash position decreased by 21.5%, or R$1,026 million, from R$4,777 million as of December 31, 2021 to R$3,751 million as of December 31, 2022.
We expect to fully pay, using cash flows from operating activities and new financing, or refinance the portions of our indebtedness due in 2023 to 2024. For information on recent developments relating to our indebtedness, see “—Financial Instruments.”
Financial Instruments
Derivatives
We use derivatives, such as swaps, aiming to hedge the exchange exposure risk to U.S. dollar and euros, converting the cost of debt into domestic currency and interest rates. We also use derivatives to hedge against foreign exchange (U.S. dollars and euros) variations on imports. See “—5A. Operating Results—Macroeconomic Environment and Factors Affecting Our Results of Operations.”
Contractual Obligations
Our estimated future contractual obligations were R$18,378 million as of December 31, 2022, and include current and long-term debt, debentures, accrued interest related to debentures, lease liabilities and trades payable.
During the fiscal year ending December 31, 2023, we do not have obligation to repay any long-term debt. After the fiscal year 2022, our long-term debt obligation totals R$4.5 billion and accrued interest related to long-term debt totals R$363 million.
During the fiscal year ending December 31, 2023, we have a current obligation to pay R$181 million of accrued interest related to debentures. After the fiscal year 2022, our obligation related to the payment of the principal amount of debenture totals R$2.5 billion and accrued interest related to debentures of R$211 million.
For lease liabilities, we have a current and long-term obligation of R$490 million and R$3,547 million, respectively. For more information on our long-term debt and lease liabilities, see note 22 to our 2022 audited consolidated financial statements.
Promissory Notes
In July 2021, we issued commercial promissory notes in the total principal amount of R$1.0 billion, of which (i) R$500.0 million refers to the first series, which accrues interest at 1.55% per year plus the average CDI rate and matures on July 30, 2025, and (ii) R$500.0 million refers to the second series, which accrues interest at 1.65% per year plus the average CDI rate and matures on July 30, 2026. As of December 31, 2022, the total outstanding amount under this issuance was R$1,181 million.
Non-Convertible Debentures
In May 2021, we issued non-convertible debentures in two series in Brazil in the total principal amount of R$1.5 billion, of which (i) R$980.0 million refers to the first series, which accrues interest at 1.70% per year plus the average CDI rate and matures on May 10, 2026, and (ii) R$520.0 million refers to the second series, which accrues interest at 1.95% per year plus the average CDI rate and matures on May 10, 2028. As of December 31, 2022, the total outstanding amount under this issuance was R$1,531 million.
In February 2023, we issued non-convertible debentures in Brazil in the total principal amount of R$500.0 million, of which (i) R$376.6 million refers to the first series, which accrues interest at 1.0% per year
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plus the average CDI rate and matures on February 11, 2028, and (ii) R$123.3 million refers to the second series, which accrues interest at 1.2% per year plus the average CDI rate and matures on February 13, 2030.
We are required to comply with certain covenants under our debt instruments. The financial ratios are calculated based on our audited consolidated financial statements prepared in accordance with accounting practices adopted in Brazil. The ratios are (i) net debt (defined as debt minus cash and cash equivalents and trade accounts receivable) not greater than equity; and (ii) consolidated net debt/EBITDA ratio lower than or equal to 3.25. As of the date of this annual report, we are in compliance with the covenants under our debt instruments.
For more information on our non-convertible debentures, see note 17.4 to our audited consolidated financial statements, included elsewhere in this annual report.
Borrowings in Foreign Currencies
As of December 31, 2022, we had borrowings in U.S. dollars and Colombian pesos to strengthen our working capital, maintain our cash strategy, extend our debt profile and make investments. As of December 31, 2022, the total outstanding amount (corresponding to principal and interest) under these agreements was R$461 million.
On October 13, 2020 and October 25, 2021, we entered into two financing agreements in the aggregate amount of R$448 million, accruing interest at 2.12% per year, and with maturity in October, 2023 and October, 2024. Both agreements have been hedged by a swap contract linked to CDI, according to our internal derivative policy. As of December 31, 2022, the aggregate amount outstanding under these financing agreements was R$419 million.
For more information on our borrowings in foreign currencies, see note 17. 1 and 17.5 to our audited consolidated financial statements.
Recognition of Foreign Currency Transactions
Foreign currency transactions are initially recognized at the respective functional currencies exchange rates on the date the transaction qualifies for recognition.
Our financial statements are presented in Brazilian reais, which is our functional currency.
Monetary assets and liabilities denominated in foreign currencies are converted into reais according to the exchange rates of the respective currencies at the balance sheet date. Any difference arising from the payment or translation of monetary items is recognized in our financial results. For more information on the conversion of foreign currencies, see note 3.2 to our audited consolidated financial statements.
The financial statements of our subsidiaries located in countries outside Brazil are translated into Brazilian reais at the balance sheet date, according to specific criteria described in note 3.4 to our audited consolidated financial statements. Exchange rate differences from the translation are recognized directly in a separate component of equity. When a foreign operation is sold, the accumulated amount of exchange variation adjustment in shareholders' equity is recorded in the statement of income for the year.
Off-Balance Sheet Arrangements
Except for guarantees we provided for obligations of Cnova Brazil and Via under certain agreements as disclosed in “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Sale of Home Appliances Operating Segment,” we do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
5C. Research and Development, Patents and Licenses, Etc.
We do not have any significant research and development activities.
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5D. Trend Information
The following discussion is based largely upon our current expectations about future events, and trends affecting our business. Actual results for our industry and performance could differ substantially. For more information related to our forward-looking statements, see “Forward-Looking Statements” and for a description of certain factors that could affect our industry in the future and our own future performance, see “Item 3. Key Information—3D. Risk Factors.”
Our strategy for 2023 is to accelerate our expansion plan, strengthening core competencies in the most profitable, and performing segments of our portfolio, represented by the premium and proximity stores, neighbourhood supermarkets and the food e-commerce business. In 2023, we intend to continue our transition to a new Pão de Açúcar Group in a new cycle that reinforces our strengths and aims to provide the best shopping experience for our customers.
We believe that we are prepared to face the effects of volatility under the new Brazilian government’s administration after the 2022 elections and other challenges that might arise in 2023, with flexibility, agility, and resilience, supported by the execution capacity of our management team and employees.
In 2022, most of the governments in Latin America, including in Brazil, Colombia, Uruguay and Argentina, relaxed the restrictive measures previously imposed to contain the spread of COVID-19.
As of December 31, 2022, we assessed the impacts of the COVID-19 to our business and concluded that we do not expect to have material adverse changes to our revenues and other line items of our statement of income, and we did not need to record any COVID-19 related provisions.
In line with our strategy of focusing on the supermarket and proximity store segments, as of September 2022, we had completed the conversion of all remaining hypermarkets under the Extra Hiper banner to Pão de Açúcar or Mercado Extra supermarkets.
In late 2021, we decided to close all of our drugstores as part of the actions adopted in the context of the Extra Hiper Discontinued Operations. By the end of the first quarter of 2022, we had closed and discontinued all of our drugstores.
We have also implemented a strong digital transformation plan, including the use of physical assets for logistical support, launching our own online operation and the marketplace of the Pão de Açúcar Group, which helped us support the sharp increase in e-commerce demand, develop a closer relationship with suppliers, while improving our customers’ shopping experience and providing innovative solutions to our customers. We also entered into partnerships with last milers and Mercado Livre to be wherever our client wants and to increase the area of deliveries from our stores. For more information on our digital transformation, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Digital Transformation.”
A recent STF’s decision related to CSLL has increased by 9% the tax rate levied on net profits. For more information regarding the impacts of the STF’s decision on our tax rate levied on net profits and our results of operations, see “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information––Legal Proceedings—Tax-Related Claims—Non-Payment of Social Contribution on Net Profits” and notes 20 and 21 to our audited consolidated financial statements.
Moreover, we expect that Russia’s invasion of Ukraine and international responses to it, including sanctions, will continue to cause instability in international markets and impact the global supply of oil and other commodities. These factors have negatively affected and may continue to negatively affect the prices of fuel and food products, which may result in an increase in our costs of goods sold and operating expenses. If we are not able to pass on to our customers increases in our costs and expenses, our results of operations may be adversely affected.
Finally, the conflict could escalate militarily both regionally and globally. Any substantial escalation would have a material adverse effect on macroeconomic conditions in the regions where we operate, and, consequently, on us.
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5E. Critical Accounting Estimates
For information on critical accounting estimates, see note 5 to our audited consolidated financial statements.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
6A. Directors and Senior Management
Board of Directors
The following table sets forth the name, position, year of election and date of birth of each of the members of our board of directors as of the date of this annual report. A brief biographical description of each of our board members follows the table:
|
Name |
Position |
First Year Elected |
Date of Birth | ||
| Jean-Charles Henri Naouri | Chairman | 2005(1) | March 8, 1949 | ||
| Arnaud Daniel Charles Walter Joachim Strasser | Co-Vice Chairman | 2010(2) | July 6, 1969 | ||
| Christophe José Hidalgo | Co-Vice Chairman | 2020 | October 25, 1967 | ||
| Marcelo Pimentel | Director | 2022 | April 3, 1973 | ||
| Hervé Daudin | Director | 2019 | May 12, 1967 | ||
| Luiz Augusto de Castro Neves | Director (Independent) | 2012 | October 29, 1943 | ||
| Eleazar de Carvalho Filho | Director (Independent) | 2012 | July 26, 1957 | ||
| Renan Bergmann | Director (Independent) | 2020 | February 16, 1954 | ||
_________________
| (1) | Mr. Jean-Charles Henri Naouri has been a member of our board of directors since 2005 and the chairman of our board of directors since 2013. |
| (2) | Mr. Arnaud Daniel Charles Walter Joachim Strasser has been a member of our board of directors since 2010 and co-vice chairman of our board of directors since 2018. |
Mr. Jean-Charles Henri Naouri has been the chairman of our board of directors since 2013. He has also been a member of our board of directors, the chairman and chief executive officer of the Casino Group and president of the Casino Group’s parent company, Euris S.A.S., or Euris, since 2002. He also serves as chairman of the board of directors of Rallye S.A., or Rallye, chairman of the Euris Foundation, vice-chairman of the Casino Group Corporate Foundation and member of the board of directors of F. Marc de Lacharrière (Fimalac) S.A. He had served as chairman and chief executive officer of Casino Finance until 2017, chairman of the board of directors of CNova until 2015, chairman of the board of directors of Wilkes Participações until 2015, member of the supervisory board of Monoprix S.A. until 2014, chief executive officer of Rallye until 2013, and as chairman, chief executive officer, and chairman of the supervisory board of Monoprix S.A. until 2013. In 2013, Mr. Naouri was appointed by France’s Ministry of Foreign Affairs to be a special representative for economic relations with Brazil. From 1982 to 1986, Mr. Naouri served as chief of staff for the Minister of Social Affairs and National Solidarity of France and the Minister of Economy, Finance and Budget of France. Mr. Naouri is an Inspecteur des Finances (Finance Inspector) for the French government. Mr. Naouri holds degrees from École Normale Supérieure and École Nationale d’Administration, a Ph.D. in mathematics, and has studied at Harvard University.
Mr. Arnaud Daniel Charles Walter Joachim Strasser has been co-vice chairman of our board of directors since 2018 and a member of our board of directors since 2010. Prior to serving as co-vice chairman, he was the vice-chairman of our board of directors from 2012 to 2018. He has also been a member of the board of directors of Cnova since 2014. Mr. Strasser also served as a member of the board of directors of the Big C Supercenter plc. He has worked for the Casino Group since 2007, where he currently serves as corporate development and holdings officer. Until 2009, he was an advisor to the chairman for international development of the Casino Group. Mr. Strasser also worked as mission head in the Cabinet of the Prime Minister of France in 2005 and as special advisor in the Cabinet of the French Minister of Companies and Trade, from 2005 to 2007. Mr. Strasser holds a bachelor’s degree from École Nationale d’Administration and master’s degrees from École des Hautes Études Commerciales and Institut d’Études Politiques de Paris.
Mr. Christophe José Hidalgo has served as our chief financial officer from 2012 to 2021, and as our chief financial officer and investor relations officer from 2020 to 2021. He has also been our corporate services officer since 2012. He joined the Casino Group in 2000, where he has held several positions in finance and accounting, including chief financial officer of Grupo Éxito from 2010 to 2012. From 1996 to 2000, Mr. Hidalgo served as the chief financial officer of Castorama. Mr. Hidalgo holds a bachelor’s degree in law and a master’s degree in finance and accounting from the Université de Bordeaux.
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Mr. Marcelo Pimentel is an executive with over 20 years of retail operations experience. Mr. Pimentel was the chief executive officer of Lojas Marisa from 2019 to 2022 and its retail operations officer from 2017 to 2019. From 2015 to 2017, he was the retail operations officer at Drogarias Pacheco. Before 2015, he had worked in senior level executive positions for the Walmart Group in Brazil and in the United Kingdom for over ten years.
Mr. Hervé Daudin is currently a member of the executive committee and executive director of merchandise, from the Agribusiness Division and from the Supply Chain, Logistics and IT of Casino Group. He is a member of the board of directors of Almacenes Éxito (Colombia), CDiscount (France), Distribution Casino France, European Marketing Distribution, Achats Marchandise Casino and Big C (Thailand). He was a member of the board of directors of Via. After holding the position of Director in Euris Group, the parent company of Casino Group, he joined the Casino Group in 2003, where he held various executive positions in the areas of strategy, logistics and technology. He began his career as an economist and he was, for seven years, a high ranking official in the Ministry of Economy in France. Mr. Daudin holds a bachelor’s degree in physical sciences and a PhD in economics from the École Normale Supérieure of Paris and an Engineering degree from the École Nationale des Ponts et Chaussées.
Mr. Luiz Augusto de Castro Neves has been an independent member of our board of directors since 2012. Mr. Castro Neves was a career diplomat having joined the Brazilian diplomatic service in 1967 and served as a Brazilian ambassador to Japan, from 2008 to 2010, China, Mongolia and the Democratic People’s Republic of Korea between 2004 and 2008, and Paraguay, from 2000 to 2004. He has also served as chairman of Itaipu Binacional and Interim Minister of State and Head of the Secretariat of Strategic Affairs of the Presidency of Brazil. He is a founding partner of CN Estudo e Projetos Ltda., emeritus vice president of the Brazilian Center of Foreign Affairs, president of the China-Brazil Business Council, and member of the Technical Council of the National Confederation of Commerce. Mr. Castro Neves holds bachelor’s degrees in economics from the Universidade Federal do Rio de Janeiro and diplomacy from the Brazilian Ministry of Foreign Affairs Instituto Rio-Branco and a master’s degree in economics from the University of London.
Mr. Eleazar de Carvalho Filho has been an independent member of our board of directors since 2012 and a member of the board of directors of Cnova since 2014. He is a founding partner at Virtus BR Partners, an independent advisory firm, and at Sinfonia Capital, and currently serves as a member of the boards of directors of TechnipFMC, plc and of Brookfield Renewable Corporation. Since 2018, he serves on the board of directors of Oi S.A. and in September of that year was elected Chairman. He served as chief executive officer of Unibanco Banco de Investimentos do Brasil S.A., president of BNDES and managing director of Banco UBS – Brasil Banco de Investimento S.A. He served as the chairman of the board of directors of BHP Billiton Brazil and as a member of the board of directors of Petrobras, Centrais Elétricas Brasileiras S.A., Vale, Tele Norte Leste Participações, Alpargatas, and others. He is also president of the board of trustees of the Brazilian Symphony Orchestra Foundation. He holds a bachelor’s degree in economics from New York University and a master’s degree in international relations from Johns Hopkins University.
Mr. Renan Bergmann holds a bachelor’s degree in chemical engineering from the Federal University of Rio Grande do Sul and a master’s degree in nuclear chemical engineering from the Federal University of Rio de Janeiro (COPPE). He completed the executive program at the John E. Anderson Graduate School of Management and the executive program “Making Corporate Boards More Effective” at Harvard Business School. He is a member of the board of directors of Fogo de Chão, since 2018, and of Paramount Films, Tulsa USA, since 2021. He has also been a senior advisor to the Rhone Group since 2012. He was a member of the board of directors of: (i) Ranpak, in the city of Columbus, state of Ohio; (ii) SLC Participações; (iii) FCC Campo Bom, in the state of Rio Grande do Sul; (iv) CCRR; (v) Terphane Holdings LLC, in the state of Delaware; (vi) Almatis B.V.; and (vii) UTEX, in the city of Houston, state of Texas. He was also an advisor to New Globe.
Executive Officers
The following table sets forth the name, position, year of election and date of birth of each of our executive officers as of the date of this annual report. A brief biographical description of each of our executive officers follows the table:
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|
Name |
Position |
First Year Elected |
Date of Birth |
| Marcelo Pimentel | Chief Executive Officer | 2022 | April 3, 1973 |
| Rafael Sirotsky Russowsky(1) | Chief Financial Officer and Investor Relations Officer | 2023 | December 10, 1977 |
| Fréderic Garcia | Chief Business’ Operations Officer | 2021 | March 24, 1970 |
| Joaquim Alexandre Fernandes Sousa | Commercial Officer | 2022 | July 22, 1971 |
Mr. Marcelo Pimentel. Please see “—6A. Directors and Senior Management—Board of Directors” for Mr. Pimentel’s biography.
Mr. Rafael Sirotsky Russowsky has been director of corporate development and participations for the Casino Group since 2012. Previously, he was an investment banker specializing in M&A and equity capital markets transactions at Credit Suisse, Morgan Stanley and Oppenheimer & Co. In addition, he worked at HSBC. and Safra Banco, focusing on credit operations. Mr. Russowsky holds a bachelor’s degree in business administration from the Pontifical Catholic University of Rio Grande do Sul and holds an MBA from Columbia Business School in New York. Mr. Rafael Sirotsky Russowsky is our chief financial officer and investor relations officer.
Mr. Fréderic Garcia has been working for the Company since 2014. Before joining the Company, he worked for 21 years at Carrefour, in countries such as Argentina, Brazil, Portugal and France, acting as commercial director at Carrefour Brazil between 2011 and 2014. He holds a degree in economic and social sciences at Lycée Charles le Chauve (Roissy en Brie/France 1989), postgraduate degree in business specializing in International Trade from the Institut Européen des Affaires, Paris (1993), and a Master Pro-Varejo from the University of São Paulo (2000).
Mr. Joaquim Alexandre Fernandes Sousa has been working for the Company since June 2022. Before joining the Company, he worked at Carrefour from 2006 to 2022, where he held management positions and worked in the areas of supply, merchandising operations, and was also commercial executive officer. Between 2011 and 2014, he was CEO of Grupo MV. From 1995 to 1999 he worked at Wal-Mart as manager of perishable products. He holds a specialization in Retail from the Getulio Vargas Foundation (Fundação Getúlio Vargas - FGV).
6B. Compensation
For the year ended December 31, 2022, the aggregate compensation expense of our directors, executive officers and members of committees was R$93.2 million, of which R$ 42.2 million was paid in cash. Our executive officers receive a package of benefits in line with market practices, including health and dental insurance, biannual medical check-ups, pension plan, life insurance, meal vouchers and purchase discounts. According to the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, listed companies are required to publicly disclose the lowest, highest and average individual compensation paid to directors, executive officers and members of the fiscal council.
In July 2007, the Company established a supplementary private pension plan to its employees and engaged the financial institution Brasilprev Seguros e Previdência S.A. to manage the plan. The Company provides monthly contributions on behalf of its employees based on services rendered to the Company. Contributions made by the Company in the year ended December 31, 2022, amounted to R$0.3 million and employees’ contributions amounted to R$0.3 million with four participants.
Our board of directs established and approved a profit-sharing plan for our management, including our executive officers. Under the terms of the plan, each beneficiary of the plan is entitled to receive an annual payment based on (i) the consolidated results of the Company, (ii) the results of the business segment or the department, as the case may be and to which the individual belongs, and (iii) the individual’s performance. The final amount to be received by each beneficiary under the profit-sharing plan is determined by multiplying the individual amount by an index which is applicable to all beneficiaries and defined according to our operating performance.
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Compensation of the Board of Directors, Executive Officers and Fiscal Council for 2021, 2022 and 2023 (expected)
The table below indicates the compensation of the members of our board of directors and members of the committees of the board of directors, executive officers and fiscal council for 2021:
|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (in R$, when applicable) | ||||
| Number of members | 9.67 | 2.83 | 2.58 | 15.08 |
| Number of compensated members | 8.67 | 2.83 | 2.58 | 14.08 |
| Fixed compensation | ||||
| Fixed annual compensation | 24,233,299 | 17,360,181 | 432,000 | 42,025,480 |
| Benefits | 2,650,518 | 655,727 | - | 3,306,246 |
| Variable compensation | ||||
| Profit sharing | - | 6,994,532 | - | 6,994,532 |
| Participation in meetings | - | - | - | - |
| Others (invitees’ compensation, contributions and taxes) | - | - | - | - |
| Post-employment benefit | - | - | - | - |
| Benefits on ceasing to exercise the position | - | - | - | - |
| Share-based compensation |
6,907,644 |
3,201,608 |
- |
10,109,252 |
| Total compensation |
33,791,461 |
28,212,048 |
432,000 |
62,435,510 |
The table below indicates the compensation for members of the board of directors and members of the committees of the board of directors, executive officers and fiscal council for 2022:
|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (in R$, when applicable) | ||||
| Number of members | 12 | 4 | 3 | 19 |
| Number of compensated members | 11 | 4 | 3 | 18 |
| Fixed compensation | ||||
| Fixed annual compensation | 30,357,866.30 | 9,426,336.60 | 432,000.00 | 40,216,202.90 |
| Benefits | 1,851,465.24 | 2,336,754.70 | - | 4,188,219.94 |
| Variable compensation | ||||
| Profit sharing | - | 1,947,316.28 | - | 1,947,316.28 |
| Participation in meetings | - | - | - | - |
| Others (invitees’ compensation, contributions and taxes) | - | - | - | - |
| Post-employment benefit | - | - | - | - |
| Benefits on ceasing to exercise the position | 16,114,039.00 | 17,604,897.29 | - | 33,718,936.29 |
| Share-based compensation |
8,500,000.00 |
4,606,506.00 |
- |
13,106,506.00 |
| Total compensation |
56,823,370.54 |
35,921,810.88 |
432,000.00 |
93,177,181.41 |
The table below indicates the expected compensation for members of the board of directors and members of the committees of the board of directors, executive officers and fiscal council for 2023 (expected):
|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (in R$, when applicable) | ||||
| Number of members | 12 | 4 | 3 | 19 |
| Number of compensated members | 11 | 4 | 3 | 18 |
| Fixed compensation | ||||
| Fixed annual compensation | 22,172,101.07 | 15,092,160.27 | 432,000.00 | 30,705,327.31 |
| Benefits | 975,505.49 | 2,549,734.56 | - | 3,135,037.86 |
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| Variable compensation | ||||
| Profit sharing | - | 11,088,224.00 | - | 11,088,224.00 |
| Participation in meetings | - | - | - | - |
| Others (invitees’ compensation, contributions and taxes) | - | - | - | - |
| Post-employment benefit | - | - | - | - |
| Benefits on ceasing to exercise the position | - | - | - | - |
| Share-based compensation |
2,573,240.00 |
3,410,107.00 |
- |
5,983,347.00 |
| Total compensation |
25,720,846.57 |
32,140,225.83 |
432,000.00 |
58,293,072.40 |
Variable Compensation for 2021, 2022 and 2023 (expected)
Below we present the variable compensation of our executive officers paid in 2021, 2022 and 2023 (expected):
|
2021 |
Executive officers |
| (in R$, when applicable) | |
| Number of members | 2.83 |
| Number of compensated members | 2.83 |
| Profit sharing | |
| Minimum expected amount | - |
| Maximum expected amount | 28,981,131 |
| Expected amount – goals achieved | 14,490,565 |
| Amount actually recognized | 6,994,532 |
|
2022 |
Executive officers |
| (in R$, when applicable) | |
| Number of members | 4 |
| Number of compensated members | 4 |
| Profit sharing | |
| Minimum expected amount | - |
| Maximum expected amount | 17,261,355 |
| Expected amount – goals achieved | 8,630,678 |
| Amount actually recognized | 0 |
|
2023 (expected) |
Executive officers |
| (in R$, when applicable) | |
| Number of members | 4 |
| Number of compensated members | 4 |
| Profit sharing | |
| Minimum expected amount | - |
| Maximum expected amount | 22,176,448 |
| Expected amount – goals achieved | 11,088,224 |
Employee Stock Option Plan
At an extraordinary shareholders’ meeting held on May 9, 2014, our shareholders voted to (i) approve the creation of a stock option plan, or our Stock Option Plan, and (ii) create a compensation plan for employees based on stock options, or our Compensation Plan. Our Stock Option Plan and our Compensation Plan originally granted options to purchase preferred shares (which were recently converted into common shares), including to members of our board of directors. The Stock Option Plan and the Compensation Plan were further amended as a result of the resolutions approved at the annual and special shareholders’ meeting held on April 24, 2015, April 25, 2019 and December 31, 2019. The December 31, 2019 amendment reflected the changes relating to the conversion of our preferred shares into common shares, as a result of our migration to the Novo Mercado listing segment of B3, as approved by our shareholders on December 31, 2019. Accordingly, as of December 31, 2022, our Stock Option Plan and the Compensation Plan grant the option to purchase common shares to our employees, including to members of our board of directors.
General Terms and Conditions
Stock Option Plan
Our Stock Option Plan is managed by our Human Resources and Corporate Governance Committee of our board of directors, which defines the plan’s eligibility criteria and selects recipients based on their functions, responsibilities and performance. Each grant cycle under our Stock Option Plan is designated with a serial number
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beginning with the letter “C.” As of December 31, 2022, the outstanding series of stock options under our Stock Option Plan were C7 and C9.
Our employees and executive officers, as well as the employees and executive officers of our subsidiaries, who are considered “key executives,” are eligible to participate in our Stock Option Plan, subject to the approval of the human resources and corporate governance committee. Participation in our Stock Option Plan is independent of other forms of compensation, such as wages and benefits.
Compensation Plan
Our Compensation Plan is also managed by the human resources and corporate governance committee of our board of directors, which defines the plan’s eligibility criteria and selects recipients based on their functions, responsibilities and performance. Each grant cycle under our Compensation Plan is designated with a serial number beginning with the letter “B.” As of December 31, 2022, the outstanding series of stock options under our Compensation Plan were Series B7 and B9.
Our employees and executive officers, as well as the employees and executive officers of our subsidiaries, who are considered “key executives,” are eligible to participate in our Compensation Plan, subject to the approval of the human resources and corporate governance committee. Participation in our Compensation Plan is independent of other forms of compensation, such as wages and benefits.
Main Objectives of the Stock Option Plan
The goal of our Stock Option Plan is to (i) attract and retain highly qualified executive officers and professionals; (ii) enable our managers and employees to participate in our capital and in the equity increases arising from the results these managers and employees have contributed to; and (iii) align the interests of our managers and employees with those of our shareholders, encouraging these professionals to improve performance while ensuring continuity in the management of our Company and our subsidiaries.
Maximum Number of Shares and Options
The total aggregate number of options that may be granted under each of our Stock Option Plan and our Compensation Plan, must not exceed 2% of the total number of common shares issued by us, subject to adjustments resulting from stock splits, reverse stock splits and bonuses.
Exercise Price
The exercise price per common share granted under the Compensation Plan will correspond to R$0.01.
For each series of options granted under the Stock Option Plan, the exercise price of each stock option will correspond to 80% of the average of the closing price of the common shares issued by the Company, in the prior 20 trading sessions of the B3 prior to the date of the meeting of the human resources and corporate governance committee, in which the options are granted.
Vesting
In general, the stock options granted under the Stock Option Plan will vest beginning on the 37th month following the granting of the stock options.
The options granted under the Stock Option Plan may be exercised in whole or in part.
Restrictions on Transferring Shares
Under the Stock Option Plan, for a period of 180 days from the date of payment by the participant, the participant will be prohibited from, directly or indirectly, selling, assigning, exchanging, disposing, transferring, granting an option or entering into any instrument or agreement that results or may result in the direct or indirect, onerous or gratuitous, disposition of any or all of the shares. There is no such transfer restriction for the Compensation Plan.
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Outstanding Stock Options
The charts below detail the outstanding stock options for the members of our senior management, as of December 31, 2022.
|
As of December 31, 2022 | ||||
|
Number of options | ||||
| In relation to each option grant: |
Series B7 |
Series C7 |
Series B9 |
Series C9 |
| Grant date | 01/31/2021 | 01/31/2021 | 05/31/2021 | 05/31/2021 |
| Number of options granted (in number of shares) | 223,018 | 47,127 | 428,691 | 254,999 |
| Deadline for the options to become exercisable | 05/01/2023 | 05/01/2023 | 06/01/2025 | 06/01/2025 |
| Deadline for the exercise of the options | 11/30/2023 | 11/30/2023 | 11/30/2025 | 11/30/2025 |
| Period of restriction to the transfer of the shares | n.a. | 180 days | n.a. | 180 days |
|
Average weighted exercise price of each of the following groups of shares: | ||||
| Outstanding at the beginning of the year (in R$ per share) | 0.01 | 51.18 | 0.01 | 17.67 |
| Lost during the year (R$ per share) | n.a. | n.a. | n.a. | n.a. |
| Exercised during the year (R$ per share) | 0.01 | 51.18 | 0.01 | 17.67 |
| Expired during the year (R$ per share) | n.a. | n.a. | n.a. | n.a. |
| Fair value of the options on the grant date (in R$ per share) |
72.68 | 31.15 | 7.68 | 7.68 |
| Potential dilution in case of exercise of the options | 0.08% | 0.02% | 0.07% | 0.07% |
Stock Options Exercised and Shares Delivered
In 2022, 129,584 stock options were exercised by certain members of our senior management and 683,690 shares were delivered to certain members of our senior management.
We recognized share-based payment expenses of R$10.9 million, R$10.1 million and R$15.0 million in our audited consolidated financial statements in 2022, 2021 and 2020, respectively. These amounts included the amounts related to accelerated vesting of certain stock options.
Maximum, Minimum and Average Compensation of the Board of Directors, Statutory Board of Executive Officers and Fiscal Council
The tables below contain the highest, lowest and average individual compensation of our directors, executive officers and members of the fiscal council for the years ended December 31, 2020, 2021 and 2022.
Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2020
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council | |
| Number of members | 12.50 | 4.58 | 2.00 |
| Number of compensated members | 11.50 | 4.59 | 2.00 |
| Highest compensation (R$)(1) | 65,944,593 | 14,329,313 | n.a. |
| Lowest compensation (R$)(2) | 216,000 | 819,045 | n.a. |
| Average compensation (R$) | 5,520,932 | 11,682,744 | 97,877 |
_________________
| (1) | The highest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council was received by members who provided services to our Company for 12 months. |
| (2) | The calculation of the lowest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council excludes members who provided services to our Company for less than 12 months in the year. |
Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2021
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council | |
| (in R$, when applicable) | |||
| Number of members | 9.67 | 2.83 | 2.0 |
| Number of compensated members | 8.67 | 2.83 | 2.0 |
| Highest compensation (R$)(1) | 25,722,978 | 9,329,083 | 156,000 |
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| Lowest compensation (R$)(2) | 53,005 | 911,422 | 138,000 |
| Average compensation | 2,634,488 | 5,451,258 | 147,000 |
_________________
| (1) | The highest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council was received by members who provided services to our Company for 12 months. |
| (2) | The calculation of the lowest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council excludes members who provided services to our Company for less than 12 months. |
Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2022
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council | |
| Number of members | 12 | 4 | 3 |
| Number of compensated members | 11 | 4 | 3 |
| Highest compensation (R$)(1) | 15,775,840 | 43,161,132 | 156,000 |
| Lowest compensation (R$)(2) | 4,989,098 | 224,640 | 138,000 |
| Average compensation (R$) | 6,324,976 | 5,422,792 | 144,000 |
_________________
| (1) | The highest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council was received by members who provided services to our Company for 12 months. |
| (2) | The calculation of the lowest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council excludes members who provided services to our Company for less than 12 months. |
Insurance
We maintain officers’ and directors’ liability insurance with a certain limit, covering all our executive officers against damages attributed to them in the good faith exercise of their functions. The policy is automatically extended to the management of our subsidiaries.
6C. Board Practices
According to our bylaws and the internal regulation of our board of directors, the board of directors shall consist of seven to nine members, elected and removable by the annual shareholders’ meeting. The term of office of the members of the board of directors shall be up to two years, with re-election permitted. The board of directors shall have a chairman and up to two vice-chairmen, all appointed by the annual shareholders’ meeting. The board of directors shall ordinarily meet at least six times a year, to review the financial and other results of the Company and to review and follow-up of the annual operating plan and strategic plan and shall extraordinarily meet whenever necessary.
Our board of directors is comprised of nine members elected by our shareholders, with three of those being independent directors. The term of office of all of our directors will expire in the first meeting of our board of directors to be held after the 2024 annual shareholder’s meeting which will approve the financial statements of the fiscal year of 2023. We are managed by our board of directors and by our board of executive officers. None of our directors and officers is party to an employment agreement providing for benefits upon termination of employment, except for those benefits provided by Brazilian labor law.
The board of executive officers shall consist of two to 14 members, shareholders or not, resident in Brazil, appointed and removed by the board of directors, being necessarily appointed one Chief Executive Officer, one Investor Relations Executive Officer and the others Vice Executive Officers and Officers. As of December 31, 2022, our board of executive officers was composed of four members.
The responsibilities of our executive officers include adopting plans related to our management and operations, reporting to shareholders each fiscal year on the status of our business activities, presenting the year-end balance sheets and other legally required financial statements and submitting investment programs and budgets to our board of directors.
Our executive officers are elected by our board of directors for two-year terms, although any executive officer may be removed by our board of directors before the expiration of his or her term. On March 19, 2021, our directors elected our executive officers. The term of all executive officers expires on the date of the first board of directors meeting after the 2023 annual shareholders’ meeting.
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Committees of the Board of Directors
As of the date of this annual report, we have the following five advisory committees: (i) audit committee; (ii) human resources and corporate governance committee; (iii) financial committee; (iv) sustainability and diversity committee; and (v) innovation and digital transformation committee. The responsibilities of our committees are set by their respective internal regulations. The members of each committee are appointed by our board of directors and the board of directors also designates the coordinator of each advisory committee. The committees may include one member who is external and independent, except for the audit committee, which has specific rules described below. Each special committee is composed of at least three and up to five members for a term of office of two years, reelection being permitted. In addition to these committees, the board of directors may create other committees with special roles.
Audit Committee
Brazilian publicly held companies may, pursuant to CVM Resolution 23/2021, as amended from time to time, adopt a statutory audit committee (comitê de auditoria estatutário). According to CVM Resolution 23/2021, the statutory audit committee is an advisory body of the board of directors and must have at least three members who shall be appointed by the board of directors, including at least one member who is also a member of the board of directors and not a member of management. A majority of the members must be independent, according to the independence requirements of the CVM. Additionally, a company listed on the Novo Mercado listing segment of the B3, such as us, must install an audit committee.
The statutory audit committee holds meetings at least once every three months and its main duties, according to its internal rules, are: to analyze and monitor the quality and integrity of our quarterly information, financial statements and management report, to evaluate the effectiveness and sufficiency of our internal control structure and internal and independent audit processes, to evaluate and monitor, jointly with our management and internal audit systems, to evaluate and monitor, together with our management and internal audit systems, the adequacy of the policies of the Company, including the policy of related party transactions, to evaluate and monitor our exposure to risk, to propose the appointment of independent auditors as well as their replacement, and to prepare the annual report, to be presented jointly with the financial statements, including, at least, the following information: (i) activities carried out in the period, the results and conclusions reached; (ii) evaluation of the effectiveness of the internal control and risk management systems; (iii) description of the recommendations presented to our management and evidence of their implementation; (iv) evaluation of the effectiveness of the independent and internal audits; (v) evaluation of the quality of the financial, internal control and risk management reports; and (vi) any situations in which there is any significant divergence between our management, the independent auditors and the committee in relation to our financial statements.
Our statutory audit committee is composed of at least three and up to five members, of whom at least two must be external and independent and one must be a member of our board of directors and not an executive officer of the Company. Additionally, at least one of the members of the audit committee must have recognized experience in corporate accounting. Members of our statutory audit committee are appointed by our board of directors for a two-year term, re-election being permitted, subject to a maximum of ten years, and must meet certain requirements set forth by our bylaws, the audit committee’s internal regulation and the CVM rules.
Our statutory audit committee is not equivalent to or comparable with a U.S. audit committee. Pursuant to Exchange Act Rule 10A-3(c)(3), which provides for an exemption under the rules of the SEC regarding the audit committees of listed companies, a foreign private issuer, such as us, is not required to have an audit committee equivalent to or comparable with a U.S. audit committee, if the foreign private issuer has a body established and selected pursuant to home country legal or listing provisions expressly requiring or permitting such a body, and if the body meets the requirements that (i) it be separate from the full board; (ii) its members not be elected by management; (iii) no executive officer be a member of the body; and (iv) home country legal or listing provisions set forth standards for the independence of the members of the body.
As a foreign private issuer, we chose to rely on this exemption under Exchange Act Rule 10A-3(c)(3) and we believe that our statutory audit committee complies with the aforementioned exemption requirements.
As Brazilian corporate law does not permit the board of directors to delegate responsibility for the appointment, retention and compensation of the external independent auditors and does not provide the board of directors with the authority to resolve disagreements between management and the external auditors regarding
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financial reporting, our statutory audit committee cannot fulfill these functions. Therefore, our statutory audit committee may only make recommendations to the board of directors with respect to these matters.
The following members were appointed by our board of directors to our statutory audit committee:
|
Name |
Position |
First Year Elected |
Date of Birth |
| Eleazar de Carvalho Filho(1) | Coordinator and Member(2) | 2014 | July 26, 1957 |
| Gisélia da Silva | Member | 2018 | December 30, 1961 |
| Renan Bergmann | Member | 2018 | February 16, 1954 |
| Fernando Dal-Ri Múrcia | Member | 2020 | July 16, 1977 |
| Christophe José Hidalgo | Member | 2020 | October 25, 1967 |
_________________
| (1) | Independent member of board of directors. |
| (2) | The role of the coordinator of the statutory audit committee is provided for in CVM Resolution No. 23, of February 25, 2021. His responsibilities are to chair the meetings, represent the committee to our administrative bodies and enforce the provisions of the internal regulation. |
Mr. Eleazar de Carvalho Filho. Please see “—6A. Directors and Senior Management—Board of Directors” for Mr. Carvalho’s biography.
Ms. Gisélia da Silva holds a law degree from the Pontíficia Universidade Católica in the state of Rio Grande do Sul (PUC-RS), an MBA in marketing from Escola Superior de Propaganda e Marketing in the state of São Paulo (ESPM-SP), an L.L.M. degree in corporate law from Insper, in the city of São Paulo, a Post-MBA in Advanced Boardroom Program for Women from Saint Paul Business School, in the city of São Paulo, and the Columbia University, in the city of New York, in addition to a corporate director certificate awarded by Harvard Business School. She worked for more than 18 years for the CPFL Energia group, having held the positions of institutional relations advisor, corporate law manager and head of the corporate governance advisory area. She is a member of the board of directors and law committees of the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa - IBGC), as well as an independent member of the management committee of the Integra Rating of governance in sports. She was an independent member of the board of directors of Eletronorte and CGT Eletrosul from 2018 to 2023, a member of the audit committee of Via from 2018 to 2019, and an alternate member of the fiscal council of SABESP, from 2020 to 2021. Ms. Silva is the founding partner of GIS DS, a consulting firm specialized in integrity culture and corporate governance.
Mr. Renan Bergmann. Please see “—6A. Directors and Senior Management—Board of Directors” for Mr. Bergmann’s biography.
Mr. Fernando Dal-Ri Múrcia holds a bachelor’s degree in management from the Webber International University, in the United States, and in accounting from Universidade do Vale do Itajaí, in the state of Santa Catarina, Brazil. Mr. Múrcia has a master’s degree in accounting from the Federal University of Santa Catarina and a PhD in accounting and controllership from the University of São Paulo. He is also a professor at the Economics, Business and Accounting School of the University of São Paulo (FEA-USP). Mr. Múrcia is an alternate member of the fiscal council of Gerdau S.A., a member of the Accounting Studies Group of the Accounting Pronouncements Committee (CPC) on tax accounting matters in partnership with the Study Group Accounting Department of the Federal Revenue of Brazil (RFB), a member of the Finance and Accounting Commission of the Brazilian Institute of Corporate Governance (IBGC), a member of the Brazilian Commission for Monitoring the Relato Integrado (CBARI), a representative of Latin America in the Program of Emerging Researchers of the International Association for Accounting Education and Research (IAAER), and a researching scholar of the National Council for Scientific and Technological Development (CNPQ). He is currently a member of the Audit Committees of Locaweb and FUNCEF and of the Fiscal Councils of Renova Energia and EPTV. Mr. Múrcia has already served as the chairman of our fiscal council, a member of our fiscal council, a member of the Audit Committee of Via, a member of the fiscal council of Folha Participações and alternate member of the supervisory boards of Gerdau and Marfrig.
Mr. Christophe José Hidalgo. Please see “—6A. Directors and Senior Management—Board of Directors” for Mr. Hidalgo’s biography.
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Human Resources and Corporate Governance Committee
The human resources and corporate governance committee holds meetings at least once every three months and has the following duties: (i) suggesting amendments to the committee’s internal regulation, submitting them to the board of directors’ consideration; (ii) discussing and recommending an organizational structure model for the Company, to be submitted to the board of directors’ consideration; (iii) evaluating and recommending to the board of directors policies on management and development of people, as well as guidelines for attracting and retaining talents; (iv) identifying, both in the Company and in its subsidiaries, potential future leaders and follow up the development of their corresponding careers (v) reviewing and discussing the recruitment and hiring methods adopted by us, by taking those used by similar Brazilian companies as a parameter; (vi) examining the candidates to be elected to the board of directors and to the committees, including external members, based on professional experience, technical qualifications, as well as economic, social and cultural representativeness; (vii) examining and recommending to the board of directors the selected candidates for the position of chief executive officer of the Company, as well as the candidates selected by the chief executive officer to hold a position in our board of executive officers; (viii) reviewing and discussing the compensation policy applicable to our management, recommending to the board of directors the criteria of compensation, benefits and other programs, including the stock option program; (ix) reporting periodically to the board of directors its assessment of the applicability and effectiveness of compensation policies adopted by us, in order to assess the effectiveness of these policies in rewarding performance and discriminate against non-satisfactory performance, according to metrics aligned to our strategic goals, as well as to attract and retain talent; (x) discussing and suggesting criteria to annually evaluate the performance of our executive officers, by taking those used by similar Brazilian companies as a parameter, as well as supporting our board of directors in the evaluation process, manifesting its recommendations to the individual assessments of our board of directors; (xi) recommending and monitoring the adoption of the best corporate governance practices, as well as coordinating the process of implementing and maintaining such practices in the Company, as well as the effectiveness of the corporate governance processes, proposing changes, updates and improvements when necessary; (xii) draft and periodically submit to the board of directors a review of the Company’s hiring policy with its related parties, as well as all other policies necessary for the adoption, by the Company, of the best management and corporate governance practices; among others.
We have a Related Party Transactions Policy which requires that such transactions be conducted at arm’s length and in the interest of the Company. This policy also establishes the corporate body responsible for approving related party transactions. Our human resources and corporate governance committee is responsible for, among other things, reviewing whether the procedures set forth in the Related Party Transactions Policy are followed. Additionally, if the related party transaction exceeds the amount of R$25 million, our human resources and corporate governance committee must analyze the transaction and recommend it for final approval by our board of directors.
As of the date of this annual report, our human resources and corporate governance committee is composed of Christophe José Hidalgo, Arnaud Daniel Charles Walter Joachim Strasser, Luiz Augusto de Castro Neves and Rafael Sirotsky Russowsky.
Financial Committee
The financial committee holds meetings at least once every three months and has the following duties: (i) suggesting amendments to the committee’s internal regulation, submitting them to the board of directors’ consideration; (ii) recommending and following up the adoption of the best economic and financial standards and the process of implementation and maintenance of such standards in the Company, suggesting to the board of directors changes, updates and improvements thereto; (iii) analyzing and reviewing our budget, as well as following up and monitoring the implementation and enforcement thereof; (iv) analyzing and reviewing the economic and financial feasibility of our investment plans and programs, as well as following up and monitoring the implementation thereof; (v) analyzing, reviewing, and recommending measures and actions for the negotiations of any intra-company loans, merger and acquisition, or any other similar transaction involving the Company or any of its controlled companies; (vi) following up any of the operations and negotiations mentioned in item (v) above; (vii) analyzing and reviewing the economic and financial indicators, our cash flow and debt policy, for the purpose of suggesting changes and adjustments whenever it may deem necessary; (viii) following up and monitoring our average capital structure cost and suggest modifications thereto, whenever it may deem it necessary, as well as evaluating and discussing new funding alternatives for the Company; (ix) reviewing and recommending opportunities connected to financing transactions that may improve our capital structure, as well as for analyzing and discussing the working capital needs and its impact on our capital structure; (x) assisting both the board of directors and the board of executive officers in analyzing the Brazilian and world economic situations
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and their potential effects on our financial position, as well as the development of scenarios and trends, evaluating opportunities and risks and defining strategies to be adopted by us as regards its financial policy; (xi) monitoring the trading patterns of our securities in both the Brazilian and American markets, as well as the opinions of top investment analysts, recommending measures able to contribute in maintaining a healthy and liquid secondary market; and (xii) performing other duties as may be specified by the board of directors.
As of the date of this annual report, our financial committee is composed of Eleazar de Carvalho Filho, Arnaud Daniel Charles Walter Joachim Strasser, Hervé Daudin and Renan Bergmann.
Sustainability and Diversity Committee
The sustainability and diversity committee has been advising our board of directors since 2014. This committee is responsible for guiding and ensuring the adoption of the best corporate governance practices in our business, promoting discussions on sustainable development policies and initiatives and themes that are deemed important to members of our board of directors and executive officers. In addition, this committee monitors key indicators and policies relating to environmental, social and governance matters.
As of the date of this annual report, our sustainability and diversity committee is composed of Luiz Augusto Castro Neves, Arnaud Daniel Charles Walter Joachim Strasser, Rafael Sirotsky Russowsky, Helio Mattar and Marcelo Pimentel.
The Innovation and Digital Transformation Committee
The innovation and digital transformation committee, aside from ensuring our interests, in the scope of its functions, has the following attributions: (i) suggest changes in its regulation, submitting it to the board of directors for resolution; (ii) recommend and monitor the adoption of best practices of innovation, as well as coordinating the implementation process and maintenance of such practices, as well as the effectiveness of innovation processes, proposing changes, updates and improvements when necessary; (iii) prepare or review periodically, as the case may be, any documents related to innovation of our business, elaborating recommendations for changes, criticisms and suggestions that it deems to be necessary to the board of directors, in order to keep them constantly updated with respect to our innovation practices; (iv) assist the board of directors in the analysis of technological trends and innovations, as well as evaluate our projects, initiatives and investment proposals from the perspective of innovation; (v) opine on any other matters submitted by the board of directors to it, as well as on those that it considers relevant.
As of the date of this annual report, our innovation and digital transformation committee is composed of Christophe Hidalgo, Rafael Sirotsky Russowsky, Marcelo Pimentel and Alberto Serrentino.
Mr. Alberto Serrentino holds a bachelor’s degree in economics from the Federal University of Bahia (Universidade Federal da Bahia – UFBA). He is a consultant with more than 30 years of experience in the retail industry, having led over 190 projects for companies headquarted in Brazil and abroad. He is a member of boards of directors and committees of various companies. He is also the vice-president and member of the decision-making committee of the Brazilian Retail Society (Sociedade Brasileira de Varejo e Consumo) and the founder of Varese Retail, a retail strategy and digital transformation company. Mr. Serrentino is a professor of the specialization in retail of the University of São Paulo (USP)/Luiz de Queiroz Superior Agriculture School (ESALQ) and was a visiting professor of the Getúlio Vargas Foundation (Fundação Getúlio Vargas - FGV). He was the only Latin American individual to be nominated Top Retail Influencer by Rethink Retail.
Fiscal Council
According to Brazilian corporate law, the adoption of a fiscal council is voluntary, and it may be on a permanent or temporary basis. On October 18, 2012, our shareholders approved an amendment to our bylaws to grant temporary status to our fiscal council. Under Brazilian corporate law, the fiscal council is an independent body from management and the board of directors, elected by shareholders annually to supervise the activities of the board of directors, management and independent auditors. The responsibilities of the fiscal council are set by Brazilian corporate law and encompass the oversight of management’s compliance with the laws and bylaws, the issuance of a report included in the annual and quarterly financial reports and certain matters submitted for shareholders’ approval and the calling of shareholders’ meetings and the reporting of specific adverse matters arising at those meetings.
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Under Brazilian corporate law, the fiscal council may not contain individuals who are members of the board of directors or management, or who are our employees or employees of a controlled company or of a company within our corporate group, or a spouse or relative of any member of our management. In addition, Brazilian corporate law requires that fiscal council members receive compensation of at least 10% of the average amount paid to each executive officer, not including profit sharing and other benefits. Brazilian corporate law requires a fiscal council to be composed of at least three and up to five members and their respective alternates, being one of the members elected by our minority shareholders. According to Brazilian corporate law, the majority of the members of the fiscal council shall be elected by our controlling shareholder.
At our shareholders’ meeting held on April 26, 2023, our shareholders decided not to install a fiscal council.
6D. Employees
As of December 31, 2022, we had 37,325 employees (calculated on a full-time employee equivalent basis) located in Brazil. In Brazil, in 2022, over 39% of leadership positions were occupied by women and we experienced an increase of 0.3 p.p. in the percentage of persons with disabilities, when compared to 2021.
Virtually all of our employees are covered by union agreements. The agreements are renegotiated annually as part of industry wide negotiations between a management group representing the major participants in the retail food industry, including our management, and unions representing employees in the retail food industry. We believe we compensate our employees on a competitive basis, and we have developed incentive programs to motivate our employees and reduce employee turnover, including a retention program for key management. For more information on the risks relating to the inability of attracting or retaining key employees, see, “Item 3. Key Information—3D. Risk Factors—Risks Relating to our Industry and Us—We may be unable to attract or retain key personnel.” Our management believes that our relations with our employees and their unions are good.
The following table sets forth the number of our employees in Brazil as of December 31, 2022, 2021 and 2020:
|
As of December 31,(1) | |||
|
2022 |
2021 |
2020 | |
| Operational | 34,855 | 47,411 | 49,915 |
| Administrative |
2,470 |
3,104 |
3,153 |
| Total |
37,325 |
50,515 |
53,068 |
_________________
| (1) | Based on the average of the full-time equivalent number of employees, which is the product of the number of employees (full- and part-time) and the ratio of the average monthly hours of all retail employees to the average monthly hours of all full-time employees. The numbers in the table are related to our continuing operations in 2022, 2021 and 2020. |
6E. Share Ownership
As of July 31, 2023, members of our board of executive officers directly owned an aggregate amount of 9,871 common shares while the members of our board of directors directly held an aggregate amount of 62,110 common shares. As of the same date, none of our executive officers nor directors held directly, individually, more than 1% of our outstanding common shares. For more information on direct share ownership of our board members, see “Item 7. Major Shareholders and Related Party Transactions—7A. Major Shareholders.” As of December 31, 2022, our management and some of our employees also owned options to purchase an aggregate amount of 3,038,000 common shares at a per-share weighted average purchase price of R$8.46. For more information on our Stock Option Plan, see “—6B. Compensation—Employee Stock Option Plan” and note 24(d) to our financial statements as of and for the year ended December 31, 2022, included elsewhere in this annual report.
On February 14, 2020, B3 approved our migration from the Level 1 listing segment to the Novo Mercado listing segment of B3, the highest level of corporate governance practices of B3. According to the Novo Mercado requirements, on February 28, 2020, all of our then outstanding preferred shares were converted into common shares.
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| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
7A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our capital stock as of June 30, 2023, by each person known by us to beneficially own 5% or more of our common shares and our directors and officers as a group.
|
Shareholder |
Common Shares | |
|
Number |
% | |
| Segisor S.A.S.(1) | 99,619,228 | 36.88 |
| Casino(1) | 2 | 0.00 |
| Geant International B.V.(1) | 10,275,742 | 3.80 |
| Helicco Participações Ltda.(1) | 581,600 | 0.22 |
| BTG Pactual | 14,197,600 | 5.26 |
| Nuveen LLC | 14,217,060 | 5.26 |
| Jean-Charles Naouri | 1 | 0.00 |
| Directors and Officers(2) | 71,981 | 0.03 |
| Treasury shares | 159,689 | 0.06 |
| Others |
131,016,166 |
48.50 |
| Total |
270,139,069 |
100 |
_________________
| (1) | Segisor S.A.S. is a wholly-owned subsidiary of Casino. Wilkes Participações S.A., Segisor S.A.S., Casino, King LLC, Geant International B.V. and Helicco Participações Ltda. are part of the Casino Group. |
| (2) | Refers to common shares that our board of directors and board of executive officers own directly. |
As of June 30, 2023, we had 50,503 record holders in Brazil. On June 30, 2023, 33,315,393 of our common shares were held in the form of ADSs, representing 12.33% of the total of our common shares.
As of April 30, 2023, the Casino Group was the beneficial owner of 40.9% of the total capital stock of CBD.
7B. Related Party Transactions
From time to time, we and our affiliates have entered into transactions with the Casino Group and other related parties in the ordinary course of business on an arm’s length basis, including, but not limited to, loans, consulting agreements, intellectual property license agreements, services agreements for the intermediation and negotiation of third-party services and agency agreements.
We have a Related Party Transactions Policy which requires that related party transactions be at arm’s length, according to the usual trading conditions of the market, and in the best interest of the Company. This policy also establishes the corporate body responsible for approving related party transactions. Until February 14, 2020, our statutory audit committee was responsible for, among other things, reviewing whether the procedures set forth in the Related Party Transactions Policy are followed. As a result of our migration to the Novo Mercado listing segment, the corporate governance and human resource committee assumed the responsibility of reviewing all of our related party transactions.
In addition, we have also entered into the following commercial contracts to set the rules for promotion and sale of financing services provided by FIC at the Company stores for implementation the financing partnership between the Company and Itaú Unibanco S.A. established in the association agreement between the parties: (i) bank correspondent agreement; (ii) indemnification agreement under which FIC is committed to keep the Company free of losses in performing FIC’s services, and that FIC and the Company are committed, with each other, to compensate for contingences; and (iii) agreement for sharing information and allowing access to their respective systems for offering services.
Agreements with Casino Group
Cost Sharing Agreement
On August 1, 2014, as amended on October 30, 2014 and October 28, 2020, we entered into a cost sharing agreement with Casino, Euris, Helicco Participações Ltda. Wilkes Participações S.A. and Sendas Group (all
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companies controlled by the Casino Group), pursuant to which we agreed to reimburse them (Casino Group) for expenses incurred by their employees in connection with activities involving the transfer of “know-how” to CBD to support its development. The activities involve administrative, financial, advertising, strategic, planning and budgeting aspects, among others. On August 1, 2016, we also entered into a joinder agreement (substantially in the form of the schedule attached to the cost sharing agreement) with Casino Services SAS (a company controlled by the Casino Group), pursuant to which Casino Services SAS adhered to the cost sharing agreement. For the year ended December 31, 2022, we paid R$33.0 million under the cost sharing agreement.
Agency Agreements
On December 20, 2004, we entered into an agency agreement, amended on February 23, 2017, with Sendas Distribuidora S.A. and Casino International S.A., an affiliate of the Casino Group, to regulate the terms pursuant to which Casino International S.A. renders international retail and trade services to us (i.e., negotiation of commercial services with international suppliers).
On July 25, 2016, as amended on January 24, 2017, we, Sendas Distribuidora S.A. and Groupe Casino Limited, an affiliate of the Casino Group, entered into an agency agreement to regulate the terms under which Groupe Casino Limited renders global sourcing services to us (i.e., procurement of global suppliers and mediation in purchases). We also entered into an agreement with the original counterparties of the agency agreement, pursuant to which Groupe Casino Limited reimbursed us for an amount necessary to provide for margin equalization due the reduction of gains as a result of promotions carried out by us in our stores during 2018.
Cost Reimbursement Agreement
On July 25, 2016, as amended on January 23, 2018 and September 5, 2019, we and Casino entered into an agreement to regulate the reimbursement by the Company of expenses incurred by the Company’s French employees related to French social contributions and other benefits granted in the expatriation program which are paid by Casino in France.
Services Agreements
We enter into a services agreement with Casino on a yearly basis for the renewal of our insurance policies relating to cybersecurity. The services agreement allows Casino to hire a global cybersecurity insurance policy for a one-year period which also covers the operations of the Company.
Agreement with EMC
On June 6, 2019, we entered into a purchase agreement with Sendas and E.M.C. Distribution Limited, or EMC, a company indirectly controlled by Casino, pursuant to which EMC will perform the import of non-food and food products (except perishables and wine), on a non-exclusive basis. The agreement has a term of five years, automatically renewable for equal periods of time.
Agreements with Éxito
Cost Reimbursement Agreements
On October 22, 2019, we, Grupo Éxito and Sendas entered into a reimbursement agreement to regulate the reimbursement of expenses related to the relocation of employees among Grupo Éxito, CBD and Sendas to foster the sharing of know-how and experience on certain areas of operation within the companies of the Pão de Açúcar Group. On November 4, 2020, Sendas became a party to this agreement.
On June 1, 2020, we entered into another cost sharing agreement with Éxito Grupo providing for the reimbursement of expenses relating to the inclusion of Grupo Éxito as a user to DocuSign, which is an electronic signature software.
Our cost reimbursement agreements with Éxito were terminated as of January 1, 2023.
Trademark Assignment Agreement
On March 1, 2023, we entered into an agreement with Éxito pursuant to which we assigned the trademark registrations of Taeq in Colombia, Uruguay, Venezuela and Peru, including all rights to use and assign the
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trademark registrations in these countries, to Éxito, for US$1.1 million. The assignment agreement also provided Éxito with the right to register Taeq’s trademarks in all countries of South and Central America, except for Brazil.
Agreements with GY
Energy Efficiency Framework Agreement
On May 8, 2015, as amended on April 6, 2016, December 7, 2018, December 31, 2019 and January 7, 2020, we entered into an agreement with GreenYellow do Brasil Energia e Serviços Ltda., or GY, a Brazilian company in which Casino holds a 15% equity participation, pursuant to which GY provided for the installation of equipment and rendering of energy efficient solutions services at our Extra and Pão de Açúcar stores. The equipment and the services provided by GY were aimed at reducing the amount of energy used by our stores. We pay as consideration for the equipment an annual amount according to a payment method that is similar to a lease. For the rendering of services, GY is remunerated according to a formula based on the energy savings generated at each store. The duration of the individual agreements entered into under the framework agreement vary from two to 13 years.
Service Agreement
On November 12, 2020, we entered into a service agreement with GY pursuant to which GY will provide oversight and monitoring services to us relating to energy efficiency. This agreement has a term of 120 months for each store where the services are rendered.
Service Agreement for Retrofit and Food Refrigeration Solution
On December 9, 2020, we entered into an agreement for the supply and maintenance of chillers and similar products related to food refrigeration, to increase the energy efficiency of our facilities and to reduce our environmental impact on the planet’s greenhouse effect. This agreement has a term of 15 years.
Energy Sale and Purchase Agreements and Management Service Agreement
On June 30, 2021, we entered into an agreement with GY pursuant to which GY will sell electric energy at a discounted price, or the Energy Purchase and Sale Agreement, to supply energy to certain of our stores. On the same date, we entered into an agreement with GY pursuant to which GY would provide services to adapt certain of our stores to use the electric energy purchased under the Energy Purchase and Sale Agreement, or the Management Service Agreement. The Energy Purchase and Sale Agreement has a term of two years and the Management Service Agreement has a term of one year.
Penalties Relating to Agreements with GY
The Real Estate Assignment Transaction and our decision to discontinue the operations of the Extra Hiper banner significantly reduced the scope and materiality of our agreements with GY. As a result, we decided to terminate certain of these agreements thereby giving rise to contractual penalties of R$180 million to be paid by us to GY. As of December 31, 2022, these penalties had been fully paid.
For more information on the Extra Hiper Asset Sale and the discontinuation of the Extra Hiper banner, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores” and “—Extra Hiper Asset Sale.”
Agreements with Sendas
Separation Agreement
On December 14, 2020, we entered into a Separation Agreement with Sendas, which was later amended on June 30, 2021. The Separation Agreement sets forth our arrangements with Sendas regarding the principal actions to be taken in connection with the separation of the cash and carry business and matters regarding the operation of the CBD and Sendas businesses after the Sendas Spin-Off. The following are the principal terms of the Separation Agreement:
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Transfer of Assets and Assumption of Liabilities
The Separation Agreement identifies the assets to be transferred, liabilities to be assumed and contracts to be assigned, terminated and/or duplicated to each of Sendas and us as part of the internal transactions to be effected prior, during and after the Sendas Spin-off, the purpose of which is to ensure that, as at the time of the Sendas Spin-off, each of CBD and Sendas holds the assets which it requires to fully operate.
Common Agreements
All agreements, arrangements, commitments and understandings with third parties that contemplate both Sendas and us as parties, beneficiaries, guarantors and/or that in any way create an obligation to both Sendas and us, will terminate as soon as practically feasible after the completion of the Sendas Spin-off, except where such termination could create losses for Sendas and us, and therefore will be addressed by the Transition Committee (as defined therein).
Intercompany Arrangements
All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us, on the one hand, and Sendas, on the other hand, will be terminated effective as of completion of the Sendas Spin-off, except for specified agreements and arrangements that are intended to survive completion of the Sendas Spin-Off that are either transactional in nature, at arm’s length or depend on a transitional period due to its complexity.
Representations and Warranties
We and Sendas each provide customary warranties as to our respective capacity to enter into the Separation Agreement. Except as expressly set forth in the Separation Agreement or any ancillary agreement, neither we nor Sendas will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the Sendas Spin-Off, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the Sendas Spin-off.
Indemnification
We and Sendas each agree to indemnify the other and each of the other’s directors, officers, managers, members, agents and employees against certain liabilities incurred in connection with the Spin-off and our and Sendas’ respective businesses. The Separation Agreement provides for indemnification in relation to breaches of the agreement, violation or incorrectness of representation and warranties and in relation to certain other assets and liabilities that are specified for in the Separation Agreement.
Other Matters
Other matters governed by the Separation Agreement include, without limitation, insurance arrangements, confidentiality, data protection, mutual assistance and information exchange after completion of the Spin-off, treatment and replacement of cross-guarantees, conduct of litigation and tax matters after the Sendas Spin-off, and transfer of and post-Sendas Spin-Off access to certain books and records.
Data Protection Agreement
On December 17, 2020, we entered into a Data Protection Agreement with Sendas. The Data Protection Agreement sets forth our arrangements with Sendas regarding the fulfillment of data protection rules by both parties, the sharing of data between Sendas and us and indemnification rules relating to any penalties, damages or losses that might result from the non-compliance of data protection rules by any party.
Employee Matters Agreement
On December 17, 2020, we entered into an Employee Matters Agreement with Sendas. The Employee Matters Agreement sets forth our arrangements with Sendas, as part of the operational separation in connection with the Sendas Spin-off, regarding the transfer of employees to each of Sendas and us, the amendment to Sendas’ stock options plan and the creation of new stock options plans for our officers and employees, as well as the arrangements concerning agreements, understandings and/or representations with unions.
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Extra Hiper Asset Sale
In line with our strategy of focusing on the premium supermarket and proximity store segments, we decided to discontinue our hypermarket business. As part of that goal, in late 2021, the boards of directors of CBD and Sendas approved the Extra Hiper Asset Sale.
For more information on the Extra Hiper Discontinued Operations and the Extra Hiper Asset Sale, see “Explanatory Note—Extra Hiper Discontinued Operations.” For more information on the effects of the Extra Hiper Discontinued Operations on our audited consolidated financial statements, see notes 1.1 and 33(b) to our audited consolidated financial statements.
Agreement with Stix Fidelidade
Operational Agreement
On November 27, 2019, we, Raia Drogasil and Stix entered into an operational agreement to set forth the terms and conditions for the operation of Stix Fidelidade, including the definition of the amount of loyalty points to be acquired by us and RD from Stix, and the price paid for each acquired loyalty point, among other conditions.
Grupo Éxito
Tuya
Grupo Éxito entered into agreements with Tuya, a joint venture between Grupo Éxito and Grupo Bancolombia, relating to partnership agreements and to the reimbursement of expenses, among other matters.
Puntos Colombia
Grupo Éxito entered into an agreement with Puntos Colombia, a joint venture between Grupo Éxito and Banco Colombia, providing for the terms and conditions for the redemption of points collected under their loyalty program, among other services.
For more information regarding our related party transactions, see note 11 to our audited consolidated financial statements.
7C. Interests of Experts and Counsel
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
8A. Consolidated Statements and Other Financial Information
The information included in Item 18 of this annual report is referred to and incorporated by reference into this Item 8A.
Legal Proceedings
We are party to administrative proceedings and lawsuits that are incidental to the normal course of our business. These include general civil, tax and labor litigation and administrative proceedings. We believe that our provisions for legal proceedings are sufficient to meet probable and reasonably estimated losses in the event of unfavorable court decisions to us and to ensure that the outcomes of these legal proceedings have no material effect on our financial condition or results of operations. We cannot estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have made provisions.
Based on the advice of our external legal counsel, we have identified and made provisions for the following probable losses that may result from legal proceedings to which we are a party:
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|
As of December 31, | |||
|
2022 |
2021 |
2020 | |
| (in millions of R$) | |||
| Tax claims | 1,761 | 845 | 937 |
| Labor claims | 668 | 361 | 303 |
| Civil and other claims |
200 |
236 |
145 |
| Total accrued liabilities for legal proceedings |
2,629 |
1,442 |
1,385 |
For more information on our legal proceedings, see note 21 to our audited consolidated financial statements.
Tax-Related Claims
Tax-related claims are indexed to the SELIC rate, which in annual terms was 2.00% on December 31, 2020, and 9.15% on December 31, 2021, 13.75% on December 31, 2022, and are also subject, in certain cases, to fines. We have made provisions for interest charges and fines, when applicable.
In addition, tax claims are subject to monthly indexing, which involves adjusting the amount of provisions for litigation in accordance with the indexing rates used by each tax jurisdiction. The indexing is required by law for all tax amounts, including the provision for judicial deposits.
We have tax claims that were deemed probable losses by our legal counsel, including: (i) a 2011 disagreement regarding the non-application of Accident Prevention Factor (Fator Acidentário de Prevenção), or FAP, in contributions to our employees; (ii) the use of allegedly undue tax credits; (iii) non-payment of social charges on benefits granted to our employees, due to an unfavorable decision of the STF; (iv) IPI requirement on resale of imported products; (v) discussions related to the municipal property tax (Imposto Predial e Territorial Urbano), or IPTU; (vi) other less relevant issues. The amount we provisioned for these matters as of December 31, 2022, was R$380 million (R$437 million as of December 31, 2021).
Additionally, we are party to some proceedings before the São Paulo state tax authorities, which discuss ancillary state tax obligations in the context of the refund of ICMS due to tax substitution. Considering recent court decisions, we recorded a provision for this matter amounting to R$329 million as of December 31, 2022 (R$292 million as of December 31, 2021), representing the estimate of probable loss evaluated by our management on these proceedings.
The Company is also a party to proceedings before the São Paulo state tax authorities related to the treatment of energy credits for purposes of ICMS. After a recent STF ruling that decided for the absence of constitutional grounds to discuss this matter, we recorded a provision amounting to R$285 million as of December 31, 2022 (R$0 as of December 31, 2021), representing the estimate of probable loss evaluated by our management on these proceedings.
We discussed in court our eligibility to not pay Government Severance Indemnity Fund for Employees (Fundo de Garantia do Tempo de Serviço), or FGTS, contributions, as provided by Supplementary Law 110/01. As of December 31, 2022, the amount involved in this proceeding was R$51 million (R$51 million as of December 31, 2021).
Non-Payment of Social Contribution on Net Profits
In 1992, we obtained a final and unappealable decision allowing us not to pay CSLL on the basis that CSLL was deemed unconstitutional. As a result, all of our tax proceedings related to the non-payment of CSLL were deemed to have a remote probability of loss and we did not record any provisions related to these tax proceedings.
In 2007, the STF ruled in a direct action of unconstitutionality (ação direta de inconstitucionalidade) (ADI No. 15) that the CSLL was constitutional. However, the STF did not, on that occasion, decide on whether the entities that had obtained prior final and unappealable decisions allowing for the non-payment of CSLL were subject to the 2007 ruling and, if so, as from which date the payment of CSLL was due.
On February 9, 2023, the STF decided that its 2007 ruling was applicable to companies that had obtained prior final and unappealable decisions allowing for the non-payment of CSLL, such as us, and further decided that the effects of this decision would retroact to the date of the 2007 ruling. The decision of February 9, 2023, is subject to appeal.
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As a result, we have: (i) revised the probability of loss in legal proceedings against us regarding non-payment of CSLL and the amounts of CSLL not paid in the last five years from remote to probable; (ii) recorded provisions in the amount of R$600 million related to such proceedings in our balance sheet as of December 31, 2022; (iii) recorded deferred tax credits from negative basis, temporary differences and taxes on profits abroad of R$312 million. Consequently, our total net CSLL expense for the year ended December 31, 2022, was R$288 million, of which R$180 million were originated from continued operations and R$108 million were originated from discontinued operations.
The STF’s decision has automatically increased by 9% the tax rate levied on net profits. For additional information regarding the impacts of the STF’s decision on our tax rate levied on net profits and our results of operations, see notes 20 and 21 to our audited consolidated financial statements.
Exclusion of ICMS from the Calculation Basis of PIS and COFINS
We pay PIS and COFINS taxes, at the rates of 1.65% and 7.60% on net operating revenue, respectively. We adopt the non-cumulative system whereby these tax liabilities can be partially or completely offset by credits we accrue from taxes previously paid on products we purchase and other expenses. As a result of our application of the non-cumulative system, we and our subsidiaries have requested the right to exclude ICMS from the calculation basis of these two contributions.
On March 15, 2017, the STF ruled that ICMS must be excluded from the calculation basis of PIS and COFINS, in line with our request. The Attorney General's Office of the National Treasury (Procuradoria Geral da Fazenda Nacional), appealed against this decision.
In 2019, our subsidiaries recorded credits in the amount of R$382 million, of which R$198 million was recorded in our financial result, in accordance with the final and unappealable decisions rendered in the respective proceedings.
On October 29, 2020, we obtained a favorable decision in a lawsuit related to the exclusion of ICMS from the calculation basis of PIS and COFINS, which resulted in the recording of a tax credit in the amount of R$1,609 million, of which R$613 million was recorded in financial result, net of provisions for installments that may be considered non-realizable. Further, in 2021, as a result of certain judicial decisions issued in that year, we reassessed the tax credit, based on the opinion of our legal counsel, reversing part of the provisions previously recorded in the amount of R$280 million (R$109 million of which was recorded in the financial result). The offsetting of this tax credit is subject to certain administrative proceedings filed with the Brazilian tax authorities and we expect to realize it within seven years.
Via obtained a similar favorable decision in May 2020, resulting in Via recording a tax credit. We believe that we are entitled to be reimbursed for this tax credit, according to the terms of our association agreement with the Klein family in the transaction that created Via. For more information on reimbursements rights under our association agreement with the Klein family and reimbursements that are entitled to receive from Via, see “Item 4. Information on the Company—Item 4A. History and Development of the Company—Changes in Our Business—Indemnity with the Klein Family.”
On September 6, 2022, we obtained a favorable decision in a claim related to the exclusion of ICMS from the calculation basis of PIS and COFINS, which was decided separately from other proceedings of the same subject. Due to the favorable decision, we recorded a tax credit in the amount of R$106 million (R$71 million of which was recorded in the financial result).
Legal Proceedings Related to Sendas Compensation Liability
We are liable for Sendas legal proceedings prior to the Sendas Spin-off. As of December 31, 2022, the total amount provisioned under these legal proceedings was R$24 million, of which R$3 million consisted in tax proceedings, R$12 million consisted of labor proceedings and R$9 million consisted in civil proceedings. For more information on our tax-related claims, see note 21 to our audited consolidated financial statements.
Labor Claims
We are party to numerous lawsuits involving disputes with our employees, primarily arising from layoffs in the ordinary course of business. As of December 31, 2022, we recorded a provision of R$668 million
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(R$361 million as of December 31, 2021) referring to lawsuits whose risk of loss was considered probable. Management, assisted by legal counsel, evaluates these claims recording provisions for losses when reasonably estimable and taking into account previous experience in relation to the amounts claimed.
Civil, Regulatory and Other Claims
We are defendants in civil lawsuits. Among these lawsuits, we highlight the following:
| · | We have filed or are the defendants in various lawsuits requesting the review of lease amounts. In these lawsuits, the judge determines a provisional lease amount, which is then paid by the stores until the final lease amount is defined. The Company recognizes a provision for the difference between the original amount paid by the stores and the amounts requested by the opposing party (owner of the property) in the lawsuit, when internal and external legal advisors agree on the likelihood of a change to the lease paid by us. As of December 31, 2022, the provision for these lawsuits was R$46 million (R$100 million as of December 31, 2021) to which there are no judicial deposits. |
| · | We are party to lawsuits relating to penalties applied by municipal, state and federal regulatory agencies, including the Consumer Protection Agency (Procuradoria de Proteção e Defesa do Consumidor) and the National Institute of Metrology, Standardization and Industrial Quality (INMETRO), as well as discussions relating to the termination of agreements with our suppliers. As of December 31, 2022, we had provisions for these lawsuits in the amount R$83 million (R$56 million as of December 31, 2021). |
| · | The amount provisioned for the remaining civil jurisdiction matters as of December 31, 2022, was R$71 million (R$50 million as of December 31, 2021). |
As of December 31, 2022, including the civil lawsuits mentioned above, we had provisions for civil, regulatory and other claims in the amount of R$200 million (R$236 million as of December 31, 2021).
Other Contingent Liabilities for Which There Are No Provisions
As of December 31, 2022, we were party to certain legal proceedings for which the probability of loss was deemed possible and, therefore, we have not recorded provisions for these proceedings. See note 21 to our audited consolidated financial statements for detailed information on these proceedings.
We are party to several tax-related legal proceedings with various governmental agencies related to social security charges under discussion with the National Institute of Social Security (Instituto Nacional de Seguridade Social), or INSS, corporate income tax (IRPJ), withholding income tax (Imposto de Renda Retido na Fonte), or IRRF, CSLL, COFINS, PIS, credits related to IPI, contribution tax on financial transactions (IOF), ICMS, municipal service tax (Imposto Sobre Serviços), or ISS, and IPTU. Also, we are party to legal proceedings for the compulsory renewal of lease agreements, and other civil and administrative proceedings involving authorities such as the Consumer Protection Foundation (Fundação de Proteção e Defesa do Consumidor - PROCON) and the National Institute of Metrology, Standardization and Industrial Quality (Instituto Nacional de Metrologia, Qualidade e Tecnologia – INMETRO) and the Brazilian Health Regulatory Agency (Agência Nacional de Vigilância Sanitária – ANVISA). As of December 31, 2022, the aggregate amount of the possible loss regarding these legal proceedings was R$14,459 million (R$12,123 million as of December 31, 2021).
We are party to tax proceedings related to goodwill tax deduction regarding corporate income tax (IRPJ) and CSLL, for the period from 2007 to 2013, for which we believe that we are entitled to be reimbursed by our current and former shareholders. As of December 31, 2022, the aggregate amount of the possible loss regarding these legal proceedings was R$1,922 million (R$1,467 million as of December 31, 2021).
Globex (which later changed its corporate name to Via) is a defendant in tax legal proceeding relating to ICMS, PIS and COFINS discussions, among others. As per the terms of the public auction to acquire Globex’s shares in 2009, we are liable for the losses relating to the legal proceedings of Globex prior to its acquisition by Via. On June 14, 2019, we sold all of our equity interest in Via, however, we remain liable for these legal proceedings. For more information on the transactions with Via that remained in effect, see “Item 4. Information on the Company—Item 4A. History and Development of the Company—Changes in Our Business—Sale of Home Appliances Operating Segment.” As of December 31, 2022, the amount under discussion in this tax proceeding was R$419 million (R$474 million as of December 31, 2021).
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We are also party to other tax legal proceedings, including claims relating to the improper deduction of goodwill amortization. Pursuant to agreements we entered into with certain of our former and current shareholders, we believe we are entitled to receive an indemnification, which, as of December 31, 2022, we estimated to be in the amount of R$1,922 million (R$1,467 million as of December 31, 2021).
We are also liable for Sendas Distribuidora legal proceedings prior to the Sendas Spin-off for which we record no provisions. As of December 31, 2022, the total amount of these legal proceedings was R$1,352 million, of which R$1,309 million consisted of tax proceedings and R$ 43 million consisted of other proceedings.
We engage external counsels to represent it in the tax assessments, whose fees are contingent upon a percentage to be applied to the amount of success in the final outcome of these lawsuits. This percentage may vary according to qualitative and quantitative factors of each claim, and, as of December 31, 2022, the estimated amount that will be paid in all lawsuits is approximately R$142 million (R$157 million as of December 31, 2021).
Dividend Policy
General
Pursuant to Brazilian corporate law, Brazilian corporations are required to hold an annual shareholders’ meeting in the first four months of each fiscal year to resolve the allocation of the results of operations in any year and the distribution of an annual dividend. Under Brazilian corporate law, shareholders of a Brazilian corporation have the right to receive, as a mandatory dividend for each fiscal year, (i) a part of the corporation’s net profits as established under its bylaws, subject to a minimum mandatory dividend of at least 25% of the net profits adjusted pursuant to Brazilian corporate law, or (ii) if not provided under such bylaws, an amount equal to 50% of the company’s adjusted net profits calculated according to Brazilian corporate law. Pursuant to Brazilian corporate law, in addition to the mandatory dividend, the board of directors may recommend the payment of interim dividends and payment of dividends from other legally available funds to shareholders. Also pursuant to Brazilian corporate law, a Brazilian company is allowed to suspend the distribution of mandatory dividends in any year in which its management reports at its shareholders’ general meeting that the distribution would be incompatible with the company’s financial condition.
We may prepay dividends on a quarterly basis, subject to approval by our board of directors, at meetings held throughout the fiscal year. Nevertheless, at the end of each fiscal year, we pay our shareholders the minimum mandatory dividend, calculated in accordance with Brazilian corporate law. In case we decide to prepay dividends in a quarterly basis or otherwise, the amount prepaid shall be considered in the calculation of the mandatory dividend amount that must be paid at the end of each fiscal year.
In 2020, 2021 and 2022, our board of directors approved payments of interest on shareholders’ equity to our shareholders. The approved payments were charged to the minimum mandatory dividend related to the respective fiscal years. On June 15, 2020, we paid dividends in the amount of R$155.8 million to meet the minimum mandatory dividend for 2019, as required by Brazilian corporate law. As we did not prepay dividends in 2021, our shareholders approved the payment of interest on shareholders’ equity in the total amount of R$ 81.1 million at our annual shareholders’ meeting held on April 27, 2022.
According to our bylaws, declared dividends must be paid within the deadline informed at the meeting of our board of directors or our shareholders’ meeting that approved the dividend distribution.
For more information on our dividend policy, see “Item 10. Additional Information—10B. Memorandum and Articles of Association—Appropriation of Net Profits and Distribution of Dividends—Distribution of Dividends” and “—Interest on Shareholders’ Equity.”
History of Dividend Payments
On April 26, 2023, an annual shareholders’ meeting took place and since we recorded a loss for the year ended December 31, 2022, there was no distribution of dividends to our shareholders. The following table sets forth the distributions paid to holders of our common shares and preferred shares in the years ended December 31, 2022, 2021 and 2020:
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|
Period |
Description |
First payment date |
R$ per preferred share(1) |
R$ per common share |
Total amount of dividends and interest on shareholders’ equity |
| (in R$ millions) | |||||
| 2019 | Interest on shareholders’ equity | June 15, 2020 | N/A | 0.582024107 | 156(2) |
| 2020 | Interest on shareholders’ equity | June 15, 2021 | N/A | 1.701093954 | 456(1) |
| 2020 | Dividends | June 15, 2021 | N/A | 0.475788964 | 127 |
| 2021 | Interest on shareholders’ equity | June, 15,2022 | N/A | 0.301301 | 81 |
_________________
| (1) | On February 14, 2020, B3 approved our migration from the Level 1 listing segment to the Novo Mercado listing segment of B3. According to the Novo Mercado requirements, on February 28, 2020, all of our then outstanding preferred shares were converted into common shares and, on March 2, 2020, the trading of our common shares began on the Novo Mercado listing segment of the B3. |
| (2) | Such amounts represent the estimated gross amount of interest on shareholders’ equity, as certain shareholders are exempt withholding income tax. |
Shareholders who are not residents of Brazil must generally register with the Central Bank to have dividends and/or interest on shareholders’ equity, sales proceeds or other amounts with respect to their shares eligible to be remitted in foreign currency outside of Brazil. For more information, see “Item 10. Additional Information—10D. Exchange Controls.” The common shares underlying the ADSs are held in Brazil by the Custodian, as agent for the depositary, the registered owner on the records of the Custodian for the common shares underlying the ADSs. As of the date of this annual report, the Custodian of our ADSs is Banco Itaú Corretora de Valores S.A.
Payments of cash dividends and distributions, if any, will be made in Brazilian reais to the Custodian on behalf of the depositary, which will then convert the payments from Brazilian reais into U.S. dollars and thereafter will cause the U.S. dollars to be delivered to the depositary for distribution to holders of ADSs as described above. In the event that the Custodian is unable to immediately convert the Brazilian reais received as dividends and/or interest on shareholders’ equity into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by any devaluation of the Brazilian real that occurs before the distributions are converted and remitted. For more information, see “Item 3. Key Information—3D. Risk Factors—Risks Relating to Brazil—Exchange rate volatility may adversely affect the Brazilian economy and us.” Dividends and interest on shareholders’ equity in respect to the shares paid to shareholders, including holders of ADSs, are subject to the tax treatment outlined in “Item 10. Additional Information—10E. Taxation—Brazilian Tax Considerations.”
8B. Significant Changes
Not applicable.
| ITEM 9. | THE OFFER AND LISTING |
9A. Offer and Listing Details
On February 14, 2020, B3 approved our migration from the Level 1 listing segment to the Novo Mercado listing segment of B3. According to the Novo Mercado requirements, on February 28, 2020, all of our then outstanding preferred shares were converted into common shares and, on March 2, 2020, the trading of our common shares began in the Novo Mercado listing segment of the B3.
Our preferred shares were traded on B3 under the trading symbol PCAR4 until their conversion into common shares on February 28, 2020. Since March 2, 2020, the trading of our common shares, which were already listed on B3 under the trading symbol PCAR3, began trading on the Novo Mercado listing segment of the B3.
Our common shares in the form of ADSs are traded on the NYSE under the trading symbol “CBD.” Our ADSs commenced trading on the NYSE in May 1997. As a result of our migration to the Novo Mercado listing segment of B3 and the conversion of our preferred shares into common shares, since March 5, 2020, each ADS has represented one common share, without par value. The ADSs are evidenced by ADRs issued by JP Morgan Chase Bank, N.A.
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9B. Plan of Distribution
Not applicable.
9C. Markets
Trading on the B3
The B3, formerly BM&FBOVESPA, is a Brazilian publicly held company formed in 2008 through the merger of the São Paulo Stock Exchange (Bolsa de Valores de São Paulo) and the Brazilian Mercantile and Futures Exchange (Bolsa de Mercadorias & Futuros). The B3 is one of the largest exchanges in the world in terms of market capitalization, the second in the American continent and the leader in Latin America.
Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, with order cancellation from 09:30am to 09:45am, pre-opening from 09:45am to 10:00am, trading from 10:00am to 04:55pm and closing call from 04:55pm to 05:00pm. Depending on daylight savings time in Brazil or United States the trading sessions can take place in different periods, with order cancellation from 09:30am to 09:45am, pre-opening from 09:45am to 10:00am, trading from 10:00am to 04:55pm and closing call from 04:55pm to 05:00pm.
To better control the excess of volatility in market conditions, B3 has adopted a “circuit breaker” pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the stock exchange broad based index falls below the limits of 10% and 15%, respectively, compared to the close of trading of the previous trading day. In the event the stock exchange index falls below the limit of 20% in comparison to the previous trading day, B3 may determine the suspension of the trading session for a certain period to be defined at its sole discretion. The exchange has also adopted single stock trading halts to deal with certain high volatility situations.
Trading on B3 by non-residents of Brazil is subject to certain limitations under Brazilian foreign investment and tax legislation.
Regulation of the Brazilian Securities Markets
The Brazilian securities market is regulated and supervised by the CVM (which has general authority over the stock exchanges and securities markets) as provided for by Law 6,385, dated December 7, 1976, or the Brazilian Securities Exchange Act, and Brazilian corporate law. The National Monetary Council (Conselho Monetário Nacional), or the CMN, is responsible for supervising the CVM’s activities, granting licenses to brokerage firms to govern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by the Brazilian Securities Exchange Act and Law No. 4,595 of December 31, 1964. These laws and regulations provide for, among other things, disclosure requirements to issuers of securities listed on stock exchanges, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.
Under Brazilian corporate law, a company is either public (companhia aberta), like us, or private (companhia fechada). All public companies are registered with the CVM and are subject to periodic reporting requirements and the public disclosure of material facts. A company registered with the CVM may have its securities traded either on B3 or on the Brazilian over-the-counter market. The shares of a company listed on B3 may also be traded privately, subject to certain limitations. To be listed on B3, a company must apply for registration with the CVM and with B3. Trading of securities of a public company on B3 may be suspended at the request of such company in anticipation of a material announcement. Trading may also be suspended upon the initiative of B3 or the CVM, based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries made by the CVM or B3.
The Brazilian Securities Exchange Act, Brazilian corporate law and the laws and regulations issued by the CVM, the CMN, and the Central Bank provide for, among other matters, disclosure requirements applicable to issuers of traded securities, restrictions on insider trading and price manipulation, protection of minority shareholders, licensing procedures, supervision of brokerage firms, and the governance of the Brazilian stock exchanges.
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Corporate Governance Practices
In 2000, the BM&FBOVESPA, currently known as B3, introduced three special listing segments, known as Level 1 (Nível 1) and Level 2 (Nível 2) of differentiated Corporate Governance Practices and the New Market (Novo Mercado), aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the then BM&FBOVESPA, by prompting such companies to follow good corporate governance practices. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by applicable Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.
On May 10, 2011, the differentiated Corporate Governance Practices of the Level 1 and 2 and the Novo Mercado rules were amended. The new provisions include, among others, new pecuniary sanctions for companies that do not comply with rules. In addition, according to the amended rules, a company’s chief executive officer or major executive officer cannot also hold the position of chairman of the board of directors. Board members shall be elected for continuous terms of a maximum of two years, with reelection permitted.
We were listed on the Level 1 listing segment of B3 from March 31, 2003 to February 14, 2020, when we received the formal approval by B3 to migrate to Novo Mercado, the highest level of corporate governance of B3. According to the Novo Mercado requirements, on February 28, 2020, all of our then outstanding preferred shares were converted into common shares and, on March 2, 2020, the trading of our common shares began in the Novo Mercado listing segment of B3. In the U.S. the preferred ADS positions were converted into common ADS positions on March 4, 2020, with a consequently change of CUSIP. On March 5, 2020, NYSE suspended trading of the old CUSIP and trading under new CUSIP began.
To be listed on the Novo Mercado segment, in addition to the obligations imposed by current Brazilian law, a company must agree to (i) issue only common shares; (ii) grant tag-along rights to all shareholders in the event of a change in shareholder control. The shareholder acquiring control must hold a public tender offer for the shares of other shareholders, offering the same price per share paid to the controllers; (iii) maintain free float of at least 25% of the company’s total capital stock; (iv) adopt offering procedures that favor a broad shareholder base; (v) comply with minimum quarterly disclosure standards; (vi) follow stricter disclosure policies with respect to securities transactions made by the issuer’s controlling shareholders, board members and officers; (vii) submit any existing shareholders’ agreements and stock option plans to B3; (viii) disclose a schedule of corporate events to shareholders; (ix) prepare annual financial statements including cash flow statements in English and in accordance with international accounting standards, such as U.S. GAAP or the International Financing Report Accounting Standards (IFRS); (x) adopt exclusively the arbitration rules of B3, in which B3, the company, the controlling shareholder, managers and members of the fiscal council, if instated, commit to resolve any dispute or controversy related to the listing rules through arbitration; (xi) hold public meetings with financial analysts and any other interested parties at least once a year to present information regarding its financial and economic position, projects and prospects; and (xii) if a decision to delist from the Novo Mercado is made, the issuer’s controlling shareholder must hold a public tender offer for the acquisition of all outstanding shares at a minimum price to be established based on an independent appraisal.
Disclosure Requirements
According to Brazilian corporate law and CVM regulations, a public company must submit certain periodic information to the CVM and B3, including financial statements, quarterly information, management discussion and analysis and independent audit reports. This legislation also requires us to file our shareholders’ agreements, notices of shareholders’ meetings and copies of the related minutes and communications regarding material acts or facts with the CVM and B3.
The CVM rules also provide for requirements regarding the disclosure and use of information related to material acts or events, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.
Such requirements include provisions that:
| · | establish the concept of a material act or events that gives rise to reporting requirements. Material acts or events include decisions made by the controlling shareholders, resolutions of the annual shareholders’ meeting or of the company’s management, or any other political, administrative, technical, financial or |
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economic acts or facts related to the company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade or maintain such securities or to exercise any of such securities’ underlying rights;
| · | specify examples of acts or facts that are considered to be material, which include, among others, the execution of agreements providing for the transfer of control of a public company, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies; |
| · | oblige the public company to disclose material acts or facts to the CVM, to B3 and through the publication of such acts in the newspapers or websites usually utilized by such company; |
| · | require the acquirer of a controlling stake in a public company to publish a material event, including its intentions as to whether or not to de-list the company’s shares within one year; |
| · | require management, members of the fiscal council, if active, or of any technical or advising body of a public company, to disclose to the company, to the CVM and to B3 the number, type and form of trading of securities issued by the company, its subsidiaries and controlling public companies that are held by them or by persons closely related to them, and any changes in their respective ownership positions; |
| · | require that, if any direct or indirect controlling shareholder or any shareholder electing members of the board of directors of a public company increases or decreases participation in such company by more than 5.0%, such person or entity must disclose information regarding such acquisition or disposition; and |
| · | forbid trading on the basis of insider information, setting forth a list of prohibited transactions, in which trading is presumed to be made on the basis of insider information. |
Under the terms of CVM Resolution No.44, dated August 23, 2021, as amended, we may, under exceptional circumstances, submit a request for confidential treatment to the CVM concerning a material act or fact when our controlling shareholders or managers consider that such disclosure will pose a risk to the company’s legitimate interest.
9D Selling Shareholders
Not applicable.
9E. Dilution
Not applicable.
9F. Expenses of the Issue
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
10A. Share Capital
As of December 31, 2022, our subscribed and paid-up capital was represented by 270,139,069 (two hundred and seventy million, one hundred and thirty-nine thousand, sixty nine) common shares, with no par value.
As a result of our migration to the Novo Mercado listing segment of B3, on February 28, 2020, we converted all of our preferred shares into common shares. For more information on the conversion of our preferred shares into common shares, see “Item 9. The Offer and Listing—9A. Offer and Listing Details.”
The Company is authorized to increase its capital stock up to the limit of 400,000,000 common shares, regardless of any amendment to the Company’s Bylaws, upon resolution of the board of directors, which will establish the terms and conditions.
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10B. Memorandum and Articles of Association
Below is a brief summary of certain significant provisions of our bylaws and Brazilian corporate law. This description does not purport to be complete and is qualified by reference to our bylaws (an English translation of which has been filed with the SEC) and to Brazilian corporate law.
Corporation Objects and Purposes
We are a publicly held corporation with our principal place of business and jurisdiction in the city of São Paulo, Brazil, governed by Brazilian laws (including Brazilian corporate law), CVM and SEC regulations and our bylaws.
Our main business purpose is to sell manufactured, semi-manufactured and natural products of both Brazilian and foreign origin, of any and all kinds and description, nature or quality, provided that they are not forbidden by law. Furthermore, we may also engage in a wide range of activities as set forth in article 2 of our bylaws.
Common Shares
On February 14, 2020, B3 approved our migration from the Level 1 to the Novo Mercado listing segment of B3, the highest level of corporate governance of B3. According to the Novo Mercado requirements, on February 28, 2020, all of our then outstanding preferred shares were converted into common shares. Additionally, on March 2, 2020, the trading of our common shares began in the Novo Mercado listing segment of B3.
Pursuant to our bylaws and our B3 listing agreement in connection with the listing of our common shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights. In addition, our bylaws and the Brazilian corporate law provide that holders of our common shares are entitled to dividends or other distributions made in respect of our common shares ratably in accordance with their respective participation in the total amount of our issued and outstanding common shares. See “––Appropriation of Net Profits and Distribution of Dividends—Interest on Shareholders’ Equity” for a more complete description of payment of dividends and other distributions on our common shares. In addition, upon our liquidation, holders of our common shares are entitled to share our remaining assets, after payment of all of our liabilities, ratably in accordance with their respective participation in the total amount of our issued and outstanding common shares. Holders of our common shares are not obligated to subscribe to future capital increases and are generally entitled to preemptive rights to subscribe for new shares as provided by the Brazilian corporate law. See “––Preemptive Rights on Increases in Share Capital.”
Appropriation of Net Profits and Distribution of Dividends
Appropriation of Net Profits
At each annual shareholders’ meeting, our board of executive officers and our board of directors is required to recommend how to appropriate net profit, if any, from the preceding fiscal year. This appropriation is subject to deliberation by our shareholders.
The Brazilian corporate law defines “net profit” for any fiscal year as the net profit of the relevant fiscal year after income and social contribution taxes for that fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ and management’s participation in our net profit in that fiscal year pursuant to our profit-sharing plans. Our bylaws allow us to implement a profit-sharing plan for employees and managers and a stock option plan. The amount to be paid in connection with both plans is determined by our board of directors and must not exceed an amount equal to 15% of our net profit. Under Brazilian corporate law, this profit sharing may only be paid to managers with respect to a fiscal year in which the mandatory dividend has been declared.
Our calculation of “net profits” and appropriations to reserves for any fiscal year are determined on the basis of our financial statements. Our management’s and our shareholders’ discretion to determine the allocation of our net profit is limited by certain rules that determine whether such net profit should be distributed as dividends or appropriated to certain profit reserves or carried forward to future fiscal years, as follows:
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Mandatory Minimum Dividend. Under Brazilian corporate law and our bylaws, we must distribute a specified percentage of our net income as a mandatory minimum dividend to be paid with respect to all shares of our capital stock. Our bylaws establish the minimum percentage at 25% of our adjusted net profit. The mandatory dividend may be made in the form of dividends or interest on shareholders’ equity, which may be deducted by us in calculating our income tax and social contribution obligations. Adjusted net profit is net profit following the addition or subtraction of:
| · | amounts appropriated to a legal reserve account; and |
| · | amounts appropriated to a contingency reserve account and the return of any amounts in any contingency reserve accounts deposited in previous years. |
The payment of our mandatory dividends may be limited to the profits actually realized in the fiscal year, if the portion of the unrealized profits is appropriated to the unrealized income reserve account (as described below). The balance of the reserve accounts, except for the contingency reserve account and unrealized profit reserve account, may not exceed our share capital. If this occurs, a shareholders’ meeting must resolve whether the excess will be applied to pay in the subscribed and unpaid capital, to increase and pay in the subscribed share capital or to distribute dividends.
Under Brazilian corporate law, however, we are allowed to suspend the distribution of the mandatory dividends for any year in which our management reports at our shareholders’ general meeting that the distribution would be incompatible with our financial condition. The fiscal council, if in place, must issue its opinion in relation to the suspension. In addition, our management must file a justification for such suspension with the CVM within five days from the date of the relevant annual shareholders’ meeting. If the mandatory dividend is not paid, the unpaid amount must be attributed to a special reserve account and, if not absorbed by subsequent losses, those funds must be paid out as dividends as soon as our financial condition permits.
Legal reserve account. Under Brazilian corporate law and our bylaws, we are required to maintain a legal reserve to which we must appropriate 5% of our net profit for each fiscal year until the aggregate amount of our legal reserve equals 20% of our share capital. Our legal reserve may only be used to increase our share capital or to offset accumulated losses, if any. We are not required to make any appropriations to our legal reserve for any fiscal year in which such reserve, when added to our capital reserves, exceeds 30% of our share capital. The legal reserve account is not available for the payment of dividends.
Contingency reserve account. A portion of our net profit may also be allocated to a contingency reserve for an anticipated loss that is deemed probable in future years. Any amount so appropriated in a prior year must either be reversed in the fiscal year for which the loss was anticipated if the loss does not occur or be charged off if the anticipated loss occurs.
Tax incentives reserve account. Our shareholders’ meeting, upon a justified proposal of our board of directors or board of executive officers or according to the rules of the benefit granted, may decide to appropriate a percentage of our net profit resulting from government donations or subventions for investment purposes to a tax incentives reserve account.
Statutory Reserve. Under the Brazilian corporate law, our bylaws may create reserves provided that the purpose of the reserve is determined along with the appropriation criteria and the maximum amount to be maintained in it. Currently, our bylaws provide for an expansion reserve (Reserva de Expansão) which will be made of up to 100% of the remaining adjusted net profit after the establishment of the legal reserve account, contingency reserve account and the payment of the mandatory dividend. The total amount of this reserve may not exceed the amount of our share capital. Our shareholders may amend our bylaws in order to establish other discretionary reserves. The appropriation of our net profit to discretionary reserve accounts may not be made if it prevents the distribution of our mandatory dividends.
Unrealized profit reserve account. The portion of the mandatory dividends that exceeds the net profit actually realized in any year may be appropriated to the unrealized profit reserve account. Unrealized profit is profit resulting from investments measured by the equity method and/or the profits of earnings of any transaction, the financial satisfaction of which takes place in the subsequent fiscal year. The unrealized profit reserve account, when realized, must be used first to offset accumulated losses, if any, and the remaining portion must be used for the payment of mandatory dividends.
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Retained profit reserve. Our shareholders can decide to retain a portion of the net profit provided that such portion has been contemplated in the capital budget previously approved by the shareholders.
Distribution of Dividends
Under the Brazilian corporate law and our bylaws, we may pay dividends only from:
| · | our “net profit” earned in a given fiscal year, which is our results from the relevant fiscal year, reduced by accumulated losses of prior fiscal years; provisions for income tax and social contribution for such fiscal year; and amounts allocated to employees’ and managers’ participation in the results in such fiscal year pursuant to our profit-sharing plans. Our bylaws allow us to implement a profit-sharing plan for employees and managers and a stock option plan. The amount to be paid in connection with both plans is determined by our board of directors and must not exceed an amount equal to 15% of our net profit. Under Brazilian corporate law, this profit sharing may only be paid to managers with respect to a fiscal year in which the mandatory dividend has been declared; |
| · | our net profits accrued in previous fiscal years or in any six-month and/or quarterly interim period of a fiscal year; or |
| · | our profit reserves set aside in previous fiscal years or in the first six months of a fiscal year. For these purposes, “profit reserves” means any discretionary reserve account, contingency reserve account, amounts allocated to our capital expenditure budget approved by our shareholders’ resolution or unrealized profit reserve account, not including the legal reserve account. |
Dividends are generally to be declared at annual shareholders’ meetings in accordance with the board of directors’ recommendation. Our board of directors may declare interim dividends to be deducted from the accrued profit recorded in our annual or semiannual financial statements. In addition, our board of directors may pay dividends from the net profit based on our unaudited quarterly financial statements. The interim dividends may be declared and debited to the profit reserve amount registered at the most recent annual or semiannual financial statement. These semiannual or quarterly interim dividends may not exceed the amounts accounted for in our capital reserve accounts. Any payment of interim dividends may be set off against the amount of mandatory dividends relating to the net profit earned in the year the interim dividends were paid.
According to our bylaws, declared dividends must be paid within the deadline informed at the meeting of our board of directors or our shareholders’ meeting that approved the dividend distribution. The amount is subject to monetary restatement, if so, determined by our board of directors.
A shareholder has a three-year period following the dividend payment date to claim a dividend with respect to its shares. After the expiration of that period, we are no longer liable for the payment of such dividend.
Interest on Shareholders’ Equity
We are allowed to pay interest on shareholders’ equity as an alternative form of payment to shareholders. We may treat these payments as deductible expenses for income tax and social contribution purposes. Payments of interest on shareholders’ equity may be made at the discretion of our board of directors, subject to the approval of our shareholders in a shareholders’ meeting. The amount distributed to our shareholders as interest on shareholders’ equity, net of any withholding tax, may be included as part of the mandatory distribution. This rate applied in calculating interest on shareholders’ equity cannot exceed the daily pro rata variation of the TJLP, as determined by the Central Bank, from time to time, and cannot exceed, for tax purposes, the greater of (1) 50% of net profit (after deduction of social contribution, but before taking into account the provision for income tax and the amount of the interest on shareholders’ equity) for the year with respect to which the payment is made; or (2) 50% of the sum of retained profit and profit reserves in the beginning of the period with respect to which the payment is made.
Any payment of interest on common shares to shareholders, whether Brazilian residents or not, including holders of the ADRs, each representing one common share, is subject to Brazilian withholding tax at the rate of 15% or at the rate of 25% if the beneficiary is resident or domiciled in a Low or Nil Taxation Jurisdiction (generally a country or location that does not impose income tax or where the maximum income tax rate is lower than 20%, or 17% if certain requirements are met or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment). See “—10E. Taxation—Brazilian Tax
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Considerations—Distribution of Interest on Shareholders’ Equity.” The amount distributed to shareholders as interest on shareholders’ equity, net of any withholding tax, may be included as part of the minimum mandatory dividend. In accordance with applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net amount they receive in respect of interest attributable to shareholders’ equity, after payment of any applicable withholding tax, plus the amount of declared dividends is at least equivalent to the mandatory dividend amount.
Board of Directors
According to Brazilian corporate law, our directors are prohibited from voting on, or acting in, matters in which their interests conflict with ours.
Our bylaws provide that the shareholders are responsible for determining the global compensation of the members of our management and fiscal bodies. There are no specific provisions regarding the directors’ power to vote on their compensation in the absence of an independent quorum.
Our board of directors has the power to authorize the borrowing of funds in amounts in excess of the equivalent to half of our EBITDA.
In case of acts that entail any kind of acquisition, sale, disposal or creation of any lien on any of our assets, including any real estate, as well as, for the granting of powers-of-attorney for the practice of such acts, we are required to be represented either: (i) jointly by two executive officers; (ii) by two attorneys-in-fact; (iii) by one executive officer and one attorney-in-fact; and the attorney-in-fact duly appointed by two executive officers.
There is no requirement under Brazilian corporate law or our bylaws that directors retire upon reaching a certain age. In addition, our bylaws do not provide for the re-election of directors at staggered intervals.
For a discussion of our board of directors, see “Item 6. Directors, Senior Management and Employees—6A. Directors and Senior Management—Board of Directors” and “Item 6. Directors, Senior Management and Employees—6C. Board Practices.”
Voting Rights
At our shareholders’ meetings, each common share entitles the holder thereof to one vote. Pursuant to our bylaws and our B3 listing agreement in connection with the listing of our common shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights. In addition, our bylaws and the Brazilian corporate law provide that holders of our common shares are entitled to dividends or other distributions made in respect of our common shares ratably in accordance with their respective participation in the total amount of our issued and outstanding common shares. See “—Appropriation of Net Profits and Distribution of Dividends—Interest on Shareholders’ Equity” for a more complete description of payment of dividends and other distributions on our common shares. In addition, upon our liquidation, holders of our common shares are entitled to share our remaining assets, after payment of all of our liabilities, ratably in accordance with their respective participation in the total amount of our issued and outstanding common shares. Holders of our common shares are not obligated to subscribe to future capital increases and are generally entitled to preemptive rights to subscribe for new shares, proportionally to their respective equity interests, as provided by the Brazilian corporate law. See “—Preemptive Rights on Increases in Share Capital.”
According to the Brazilian corporate law, holders of our common shares that are not controlling shareholders and represent at least 10% of our total voting stock will have the right to elect one member of our board of directors. Only shareholders that can prove that they have held the common shares for at least three continuous months immediately prior to the respective annual shareholders’ meeting may exercise such right.
The Brazilian corporate law permits the adoption of cumulative voting upon a request by shareholders representing at least 10% of our voting capital. CVM Resolution No. 70, of March 22, 2022, or CVM Resolution No. 70, allows the minimum voting capital percentage required for the adoption of the cumulative vote in publicly held companies to be reduced from 10% to as low as 5% depending on the value of the company’s capital stock. Taking into consideration our current capital stock, shareholders holding shares representing at least 5% of our voting shares at our shareholders’ meeting have the right to request us to adopt a cumulative voting procedure to elect the members of our board of directors. This procedure must be requested at least 48 hours prior to a shareholders’ meeting.
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In the event that our minority shareholders elect a director through the cumulative voting procedure described above, our controlling shareholders will have the right to elect at least one additional member to the board of director, regardless of the total number of members of our board of directors.
In accordance with Brazilian corporate law, minority shareholders are entitled to elect one member and an alternate to our fiscal council in a separate election as long as they jointly represent at least 10% of our voting shares. The other shareholders with the right to vote may elect the remaining members and alternates, who, in any event, must outnumber the members of the fiscal council and alternates elected by any holders of non-voting preferred shares and the minority shareholders.
CVM Resolution No. 70 allows the minimum required voting capital percentage for the election of a member and an alternate to the fiscal council of a publicly-held company to be reduced from 10% to 2% depending on the company’s capital stock. Considering our capital stock, shareholders representing 2% of our voting capital are allowed to request to elect one member and an alternate member to our fiscal council. According to the Brazilian corporate law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:
| · | the right to participate in the distribution of profits; |
| · | the right to participate equally and ratably in any remaining residual assets in the event of liquidation of the Company; |
| · | preemptive rights in the event of the issuance of shares, convertible debentures or warrants, except in certain specific circumstances under Brazilian corporate law described under “—Preemptive Rights on Increases in Share Capital”; |
| · | the right to supervise our management in accordance with the provisions of the Brazilian corporate law; and |
| · | the right to withdraw from the Company in the cases specified in the Brazilian corporate law, which are described under “— Redemption and Withdrawal Rights.” |
Indemnity Provision
On April 28, 2021, an annual shareholders’ meeting took place and approved an amendment to our bylaws that included an indemnity provision in favor of members of our board of directors, our officers, members of our statutory committees, members of our fiscal council and employees that exercise any function in our management. As a result, an indemnification will be available under our bylaws if the insurance coverage of any civil liability provided by us is insufficient to cover the losses of a member of our management. Any action shall not be indemnified if (i) in disagreement with any applicable legislation or regulation; (ii) against our bylaws, policies and codes; (iii) not performed in the normal course of business; (iv) performed in bad faith, fraud or serious guilt, in self-interest or in the interests of third parties; or (v) to the detriment of the social interest.
Shareholders’ Meetings
Pursuant to the Brazilian corporate law, our shareholders are generally empowered at our shareholders’ meetings to take any action relating to our corporate purposes and to pass resolutions that they deem necessary to our interests and development at duly called and convened general meetings. Shareholders at our annual shareholders’ meeting, which is required to be held during the first four months following the end of our fiscal year, have the exclusive right to approve our audited financial statements and to determine the allocation of our net profits and the distribution of dividends with respect to the fiscal year ended immediately prior to the relevant shareholders’ meeting and to elect the members of our board of directors and fiscal council, as the case may be.
An extraordinary shareholders’ meeting may be held concurrently with the annual shareholders’ meeting and at other times during the year whenever necessary. Pursuant to our bylaws and Brazilian corporate law, the following actions, among others, may be taken only at a shareholders’ meeting:
| · | the amendment of our bylaws; |
| · | the appointment or removal of members of our board of directors; |
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| · | the appointment or removal of the chairman or the co-vice chairmen of our board of directors; |
| · | the approval of annual management’s accounts and our annual financial statements; |
| · | the approval of any issuance of shares, bonuses, debentures convertible into our shares or securities or other rights or interests which are convertible or exchangeable into or exercisable for our shares, without limiting the authorization granted to our board of directors to approve such issuances within the limit of our authorized capital (400,000,000 common shares); |
| · | the approval of any appraisals of assets offered by a shareholder in consideration for the subscription of shares of our capital stock; |
| · | the approval of any proposal to change our corporate form, amalgamate, merge the Company with or into another company, spin-off or split the Company, or any other form of restructuring of the Company; |
| · | the approval of any proposal for the dissolution or liquidation of the Company, or for the appointment or replacement of the liquidator; |
| · | the approval of the accounts of the liquidator; and |
| · | the establishment of the global annual compensation of the members of our board of directors and board of executive officers. |
Our annual and extraordinary shareholders’ meeting took place on April 26, 2023. The agenda for the meeting included: (i) review of the management’s accounts, as well as examination, discussion and voting of the Company’s management report and financial statements for the fiscal year ended December 31, 2022; and (ii) determination of the annual global compensation of the members of our (a) management (including the board of directors and board of executive officers) and (b) fiscal council, in case the shareholders request its continued installation.
Call of Shareholders’ Meeting
The chairman of our board of directors may call shareholders’ meetings. In his absence, the meeting may be called by any of the co-vice chairmen of our board of directors or, in their absence, by an executive officer appointed by the chairman of our board of directors. Pursuant to the Brazilian corporate law, shareholders’ meetings also may be called by:
| · | any shareholder, if our management fails to call a shareholders’ meeting within 60 days after the date which it is required to do so under applicable law and our bylaws; |
| · | shareholders holding at least 5% of our shares if our management fails to call a meeting within eight days after receipt of a justified request to call the meeting by those shareholders indicating the proposed agenda; |
| · | shareholders holding a predetermined percentage of our shares if our management fails to call a meeting within eight days after receipt of a request to call the meeting for the creation of the fiscal council. Pursuant to CVM Resolution No. 70, this percentage varies from 1% to 5%, depending on the company’s capital stock. Considering our capital stock, shareholders representing 2% of our voting capital are allowed to call the meeting in this case; and |
| · | our fiscal council, if one is created, if our management fails to call an annual shareholders’ meeting within one month after the date it is required to do so under applicable law and our bylaws. The fiscal council may also call an extraordinary shareholders’ meeting if it believes that there are important or urgent matters to be addressed. |
Notice of our Shareholders’ Meetings
Under the Brazilian corporate law, notice of our shareholders’ meetings must be published at least three times, in complete form at a widely recognized online newspaper of the State where the headquarter of the company is located and, on the same date, in the printed copy of the same newspaper. Currently, we publish our notices on Folha de São Paulo. Such notice must contain the agenda for the meeting and, in the case of an
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amendment to our bylaws, a summary of the proposed amendment. The first notice must be published no later than 21 days before the date of the meeting on the first call, and no later than eight days before the date of the meeting on the second call. However, the CVM recommends that the first notice be published no later than 30 days before the date of the meeting. In addition, upon request of any shareholder, the CVM may suspend for up to 15 days the required prior notice of an extraordinary shareholders’ meeting so that the CVM may become familiar with and analyze the proposals to be voted upon at the meeting and, as the case may be, inform our Company at the end of this period the reasons based on which any proposal submitted to the shareholders was found to violate applicable legislation or the CVM may even adjourn the meeting for up to 30 days in case it considers that the information disclosed for analysis of the shareholders is insufficient.
Conditions of Admission to Shareholders’ Meeting
Shareholders attending a shareholders’ meeting must produce proof of their status as shareholders and proof that they hold the common shares that they intend to vote. A shareholder may be represented at a shareholders’ meeting by a proxy appointed less than a year before, provided the attorney-in-fact is a shareholder, a corporate officer, a lawyer or a financial institution. An investment fund must be represented by its investment fund officer or a proxy.
Quorum and Voting at Shareholders’ Meeting
Generally, the Brazilian corporate law provides that the quorum for our shareholders’ meetings consists of shareholders representing at least 25% of our total number of shares with voting rights and, if that quorum is not reached, any percentage on the second call. If a shareholders’ meeting is called to amend our bylaws, a quorum at that shareholders’ meeting consists of shareholders representing at least two-thirds of our issued and outstanding common shares on the first call and any percentage on the second call.
As a general rule, the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares present in person, virtually (whenever the shareholders’ meeting is held under a partial or 100% digital format), by means of distance voting forms (boletim de voto à distância) or represented by proxy at a shareholders’ meeting is required in order to ratify any proposed action, and abstentions are not taken into account. However, the affirmative vote of shareholders representing more than one-half of our issued and outstanding common shares is required in order to, among other things:
| · | reduce the percentage of mandatory dividends; |
| · | change our corporate purpose; |
| · | consolidate with or merge the Company with or into another company; |
| · | spin off a portion of our assets or liabilities; |
| · | approve our participation in a group of companies (as defined in the Brazilian corporate law); |
| · | apply for cancellation of any voluntary liquidation; |
| · | merge all of our shares into another Brazilian company, so that we become a wholly-owned subsidiary of such company; and |
| · | approve our dissolution. |
Preemptive Rights on Increases in Share Capital
Under Brazilian corporate law, each shareholder has a general preemptive right to subscribe for shares in any capital increase, in proportion to its shareholding, except in the event of the grant and exercise of any option to acquire shares of our capital stock under our Stock Option Plan. A shareholder has a general preemptive right to subscribe for debentures convertible into our shares and subscription warrants that we may issue. A minimum period of 30 days following the publication of the notice of a capital increase must be respected to exercise this right, except if otherwise determined by the bylaws or a shareholders’ meeting. This right is negotiable.
Our board of directors is authorized to eliminate preemptive rights with respect to the issuance of shares, debentures convertible into shares and subscription warrants, provided that the distribution of such shares is
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effected (i) through a stock exchange or in a public offering; or (ii) through an exchange of shares in a public offering, the purpose of which is to acquire control of another company.
In the event of a capital increase, which maintains or increases the proportion of our capital, holders of ADSs may, under the circumstances described above, exercise preemptive rights to subscribe for newly issued shares. In the event of a capital increase which would reduce the proportion of capital, holders of ADSs may, under the circumstances described above, have preemptive rights to subscribe for shares in proportion to their shareholdings. For risks associated with preemptive rights, see “Item 3. Key Information—3D. Risk Factors—Risks Relating to the ADSs and Our Common Shares—You might be unable to exercise preemptive rights with respect to the common shares underlying the ADSs.”
Redemption and Withdrawal Rights
Our common shares are not redeemable. Any of our shareholders who dissent from certain actions taken by our shareholders in a shareholders’ meeting have the right to withdraw from the Company and to receive the value of their common shares. According to the Brazilian corporate law, the withdrawal rights of a dissenting shareholder may be exercised in the event that the shareholders’ meeting approves the following matters:
| · | a reduction in the percentage of mandatory dividends; |
| · | a change in our corporate purposes; |
| · | the merger of all of our shares into another Brazilian company, so that we become a wholly-owned subsidiary of such company or vice versa; |
| · | our merger into or with another company, including if we are merged into one of our controlling companies, or are consolidated with another company; |
| · | our participation in a group of companies as defined under the Brazilian corporate law and subject to the conditions set forth therein; |
| · | the conversion of the Company to another corporate form; and |
| · | a spin-off of the Company if it entails (1) a change in our corporate purpose, (2) a reduction in mandatory dividends, or (3) our participation in a group of companies as defined under the Brazilian corporate law. |
Withdrawal rights may not be exercised in the event of:
| · | the merger of all of our shares into another Brazilian company, so that we become a wholly-owned subsidiary of such company or vice versa; |
| · | our merger into or with another company, including if we are merged into one of our controlling companies, or are consolidated with another company; and |
| · | our participation in a group of companies as defined under the Brazilian corporate law and subject to the conditions set forth therein, |
if our shares (1) are “liquid,” which means that they are part of the Ibovespa Index or another traded stock exchange index, as defined by the CVM, and (2) are widely held, such that our controlling shareholders and their affiliates hold less than 50% of the type or class of shares that are being withdrawn.
Dissenting shareholders also have a right of withdrawal in the event that the entity resulting from (1) a merger of all of our shares into another company so that we become a wholly-owned subsidiary of such company; (2) a spin-off; or (3) a merger or a consolidation of a Brazilian publicly listed company, fails to become a Brazilian publicly listed company within 120 days of the annual shareholders’ meeting in which such decision was taken.
The right to withdraw lapses 30 days after publication of the minutes of the relevant shareholders’ meeting. We are entitled to reconsider any action giving rise to withdrawal rights within ten days following the expiration of this period if we determine that the withdrawal of shares of dissenting shareholders would jeopardize our financial stability.
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Any shareholder that exercises withdrawal rights is entitled to receive book value for its shares, based on our most recent audited balance sheet approved by our shareholders. However, if the resolution giving rise to the withdrawal rights is adopted more than 60 days after the date of our most recent audited approved balance sheet, a shareholder may request that its shares be valued on the basis of a special balance sheet dated no more than 60 days prior to the date of the adoption of the resolution. In such case, we are obligated to immediately pay 80% of the book value of the shares according to our most recent audited approved balance sheet, and the balance must be paid within 120 days after the date of the resolution of the shareholders’ meeting that gave rise to withdrawal rights.
Form and Transfer of Shares
Our shares are in book-entry form, and the transfer of such shares is made by the registrar in our books, by debiting the share account of the transferor and crediting the share account of the transferee. We maintain book-entry form services with the Custodian, which performs all of the services of safekeeping and transfer of our shares and related services.
Transfer of shares by a foreign investor is made in the same way and is requested by the investor’s local agent on the investor’s behalf. If the original investment is registered with the Central Bank pursuant to CMN Resolution 4,373, the foreign investor should also seek amendment of the electronic registration to reflect the new ownership through its local agent, if necessary.
The B3 operates a clearinghouse through the Brazilian Liquidation and Custody Company (Companhia Brasileira de Liquidação e Custódia), or CBLC. CBLC is also responsible for settlement and custody of the shares. The payment of dividends, bonuses and other corporate events is managed by the Central Depositary (Central Depositária), which is a department of the B3.
Other Dispositions
In addition to the provisions already described in this annual report, Brazilian corporate law, our bylaws, and current regulations set forth, among others, that:
| i. | upon a sale of control, the acquirer is required to launch a tender offer to purchase all minority voting shares at a price equal to at least 80% of the control price; |
| ii. | if provided for in the bylaws, as it is our case, disputes among shareholders will be subject to arbitration; |
| iii. | upon the occurrence of a tender offer aiming at delisting our Company or through which our controlling shareholders acquire more than one-third of the float shares, the purchase price will be equal to the fair value of the shares considering the total number of outstanding shares; |
| iv. | members of our board of directors elected by the non-controlling shareholders will have the right to veto the choice of the independent accountant of the controlling shareholders; |
| v. | the chairman of any shareholders’ or board of directors’ meeting may disregard any vote that is rendered against provisions of any shareholders’ agreement if that shareholders’ agreement has been duly filed with us. |
Sale of Control of Our Company
In the event of a sale of our direct or indirect corporate control, through a single or successive transactions, the acquirer must conduct a public tender offer to buy all of the shares held by the remaining shareholders in order to assure equal treatment of all shareholders (tag-along right). The tender offer will be subject to the terms and conditions terms set forth under applicable laws and the rules of the Novo Mercado.
Acquisition of a Significant Equity Interest in our Company
Our bylaws contain provisions that have the effect of avoiding concentration of our shares in the hands of a small group of investors, in order to promote more widespread ownership of our shares. These provisions require any person, shareholder or Group of Shareholders (as defined in Article 36 of our bylaws) that acquires, whether through a single transaction or through a series of transactions:
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| · | direct or indirect ownership more than 25% of our equity interest (excluding treasury shares); or |
| · | any other shareholders’ rights, including usufructuary enjoyment or establishment of a trust, concerning more than 25% of our equity interest (excluding treasury shares) (each, a Significant Equity Interest); |
to, within 30 days from the date of such acquisition, commence a public tender offer to purchase any and all of our outstanding shares in accordance with the regulations of the CVM and B3 and our bylaws. The purchase price offered in the tender offer must be not less than the greater of:
| · | the economic value of our Company, determined pursuant to Article 36 of our bylaws; |
| · | the highest price paid by the acquiring person, shareholder or Group of Shareholders during the 12 months prior to the acquisition of the Significant Equity Interest; and |
| · | 125% of the weighted average unit price of our common shares during the period of 120 trading sessions prior to the commencement of the tender offer. |
The obligation to commence a tender offer will not apply to a person, shareholder or Group of Shareholders that acquires a Significant Equity Interest:
| · | as a result of a merger of our Company with another company or a merger of shares of another company into us; |
| · | if we purchase another company through a private increase in corporate capital or subscription of shares by primary offering by any person who has preemptive rights; |
| · | if we purchase another company through a private increase in corporate capital or subscription of shares by means of a primary offering due to the lack of full payment by any person who has preemptive rights or if there were not enough interested parties in the respective offer; or |
| · | in the event of a public offering (including a public offering with restricted selling efforts). |
Involuntary increases of equity interest resulting from cancellation of treasury shares, repurchases of shares by us or capital reductions with cancellation of shares will not be considered in the calculation of a Significant Equity Interest.
The commencement of a public tender offer by the holder of a Significant Equity Interest does not prevent any other person from commencing a competing public tender offer in accordance with applicable regulations.
The obligation of the holder of a Significant Equity Interest to commence a public tender offer may be waived in an annual shareholders’ meeting by the affirmative vote of a majority of our outstanding shares present in such meeting, excluding shares held by the holder of a Significant Equity Interest. The quorum requirement for an annual shareholders’ meeting called to deliberate on such a waiver is a minimum of 2/3 of our outstanding shares, excluding shares held by the holder of a Significant Equity Interest, on first call, and any number of our outstanding shares on a subsequent call.
Arbitration
In accordance with our bylaws, we, our shareholders, directors, officers and members of our fiscal council, effective or alternates, if any, agree to resolve through arbitration before the Market Arbitration Chamber of B3 any disputes or controversies that may arise between us relating to or arising from our status as issuer, shareholders, directors, officers or members of the fiscal council, especially arising from the provisions established in Law No. 6,385, of December 7, 1976, in the Brazilian corporate law, in our bylaws, in the regulations issued by the CMN, by the Central Bank and by the CVM, as well as in any regulation applicable to the operation of capital markets in general, in addition to those contained in the Novo Mercado Regulation, other regulations of B3, and the Participation Agreement of the Novo Mercado.
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10C. Material Contracts
Separation Agreement
For information regarding the Separation Agreement with Sendas, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions––Agreements with Sendas—Separation Agreement.”
Cost Sharing Agreement with Casino Group
For information regarding our cost sharing agreement with the Casino Group, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions––Agreements with Casino Group—Cost Sharing Agreement.”
Extra Hiper Asset Sale Related to Extra Hiper Stores
In line with our strategy of focusing on the premium supermarket and proximity store segments, we decided to discontinue our hypermarket business, operated under the Extra Hiper banner. As part of that goal, in late 2021, the boards of directors of CBD and Sendas approved the Extra Hiper Asset Sale.
For more information on the Extra Hiper Discontinued Operations and the Extra Hiper Asset Sale, see “Explanatory Note—Extra Hiper Discontinued Operations.”
10D. Exchange Controls
The ownership of common shares by individuals or legal entities domiciled outside Brazil is subject to certain conditions established under Brazilian law.
There are no restrictions on ownership of our ADSs or our common shares by individuals or legal entities based on location and/or nationality of the respective investor. However, the right to convert dividends and interest on shareholders’ equity payments arising from our shares, as well as proceeds from the sale of our shares, into U.S. dollars and to remit such amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation. Such operations generally require that the relevant investments be registered with the Central Bank and foreign investors are registered with the CVM. Holders of our securities could be adversely affected by delays or difficulties to meet any regulatory requirement for conversions of real payments and remittances abroad.
Investors residing outside Brazil may either register their investments in securities in Brazil, (i) as a foreign direct investment under CMN Resolution No. 3,844; or (ii) as a portfolio investment under CMN Resolution No. 4,373, and CVM Resolution No. 13, dated November 18, 2020. Foreign investors, regardless of whether their investments are made as direct investments or portfolio investments, must be enrolled with the Brazilian Federal Revenue. The registration process is undertaken by financial institution or by an institution authorized to operate by the Brazilian Central Bank as the investor’s legal representative in Brazil. Any foreign investor must also be registered under the Brazilian Federal Revenue, pursuant to RFB Normative Instruction No. 2119, of December 6, 2022.
Foreign direct investors under CMN Resolution 3,844 may directly hold and sell securities in both private and open market transactions, but these investors are likely to be subject to a different tax treatment on gains, apart from being subject to taxation on the execution of foreign exchange transactions.
Under CMN Resolution No. 4,373, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that the following requirements are fulfilled:
| i. | appoint a legal representative duly accredited with the Central Bank, that will be responsible for complying with the registration and periodically reporting requirements of the Central Bank and the CVM; |
| ii. | appoint an authorized custodian in Brazil duly authorized by the CVM (except for private individuals); |
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| iii. | complete the appropriate foreign investor registration form and be registered as a foreign investor with the CVM; |
| iv. | be registered with the Brazilian Federal Revenue to obtain the enrolment of taxpayer registration; and |
| v. | through the appointed representative in Brazil, register the foreign investment with the Central Bank. |
In the event that a holder of ADSs exchanges those ADSs for common shares, that holder will be entitled to (i) sell the shares on the stock exchange and rely on the depositary’s electronic registration to obtain and remit U.S. dollars abroad; (ii) convert its investment into a foreign portfolio investment under CMN Resolution No. 4,373, or (iii) convert its investment into a foreign direct investment under CMN Resolution No. 3,844. If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under CMN Resolution No. 4,373 or a foreign direct investment under CMN Resolution No. 3,844, it should begin the process of obtaining its own foreign investor registration with the Central Bank and/or with the CVM, as the case may be, in advance of exchanging the ADSs for our shares.
Investors under CMN Resolution No. 4,373 who are not resident in a Low or Nil Taxation Jurisdiction (i.e., a country that does not impose income tax or where the maximum income tax rate is lower than 20%) are entitled to favorable tax treatment. See “—10E. Taxation—Brazilian Tax Considerations.”
10E. Taxation
This summary contains a description of the main Brazilian and U.S. federal income tax consequences applicable to the purchase, ownership and disposal of our common shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to these matters based upon the particular circumstances of a holder.
This summary is based upon federal tax laws of Brazil and the federal income tax laws of the United States in effect as of the date hereof, which are subject to change and differing interpretations possibly with retroactive effect. This summary is also based upon the representations of the depositary and on the assumption that each obligation in the Amended and Restated Deposit Agreement, dated as of May 28, 1997, last amended on November 29, 2021, as amended from time to time, or the Deposit Agreement, among us, JP Morgan Chase Bank, N.A., as the depositary and the owners from time to time of ADRs, and any related documents, will be performed in accordance with its terms.
Although there is presently no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a tax treaty will enter into force or how such a treaty would affect a U.S. holder of common shares or ADSs.
Prospective investors are urged to consult their own tax advisors regarding the Brazilian and U.S. federal, state and local tax consequences of the purchase, ownership and disposal of our common shares and ADSs.
Brazilian Tax Considerations
Overview
The following discussion describes the material Brazilian tax consequences relating to the purchase, ownership and disposal of our common shares and our ADSs by Non-Resident Holders.
It does not purport to be a comprehensive discussion of all the tax consequences that may be relevant to these matters, and it is not applicable to all categories of investors, some of which may be subject to special tax rules not specifically addressed herein. It is based upon the tax laws of Brazil in effect as of the date of this annual report, which are subject to change and to differing interpretations. Any change in the applicable Brazilian laws and regulations may impact the consequences described below.
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The tax consequences described below do not take into account double tax treaties entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality/municipality of Brazil, except if otherwise stated herein.
Although there is currently no double tax treaty between Brazil and the United States, the tax authorities of the two jurisdictions countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a double tax treaty will enter into force or how such a treaty would affect a U.S. holder of our common shares or ADSs.
You are advised to consult your own tax advisor with respect to an investment in our common shares or ADSs in light of your particular investment circumstances.
Material Brazilian Tax Consequences for Non-Resident Holders of Our Common Shares and ADSs
The following discussion summarizes the main Brazilian tax consequences applicable to the purchase, ownership and disposal of our common shares or ADSs by a Non-Resident Holder.
Taxation of Dividends
Dividends paid by a Brazilian corporation, such as us, to a Non-Brazilian Holder of common shares or ADSs are currently not subject to withholding income tax, or WHT, in Brazil to the extent that such amounts are related to profits generated on or after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to WHT at variable rates, according to the tax legislation applicable to each corresponding year.
Law No. 11,638, dated December 28, 2007, or Law No. 11,638, significantly changed the Brazilian corporate law in order to align Brazilian generally accepted accounting principles with IFRS. Nonetheless, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime, or RTT, in order to render neutral, from a tax perspective, all the changes provided by Law No. 11,638. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria that were effective on December 31, 2007.
Profits determined pursuant to Law No. 11,638, or IFRS Profits, may differ from the profits calculated pursuant to the accounting methods and criteria as effective on December 31, 2007, or 2007 Profits.
While it was general market practice to distribute exempted dividends with reference to the IFRS Profits, Rule No. 1,397, issued by the Brazilian tax authorities on September 16, 2013, established that legal entities should observe the 2007 Profits in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries.
Any profits paid in excess of said 2007 Profits, or Excess Dividends, should, in the tax authorities’ view and in the specific case of Non-Resident Holders, be subject to the following rules of taxation: (1) 15.0% WHT, in case of beneficiaries domiciled abroad, but not in a Low or Nil Tax Jurisdiction, and (2) 25.0% WHT, in the case of beneficiaries domiciled in a Low or Nil Tax Jurisdiction.
In order to mitigate potential disputes on the subject, Law No. 12,973, dated May 13, 2014, or Law No. 12,973, in addition to revoking the RTT, introduced a new set of tax rules, or the New Brazilian Tax Regime, including new provisions with respect to Excess Dividends. Under these new provisions: (1) Excess Dividends related to profits assessed from 2008 to 2013 are exempt; (2) potential disputes remain concerning the Excess Dividends related specifically to 2014 profits, since Law No. 12,973 has not expressly excluded those amounts from taxation and Rule No. 1,492, issued by the Brazilian tax authorities on September 17, 2014, established that they are subject to taxation when distributed by companies which have not elected to apply the New Brazilian Tax Regime in 2014; and (3) as of 2015, as the New Brazilian Tax Regime is mandatory and has completely replaced the RTT, dividends calculated based on IFRS Profits should be considered fully exempt.
Finally, there is currently legislation pending before the Brazilian Congress discussing the taxation of dividends. It is not possible to predict if the taxation of dividends will be effectively approved by the Brazilian Congress and how such taxation would be implemented.
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Distribution of Interest on Shareholders’ Equity
Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as us, to make payments to shareholders of interest on shareholders’ equity as an alternative to carrying out dividend distributions and treat those payments as a deductible expense for the purposes of calculating Brazilian corporate income tax and social contribution on net income.
For tax purposes, this interest is limited to the daily variation of the pro rata variation of the long-term interest rate as determined by the Central Bank from time to time applied to certain equity accounts, and the amount of the distribution may not exceed the greater of:
| · | 50.0% of net income (after the deduction of social contribution and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period in respect of which the payment is made; or |
| · | 50.0% of the sum of retained profits and profits reserves for the year prior to the year in respect of which the payment is made. |
Payments of interest on shareholders’ equity to a Non-Resident Holder are subject to WHT at the rate of 15.0%, or 25.0% if the Non-Resident Holder is domiciled in a Low or Nil Tax Jurisdiction.
These payments may be included, at their net value, as part of any mandatory dividend. To the extent that such payments are accounted for as part of the mandatory dividend, under current Brazilian law, we are required to distribute to shareholders an additional amount sufficient to ensure that the net amount received by the shareholders, after payment by us of applicable WHT, plus the amount of declared dividends, is at least equal to the mandatory dividend. The distribution of interest on shareholders’ equity must be proposed by our board of directors and is subject to subsequent ratification by the shareholders at the shareholders’ meeting.
Capital Gains
Sale of Our ADSs
According to Section 26 of Law No. 10,833, dated December 29, 2003, or Law No. 10,833, capital gains earned on the disposal of assets located in Brazil by a Non-Resident Holder, whether to another Non-Resident Holder or to a Brazilian Resident Holder are subject to taxation in Brazil.
Our understanding is that ADSs do not qualify as assets located in Brazil for the purposes of Law No. 10,833 because they represent securities issued and renegotiated on an offshore exchange market and, therefore, should not be subject to the Brazilian WHT. However, considering the lack of any judicial court ruling in respect thereto, we cannot assure you of how tax authorities and Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Resident Holder on the disposal of ADSs to another Non-Resident Holder. If the ADSs are deemed to be assets located in Brazil, gains recognized by a Non-Resident Holder from the sale or other disposition to either a non-resident or a resident in Brazil may be subject to income tax in Brazil as further described below.
Conversion of Our ADS into Our Common Shares
Although there is no clear regulatory guidance, the cancellation of our ADSs and receipt of the underlying common shares should not subject a Non-Resident Holder to Brazilian income tax. Non-Resident Holders may cancel their ADSs, receive the underlying common shares, sell such common shares on a Brazilian stock exchange and remit abroad the proceeds of the sale, according to the regulations of the Central Bank.
Upon receipt of the underlying common shares upon the cancellation of ADSs, a Non-Resident Holder may elect to register with the Central Bank such common shares as a foreign portfolio investment under Resolution No. 4,373, which will entitle them to the tax treatment described below.
Alternatively, a Non-Resident Holder is also entitled to register with the Central Bank such common shares as a foreign direct investment under Law No. 4,131, dated September 3, 1962, as amended, or Law No. 4,131 , in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not registered with CVM in accordance with the Central Bank Resolution No. 4,373, as described below.
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Sale of Common Shares
Capital gains assessed by a Non-Resident Holder on the disposition of common shares carried out on a Brazilian stock exchange are:
| · | exempt from income tax when realized by a Non-Resident Holder that: (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution No. 4,373, or a 4,373 Holder; and (2) is not resident or domiciled in a Low or Nil Tax Jurisdiction; |
| · | subject to income tax at a rate of 15.0% in the case of gains realized by a Non-Resident Holder that: (1) is a 4,373 Holder; and (2) is resident or domiciled in a Low or Nil Tax Jurisdiction. In this case, a WHT of 0.005% of the sale value shall be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain earned by the Non-Resident Holder; or |
Any other gains assessed on a sale or disposition of common shares that is not carried out on a Brazilian stock exchange are subject to: (1) income tax at a rate ranging from 15.0% up to 22.5% when realized by a Non-Resident Holder that (A) has registered its investment as a foreign direct investment under Law No. 4,131, or a Law No. 4,131 Holder; and (B) is not resident or domiciled in a Low or Nil Tax Jurisdiction; and (2) income tax at a rate of 25.0% when realized by a Law No. 4,131 Holder that is domiciled or resident in a Low or Nil Tax Jurisdiction. If these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, a WHT of 0.005% on the sale value will also apply and can be used to offset the income tax due on the capital gain.
Under Brazilian legislation, there are legal grounds to support that the disposition of shares of a Brazilian entity by a 4,373 Holder outside the Brazilian stock exchange should be subject to a rate of 15.0%. This is mainly because Section 81 of Law No. 8,981, dated January 20, 1995, as extended by Section 16 of Provisional Measure 2,189-49/01, provides for a Special Tax Regime to 4,373 Holders by means of which: (1) capital gains earned by 4,373 Holders are exempt, to the extent capital gains are considered to be the positive results obtained from transactions carried out on the stock exchange; and (2) in all other cases applies the taxation at the 15.0% WHT rate. Notwithstanding, Brazilian custodian agents usually do not accept this view and require the tax treatment applicable to Law No. 4,131 Holders (i.e., progressive WHT rates ranging from 15.0% up to 22.5%) on disposition of Brazilian assets carried out outside the stock exchange. There is a Ruling surrounding the matter, but it still leaves room for interpretation. Administrative and judicial precedents are inexistent.
Any exercise of preemptive rights relating to common shares or ADSs will not be subject to Brazilian WHT. Any gain on the sale or assignment of preemptive rights relating to common shares by the Depositary on behalf of holders of ADSs will be subject to Brazilian income tax according to the same rules applicable to the sale or disposal of common shares.
In the case of a redemption of common shares or a capital reduction by a Brazilian corporation, such as us, the positive difference between the amount actually received by a Non-Resident Holder and the acquisition cost of the common shares redeemed, including common shares underlying ADSs, is treated as a capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange, and is therefore subject to income tax at the specific rates detailed above, depending on the nature of the investment and the location of the investor.
As a general rule, gains realized as a result of the disposal of common shares, including the underlying ADSs, is the positive difference between the amount realized on the sale or exchange of the common shares and their acquisition cost. For investments carried out as foreign direct investment under Law No. 4,131, there is a controversy regarding the currency that should be considered for purposes of determining the capital gain realized by a 4131 Non-Resident Holder on a sale or disposition of shares in Brazil, more specifically, if such capital gain is to be determined in foreign or in local currency.
There is no assurance that the current preferential treatment for a Non-Resident Holder of ADSs and a 4,373 Holder of common shares will continue or that it will not change in the future.
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Conversion of Common Shares into ADSs
The deposit of common shares into the ADS program and issuance of ADSs may subject a Non-Resident Holder to Brazilian income tax on capital gains if the amount previously registered with the Central Bank as a foreign direct investment in common shares or, in the case of other market investors under Resolution No. 4,373, the acquisition cost of the common shares, as the case may be, is lower than:
| · | the average price per common share on the B3 on the day of deposit; or |
| · | if no common shares were sold on that day, the average price on the B3 during the 15 preceding trading sessions. |
The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the common shares, calculated as set forth above, is considered a capital gain.
Discussion on Low or Nil Taxation Jurisdictions
On June 4, 2010, the Brazilian tax authorities enacted Normative Ruling No. 1,037 listing: (1) the countries and jurisdictions considered as Low or Nil Taxation Jurisdictions or where the local legislation does not allow access to information related to the shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents; and (2) the privileged tax regimes, which definition is provided by Law No. 11,727, of June 23, 2008, or Law No. 11,727.
A Low or Nil Taxation Jurisdiction is a country or location that: (1) does not impose taxation on income; (2) imposes income tax at a maximum rate lower than 20.0%; or (3) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. A regulation issued by the Brazilian tax authorities on November 28, 2014 (Ordinance No. 488, of 2014) decreased, from 20.0% to 17.0%, the minimum threshold for certain specific cases. The reduced 17.0% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities. Although Ordinance No. 488 has lowered the threshold rate, Normative Ruling No. 1,037, which identifies the countries considered to be Low or Nil Tax Jurisdictions and the locations considered as privileged tax regimes, has not been amended yet to reflect such threshold modification.
Law No. 11,727 created the concept of “privileged tax regimes,” which encompasses the countries and jurisdictions that: (1) do not tax income or tax it at a maximum rate lower than 20.0%; (2) grant tax advantages to a non-resident entity or individual (a) without the need to carry out a substantial economic activity in the country or jurisdiction, or (b) conditioned to the non-exercise of a substantial economic activity in the country or jurisdiction; (3) do not tax or tax proceeds generated abroad at a maximum rate lower than 20.0%; or (4) restrict the ownership disclosure of assets and ownership right or restrict disclosure about economic transactions carried out. Although we believe that the best interpretation of the current tax legislation is that the above mentioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules, among other rules that make express reference to the concepts, we can provide no assurance that tax authorities will not interpret the rules as applicable also to a Non-Resident Holder on payments of interest on shareholders’ equity.
Currently, the understanding of the Brazilian tax authorities is that the rate of 15.0% of WHT applies to payments made to beneficiaries resident in privileged tax regimes (Answer to Advance Tax Ruling Request COSIT No. 575, of December 20, 2017). In any case, if Brazilian tax authorities determine that payments made to a Non-Resident Holder under a privileged tax regime are subject to the same rules applicable to payments made to Non-Resident Holders located in a Low or Nil Tax Jurisdictions, the WHT applicable to such payments could be assessed at a rate of up to 25.0%.
We recommend investors to consult their own tax advisors from time to time to verify any possible tax consequence arising from Normative Ruling No. 1,037 and Law No. 11,727. If the Brazilian tax authorities determine that payments made to a Non-Resident Holder are considered to be made under a “privileged tax regime,” the WHT applicable to such payments could be assessed at a rate of up to 25.0%.
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Other Brazilian Taxes
There are no Brazilian federal inheritance, gift or succession taxes applicable to the ownership, transfer or disposal of common shares or ADSs by a Non-Resident Holder. Gift and inheritance taxes, however, may be levied by some states on gifts made to or inheritances bestowed by the Non-Resident Holder on individuals or entities resident or domiciled within such states in Brazil. There is no Brazilian stamp, issue, registration or similar taxes or duties payable by a Non-Resident Holder of common shares or ADSs.
Taxation of Foreign Exchange Transactions (IOF/Exchange)
Pursuant to Decree No. 6,306/07, the conversion into foreign currency or the conversion into Brazilian currency of the proceeds received or remitted by a Brazilian entity from a foreign investment in the Brazilian securities market, including those in connection with the investment by a Non-Resident Holder in common shares and ADSs, may be subject to the Tax on Foreign Exchange Transactions, or IOF/Exchange. Currently, the applicable rate for almost all foreign currency exchange transactions is 0.38%. As of the date of this annual report, foreign currency exchange transactions carried out for the inflow of funds in Brazil for investment in the Brazilian financial and capital market made by a foreign investor (including a Non-Resident Holder, as applicable) are subject to IOF/Exchange at a 0% rate. The IOF/Exchange rate will also be 0% for the outflow of resources from Brazil related to these types of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market. Furthermore, the IOF/Exchange is currently levied at a 0% rate for the conversion of ADSs into common shares held by foreign investors under the 4,373 Holders regime. In any case, the Brazilian government is permitted to increase the rate to a maximum of 25.0% at any time, with respect to future transactions. Any increase in the rate would not apply retroactively.
Tax on Bonds and Securities Transactions (IOF/Bonds)
Pursuant to Decree No. 6,306/07, the Tax on Bonds and Securities Transactions, or IOF/Bonds, may be imposed on any transaction involving bonds and securities even if the transactions are performed on a Brazilian stock exchange. The rate of this tax for transactions involving common shares is currently 0%, but the Brazilian government may increase such rate up to 1.5% per day, with respect to future transactions. Currently, the issuance of depositary receipts traded outside of Brazil which underlying common shares are issued by a Brazilian company and listed on a Brazilian stock exchange are also subject to IOF/Bonds at the 0% rate. Any increase in the rate would not apply retroactively.
U.S. Federal Income Tax Considerations
The following discussion summarizes certain U.S. federal income tax considerations relating to the acquisition, ownership and disposition of common shares or ADSs by a U.S. holder (as defined below) holding such common shares or ADSs as “capital assets” for U.S. federal income tax purposes (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or (the “Code”). This summary is based upon the Code, its legislative history, Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service, or (the “IRS”), and judicial decisions, all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary does not describe any implications under state, local or non-U.S. tax law, or any aspect of U.S. federal tax law (such as the estate tax, gift tax or the Medicare tax on net investment income) other than U.S. federal income taxation.
This summary does not purport to address all of the material U.S. federal income tax consequences that may be relevant to the holders of the common shares or ADSs, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks or other financial institutions, insurance companies, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, investors liable for the alternative minimum tax, partnerships and other pass-through entities or arrangements, U.S. expatriates, investors that own, have owned or are treated as owning, directly, indirectly or constructively, 10% or more of the voting power or value of our stock, investors that hold the common shares or ADSs as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, “controlled foreign corporations,” certain U.S. holders who file applicable financial statements required to recognize income when the associated revenue is reflected on such financial statements and U.S. holders whose functional currency is not the U.S. dollar) may be subject to special tax rules.
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As used below, a “U.S. holder” is a beneficial owner of common shares or ADSs that is, for U.S. federal income tax purposes:
| i. | an individual citizen or resident of the United States; |
| ii. | a corporation (or an entity taxable as a corporation) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; |
| iii. | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| iv. | a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust; or (b) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. |
If a partnership or other entity or arrangement taxable as a partnership for U.S. federal income tax purposes holds common shares or ADSs, the U.S. federal tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners of partnerships holding common shares or ADSs should consult their tax advisors.
In general, for U.S. federal income tax purposes, holders of ADRs evidencing ADSs will be treated as the beneficial owners of the common shares represented by those ADSs.
Taxation of Distributions
Subject to the passive foreign investment company, or (“PFIC”), rules discussed below, the gross amount of any dividends (including amounts withheld in respect of Brazilian taxes) paid with respect to the common shares or ADSs generally will be subject to U.S. federal income taxation as ordinary income. In general, distributions with respect to the common shares or ADSs (which includes (i) distributions of interest on shareholders’ equity under Brazilian law, (ii) amounts withheld in respect of Brazilian taxes and (iii) any additional amounts payable in respect of such withholding taxes, as described above under “—Brazilian Tax Considerations—Distribution of Interest on Shareholders’ Equity”), to the extent made from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will constitute dividends for U.S. federal income tax purposes. If a distribution exceeds the amount of our current and accumulated earnings and profits, as so determined under U.S. federal income tax principles, the excess will be treated first as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in the common shares or ADSs, and thereafter as capital gain, which will be either long-term or short-term capital gain depending on whether the U.S. holder held the common shares or ADSs for more than one year. We do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles and, unless and until such calculations are made, U.S. holders should assume that all distributions are made out of earnings and profits and constitute dividend income. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.
Distributions paid in Brazilian currency will be included in the gross income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date the dividends are actually or constructively received by the U.S. holder, or in the case of dividends received in respect of ADSs, on the date the dividends are actually or constructively received by the depositary or its agent, whether or not converted into U.S. dollars. A U.S. holder will have a tax basis in any distributed Brazilian currency equal to its U.S. dollar amount on the date of receipt by the U.S. holder or disposition, as the case may be, and any gain or loss recognized upon a subsequent disposition of such Brazilian currency generally will be foreign currency gain or loss that is treated as U.S. source ordinary income or loss. If distributions paid in Brazilian currency are converted into U.S. dollars on the day they are received by the U.S. holder, the depositary or its agent, as the case may be, U.S. holders generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss, if any, if Brazilian currency received by the U.S. holder or the depositary or its agent is not converted into U.S. dollars on the date of receipt.
Under current law, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a reduced rate if the dividends represent “qualified dividend income.” Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States; (ii) the U.S. holder meets the holding period requirement for
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the ADSs (generally more than 60 days during the 121-day period that begins 60 days before the ex-dividend date; and (iii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. The ADSs are listed on the NYSE, and should qualify as readily tradable on an established securities market in the United States so long as they are so listed. However, no assurances can be given that the ADSs will be or remain readily tradable. Moreover, as discussed below under “Passive Foreign Investment Company Rules,” we believe that we were not treated as a PFIC for U.S. federal income tax purposes in 2022, and do not expect to become a PFIC for our current taxable year. Additionally, dividends on ADSs will not be eligible for the dividends received deduction allowed to U.S. corporations.
Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares (to the extent not represented by ADSs) will be treated as qualified dividend income, because the common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury Department has announced that it continues to study and promulgate additional or revised rules pursuant to which holders of ADSs, or stock and intermediaries through whom such securities are held, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, we are not certain that we will be able to comply with them. U.S. Holders of ADSs and common shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.
Dividends paid by us generally will constitute foreign source “passive category” income and will be subject to various other limitations for U.S. foreign tax credit purposes. For purposes of the U.S. foreign tax credit limitation, foreign source income is separated into different “baskets,” and the credit for foreign taxes on income in any basket is limited to the U.S. federal income tax allocable to such income. Subject to generally applicable limitations under U.S. federal income tax law, Brazilian income tax imposed or withheld on such dividends, if any, may be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s election if it does not elect to claim a foreign tax credit for any foreign income taxes paid during the taxable year, any otherwise creditable foreign income taxes paid may instead be deducted in computing such U.S. holder’s taxable income). In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax.
U.S. holders should be aware that the IRS has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of ADSs. Accordingly, the discussion above regarding the creditability of Brazilian income tax on dividends could be affected by future actions that may be taken by the IRS. The rules with respect to the U.S. foreign tax credit are complex, U.S. regulations have imposed additional requirements that must be met for a foreign tax to be creditable and U.S. holders of common shares or ADSs are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Taxation of Capital Gains
Deposits and withdrawals of common shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.
In general, gains or losses, if any, realized by a U.S. holder upon a sale, exchange or other taxable disposition of common shares or ADSs will be subject to U.S. federal income taxation as capital gains or losses in an amount equal to the difference between the amount realized on the sale, exchange or other taxable disposition and such U.S. holder’s adjusted tax basis in the common shares or ADSs. Such capital gains or losses will be long-term capital gains or losses if at the time of sale, exchange or other taxable disposition the common shares or ADSs have been held for more than one year. Under current U.S. federal income tax law, net long-term capital gains of non-corporate U.S. holders (including individuals) are eligible for taxation at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to certain limitations under the Code.
Capital gains or losses, if any, realized by a U.S. holder on the sale, exchange or other taxable disposition of common shares or ADSs generally will be treated as U.S. source gains or losses for U.S. foreign tax credit purposes. If a Brazilian income tax is imposed on the sale or disposition of common shares, a U.S. holder that does not receive sufficient foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian income tax. Under U.S. regulations, Brazilian withholding tax imposed on such U.S. source gain may not constitute a creditable tax. Moreover, even if the tax is a creditable tax, the U.S. holder may be unable to benefit unless the U.S. holder can apply the credit against U.S. federal
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income tax payable on other income from foreign sources from the relevant foreign tax basket. Alternatively, a U.S. holder may take a deduction for all otherwise creditable foreign income taxes paid during the taxable year if it does not elect to claim a foreign tax credit for any foreign taxes paid or accrued during the taxable year. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of common shares or ADSs. A U.S. holder should consult its tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in its particular circumstance.
Passive Foreign Investment Company Rules
Based upon our current and projected income, assets and activities, we do not expect the common shares or ADSs to be considered common shares of a PFIC for our current fiscal year. In general, we will be a PFIC with respect to a U.S. holder if, for any taxable year in which the U.S. holder held ADSs or common shares, either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes, among other things, dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income.
Further, because the determination of whether the common shares or ADSs constitute common shares of a PFIC will be based upon the composition of our income, assets and the nature of our business, which may differ substantially from previous taxable years due to the segregation of our business from that of Grupo Éxito, as well as a proportionate interest in the income, assets and business of entities in which we hold at least a 25% interest, from time to time, and because there are uncertainties in the application of the relevant rules, there can be no assurance (and it is possible that the IRS could reach a contrary conclusion) that the common shares or ADSs will not be considered common shares of a PFIC for any fiscal year. If the common shares or ADSs were common shares of a PFIC for any fiscal year, U.S. holders (including certain indirect U.S. holders) may be subject to adverse tax consequences, including the possible imposition of an interest charge on gains or “excess distributions” allocable to prior years in the U.S. holder’s holding period during which we were determined to be a PFIC. If we are deemed to be a PFIC for a taxable year, dividends on our common shares or ADSs would not be “qualified dividend income” eligible for preferential rates of U.S. federal income taxation.
If we are treated as a PFIC and, at any time, we invest in non-U.S. corporations that are classified as PFICs (each, a “Subsidiary PFIC”), U.S. holders generally will be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interest in that Subsidiary PFIC. If we are treated as a PFIC, a U.S. holder could incur liability for the deferred tax and interest charge described above if either (1) we receive a distribution from, or dispose of all or part of our interest in, the Subsidiary PFIC or (2) the U.S. holder disposes of all or part of its common shares or ADSs.
The special PFIC tax rules with respect to gain and “excess distributions” described above will not apply to a U.S. holder if the U.S. holder makes an election (i) to “mark-to-market” the common shares or ADSs (a “mark-to-market election”) or (ii) to treat us as a “qualified electing fund” (a “QEF election”). The QEF election is not available to holders unless we agree to comply with certain reporting requirements and provide the required annual information statements. Because we currently do not intend to provide this information, holders should assume that the QEF election will not be available to them. The QEF and mark-to-market elections only apply to taxable years in which the U.S. holder’s common shares or ADSs are treated as stock of a PFIC.
A U.S. holder may make a mark-to-market election, if the common shares or ADSs are “regularly traded” on a “qualified exchange.” Under applicable U.S. Treasury regulations, a “qualified exchange” includes a national securities exchange, such as the NYSE, that is registered with the SEC or the national market system established under the Exchange Act. Also, under applicable Treasury Regulations, PFIC securities traded on a qualified exchange are regularly traded on such exchange for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. We cannot assure you that the ADSs will be eligible for a mark-to-market election.
A U.S. holder that makes a mark-to-market election with respect to its ADSs must include for each taxable year in which the U.S. holder’s common shares or ADSs are treated as shares of a PFIC, as ordinary income, an amount equal to the excess of the fair market value of the common shares or ADSs at the close of the taxable year over the U.S. holder’s adjusted tax basis in the common shares or ADSs, and is allowed an ordinary loss for the excess, if any, of the adjusted tax basis over the fair market value of the common shares or ADSs at the close of the taxable year, but only to the extent of the amount of previously included mark-to-market inclusions
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(not offset by prior mark-to-market losses). These amounts of ordinary income, and any gain recognized on the sale, redemption or other taxable disposition of an ADS with respect to which such an election is in place, will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. holder’s tax basis in the common shares or ADSs will be adjusted to reflect any income or loss amounts on its annual inclusions. Although a U.S. holder may be eligible to make a mark-to-market election with respect to its common shares or ADSs, no such election may be made with respect to the stock of any Subsidiary PFIC that such U.S. holder is treated as owning, because such Subsidiary PFIC stock is not marketable. Thus, the mark-to-market election will not be effective to avoid all of the adverse tax consequences described above with respect to any Subsidiary PFICs. U.S. holders should consult their own tax advisors regarding the availability and advisability of making a mark-to-market election with respect to their common shares of ADSs based on their particular circumstances.
A U.S. holder who owns common shares or ADSs during any taxable year in which we are a PFIC in excess of certain de minimis amounts and fails to qualify for certain other exemptions would be required to file IRS Form 8621. In addition, under certain circumstances, regulations also require a “United States person” (as such term is defined in the Code) that owns an interest in a PFIC as an indirect shareholder through one or more United States persons to file Form 8621 for any taxable year during which such indirect shareholder is treated as receiving an excess distribution in connection with the ownership or disposition of such interest, or reports income pursuant to a mark-to-market election. U.S. holders should consult their own tax advisors regarding the application of the PFIC rules to the common shares or ADSs.
U.S. Information Reporting and Backup Withholding
Certain U.S. holders of common shares or ADSs may, under certain circumstances, be subject to information reporting and backup withholding with respect to certain payments to such U.S. holder, such as dividends paid by our Company or the proceeds of a sale, exchange or other taxable disposition of common shares or ADSs, unless such U.S. holder (i) is an exempt recipient and demonstrates this fact when so required; or (ii) in the case of backup withholding, provides a correct taxpayer identification number, certifies that it is a U.S. person and that it is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Any amount withheld under these rules will be creditable against a U.S. holder’s U.S. federal income tax liability, provided the requisite information is timely furnished to the IRS.
“Specified Foreign Financial Asset” Reporting
Owners of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their U.S. federal income tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by non-U.S. financial institutions as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties; and (iii) interests in non-U.S. entities.
Prospective purchasers should consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations as well as any additional tax consequences resulting from purchasing, holding or disposing of common shares or ADSs, including the applicability and effect of the tax laws of any state, local or foreign jurisdiction, including estate, gift, and inheritance laws.
10F. Dividends and Paying Agents
Not applicable.
10G. Statement by Experts
Not applicable.
10H. Documents on Display
We are subject to the information requirements of the Exchange Act, pursuant to which we file reports and other information with the SEC. Reports and other information filed by us with the SEC may be inspected
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and copied at the public reference facilities maintained by the SEC at Room 1580, 100 F Street N.E., Washington, D.C. 20549, and at the Commission’s Regional Offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. In addition, the SEC maintains a website (http://www.sec.gov) that contains each of our filed reports and information statements. You may also inspect these reports and other information at the offices of the New York Stock Exchange Inc., 120 Broad Street, New York, New York 10005, on which our ADSs are listed.
We also file financial statements and other periodic reports with the CVM, including the Formulário de Referência, which is an annual report that is prepared and filed in accordance with CVM Instruction No. 480/09 and can be accessed through www.cvm.gov.br. Information from that website is not incorporated by reference into this document.
Copies of our annual reports on Form 20-F and documents referred to in this annual report and our bylaws will be available for inspection upon request at our headquarters at: Avenida Brigadeiro Luiz Antonio, 3142, São Paulo, SP, Brazil.
Our website is located at https://www.gpabr.com and our investor relations website is located at http://www.gpari.com.br. (These URLs are intended to be an inactive textual reference only. They are not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL is not, and shall not be deemed to be, incorporated into this annual report.)
10I. Subsidiary Information
Not required.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
We are exposed to market risks from changes in foreign currency and interest rates. Market risk is the potential loss arising from adverse changes in market rates, such as foreign currency exchange rates and interest rates. For more information regarding derivative financial instruments and our foreign exchange and interest rate risk, see note 18 to our audited consolidated financial statements.
We have a treasury policy designed to manage financial market risk relating to U.S. dollar, principally by swapping a substantial part of our U.S. dollar-denominated liabilities to obligations denominated in reais. We engage in cross-currency interest rate swaps under which we enter into an agreement typically with the same counter-party which provides the original U.S. dollar-denominated financing. A separate financial instrument is signed at the time the loan agreement is consummated, under which we are effectively then liable for amounts in reais and interest based on the CDI rate. Amounts are normally consummated with the same financial institutions and the same maturity periods. See “Item 5. Operating and Financial Review and Prospects—5B. Liquidity and Capital Resources.”
We use derivative financial instruments, usually cross-currency interest rate swaps, to mitigate risk caused by fluctuating U.S. dollar currency and interest rates. We enter into cross-currency interest rate swaps to protect against U.S. dollar currency exposure. Decisions regarding swap contracts are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, and economic trends. Our realized and unrealized gains and losses on these contracts are included within “financial income” and “financial expense,” respectively.
We use interest rate swap agreements to manage interest costs and risks associated with changing rates. The differential to be paid or received is accrued as interest rates change and is recognized in interest expense over the life of the agreements.
We have a policy of entering into contracts only with parties that have high credit ratings. The counter-parties to these contracts are major financial institutions. We do not expect a credit loss from counter-party non-performance.
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Interest Rate Risk
We are exposed to interest rate volatility with regards to our cash and cash equivalents and floating rate debt. The interest rate in our cash and cash equivalents denominated in reais is based on the CDI rate, the benchmark interest rate set by the interbank market on a daily basis.
We are exposed to interest rate volatility with regards to future issuances of debt, foreign currency fluctuations and existing issuances of variable rate debt. We manage our debt portfolio in response to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt, and using derivative financial instruments. Among other facilities, we also use bank loans to meet our financing requirements, including loans denominated in U.S. dollars and swapped to obligations in reais accruing interest based on the CDI rate.
The table below provides information about our significant interest rate-sensitive instruments. For variable interest rate debt, the rate presented is the weighted average rate calculated as of December 31, 2022.
|
Expected Maturity Date | |||||||||
|
As of December 31, 2022 | |||||||||
|
2022 |
2023 |
2024 |
2025 |
There-after |
Total |
Borrowing Cost |
Fair Value |
Annual Average Interest Rate | |
| (in millions of R$) | |||||||||
| Assets: | |||||||||
| Cash and banks denominated in reais | 178 | - | - | - | - | 178 | - | 178 | |
| Cash equivalents denominated in reais |
3,573 |
- |
- |
- |
- |
3,573 |
- |
3,573 |
101.38% of CDI |
| Total cash and cash equivalents |
3,751 |
- |
- |
- |
- |
3,751 |
- |
3,751 |
|
| Liabilities: | |||||||||
| Loans and financing | |||||||||
| Floating rate, denominated in U.S. dollars(1) | 290 | 171 | - | - | - | 461 | - | 461 | (USD+ 2.12% per year) + (CDI + 1.70% per year) |
| Floating rate, denominated in reais |
692 |
1,201 |
669 |
168 |
- |
2,730 |
(7) |
2,723 |
(CDI+ 1.87%per year) + (TR + 9.80% per year) |
| Total loans and financing |
386 |
1,724 |
1,690 |
327 |
324 |
4,451 |
(11) |
4,439 |
|
| Debentures floating rate, denominated in reais |
31 |
- |
1,080 |
1,081 |
520 |
2,711 |
(33) |
2,679 |
(CDI + 1.71 per year) |
| Total liabilities |
1,012 |
1,372 |
1,749 |
1,249 |
520 |
5,901 |
(40) |
5,863 |
|
_________________
| (1) | Originally U.S. dollar-denominated and swapped to CDI. |
The following table presents historical data for interest rates relevant to our financial instrument in the last three years:
|
As of December 31, | |||
|
2022 |
2021 |
2020 | |
| CDI(1) | 13.65% | 9.15% | 1.90% |
_________________
| (1) | Annualized rate at the end of each period. |
We have not experienced, and we do not expect to experience, difficulty in obtaining financing or refinancing existing debt. See “Item 5. Operating and Financial Review and Prospects—5B. Liquidity and Capital Resources” for a discussion of our credit agreements.
Exchange Rate Risk
We are exposed to fluctuations in foreign currency cash flows related to certain short-term and long-term debt payments. We are principally exposed to fluctuations of the exchange rate with the U.S. dollar. For more
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information see, “Item 3. Key Information—3D. Risk Factors—Risks Relating to Brazil—Exchange rate volatility may adversely affect the Brazilian economy and us.”
Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the U.S. dollar. Foreign currency-denominated liabilities as of December 31, 2022, included debt denominated mainly in U.S. dollars. Our net foreign currency exposure to U.S. dollars (U.S. dollar-denominated debt less our cross-currency interest rate swaps in our U.S. dollar-denominated debt) was a debt of R$58 million as of December 31, 2022, compared to a debt of R$7 million as of December 31, 2021 and a debt of R$12 million as of December 31, 2020. Our net foreign currency exposure is represented by the debt due to import financing. Our cross-currency interest rate swaps partially hedge our exposure arising from our U.S. dollar-denominated debt.
The table below provides information on our debt outstanding as of December 31, 2022:
|
Expected Maturity Date | |||||||
|
2022 |
2023 |
2024 |
2025 |
Thereafter |
Total |
Fair Value | |
| (in millions of R$) | |||||||
| Loans and financing | |||||||
| U.S. dollars(1) | 289 | 171 | - | - | - | 461 | 461 |
| Reais |
692 |
1,201 |
669 |
168 |
- |
2,730 |
2,730 |
| Total loans and financing |
719 |
1,215 |
669 |
168 |
- |
2,771 |
2,771 |
| Debentures and promissory note in reais |
31 |
- |
1,079 |
1,081 |
520 |
2,711 |
2,711 |
| Total Debentures |
31 |
- |
1,079 |
1,081 |
520 |
2,711 |
2,711 |
_________________
| (1) | Originally U.S. dollar-denominated and swapped to CDI. |
Foreign currency swap contracts allow us to swap fixed rate U.S. dollar-denominated short-term and long-term debt for Brazilian real-denominated floating rate debt, based on the CDI rate variation. For more information regarding derivative financial instruments and our foreign exchange and interest rate risk, see note 18 to our audited consolidated financial statements. As of December 31, 2022, 2021 and 2020, the originally U.S. dollar-denominated debt totaled R$403 million, R$448 million and R$271 million, which were covered by floating rate swaps in reais, based on the CDI rate, has been treated on a combined basis as if these loans had been originally denominated in reais and accrued CDI. In addition, the swap agreements do not provide for collateral.
The table below provides information about our cross-currency interest rate swaps:
|
Notional |
Expected |
2022 |
2021 | |
| Debt | (in millions) | |||
| U.S. dollars to reais | US$50 | 2023 | (35) | (7) |
| U.S. dollars to reais | US$30 | 2024 |
(23) |
- |
| Total |
(58) |
(7) |
For more information on our cross-currency interest rate swaps, see note 18.4 to our audited consolidated financial statements.
Credit Risk
Cash and cash equivalents: in order to minimize our credit risk, we adopt investment policies at financial institutions approved by our Financial Committee, also taking into consideration monetary limits and financial institution evaluations, which are regularly updated.
Accounts receivable: large portion of the sales in our stores are paid with credit cards. Sales to customers using credit cards accounted for 44.6%, 47.2% and 46.5% of the consolidated net operating revenue in 2022, 2021 and 2020 for our retail segment, respectively. Credit risks related to credit card accounts receivable is minimized by the fact that we sell these receivables to banks and credit card companies, aiming to strengthen working capital. The sales of credit card receivables result in derecognition of the accounts receivable due to the transfer of the credit risk, benefits and control of such assets to third parties. Additionally, we monitor the credit risk, mainly
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with regards to accounts receivable in the form of installment sales, through the background check for the concession of credit to customers and by the periodic analysis of the provision for losses.
Derivative instruments: we also have counterparty risk related to derivative instruments; such risk is mitigated by the transactions carried out according to the policies approved by our governance boards.
There are no amounts receivable that are individually, higher than 5% of accounts receivable or sales.
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
12A. Debt Securities
Not applicable.
12B. Warrants and Rights
Not applicable.
12C. Other Securities
Not applicable.
12D. American Depositary Shares
In the United States, our common shares trade in the form of ADS. The ADSs commenced trading on the NYSE on May 29, 1997.
We do not treat ADR holders as our shareholders and ADR holders have no shareholder rights. Brazilian law governs shareholder rights. The depositary is the holder of the common shares underlying the ADSs. Holders of ADRs have ADR holder rights.
A form of the Deposit Agreement is filed as Exhibit 2.(a).1 to this annual report. We encourage you to review this document carefully if you are an ADS holder.
For information on the risks relating to the ADSs, see “Item 3. Key Information—3D. Risk Factors—Risks Relating to the ADSs and Our Common Shares.”
Fees and Expenses
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing common shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
| Persons depositing or withdrawing common shares must pay: | For: |
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | ● Issuance of ADSs, including issuances resulting from a distribution of common shares or rights or other property |
| ● Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |
| US$.05 (or less) per ADS | ● Any cash distribution to ADS registered Holders |
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| US$.05 (or less) per ADS per calendar year (or portion thereof) | ● Services performed by the depositary in administering our ADR program (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision) |
| A fee equivalent to the fee that would be payable if securities distributed to you had been common shares and the common shares had been deposited for issuance of ADSs | ● Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders |
| Registration or transfer fees | ● Transfer and registration of common shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |
| Expenses of the depositary | ● Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) |
| ● Converting foreign currency to U.S. dollars | |
| Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | ● As necessary |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | ● As necessary |
Fees Incurred from January 1, 2022 until December 31, 2022
From January 1, 2022, until December 31, 2022, the Company received from J.P. Morgan Chase Bank N.A., as the depositary bank for our ADS program during that period, the amount of US$ 866.2 million (US$ 259.9 million of which were retained as withholding taxes) for the payment of continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of reimbursement of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.
Fees to be Paid in the Future
JPMorgan Chase Bank N.A., as depositary, has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADS program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse the Company, but the amount of reimbursement available to the Company is not necessarily tied to the amount of fees the depositary collects from investors.
PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
No matters to report.
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| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
| ITEM 15. | CONTROLS AND PROCEDURES |
| (a) | Evaluation of Disclosure Controls and Procedures |
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit in compliance with the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms established by the SEC.
Based upon our management’s evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022 due to the material weaknesses in our internal control over financial reporting described below. Our management completed additional procedures prior to filing this annual report, which allowed it to conclude that, notwithstanding these material weaknesses, our audited consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations, capital structure, and cash flows as of the dates and for the periods presented, in conformity with IFRS, as issued by IASB.
| (b) | Management’s Annual Report on Internal Control over Financial Reporting |
Management of the Company is responsible for establishing and maintain adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by IASB.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with applicable generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures with the objective of (1) maintaining records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) providing reasonable assurance that transactions are recorded as needed in order to permit the preparation of financial statements in accordance with IFRS, and that the receipts and expenditures of the Company are only being made in accordance with appropriate authorization of our management and our board of directors; and (3) providing reasonable assurance regarding the prevention or timely detection of any unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our audited consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, even these systems determined to be effective can only provide reasonable assurance with respect to the preparation and presentation of consolidated financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk of internal controls becoming inadequate due to changes in market conditions or deterioration of the level of compliance with policies or procedures relating to internal control over financial reporting.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria set forth in the 2013 Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (COSO Framework). Based on this assessment, considering the material weaknesses described below, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting which raises a reasonable possibility that a material misstatement in our consolidated financial statements will not be prevented or detected on a timely basis.
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(1) Company´s inadequate entity level controls over reviewing and monitoring effectiveness of internal controls of Almacenes Exito S.A. and its subsidiaries (Grupo Éxito)
Our management’s monitoring controls were insufficient to timely identify and remediate deficiencies related to design, implementation or operation of certain internal controls and processes at Grupo Éxito.
(2) Insufficient trained resources resulting in an ineffective risk assessment process related to internal control over financial reporting for certain processes of Grupo Éxito
Our management did not have sufficiently trained resources at Grupo Éxito, which resulted in an ineffective risk assessment process related to internal control over financial reporting for certain processes. These processes that defined clear financial reporting objectives and evaluated risks, including risks related to specific changes that could materially impact Éxito’s system of internal control, resulting in additional material weaknesses related to:
· Ineffective information and communication process that identified and assessed the source of controls necessary to ensure the reliability of information used in financial reporting. Consequently, all process-level manual and automated controls that depended on the accuracy and completeness of information were also deemed ineffective as they could have been adversely impacted;
· Ineffective design, implementation and/or operation of process-level control activities related to the monthly adjustment of the difference between standard cost and actual cost for manufactured products in the context of the inventory process; and
· Ineffective design, implementation and/or operation of process-level control activities over complex transactions.
These deficiencies resulted in immaterial misstatements in our audited consolidated financial statements as of and for the year ended December 31, 2022, which were corrected by our management. As there is a reasonable possibility that a material misstatement in the audited consolidated financial statements may not be prevented or detected on a timely basis, our management concluded that these deficiencies represent material weaknesses.
| (c) | Attestation report of the independent registered accounting firm |
Deloitte Touche Tohmatsu Auditores Independentes Ltda., the independent registered certified public accounting firm who audited the Company’s consolidated financial statements included in this annual report, issued a report on our internal control over financial reporting, which is included herein.
| (d) | Changes in Internal Control over Financial Reporting |
There were no other changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) other than the changes in internal controls over financial reporting described below, implemented during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, which are related to the implementation of the plan to remediate the material weaknesses identified in 2021.
Remediation of the Material Weaknesses identified as of December 31, 2021
We have previously disclosed material weaknesses in our annual report for the year ended December 31, 2021, relating to (1) Company’s inadequate entity level controls over reviewing and monitoring effectiveness of IT general controls and business processes controls of Grupo Éxito and (2) ineffective general information
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technology controls to support the information technology operating systems, database, and information technology applications of Grupo Éxito Colombia.
Throughout 2022, the following remedial procedures were implemented to address the aforementioned material weaknesses, which strengthened our monitoring of planning and execution of controls in earlier stages in the process, especially in the context of general information technology relating controls:
· Implementation of periodic and timely assessment of operating effectiveness tests progress by our internal control’s team within the subsidiary;
· Reperformance by the Company´s internal control team of a sample of tests of general information technology controls;
· Improvement of the execution of controls by the subsidiary, performing tests in earlier stages in the process, especially in the context of information technology general controls;
· Implementation of additional retention of evidence by subsidiary, increasing the completeness of the information; and
· Improved segregation of the duties of analysis and execution by subsidiary.
Our management addressed the deficiencies that gave rise to material weaknesses in 2021 related to general information technology controls. However, the deficiencies related to the entity level monitoring controls remained as of December 31, 2022.
Planned Remedial actions over the material weaknesses identified as of December 31, 2022
We continue to evaluate, design and implement the appropriate remedial actions to address the material weaknesses identified in 2022 and described above, including the increase of oversight of our subsidiaries, additional staffing efforts to be able to appropriately assess the internal control risks related to Grupo Éxito’s operations. More robust risk assessment will allow Grupo Éxito’s management to design more effective controls over:
· The accuracy and completeness of reports used to perform process-level manual and automated controls dependent upon the accuracy and completeness of information;
· Inventory;
· Accounting and disclosures for complex transactions; and
· Any changes that could significantly impact Éxito’s system of internal controls.
| ITEM 16. | RESERVED |
16A. Audit Committee Financial Expert
Our board of directors nominated Mr. Fernando Dal-Ri Múrcia, a member of our audit committee, as the financial expert of the audit committee, as defined by current SEC rules. Mr. Dal-Ri Múrcia meets the independence requirements of the SEC and the NYSE listing standards.
16B. Code of Ethics
In 2000, our board of directors adopted a code of ethics for our directors, officers and employees, including our chief executive officer and chief financial officer, which was last amended by our board of directors on February 6, 2020 to adapt to the Novo Mercado listing segment requirements. This code of ethics of the Company complies with item 5.8 of the new listing regulation for Corporate Governance of Novo Mercado issued by B3 and is available at our website www.gpari.com.br and at www.cvm.gov.br. Information from that website is not incorporated by reference into this document. We will provide to any person without charge a copy of our code of ethics, upon request to our investor relations officer.
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A copy of our code of ethics has been filed as Exhibit 11.(a) to this annual report.
16C. Principal Accountant Fees and Services
Deloitte
Touche Tohmatsu Auditores Independentes Ltda. (PCAOB ID:
| 2022 | 2021 | |
| (in millions of R$) | ||
| Audit Fees | 14.3 | 14.6 |
| Audit–Related Fees | 12.5 | - |
| Tax Fees | - | - |
| All Other Fees | - | - |
| Total | 26.9 | 14.6 |
_________________
| (1) | Adjusted to reflect the total amount billed to us for services rendered only by the principal accountant. |
Audit Fees
Audit fees are fees for the audit of our consolidated financial statements for the years of 2022 and 2021, the reviews of our quarterly financial information for the year with corresponding audit of our internal control over financial reporting for 2022 and 2021.
Audit-Related Fees
Audit-related fees were comprised of assurance and related services that are related to the performance of the audit or review of our consolidated financial statements, including due diligence related to mergers and acquisitions, audit in connection with acquisitions, internal control reviews, attest services that are not required by statute or regulation, consultations concerning financial accounting and reporting standards and tax compliance review.
Tax Fees
Tax fees were comprised of the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.
All Other Fees
All other fees were comprised of the aggregate fees billed for products and services provided by the principal accountant, other than the services reported under “audit fees,” “audit-related fees” and “tax fees.”
Pre-Approval Policies and Procedures
Our audit committee has the responsibility of analyzing all audit, audit-related, tax and other services provided by our independent accountants and assist our board of directors on these matters. Our board of directors is ultimately responsible for approving all audit, audit-related, tax and other services provided by our independent accountants. Any services provided by our independent accountants that are not specifically included within the scope of the audit must be pre-approved by our audit committee prior to any engagement. Our audit committee is permitted to approve certain audit and tax services, pursuant to a de minimis exception.
16D. Exemptions from the Listing Standards for Audit Committees
Under the listed company audit committee rules of the NYSE and the SEC, we are required to comply with Exchange Act Rule 10A-3, which mandates that we either establish an audit committee composed of members of the board of directors that meets specified requirements or rely on an exemption under Exchange Act Rule 10A-3(c)(3), which is the case with our statutory audit committee. In our assessment, in light of the composition of our statutory audit committee, our reliance on the exemption does not materially adversely affect
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the ability of our statutory audit committee to act independently and to satisfy the other requirements of Exchange Act Rule 10A-3. For a further discussion of our statutory audit committee and the audit committee exemption, see “Item 6. Directors, Senior Management and Employees—6C. Board Practices—Committees of the Board of Directors—Audit Committee.”
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
As a result of our migration to the Novo Mercado listing segment of B3, three shareholders, jointly holders of 6,474 of our preferred shares, exercised their withdrawal right. Therefore, according to article 45 of the Brazilian corporate law, these shareholders received a reimbursement of R$ 41.54 for each share, calculated pursuant to the net equity recorded in our financial statements for the year ended December 31, 2019, included elsewhere in this annual report. On February 10, 2020, we paid the total amount of R$0.3 million to these dissenting shareholders. The preferred shares were converted into common shares and are held in treasury by us. For more information on our migration to the Novo Mercado listing segment of B3, see “Item 10. Additional Information—10B. Memorandum and Articles of Association—Common Shares.”
16F. Removed and Reserved
16G. Corporate Governance
Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards
We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we must disclose any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards. As a Brazilian company listed on B3, we are required to comply with the corporate governance standards set forth in Brazilian corporate law and the rules of the CVM. The following is a summary of those differences.
Independence of Directors and Independence Tests
The NYSE rules require that a majority of the board of directors must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Brazilian law does not have a similar requirement. Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board of directors. However, both Brazilian corporate law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of Brazilian corporate law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence.
Brazilian corporate law requires that our directors be elected by our shareholders at an annual shareholders’ meeting. Currently, our board of directors consists of nine members elected by our shareholders, of which six are representatives of the Casino Group and three are independent directors.
Executive Sessions
NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian corporate law does not have a similar provision. According to Brazilian corporate law, up to one-third of the members of the board of directors can be elected from management. There is no requirement that non-management directors meet regularly without management. As a result, the non-management directors on our board of directors do not typically meet in executive sessions.
Nominating/Corporate Governance Committee
NYSE rules require that listed companies have a nominating/corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company.
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Although we are not required under applicable Brazilian law, we have created a human resources and corporate governance committee to improve our corporate governance practices. The human resources and corporate governance committee is responsible for examining candidates and providing guidelines for the appointment of members for our board of directors, special committees and executive officers. For more information on our human resources and corporate governance committee, see “Item 6. Directors, Senior Management and Employees—6C. Board Practices—Committees of the Board of Directors—Human Resources and Corporate Governance Committee.”
Human Resources and Compensation Committee
NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive compensation and equity-based plans.
Under Brazilian corporate law, the total amount available for compensation for our directors and executive officers and for profit-sharing payments to our executive officers is set by our shareholders at the annual shareholders’ meeting. On the other hand, the board of directors, through the human resources and corporate governance committee, is responsible for recommending to the shareholders the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members. In making such recommendation, the board, through the human resources and corporate governance committee, reviews the performance of the executive officers, including the performance of our chief executive officer, who typically excuses himself from discussions regarding his performance and compensation. For more information on our human resources and corporate governance committee, see “Item 6. Directors, Senior Management and Employees—6C. Board Practices—Committees of the Board of Directors—Human Resources and Corporate Governance Committee.”
Audit Committee and Audit Committee Additional Requirements
NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate; (ii) meets the SEC rules regarding audit committees for listed companies; (iii) has at least one member who has accounting or financial management expertise; and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian corporate law.
As a result of our migration to the Novo Mercado, pursuant to the Novo Mercado listing rules, we are required to create and implement an audit committee, which shall be composed of at least one independent member and one member with outstanding knowledge in corporate accounting.
As a foreign private issuer, we chose to rely on an exemption under Exchange Act Rule 10A-3(c)(3). For a further discussion of our statutory audit committee and the audit committee exemption, see “Item 6. Directors, Senior Management and Employees—6C. Board Practices—Committees of the Board of Directors—Audit Committee.”
Corporate Governance Guidelines
Under NYSE listing standards, a listed U.S. company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We have adopted and observed corporate governance guidelines in accordance with Brazilian legislation, including a disclosure policy which requires, among other things, the disclosure of our corporate governance guidelines, material facts and annual financial reports. In addition, we have adopted and observed a policy on business conduct and ethics.
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Code of Business Conduct and Ethics
NYSE rules require listed companies to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and to promptly disclose any waivers of the code for directors or executive officers. Brazilian law has a similar requirement.
We implemented a code of ethics in 2000, as amended in 2016 and 2020, to regulate our employees’ conduct with us and our customers, suppliers, competitors, public agents and the public at large. In order to comply with the requirements of the Sarbanes-Oxley Act, NYSE rules and applicable Brazilian law, we implemented rules applicable to our managers’ conduct in connection with the registration and control of financial and accounting information and their access to privileged and non-public information and data in 2016. For more information about our code of ethics, see “—16B. Code of Ethics.”
Internal Audit Function
NYSE rules require that listed companies maintain an internal audit function to provide management and the fiscal council or the audit committee, as the case may be, with ongoing assessments of the company’s risk management processes and system of internal control. Our internal controls department is responsible for our compliance with the requirements of Section 404 of the U.S. Sarbanes Oxley Act of 2002, or SOX, regarding internal control over financial reporting. In addition, our internal audit department, which reports to our audit committee and our chief executive officer, reviews our internal controls over financial reporting. Our audit committee and chief executive officer, in turn, report to our board of directors.
SOX
We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. We have filed the relevant officer certifications under Section 404 of SOX regarding internal controls over financial reporting as Exhibits 12.1 and 12.2 to this annual report.
16H. Mine Safety Disclosure
Not applicable.
16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
| ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of responding to this item.
| ITEM 18. | FINANCIAL STATEMENTS |
The audited consolidated financial statements, together with the Reports of Independent Registered Public Accounting Firms, are filed as part of this annual report.
| ITEM 19. | EXHIBITS |
|
Exhibit Number |
Description |
| 1.1 | English translation of our Estatuto Social (bylaws), as amended.(1) |
| 2.(a).1 | Form of Fourth Amended and Restated Deposit Agreement, among us, JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of ADRs issued thereunder, evidencing ADSs representing deposited Shares (defined therein).(2) |
| 2.(a).2 | Amended form of ADR (defined therein).(2) |
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| 2.(d) | Description of the registrant’s securities registered under Section 12 of the Exchange Act.(3) |
| 4.(b).1 | Cost Sharing Agreement, dated August 1, 2014, by and among Casino Guichard Perrachon S.A., Sudaco Participações Limitada and Companhia Brasileira de Distribuição.(4) |
| 4.(b).2 | First Amendment to the Cost Sharing Agreement, dated October 30, 2014, by and among Casino Guichard Perrachon S.A., Sudaco Participações Limitada, Companhia Brasileira de Distribuição and Euris.(4) |
| 4.(b).3 | Second Amendment to the Cost Sharing Agreement, dated October 28, 2020, by and among Casino Guichard Perrachon S.A., Casino Services SAS, Helicco Participações Ltda., Wilkes Participações S.A., Euris, Companhia Brasileira de Distribuição and Sendas Distribuidora S.A.(5) |
| 4.(b).4 | Wilkes Participações S.A. Shareholders’ Agreement, dated August 20, 2015, among Segisor S.A.S., Casino, Guichard-Perrachon S.A., Oregon LLC, Pincher LLC, Bengal I LLC and Almacenes Éxito S.A., and, as Intervening Parties, Wilkes Participações S.A., Companhia Brasileira de Distribuição and Onper Investments 2015, S.L.(6) |
| 4.(b).5 | Separation Agreement, dated as of December 14, 2020, between Companhia Brasileira de Distribuição and Sendas Distribuidora S.A. (English translation)(7) |
| 8.1 | List of Subsidiaries. For information on our subsidiaries, see note 12 to our audited consolidated financial statements. |
| 11.(a) | Code of Ethics, dated February 6, 2020.(8) |
| 12.1 | Section 302 Certification of the Chief Executive Officer.* |
| 12.2 | Section 302 Certification of the Chief Financial Officer.* |
| 13.1 | Section 906 Certification of the Chief Executive Officer.* |
| 13.2 | Section 906 Certification of the Chief Financial Officer.* |
_________________
| (1) | Incorporated herein by reference to our 6-K furnished on February 14, 2023. |
| (2) | Incorporated herein by reference from Post-Effective Amendment No. 1 to Form F-6 Registration Statement under the Securities Act of 1933 filed with the SEC on December 9, 2021. |
| (3) | Incorporated herein by reference to our annual report on Form 20-F filed on December 1, 2020. |
| (4) | Incorporated herein by reference to our annual report on Form 20-F filed on April 30, 2015. |
| (5) | Incorporated herein by reference to our 6-K/A furnished on May 16, 2022. |
| (6) | Incorporated herein by reference to our 6-K furnished on August 28, 2015. |
| (7) | Incorporated herein by reference to our annual report on Form 20-F filed on April 30, 2021. |
| (8) | Incorporated herein by reference to our 6-K furnished on February 18, 2020. |
| * | Filed herewith. |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO
| By: | /s/ Marcelo Pimentel |
Name: Marcelo Pimentel
Title: Chief Executive Officer
| By: | /s/ Rafael Sirotsky Russowsky |
Name: Rafael Sirotsky Russowsky
Title: Chief Financial Officer and Investor Relations Officer
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|
Companhia Brasileira
Consolidated Financial Statements as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022, 2021 and 2020 and Reports of Independent Registered Public Accounting Firms
|
Companhia Brasileira de Distribuição
Consolidated Financial Statements as of December 31, 2021 and 2020 and for the years ended December 31, 2022, 2021 and 2020 |
Table of contents
| Reports of Independent Registered Public Accounting Firms | F-3 |
Consolidated financial statements
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Brasileira de Distribuição
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Companhia Brasileira de Distribuição and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
We did not audit the consolidated financial statements of Almacenes Éxito S.A. and its subsidiaries (“Éxito”), a subsidiary of the Company, as of and for the year ended December 31, 2022. The accompanying consolidated financial statements of the Company as of and for the year ended December 31, 2022, include R$19,602 million of total assets of Éxito, that are presented as part of assets held for sale and distribution as of December 31, 2022, and R$304 million of net income of Éxito that is presented as part of discontinued operations for the year ended December 31, 2022. The consolidated financial statements of Éxito as of and for the year ended December 31, 2022 were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Éxito, is based solely on the report of the other auditors.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 16, 2023, expressed an adverse opinion on the Company’s internal control over financial reporting based on our audit and the report of the other auditors.
Basis for opinion
These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission - SEC and the PCAOB.
| F-3 |
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by Management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of the other auditors provides a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Discontinued Operations - Discontinuation of Hypermarket Format and Planned Distribution of Subsidiary Éxito to Shareholders - Refer to notes 1.1, 1.2, 32 and 33 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2022, the Company completed its plan for the discontinuation of its hypermarket format that included the closure, sale or conversion of store locations previously operating under the Extra Hiper banner. The Company recorded a pre-tax net gain of R$1,564 million related to the plan during the year ended December 31, 2022, and the results of the Extra Hiper operations have been presented as discontinued operations in the consolidated statements of income for all periods presented.
Additionally, the Company disclosed plans for the divestiture of its subsidiary Éxito, which includes the distribution of approximately 83% of Éxito shares currently held by the Company to its shareholders. At December 31, 2022, the Company recorded R$20,809 million of total assets and R$11,261 million of total liabilities related to Éxito as held for distribution in its consolidated balance sheet. Beginning December 2022, the results of operations of Éxito have been presented as discontinued operations in the financial statements for all periods presented.
We identified the accounting for discontinued operations as a critical audit matter because of (i) the complexity and significance of the amounts involved; (ii) the significant judgments made by Management in determining the appropriate accounting treatment for the transaction as held-for-sale/distribution and the timing of recognition as discontinued operations, in accordance with IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, as well as the amounts and timing of the accounting for associated gains, costs and expenses; and (iii) the non-routine process and judgements used by Management to compile historical financial data for discontinued operations presentation. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of Management’s accounting conclusions, and the related presentation and disclosure in the financial statements.
| F-4 |
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures included, among others:
| · | We obtained an understanding, evaluated the design and implementation and tested the operating effectiveness of the relevant internal controls related to the identification and treatment of significant unusual transactions, including those specifically related to discontinued operations. |
| · | We evaluated the appropriateness of the application of the criteria for reporting assets and liabilities as held for sale/distribution and of discontinued operations, including Management’s judgements, by inspecting and discussing Management’s supporting documentation and technical accounting memorandum, reading of Board of Directors meeting minutes, reading and evaluating underlying contracts and other entity information, including evaluation for contrary evidence based on our understanding of the business. |
| · | We tested the net gain recognized in discontinued operations, including: |
| − | Testing the existence and valuation of cash proceeds. |
| − | Inspecting the related sale agreements to obtain an understanding of the assets and liabilities included in the scope of the sales transaction and testing the completeness and accuracy of the assets and liabilities included in the gain calculation on a sample basis by comparing amounts to the Company’s accounting records. |
| − | Testing the measurement, completeness and accuracy of costs and expenses related to the transaction. |
| − | Testing the tax effects of the sale. |
| · | With the assistance of our valuation specialists, we tested the valuation of the Éxito assets and liabilities held for distribution, including assessing the reasonableness of the Company’s valuation methodology and the significant assumptions used in determining fair value less costs to distribute. |
| · | We evaluated the presentation and disclosures, including earnings per share and cash flows in the financial statements. |
Recoverability of ICMS and PIS/COFINS Tax Credits - Refer to note 10 to the financial statements
Critical Audit Matter Description
The Company had recoverable ICMS tax credits amounting to R$856 million and PIS/COFINS tax credits amounting to R$2,253 million, at December 31, 2022, whose recoverability depends on the generation of sufficient amounts of suitable taxes payable in the future. In assessing the recoverability of these tax credits, Management uses projections of revenues, costs and expenses, as well as other information used in estimating the timing and nature of the future amounts of taxes payable, which are based on estimates and assumptions as to future business performance and market conditions, as well as expectations as to applicable tax regulations.
Auditing the recoverability of these tax credits was considered especially challenging due to: (i) the magnitude of amounts involved; and (ii) the high degree of complexity involved in the Brazilian indirect tax legislation (both State and Federal) and in Management’s assessment process, which requires significant judgment by Management and includes significant assumptions in the estimation of the timing and amounts of future taxes payable that could be affected by future market or economic conditions and events.
| F-5 |
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures included, among others:
| · | We obtained an understanding, evaluated the design and implementation and tested the operating effectiveness of relevant internal controls over Management’s assessment of the recoverability of these tax credits, including relevant internal controls over projections prepared by Management and approved by those charged with governance, used in the recoverability assessment. |
| · | We evaluated the significant assumptions used by Management in its recoverability assessment and tested the completeness and accuracy of the underlying data supporting the significant assumptions. |
| · | With the assistance of our tax specialists, we evaluated the application of tax laws and special tax regimes used in the recoverability assessment. |
| · | We tested the data used by Management in determining the recorded amounts for recoverable tax credits, comparing inputs to internal data and testing the accuracy and completeness of calculations. |
| · | We evaluated the related disclosures in the financial statements. |
Provisions and Tax contingencies - Refer to note 21 to the financial statements
Critical Audit Matter Description
The Company and its subsidiaries are party to a significant number of administrative and legal proceedings arising from various tax claims and assessments. Based on the opinions and with the support of its internal and external legal counsel, Management assesses the likelihood of loss related to these tax claims and assessments, and records provisions when the likelihood of loss is assessed as probable and the amounts can be estimated. As of December 31, 2022, Management has recorded provisions in the amount of R$1,761 million.
Additional claims and assessments of R$12,459 million were outstanding as of December 31, 2022, for which no provision was recorded. The Company is also contingently liable under indemnification agreements for certain other tax claims and assessments of divested subsidiary operations, as well subject to be reimbursed from its controlling shareholders for certain tax assessment, totaling R$3,650 million, for which no provision was recorded. Management uses significant judgment in evaluating the merits of each claim and assessment and in evaluating the likelihood and potential amounts of loss, considering the complexity of the Brazilian tax environment and legislation, including existence and interpretation of applicable jurisprudence and case law.
Auditing Management’s assessment of the likelihood of loss on tax claims was considered especially challenging due to: (i) the complexity involved in the evaluation and interpretation of applicable tax legislation, case law, and applicable jurisprudence, which requires a high degree of judgment applied by Management and the assistance of the Company’s external counsel; (ii) the amounts involved and the significant estimate uncertainty related to the ultimate outcome and timing of court decisions; and (iii) the additional audit efforts, which include the involvement of our tax specialists.
| F-6 |
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures included, among others:
| · | We obtained an understanding, evaluated the design and implementation, and tested the operating effectiveness of relevant internal controls over the identification and evaluation of tax claims and assessments, including the assumptions and technical merits of tax positions used in the evaluation of the likelihood of loss, as well as the processes to measure, record and disclose the amounts related to tax contingencies. |
| · | We read and obtained an understanding on indemnification agreements entered by the Company. |
| · | We tested the completeness of the tax contingencies subject to evaluation by the Company. |
| · | With the assistance of our tax specialists, we evaluated Management’s assessment of the likelihood and estimate of loss for a sample of material tax contingencies, which included: |
| − | Obtaining an understanding and evaluating Management’s judgments, the technical merits and documentation supporting Management’s assessment, including reading and evaluating tax opinions or other third-party tax advice obtained from the Company’s external tax and legal counsel. |
| − | Inspecting and evaluating the responses to external confirmations sent to key external tax and legal advisers of the Company. |
| − | Challenging Management’s assessment using our knowledge of, and experience with, the application of tax laws and developments in the applicable regulatory and tax environments. |
| − | Testing the assumptions, underlying data and accuracy of the calculation of the amounts related to recorded tax provisions and disclosed tax contingencies. |
| − | Obtaining written representations from executives of the Company. |
| · | We also evaluated the related disclosures in the financial statements. |
/s/
Auditores Independentes Ltda.
August 16, 2023
We have served as the Company’s auditor since 2021.
| F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Brasileira de Distribuição
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Companhia Brasileira de Distribuição and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control -Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, based on our audit and the report of the other auditors, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We did not audit the effectiveness of internal control over financial reporting of Almacenes Éxito S.A. and its subsidiaries (“Éxito”), a subsidiary of the Company, as of December 31, 2022. The consolidated financial statements of the Company as of and for the year ended December 31, 2022, include R$19,602 million of total assets of Éxito, that are presented as part of assets held for sale and distribution as of December 31, 2022, and R$304 million of net income of Éxito that is presented as part of discontinued operations for the year ended December 31, 2022. The effectiveness of Éxito’s internal control over financial reporting was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the effectiveness of Éxito’s internal control over financial reporting, is based solely on the report of the other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, and our report dated August 16, 2023 expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.
Basis for opinion
The Company’s Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
| F-8 |
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit and the audit of the other auditors provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.
| · | Inadequate Company entity level controls over reviewing and monitoring the effectiveness of internal controls at Éxito to timely identify and remediate deficiencies related to design, implementation or operation of certain process and internal controls. |
| · | Insufficiently trained resources at Éxito resulting in an ineffective risk assessment process at the subsidiary level related to internal control over financial reporting for certain processes that defined clear financial reporting objectives and evaluated risks, including risks related to specific changes that could significantly impact the system of internal control, resulting in: |
| − | Ineffective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting. Therefore, all process-level manual and automated controls dependent upon the accuracy and completeness of information were also ineffective because they could have been adversely impacted. |
| − | Ineffective design, implementation or operation of process-level control activities related to the monthly adjustment for the difference between standard cost and actual cost for manufactured products within the inventory process. |
| F-9 |
| − | Ineffective design, implementation or operation of process-level control activities over complex transactions. |
These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements, as of and for the year ended December 31, 2022, of the Company, and this report does not affect our report on such financial statements.
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.
São Paulo, Brazil
August 16, 2023
| F-10 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Companhia Brasileira de Distribuição
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows of Companhia Brasileira de Distribuição (the Company) for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the Company’s results of its operations and its cash flows for the year ended December 31, 2020, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
Basis for Opinion
The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
We served as the Company's auditor from 2017 to 2021.
April 29, 2021
except for the effects of the discontinued operations described in notes 1.1, 1.2 and 33 as to which the date is August 16, 2023
| F-11 |
Companhia Brasileira de Distribuição
Consolidated Statements of Income
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais, except earnings per share)
| For the year ended December 31, | |||||||
| Note | 2022 | 2021 | 2020 | ||||
| Note 2 | Note 2 | ||||||
| Continuing operations | |||||||
| Net operating revenue | 25 | ||||||
| Cost of sales | 26 | ( |
( |
( | |||
| Gross profit | |||||||
| Operating expenses, net | |||||||
| Selling expenses | 26 | ( |
( |
( | |||
| General and administrative expenses | 26 | ( |
( |
( | |||
| Depreciation and amortization | ( |
( |
( | ||||
| Other operating expenses, net | 27 | ( |
( |
||||
| Total operating expenses | ( |
( |
( | ||||
| Income (loss) from continuing operations | ( |
||||||
| Financial expenses, net | 28 | ( |
( |
( | |||
| Share of profit of associates | 12 | ( |
( |
||||
| Income (loss) before income tax and social contribution | ( |
( |
|||||
| Income tax and social contribution | 20 | ( | |||||
| Net income (loss) for the year from continuing operations | ( |
||||||
| Net income for the year from discontinued operations | 33 | ||||||
| Net income (loss) for the year | ( |
||||||
| Net income (loss) for the year attributable to: | |||||||
| Controlling shareholders from continuing operations | ( |
||||||
| Controlling shareholders from discontinued operations | |||||||
| Total of controlling shareholders | ( |
||||||
| Non-controlling shareholders from continuing operations | ( |
( | |||||
| Non-controlling shareholders from discontinued operations | |||||||
| Total of non-controlling shareholders | |||||||
| Total comprehensive income (loss) for the year | ( |
||||||
| Earnings (loss) per share (R$/share) – controlling shareholders’ | 29 | ||||||
| Basic | |||||||
| Basic earnings (loss) per share – continuing operations | ( |
||||||
| Basic earnings (loss) per share – discontinued operations | |||||||
| Basic earnings (loss) per share – total | ( |
||||||
| Diluted | |||||||
| Diluted earnings (loss) per share – continuing operations | ( |
||||||
| Diluted earnings (loss) per share – discontinued operations | |||||||
| Diluted earnings (loss) per share – total | ( |
||||||
The accompanying notes are integral part of these consolidated financial statements.
| F-12 |
Companhia Brasileira de Distribuição
Consolidated Statements of Comprehensive Income (loss)
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| For the year ended December 31, | |||||||
| 2022 | 2021 | 2020 | |||||
| Net income (loss) for the year | ( |
||||||
| Other comprehensive income for the year | |||||||
| -Items that may be subsequently reclassified to the Statements of Income in subsequent periods: | |||||||
| Foreign currency translation | ( |
( |
|||||
| Others | ( |
||||||
| Other comprehensive income (loss) for the year, net of income tax | ( |
( |
|||||
| Total comprehensive income (loss) for the year | ( |
( |
|||||
| Total comprehensive income attributable to: | |||||||
| Controlling shareholders | ( |
( |
|||||
| Non-controlling shareholders | ( |
( |
|||||
| Total comprehensive income for the year | ( |
( |
|||||
The accompanying notes are integral part of these consolidated financial statements.
| F-13 |
Companhia Brasileira de Distribuição
Consolidated Balance Sheets
December 31, 2022 and 2021
(In millions of Brazilian Reais)
| As of December 31, | |||||
| Note | 2022 | 2021 | |||
| Current assets | |||||
| Cash and cash equivalents | 6 | ||||
| Trade receivables, net | 7 | ||||
| Other receivables | 8 | ||||
| Inventories, net | 9 | ||||
| Recoverable taxes | 10 | ||||
| Dividends receivable | |||||
| Derivative financial instruments | 18.1 | ||||
| Other current assets | |||||
| Total | |||||
| Assets held for sale or distribution | 32 | ||||
| Total current assets | |||||
| Non-current assets | |||||
| Trade receivables, net | 7 | ||||
| Other receivables | 8 | ||||
| Recoverable taxes | 10 | ||||
| Derivative financial instruments | 18.1 | ||||
| Deferred income tax and social contribution | 20 | ||||
| Related parties | 11 | ||||
| Restricted deposits for legal proceedings | 21.7 | ||||
| Other non-current assets | |||||
| Investments in associates | 12 | ||||
| Investment properties | 13 | ||||
| Property and equipment, net | 14 | ||||
| Intangible assets, net | 15 | ||||
| Total non-current assets | |||||
| Total assets | |||||
The accompanying notes are integral part of these consolidated financial statements.
| F-14 |
Companhia Brasileira de Distribuição
Consolidated Balance Sheets
December 31, 2022 and 2021
(In millions of Brazilian Reais)
| As of December 31, | |||||
| Note | 2022 | 2021 | |||
| Current liabilities | |||||
| Trade payable, net | 16 | ||||
| Trade payables – Agreements | 16 | ||||
| Borrowings and financing | 17 | ||||
| Lease liabilities | 22 | ||||
| Payroll and related taxes | |||||
| Taxes payable | 19 | ||||
| Related parties | 11 | ||||
| Dividends payable | 24.3 | ||||
| Financing of property and equipment | |||||
| Deferred revenue | 23 | ||||
| Pass-through liabilities | |||||
| Acquisition of non-controlling interest | 18.3 | ||||
| Other current liabilities | |||||
| Total | |||||
| Liabilities related to assets held for sale or distribution | 32 | ||||
| Total current liabilities | |||||
| Non-current liabilities | |||||
| Borrowings and financing | 17 | ||||
| Lease liabilities | 22 | ||||
| Deferred income tax and social contribution | 20 | ||||
| Tax payable | 19 | ||||
| Related parties | 11 | ||||
| Provision for risk | 21 | ||||
| Deferred revenues | 23 | ||||
| Provision for losses on investment in associates | 12 | ||||
| Other non-current liabilities | |||||
| Total non-current liabilities | |||||
| Shareholders’ equity | 24 | ||||
| Share capital | |||||
| Capital reserves | | ||||
| Earning reserves | |||||
| Accumulated loss | ( |
||||
| Other comprehensive income | ( |
||||
| Total shareholders' equity | |||||
| Non-controlling interest | |||||
| Total shareholders’ equity | |||||
| Total liabilities and shareholders’ equity | |||||
The accompanying notes are integral part of these consolidated financial statements.
| F-15 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| Controlling Shareholders | |||||||||||||||||||||||||
| Capital reserves | Earnings reserves | ||||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Treasury Shares | Investment reserve | Legal | Retained earnings | Governmental incentive reserve | Accumulated earnings | Other comprehensive income | Total | Non-controlling interest | Total | |||||||||||||
| Balance at December 31, 2019 | ( |
||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||
| Net income for the year | |||||||||||||||||||||||||
| Foreign currency translation | ( |
||||||||||||||||||||||||
| Others | |||||||||||||||||||||||||
| Comprehensive income for the year | |||||||||||||||||||||||||
| Capital increase (note 24) | |||||||||||||||||||||||||
| Capital reduction (note 1.2) | ( |
( |
( |
( |
( | ||||||||||||||||||||
| Stock options granted (note 24) | |||||||||||||||||||||||||
| Stock options granted to subsidiaries (note 24) | |||||||||||||||||||||||||
| Appropriation of net income to legal reserve (note 24) | ( |
||||||||||||||||||||||||
| Appropriation of net income to other reserves (note 24) | ( |
||||||||||||||||||||||||
| Mandatory dividends (note 24.3) | ( |
( |
( | ||||||||||||||||||||||
| Dividends paid to non-controlling interests (note 24.4) | ( |
( | |||||||||||||||||||||||
| Subsidiary PUT valuation Disco (note 18.3) | ( |
( | |||||||||||||||||||||||
| Hyperinflation adjustment on foreign investments | |||||||||||||||||||||||||
| Fair value exchange of assets with subsidiary (note 1.2) | |||||||||||||||||||||||||
| Others | ( |
( |
|||||||||||||||||||||||
| Balance at December 31, 2020 | ( |
||||||||||||||||||||||||
The accompanying notes are integral part of these financial statements.
| F-16 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| Controlling Shareholders | |||||||||||||||||||||||||||
| Capital reserves | Earnings reserves | ||||||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Treasury Shares | Investment reserve | Legal | Retained earnings | Governmental incentive reserve | Other reserves | Accumulated earnings | Other comprehensive results | Total | Non-controlling interest | Total | ||||||||||||||
| At December 31, 2020 | ( |
||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||
| Net income for the year | |||||||||||||||||||||||||||
| Foreign currency translation | ( |
( |
( |
( |
|||||||||||||||||||||||
| Others | ( |
( |
( |
( |
|||||||||||||||||||||||
| Comprehensive income for the year | ( |
( |
( |
( |
|||||||||||||||||||||||
| Capital increase (note 24) | ( |
||||||||||||||||||||||||||
| Stock in treasury (note 24) | |||||||||||||||||||||||||||
| Stock options granted (note 24) | |||||||||||||||||||||||||||
| Appropriation of net income to legal reserve (note 24) | ( |
||||||||||||||||||||||||||
| Interest on own capital (note 24) | ( |
( |
( |
||||||||||||||||||||||||
| Appropriation of net income to other reserves (note 24) | ( |
( |
|||||||||||||||||||||||||
| Mandatory dividends (note 24.3) | ( |
( |
( |
||||||||||||||||||||||||
| Dividends paid to non-controlling interests (note 24.4) | ( |
( |
|||||||||||||||||||||||||
| Subsidiary PUT valuation Disco (note 18.3) | ( |
( |
|||||||||||||||||||||||||
| Hyperinflation adjustment on foreign investments | |||||||||||||||||||||||||||
| Others | ( |
( |
( |
||||||||||||||||||||||||
| Balance at December 31, 2021 | ( |
( |
|||||||||||||||||||||||||
The accompanying notes are integral part of these financial statements.
| F-17 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| Controlling Shareholders | |||||||||||||||||||||||||||
| Capital reserves | Earnings reserves | ||||||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Treasury Shares | Investment reserve | Legal | Retained earnings | Governmental incentive reserve | Other reserves | Accumulated earnings | Other comprehensive results | Total | Non-controlling interest | Total | ||||||||||||||
| At December 31, 2021 | ( |
( |
|||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||
| Net income for the year | ( |
( |
( | ||||||||||||||||||||||||
| Foreign currency translation | ( |
( |
( |
( | |||||||||||||||||||||||
| Other | ( |
||||||||||||||||||||||||||
| Comprehensive income for the year | ( |
( |
( |
( |
( | ||||||||||||||||||||||
| Capital increase (note 24) | |||||||||||||||||||||||||||
| Stock options granted (note 24) | |||||||||||||||||||||||||||
| Interest on own capital (note 24) | ( |
( |
( | ||||||||||||||||||||||||
| Transfer between earnings reserve | ( |
||||||||||||||||||||||||||
| Shareholder Transactions (*) (**) | ( |
( |
( | ||||||||||||||||||||||||
| Dividends paid to non-controlling interests (note 24.4) (**) | ( |
( | |||||||||||||||||||||||||
| Subsidiary PUT valuation Disco (note 18.3) (**) | ( |
( |
|||||||||||||||||||||||||
| Hyperinflation adjustment on foreign investments (**) | |||||||||||||||||||||||||||
| Others | ( |
( |
( |
( |
( | ||||||||||||||||||||||
| Balance at December 31, 2022 | ( |
( |
( |
( |
|||||||||||||||||||||||
| (*) | Amount composed mainly of deferred income tax and social contribution in the amount of R$228 related to the segregation of Grupo Éxito's operations. Note 1.2. |
| (**) | Items related to assets and liabilities held for sale or distribution. |
The accompanying notes are integral part of these financial statements.
| F-18 |
Companhia Brasileira de Distribuição
Consolidated Statement of Cash Flows
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| For the year ended 31, | ||||||
| 2022 | 2021 | 2020 | ||||
| Cash flow provided by operating activities | ||||||
| Net income (loss) for the year | ( |
|||||
| Adjustments to reconcile net income for the year to net cash provided by the operating activities: | ||||||
| Deferred income tax (note 20) | ( |
( |
||||
| Losses on disposals of property and equipment | ( |
( |
||||
| Depreciation and amortization | ||||||
| Financial charges | ||||||
| Receivables Fair value adjustment | ( |
|||||
| Share of profit of associates (note 12) | ( |
|||||
| Provision for contingencies | ||||||
| Provision for write-off and impairment | ||||||
| Share-based payment | ||||||
| Allowance for doubtful accounts (note 7.2 e 8.1) | ||||||
| Allowance (reversal) for inventory losses and damages (Note 9.2) | ( |
|||||
| Deferred revenue (Note 23) | ( |
( |
||||
| Gain on write-off of lease liabilities (note 22.2) | ( |
( |
( |
|||
| Other operating income / expenses (*) | ( |
( |
||||
| Gain on the sale of subsidiary | ||||||
| Gain on fair value adjustment on retained interest in Bellamar (note 1.1) | ( |
|||||
| Total | ||||||
| Changes in operating assets and liabilities | ||||||
| Trade receivables | ( |
( |
( |
|||
| Inventories | ( |
( |
||||
| Recoverable taxes | ( |
|||||
| Other assets | ( |
( |
( |
|||
| Related parties | ( |
( |
( |
|||
| Restricted deposits for legal proceedings | ( |
( |
||||
| Trade payables, net | ( |
( |
||||
| Payroll and related taxes | ( |
( |
||||
| Taxes and social contributions payable | ||||||
| Payments of income tax and social contributions | ( |
( |
( |
|||
| Provision for contingencies | ( |
( |
( |
|||
| Deferred revenue | ||||||
| Other liabilities | ( |
( |
||||
| Receipts of dividends and interest on own capital | ||||||
| Total | ( |
|||||
| Net cash provided by (used in) operating activities | ( |
|||||
| (*) | In 2021, includes R$ 280 of tax credits (R$ 1,609 in 2020) explained in the note 21.7 |
The accompanying notes are integral part of these consolidated financial statements.
| F-19 |
Companhia Brasileira de Distribuição
Consolidated Statement of Cash Flows
Years ended December 31, 2022, 2021 and 2020
(In millions of Brazilian Reais)
| For the year ended December 31, | ||||||
| 2022 | 2021 | 2020 | ||||
| Cash flow from investing activities | ||||||
| Capital increase in associate | ( | |||||
| Purchase of property and equipment (Note 14.4) | ( |
( |
( | |||
| Purchase of intangible assets (note 15.3) | ( |
( |
( | |||
| Proceeds from sales of property and equipment | ||||||
| Cash of deconsolidation of Sendas (Note 1.1) | ( | |||||
| Acquisition of investment property (Note 13) | ( |
( |
( | |||
| Others | ( |
|||||
| Net cash provided by (used in) investment activities | ( |
( | ||||
| Cash flow from financing activities | ||||||
| Capital increase | ||||||
| Proceeds from borrowings and financing (Note 17.2) | ||||||
| Payments of borrowings and financing (Note 17.2) | ( |
( |
( | |||
| Payments of lease liabilities | ( |
( |
( | |||
| Payments of dividends and interest on own capital | ( |
( |
( | |||
| Contributions obtained from non-controlling shareholders | ||||||
| Installment payments on the acquisition of subsidiary | ( |
( |
||||
| Transactions with non-controlling shareholders | ( |
( |
||||
| Net cash used in financing activities | ( |
( |
( | |||
| Net increase (decrease) in cash and cash equivalents | ( |
( |
||||
| Cash and cash equivalents at the beginning of the year | ||||||
| Exchange variation on cash and cash equivalents | ( |
( |
||||
| Cash and cash equivalents at the end of the year | ||||||
The main non-cash transactions are disclosed in note 31.
The accompanying notes are integral part of these consolidated financial statements.
| F-20 |
| Table of Contents |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 1. | Corporate information |
Companhia Brasileira de Distribuição ("Company" or “CBD”), directly or through its subsidiaries (“Group” or “GPA”) is engaged in the retail of food, clothing, home appliances, electronics and other products through its chain of supermarkets, specialized stores and department stores especially under the trade names "Pão de Açúcar, “Minuto Pão de Açúcar”, “Mercado Extra”, “Minimercado Extra” and “Compra Bem”. Related to the operations of the Extra Hiper brand, note 1.1. The Group’s headquarters is in the city of São Paulo, State of São Paulo, Brazil.
The Company also operates in other Latin American countries through the subsidiary Almacenes Éxito SA (“Éxito”). Éxito is a Colombian company that operates the supermarket and hypermarket banners Éxito, Carulla, Super Inter, Surtimax and Surtimayorista in Colombia, the Libertad banner in Argentina and the Disco and Devoto banners in Uruguay. Additionally, Éxito also operates shopping centers in Colombia under the banner Viva. The process of segregation and discontinuity of Éxito's activities at GPA is in progress, refer to Note 1.2.
The Company’s shares are listed on the São Paulo Stock Exchange (B3 S.A. - Brasil, Bolsa, Balcão (“B3”)) called “Novo Mercado”, which requires the highest level of Corporate Governance under, the ticker symbol “PCAR3” and in the New York Stock Exchange (“NYSE”) (American Depositary Receipts (“ADR”) level III), under the ticker symbol “CBD”.
The Company is controlled by Ségisor and its parent company is Casino Guichard Perrachon (“Casino"), a French company listed in the Paris Stock Exchange.
| 1.1 | Discontinuation of the business of Extra Hiper stores and sale of assets to Sendas |
As part of the Brazilian retail reportable segment, the Company operates different store formats, as highlighted in Note 1, including 103 Extra Hiper stores. In line with the strategy of optimizing its stores portfolio, allocating relevant resources to accelerate the growth of the most profitable formats, Management decided to discontinue the operation of stores with the Extra Hiper banner (including drugstores).
According to material facts disclosed on October 14, 2021 and December 16, 2021, the independent directors of the Boards of Directors of the Company and Sendas Distribuidora S.A. (“Assai” or “Sendas” - a former subsidiary and that it was spun-off as described in Note 1.3), approved the terms and conditions of the agreement for the transfer to Sendas of the rights of use of 70 stores, located in several different states, including real estate owned by the Company and other assets leased from third parties.
The transaction was definitively completed, after
an amendment on December 26, 2022, as follows: (i) transfer of the point of sale rights of
On August 17, 2022, the Company's Board of
Directors approved the execution of agreements with financial institutions for the definitive sale of receivables with Assaí,
in the amount of up to R$
On December 31, 2022, the Company received, or sold, the totality of the receivables related to the transaction.
Also, as part of the plan to discontinue the hypermarket format, out of the 37 remaining Extra Hiper stores, the Company converted 25 to other banners (Pão de Açúcar and Mercado Extra) and closed 12 stores.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Management evaluated the transaction as per IFRS5 - "Non-Current Assets Held for Sale and Discontinued Operations" and concluded that the discontinuation of the 103 Extra Hiper stores (complete transaction) results in the abandonment of an important line of business in the Brazilian retail segment, with subsequent sale of free operating assets (fixed and right of use) to Sendas.
Therefore, on December 31, 2021, the Company partially
abandoned the stores (
In the year ended December 31, 2022, the Company
recorded revenue in the amount of R$
| 1.2 | Segregation transaction and discontinuation of Éxito's operations in the Company. |
On September 5, 2022, the Company's Board of Directors evaluated the result of preliminary studies for the eventual segregation of GPA and Éxito, authorizing Management to finalize the studies regarding this transaction, as well as to evaluate the necessary steps for its respective formalization, including all measures for the creation of Éxito's BDRs (Brazilian Depositary Receipts) and ADRs programs in Brazil and in the United States of America, respectively.
According to the plan prepared by Management, the transaction
is expected to occur through a capital reduction of GPA with the objective of distributing approximately % of the Éxito shares,
currently held by GPA, to its shareholders. Thus, after the distribution of shares, GPA will maintain a minority interest of approximately
On December 30, 2022, Éxito submitted the application for registration as a category “A” publicly-held company, the application for registration of the BDR Level I program with CVM, and the application for listing of BDRs with to B3.
The Company also concluded the necessary prior authorizations from the main financial creditors during the year ended 2022.
Management complied with the main requirements of the segregation process of its subsidiary Éxito in 2022, and the transaction is considered highly likely to be concluded during 2023. According to IFRS 5, the subsidiary Éxito and its subsidiaries are presented in these financial statements as assets held for sale or distribution on the balance sheet as of December 31, 2022 and discontinued operations in the Statement of Income for the year ended December 31, 2022 and comparative presentation for the years ended December 31, 2021 and 2020.
The Company’s extraordinary general meeting
held on February 14, 2023 approved (i) the Company's capital increase, in the amount of R$2,605, through the use of reserves,
without issuing new shares; (ii) the capital reduction of GPA in the amount of R$
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
On April 3rd and 4th, 2023, CVM and B3, respectively, approved Éxito’s registration as a publicly traded company category “A” and the request for registration and negotiation of Éxito’s BDRs in B3.
On July 3, 2023, Éxito's public request for registration was made, through the declaration contained in its form 20-F, to the U.S. Securities and Exchange Commission (“SEC”) and on n July 25, 2023, SEC declared the effectiveness of Éxito's Form 20-F, concluding SEC’s registration process of Éxito. As a result, Éxito is registered as a public company in the three markets (Brazil, Colombia and the United States of America) necessary to complete the transaction.
On August 8, 2023, GPA obtained the authorization from the Superintendencia Financeira de Colombia (“SFC”), Colombian regulatory body, for the transfer of the shares of Éxito which will be delivered to GPA’s shareholders in the context of the Transaction, considering a cut-off date on August 22, 2023 for BDR and August 23, 2023 for ADR. Company maintains its expectation to complete the transaction in the third quarter of 2023.
| 1.3 | Corporate reorganization and Sendas Spin-Off |
On December 31, 2020, an extraordinary general shareholders’ meeting of CBD and Sendas approved a corporate reorganization (the “Transaction”) under which substantially all of the issued and outstanding Sendas common shares were distributed to holders of CBD common shares and American Depositary Shares, on a pro rata basis for no consideration.
The Transaction aimed to unlock the full potential of our previously held Cash & Carry segment (currently presented as “Discontinued operations”), which is now operated by Sendas, allowing them to operate separately, with their own management, focused on its business model and direct access to the capital market and other sources of financing.
In addition, the Transaction involved the following:
| · | Contribution and exchange of interest in Éxito |
| 1. |
| o |
| o |
| o |
| 2. | Sendas distributed to CBD the remaining shares of Éxito held by Sendas, corresponding to % of the total outstanding shares of Éxito for no consideration. |
| · | Contribution of certain assets by Sendas to CBD |
| · | Contribution by CBD to Sendas |
CBD conducted the following capital contributions:
| 1. |
| 2. |
| 3. |
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
In addition, on December 14, 2020, CBD entered into
a Separation Agreement with Sendas, which provides a framework for CBD’s relationship with Sendas following the Transaction. Pursuant
to the Separation Agreement, CBD transferred and Sendas will recognize certain assets and liabilities related to contingencies and their
related judicial deposits for which the parties have agreed to be responsible following the Separation, in a net amount of R$
The Transaction was accounted for as reorganization amongst entities under common control, as such, the net effect of the transactions above was recorded in equity.
In addition, the exchange of
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The table below summarizes the balances of Sendas that have been deconsolidated from CBD, as of December 31, 2020, as a result of the Transaction:
| Sendas | |
| December 31, 2020 | |
| Cash and cash equivalents | |
| Trade receivables, net | |
| Other receivables | |
| Inventories, net | |
| Recoverable taxes | |
| Derivative financial instruments | |
| Other current assets | |
| Total current assets | |
| Related parties | |
| Recoverable taxes | |
| Restricted deposits for legal proceedings | |
| Financial instruments | |
| Investments in associates | |
| Property and equipment, net | |
| Intangible assets, net | |
| Total non-current assets | |
| Total assets | |
| Trade payable, net | |
| Payroll and related taxes | |
| Taxes payable | |
| Borrowings and financing | |
| Lease liabilities | |
| Deferred revenue | |
| Financing of property and equipment | |
| Other current liabilities | |
| Total current liabilities | |
| Borrowings and financing | |
| Lease liabilities | |
| Related parties | |
| Provision for contingencies | |
| Deferred revenue | |
| Deferred income tax and social contribution | |
| Other non-current liabilities | |
| Total non-current liabilities | |
| Total liabilities | |
| Net assets | |
| Total liabilities and shareholders’ equity | |
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
On February 10, 2021, the request for listing and admission to the trading of shares issued by Sendas in the Novo Mercado segment of the B3 was approved. The shares started trading on March 1,2021, under the ticker symbol “ASAI3”.
On February 12, 2021, the request for listing of American Depositary Securities (“ADSs”) issued by Sendas on the NYSE was approved and the Sendas’ ADSs started trading on the NYSE on March 8, 2021, under the ticker symbol “ASAI”.
GPA’s shareholders received, after the close of trading on February 26, 2021, shares issued by the Sendas, in proportion to their respective holdings in GPA’s share capital.
| 1.4 | Going concern |
Management has assessed the Company's ability to continue operating for the foreseeable future and has concluded that it has the ability to maintain its business and systems operating normally. Accordingly, management is not aware of any material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern and the financial statements have been prepared on a going concern basis.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 2. | Basis of preparation |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”).
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments measured at their fair value. The consolidated financial statements are presented in millions of Brazilian Reais (“R$”), which is the functional currency of the Company. The functional currency of associates and subsidiaries located abroad is the local currency of each jurisdiction.
These consolidated financial statements were approved by the Board of Directors on August 16, 2023
The statement of income and the explanatory notes related to the result for the years ended December 31, 2021 and 2020 are being restated due to the discontinuity of the business of the Extra Hiper stores (Note 1.1) and due to the segregation process and discontinuation of its subsidiary Éxito (Note 1.2), as per requirements in IFRS 5 – Non-current assets held for sale and Discontinued Operation.
The consolidated statements of cash flow include the cash flow from continuing and discontinued operations. The details of the cash flows from discontinued operations are disclosed in Note 33.
The consolidated financial statements include the financial information of all subsidiaries over which the Group exercises control directly or indirectly. The determination if a subsidiary is controlled by the Group and the basis of consolidation are in accordance with the requirements of IFRS 10 - Consolidated Financial Statements.
The financial statements of the subsidiaries are prepared on the same closing date of the reporting period of the Company, using consistent accounting policies. All intercompany balances, transactions are eliminated upon consolidation.
Gains or losses resulting from changes in equity interest in subsidiaries, which do not result in loss of control, are directly recorded in equity.
The list of subsidiaries and associates is presented in Note 12.1
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 3. | Significant accounting policies |
The significant accounting policies and practices are described in each corresponding explanatory note, except for those below that are related to more than one explanatory note. Accounting policies and practices have been consistently applied to the years presented in the Group's consolidated financial statements.
| 3.1. | Financial Instruments |
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity
Financial assets are recognized when the Group becomes party to the contractual provisions of the instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or the Group transfers the contractual rights to receive the cash flows of the financial asset.
| (i) | Classification and measurement of financial assets |
According to IFRS 9, on initial recognition, a financial asset is classified as measured: at amortized cost; fair value through other comprehensive income (“FVOCI”) - or fair value through profit or loss (“FVPL”).
The classification of financial assets according to IFRS 9 is generally based on the business model in which a financial asset is managed and on its contractual cash flow characteristics.
A derivative embedded with a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as measured at FVPL:
· It is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
· Its contractual terms give rise, on specified date, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as measured at FVPL:
· It is held within a business model with the objective of either receipt of contractual cash flows or sale of financial assets; and
· Its contractual terms give rise on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32, Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the Statements of Income when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. Group has no investments classified in OCI.
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This includes all derivative financial assets.
A financial asset (unless it refers to trade receivables without a significant component of financing that is initially measured at the transaction price) is initially measured at fair value, plus, for an item that is not measured at FVPL, any transaction costs directly attributable to its acquisition.
| (ii) | Subsequent measurement of financial assets |
Financial assets measured at FVPL - Financial assets at FVPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of income.
Financial assets at amortized cost - Financial assets at amortized costs are subsequently measured using the effective interest rate method. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
Financial assets at FVOCI - For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of income and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or loss.
| (iii) | Impairment of financial assets |
IFRS 9 replaces the “incurred loss” model of IAS 39 with an expected credit losses model. The new impairment loss model applies to financial assets measured at amortized cost, contractual assets and debt instruments measured at FVOCI, but does not apply to investments in equity instruments (shares) or financial assets measured at FVPL.
According to IFRS 9, provisions for losses are measured at one of the following bases:
· Credit losses expected for 12 months (general model): these are credit losses that result in possible default events within 12 months from the balance sheet date. For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL- “Expected Credit Loss”).
· Full lifetime expected credit losses (simplified model): these are credit losses resulting from all possible default events over the expected term of a financial instrument. Practical expedient: these are expected credit losses that are consistent with reasonable and sustainable information available, at the balance sheet date about past events, current conditions and forecasts of future economic conditions, which enable the verification of probable future loss based on the historical credit loss occurred in accordance with the maturity.
The Group chose to measure provisions for losses from trade receivable, other receivables, and contractual assets at an amount that equals to the credit loss expected for the entire term, and for trade receivables, whose portfolio of receivables is fragmented, rents receivable, wholesale accounts receivable and accounts receivable from freight companies, the practical expedient was applied through the adoption of a matrix of losses for each maturity range.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
When determining whether the credit risk of a financial asset increased significantly since its initial recognition and while estimating the expected credit losses, the Group takes into account reasonable and sustainable information that is relevant and available free of excessive cost or effort. This includes quantitative and qualitative information and analysis, based on the Company’s historical experience, during credit assessment and considering information about projections.
The Group assumes that the credit risk of a financial asset increased significantly if the asset is overdue for more than 90 days.
The Group considers a financial asset as in default when:
· it is less likely that the debtor will fully pay its obligations to the Group, without considering actions such as execution of guarantees (if any), or
· the financial asset is overdue more than 90 days.
The Group determined the credit risk of a debt security by analyzing the payment history, financial and macroeconomic conditions of the counterparty and the assessment of rating agencies, when applicable, thereby assessing each debt security individually.
The maximum period considered when estimating the expected credit loss is the maximum contractual period during which the Group is exposed to the credit risk.
Measurement of expected credit losses – Expected credit losses are estimated based on weighted probability of credit losses based on historical losses and projections of related assumptions. Credit losses are measured at present value based on all cash insufficiencies (i.e. the differences between the cash flows owed to the Company according to contracts and the cash flows the Company expects to receive).
Expected credit losses are discounted by the effective interest rate of the financial asset.
Financial assets with credit recovery problems – On each reporting date, the Group evaluates whether the financial assets recorded at amortized cost and the debt securities measured at FVOCI have any indication of impairment. A financial asset shows “indication of impairment loss” in the occurrence of one or more events with negative impact on the estimated future cash flows of the financial asset.
Presentation of impairment loss – Provision for losses on financial assets measured at amortized cost is deducted from the gross carrying amount.
For financial instruments measured at FVOCI, the provision for losses is recognized in OCI, instead of deducting the carrying amount of the asset.
Impairment losses related to trade receivables and other receivables, including contractual assets, are presented separately in the Statements of Income and OCI. Impairment of other financial assets is reported under “selling expenses”.
Accounts receivable and contractual assets – The Company considers the model and some of the assumptions used in the calculation of these expected credit losses as the main sources of uncertainty in the estimate.
The positions within each group were segmented based on common credit risk characteristics, such as:
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
· Credit risk level and historical losses – for wholesale clients and property rental; and
· Delinquency status, default risk and historical losses – for credit card operators and other clients.
| (iv) | Initial recognition and measurement of financial liabilities |
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.
| (v) | Subsequent measurement of financial liabilities |
The measurement of financial liabilities depends on their classification, as described below:
| · | Financial liabilities at fair value through profit or loss |
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the Statements of Income.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.
The Group has not designated any financial liability as at fair value through profit or loss.
| · | Loans and borrowings |
This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance expenses, net in the Statements of Income.
This category generally applies to interest-bearing loans and borrowings. For more information, refer to Note 17.
| (vi) | Derecognition of financial assets and liabilities |
A financial asset (or, as the case may be, part of a financial asset or part of a group of similar financial assets) is derecognized when:
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
• The rights to receive cash flows from the asset have expired; or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards related to the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards related to the asset, but has transferred control over the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a “pass through” arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of it continued involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations retained by the Group.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender, on substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as the derecognition of the original liability and recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss. When there is a debt modification impacting interest rate the impact is recorded in profit or loss, except, if it is a fee in the modification, over which the impact on profit or loss will follow the effective interest rate.
| (vii) | Offsetting of financial instruments |
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention of settling them on a net basis, to realize the assets and settle the liabilities simultaneously.
| (viii) | Derivative financial instruments |
The Company uses derivative financial instruments to limit the exposure to fluctuations not related to the local market such as interest rate and exchange rate swaps. These derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value at the end of each reporting period. Derivatives are accounted for as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The gains or losses arising from changes in the fair value of derivatives are recognized as financial income or expenses.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it intends to apply hedge accounting and its objective and risk management strategy for contracting the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the effectiveness of the changes in the hedging instrument’s fair value in offsetting the exposure to changes in the fair value of the hedged item or cash flow attributable to the hedged risk. These hedges are expected to be highly effective in offsetting changes in the fair value or cash flow and are assessed on an ongoing basis to determine if they have been highly effective throughout the periods for which they were designated.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| (ix) | Fair value hedge |
The following are recognized as fair value hedges:
· The change in the fair value of a derivative financial instrument classified as fair value hedging is recognized as financial result. The change in the fair value of the hedged item is recorded as a part of the carrying amount of the hedged item and is recognized in the Statements of Income;
· In order to calculate the fair value, debts and swaps are measured through rates available in the financial market and projected up to their maturity date. The discount rate used in the calculation by the interpolation method for borrowings denominated in foreign currency is developed through CDI curves, free coupon and DI, indexes disclosed by the B3 (the Brazilian Securities, Commodities and Futures Exchange), whereas for borrowings denominated in Reais, the Company uses the DI curve, an index published by the CETIP (Securities Custodial and Clearing Center) and calculated through the exponential interpolation method.
The Company uses financial instruments only to hedge identified, risks limited to 100% of the value of these risks. Derivative instruments transactions are exclusively used to reducing the exposure to the risk of changes in interest rates and foreign currency fluctuation and maintaining a balanced capital structure.
| (x) | Cash flow hedge |
Derivative instruments are recorded as cash flow hedge, using the following principles:
· The effective portion of the gain or loss on the hedge instrument is recognized directly in stockholders’ equity in other comprehensive income. In case the hedge relationship no longer meets the hedging ratio but the objective of management risk remains unchanged, the Group should “rebalance” the hedge ratio to meet the eligibility criteria.
· Any remaining gain or loss on the hedge instrument (including arising from the "rebalancing" of the hedge ratio) is ineffective, and therefore should be recognized in profit or loss.
· Amounts recorded in other comprehensive income are immediately transferred to the Statements of Income together with the hedged transaction by affecting the Statements of Income, for example, when the hedged financial income or expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts recorded in equity are transferred to the initial carrying amount of the non-financial asset or liability.
· The Company should prospectively discontinue hedge accounting only when the hedge relationship no longer meets the qualification criteria (after taking into account any rebalancing of the hedge relationship).
· If the expected transaction or firm commitment is no longer expected, amounts previously recognized in OCI are transferred to the Statements of Income If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its hedge classification is revoked, gains or losses previously recognized in comprehensive income remain deferred in equity in other comprehensive income until the expected transaction or firm commitment affect profit or loss.
| 3.2. | Foreign currency transactions |
Foreign currency transactions are initially recognized at the exchange rate of the corresponding currencies at the date the transaction qualifies for recognition.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Monetary assets and liabilities denominated in foreign currencies are translated into Brazilian Reais, using the spot exchange rate at the end of each reporting period. Gains or losses on changes in exchange rate variations are recognized as financial income or expense.
| 3.3. | Classification of assets and liabilities as current and non-current |
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is current when it is:
· expected to be realized or intended to be sold or consumed within twelve months from the end of the reporting periods
· held primarily for the purpose of trading
· expected to be realized within twelve months after the reporting period or
· cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when it is:
· expected to be settled within twelve months from the end of the reporting periods
· held primarily for the purpose of trading
· due to be settled within twelve months after the reporting period or
· there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period are classified as current liabilities.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as “non-current” and presented net when appropriate in accordance with the provisions of IAS 12.
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Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 3.4. | Foreign operations |
For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.
On consolidation, the financial statements of foreign operations are translated into Brazilian Reais, as follows:
· Assets and liabilities, including goodwill, are translated into Brazilian Reais at the exchange rate prevailing at the reporting date.
· The Statements of Income are translated into Brazilian Reais using the average rate for the period except when significant fluctuations in the exchange rate occurs, in which case, the rate at the transaction date is used.
· Equity accounts are maintained at the historical balance in Reais.
The exchange rate differences arising from the translation are recognized in other comprehensive income (“OCI”). When a foreign operation is disposed of, the component of OCI related to that particular foreign operation is reclassified to profit or loss.
| 3.5. | Hyperinflation |
Starting from September 2018, Argentina has been considered a hyperinflationary economy. As per IAS 29 – Financial Reporting in Hyperinflationary Economies, the non-monetary assets and liabilities, equity items and the statement of income of the indirect subsidiary Libertad, headquartered in Argentina, a direct subsidiary of Éxito, whose functional currency is the Argentinean peso, are being adjusted so that amounts are reported in the monetary measurement unit at the end of the reporting period.
This unit considers the effects measured by the Consumer Price Index (“IPC”) in Argentina starting January 1, 2017 and Argentina’s Domestic Retail Price Index (“IPIM”) up to December 31, 2016. Consequently, as required by IAS 29, the operating results of the indirect subsidiary Libertad must be considered as highly inflationary starting from September 1, 2018 (start of the period in which a hyperinflationary scenario was identified).
| 3.6. | Accounting for equity interests at cost deriving from corporate restructuring under common control |
For certain restructuring transactions that occurred in previous years, the Group recorded, at historical cost, the interests deriving from corporate restructuring under common control without economic substance. The difference between the historical cost and the acquiring value was recorded as shareholders’ equity, when the interest acquired is from companies under common control. Such transactions are not in the scope of IFRS 3.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 4. | Adoption of new standards, amendments to and interpretations of existing standards issued by the IASB. |
| 4.1. | New and amended standards and interpretations |
The Group applied amendments and new interpretations to IFRS as issued by IASB, which were effective for accounting periods beginning on or after January 1, 2022. The main new standards adopted are as follows:
| Statement | Description | Impact |
| IAS16 - Fixed Assets – Resources Before Intended Use | ||
| Changes in IFRS 9: Reform of the reference interest rate | ||
| Changes in IFRS 16: | • |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 4.2. | New and revised standards and interpretations issued and not yet effective |
The Group has not early adopted the following new and revised IFRSs, which have already been issued but not yet in effect, up to the date of the issuance of the Group’s consolidated financial statements:
| Accounting pronouncement | Description | Applicable to annual periods starting in or after | ||
| Amendments to IAS 1: Classification of liabilities as current or non-current and concept of materiality |
• Which means a right to postpone liquidation; • That the right to postpone must exist on the base date of the report; • That this classification is not affected by the likelihood that an entity will exercise its right to postpone • That only if a derivative embedded in a convertible liability is itself an equity instrument would the terms of a liability not affect its classification
In February 2021, the IASB issued amendments to IAS1, providing guides and examples to help entities apply materiality judgment to the disclosure of accounting policies. |
|||
| Amendments to IAS 8: Definition of accounting estimates | ||||
| Amendments to IFRS 10 - Consolidated Financial Statements and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | The effective date has not yet been set by the IASB |
The Group does not expect a significant impact on the Group's consolidated financial statements.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 5. | Significant accounting judgments, estimates and assumptions |
The preparation of the consolidated financial statements requires Management to make judgments, estimates and assumptions that impact the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the year; however, uncertainty about these assumptions and estimates could result in outcomes that would require material adjustments to the carrying amount of the asset or liability impacted in future periods.
In the process of applying the Company’s accounting policies, Management has made the following judgments, which have the most significant impact on the amounts recognized in the consolidated financial statements, as disclosed in the following notes:
| · | Discontinued Operations – Note 1.1, 1.2, 1.3 and 33 |
| · | Impairment: Notes 7.2, 8.1, 14.1, 15.1 and 15.2 |
| · | Inventories: Allowance for losses on inventory obsolescence and damages: Note 9 |
| · | Recoverable taxes: Expected realization of tax credits: Note 10 |
| · | Fair value of derivatives and other financial instruments: Measurement of the fair value of derivatives: Note 18 |
| · | Provision for risks: Record of provision for claims with likelihood assessed as probable loss, estimated with a certain degree of reasonability: Note 21 |
| · | Income tax: Record of provisions based on reasonable estimates: Note 20 |
| · | Lease: determination of the lease term and the incremental borrowing rate - Note 22. |
| · | Share-based payments: Estimated fair value of transactions based on a valuation model - Note 24 |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 6. | Cash and cash equivalents |
Cash and cash equivalents consist of cash, bank accounts and highly liquid short-term investments that are readily convertible into a known amount of cash, with a maturity of three months or less and subject to an insignificant risk of change in value.
| Rate | 2022 | 2021 | ||
| Cash and banks – Brazil | | |||
| Cash and banks – Abroad | (*) | | ||
| Short-term investments - Brazil | (**) | | ||
| Short-term investments - Abroad | (***) | |||
| (*) |
| (**) |
| (***) |
| 7. | Trade receivables |
Trade receivables are initially recorded at the transaction amount, which corresponds to the sale value, and are subsequently measured according to the portfolio: (i) fair value through other comprehensive income (FVOCI), in the case of receivables from credit card companies and (ii) amortized cost, for other customer portfolio.
Credit losses on financial assets that are measured at amortized cost are deducted from carrying amount of the asset.
For financial instruments measured at FVOCI, credit losses are recorded in OCI instead of reducing the carrying amount of the asset.
At each reporting date, the Company evaluates if the financial assets recorded at amortized cost or FVOCI show any indication of impairment. A financial asset shows indication of impairment loss when there is one or more events with adverse impact on the estimated future cash flows of the financial asset.
Receivables are considered unrecoverable and therefore written off from the accounts receivable portfolio, when they are not collected after 360 days from due date. At each balance sheet date, the Company and its subsidiaries assess whether the receivables have any indications of impairment.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 2022 | 2021 | ||
| Credit card companies (note 7.1) | |||
| Credit card companies - related parties (note 11.2) | |||
| Sales vouchers and trade receivables | |||
| Private label credit card | |||
| Receivables from related parties (note 11.2) | |||
| Receivables from suppliers | |||
| Allowance for doubtful accounts (note 7.2) | ( |
( | |
| Current | |||
| Non-current | |||
| 7.1. | Credit card companies |
As part of its cash management strategy, the Group periodically enters into factoring transactions and discounts a portion of its credit card receivables with financial institutions or credit card companies, without recourse or related obligation.
| 7.2. | Allowance for doubtful accounts on trade receivables |
| 2022 | 2021 | 2020 | ||
| At the beginning of the year | ( |
( |
( | |
| Allowance booked for the year | ( |
( |
( | |
| Write-offs of receivables | ||||
| Deconsolidation Sendas | ||||
| Assets held for sale or distribution and discontinued operations | ||||
| Foreign currency translation adjustment | ( | |||
| At the end of the year | ( |
( |
( |
The aging list of gross trade receivables is as follows:
| Overdue receivables | ||||||
| Total | Not yet due | <30 days | 30-60 days | 61-90 days | >90 days | |
| 12.31.2022 | ||||||
| 12.31.2021 | ||||||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 8. | Other receivables |
| 2022 | 2021 | ||
| Accounts receivable - Via (*) | |||
| Receivable from sale of subsidiaries (note 8.2) (**) | |||
| Lease receivables | |||
| Receivables from sale of property and equipment | |||
| Accounts receivable from insurers | |||
| Other (***) | |||
| Allowance for doubtful accounts on other receivables (note 8.1) | ( |
( | |
| Current | |||
| Non-current |
| (*) |
| (**) |
| (***) |
8.1 Allowance for doubtful accounts on other receivables
| 2022 | 2021 | 2020 | ||
| At the beginning of the year | ( |
( |
( | |
| Allowance booked for the year | ( |
|||
| Write-off of other receivables | ||||
| Deconsolidation Sendas | ||||
| At the end of the year | ( |
( |
( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 9. | Inventories |
Inventories purchased are recorded at average cost, including warehouse and handling costs, to the extent that these costs are necessary to bring inventories to selling conditions at the stores, less bonuses received from suppliers. Inventories are evaluated at average cost or net realizable value, whichever is lower
Net realizable value is the selling price in the ordinary course of business, less the estimated costs to sell.
Inventories are reduced by an allowance for losses and damages, which is periodically reviewed and evaluated as appropriate. Bonuses received from suppliers are measured and recognized based upon executed contracts and agreements and recorded as cost of sales when the corresponding inventories are sold. Unrealized bonuses are presented as reducing the inventories at each balance sheet date.
The table below presents our inventories per location:
| 2022 | 2021 | ||
| Stores | |||
| Distribution centers | |||
| Inventories – Éxito Group | |||
| Real Estate Inventory – Éxito Group | |||
| Allowance for losses on inventory obsolescence and damages (note 9.2) | ( |
( | |
| 9.1. | Unrealized bonuses |
On December 31, 2022, unrealized bonuses, which
are presented as reducing the inventory balance, amounted to R$
| 9.2. | Allowance for losses on inventory obsolescence and damages |
| 2022 | 2021 | 2020 | ||
| At the beginning of the year | ( |
( |
( | |
| Additions | ( |
( |
( | |
| Business combination | ||||
| Write-offs / reversal | ||||
| Foreign currency translation adjustment | ( | |||
| Deconsolidation of Sendas | ||||
| Assets held for sale or distribution and discontinued operations | ||||
| At the end of the year | ( |
( |
( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 10. | Recoverable taxes |
The Company records tax credit when obtains internal and external factors – such as legal and market interpretations - to conclude that it is entitled to these credits.
The future realization of tax credits is based on a feasibility study, on the expectation of future growth and the expected offset against tax debts from its operations.
| 2022 | 2021 | ||
| State VAT tax credits - ICMS (note 10.1) | |||
| Social Integration Program/ Contribution for Social Security Financing - PIS/COFINS (note 10.2) | |||
| Social Security Contribution – INSS (note 10.3) | |||
| Income tax and social contribution prepayments | |||
| Other | |||
| Other recoverable taxes – Éxito Group | |||
| Total | |||
| Current | |||
| Non-current |
| 10.1. | ICMS (State VAT) tax credits |
Since 2008, the Brazilian States have been substantially changing their laws aiming at implementing and broadening the ICMS (State VAT) tax substitution system (“ICMS-ST”). Referred system implies the prepayment of ICMS throughout the supply chain, being levied upon the receipt of goods from the manufacturer or importer, or upon transfers to other States. The expansion of such system to a wider range of products traded at the retail stores is based on the assumption that the trading cycle of these products will end in the State, so that ICMS is fully owed thereto.
In order to supply its stores, the Group maintains distribution centers strategically located in certain States and in the Federal District, which receive goods with ICMS included in the purchase price on behalf of the entire supply chain and then the goods are shipped to locations in other States. Such interstate shipment entitles the Group to a refund of prepaid ICMS, i.e., the ICMS of the supply chain paid at the acquisition of goods will represent a tax credit to be refunded, pursuant to the State laws.
The refund process requires the evidence through tax documents and digital files of the operations that entitled the Company to the refund, which is approved only after homologation from State Tax Authorities and/or compliance with specific ancillary obligations aiming to support these credits.
Since the number of items traded at the retail stores, subject to tax substitution, has been continuously increasing, the tax credits to be refunded to the Company and subsidiaries have also grown. The Group has been using such authorized tax credits to offset against state tax liabilities owed after having obtained Special Regime and also through other procedures determined by State rules.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The Group understands that future realization of ICMS tax credits is probable based on a feasibility study, on the expectation of future growth and the expected offset against tax debts from its operations. The projections on the realization of ICMS balances are revised at least annually by the occasion of the annual strategic planning approved by the Company’s Board of Directors. Management has implemented monitoring controls over the progress of the plan annually established, assessing and including new elements that contribute to the recoverability of ICMS tax credits. The expected recoverability of ICMS tax credits is demonstrated as follows.
| Up to one year | ||
| From 1 to 2 years | ||
| From 2 to 3 years | ||
| From 3 to 4 years | ||
| From 4 to 5 years | ||
| More than 5 years | ||
In 2022, the amount of R$
| 10.2. | PIS and COFINS credits |
The Company records PIS and COFINS credits, when it obtains enough evidence to conclude that it is entitled to these credits. Evidence includes i) Interpretation of tax legislation, ii) internal and external factors as legal and market interpretations and iii) analysis by external legal advisors regarding the issues and (iv) accounting evaluation about the matter.
In June 2022, the STJ recognized that was not legal
the extinction of the tax incentive provided for in Law 11.196/05. The mentioned law zeroed the PIS and COFINS rates levied on revenues
on the sale of certain technology products. As a result of this ruling, the Company recorded credits in the amount of R$
On September 6, 2022, the Company obtained a favorable
decision in a claim related to the exclusion of ICMS from the PIS and COFINS´ basis of calculation, which was decided separately
from other proceedings of the same subject, whose credits have already been recognized in the financial statements in 2020. Due to the
favorable decision, the Company recorded a credit in the amount of R$
| Consolidated | ||
| Up to one year | ||
| From 1 to 2 years | ||
| From 2 to 3 years | ||
| From 3 to 4 years | ||
| From 4 to 5 years | ||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 10.3. | INSS |
On August 28, 2020, the Federal Supreme Court (STF),
in general repercussion, recognized as constitutional the incidence of social security charges (INSS) on the additional one third of vacation
payment. The Company has been following the development of these issues, and together with its legal advisors, concluded that the elements
so far do not impact the recoverability of the respective credits. The amount involved is equivalent to R$
| 11. | Related parties |
| 11.1. | Management compensation |
The expenses related to management compensation (officers appointed pursuant to the Bylaws, including members of the Board of Directors and advisory committees) for the years ended December 31, 2022, 2021 and 2020, were as follows:
(In thousands of Brazilian Reais) | |||||||||||||||
| Base salary | Variable compensation | Stock option plan – Note 24 | Total compensation | ||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||
| Board of directors (*) | |||||||||||||||
| Executive officers | |||||||||||||||
| Fiscal Council | |||||||||||||||
| % share-based payment over the total compensation | % | % | % | ||||||||||||
| (*) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 11.2. | Balances and transactions with related parties |
Transactions with related parties refer mainly to transactions between the Company and its subsidiaries and other related entities and were substantially accounted for in accordance with the prices, terms and conditions agreed upon between the parties.
| Balances | Transactions | |||||||||||||||
| Trade receivables | Other assets | Trade payables | Other liabilities | Revenues (expenses) | ||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2020 | ||||||
| Controlling shareholders | ||||||||||||||||
| Casino (i) | ( |
( |
( | |||||||||||||
| Foncière Euris (i) |
( |
( |
( | |||||||||||||
| Associates | ||||||||||||||||
| FIC (ii) | ||||||||||||||||
| Puntos Colombia (iv) | ( | |||||||||||||||
| Tuya (v) | ||||||||||||||||
| Other related parties | ||||||||||||||||
| Greenyellow (iii) | ( |
( |
( | |||||||||||||
| Sendas Distribuidora (vii) | ||||||||||||||||
| Casino Group (vi) | ( |
( | ||||||||||||||
| Wilkes | ( |
( |
||||||||||||||
| Others | ||||||||||||||||
| Total | ( | |||||||||||||||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The Company's main transactions with related parties are:
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
| (vii) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 12. | Investments |
| 12.1. | Interest in subsidiaries and associates: |
The details of the Company's subsidiaries at the end of each year are shown below:
|
Direct and indirect equity interest - % | |||||
| 2022 | 2021 | ||||
| Companies | |||||
| Subsidiaries | |||||
| CBD | |||||
| - | |||||
| - | |||||
| - | |||||
| Éxito(**) | |||||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| - | |||||
| (*) |
| (**) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The details of the Company's associates at the end of each year are shown below:
| Direct and indirect equity interest - % | ||||||
| Companies | 2022 | 2021 | ||||
| Subsidiaries | ||||||
| Cnova N.V. | ||||||
| |
| |||||
| |
| |||||
| |
| |||||
| - | | |||||
| |
| |||||
| |
| |||||
| |
| |||||
| - | | |||||
| |
| |||||
| |
| |||||
| |
| |||||
| | ||||||
| |
| |||||
| |
| |||||
| |
| |||||
| |
| |||||
| |
| |||||
| |
| |||||
| |
| |||||
| FIC | ||||||
| Éxito(*) | ||||||
| - | ||||||
| (*) |
| 12.2. | Associates |
Investments in associates are accounted for under the equity method when Group exercises significant influence, but not control, and (a) it is part of the shareholders’ agreement, appointing certain officers and having voting rights in certain relevant decisions; and (b) it has power to participate in the operational and financial decisions. The Group’s relevant associates are: i) FIC managed by Itaú Unibanco S.A. (“Itaú Unibanco”), ii) Cnova N.V. which holds mainly on e-commerce in France and (iii) Tuya, financial institution invested of Éxito. Associates have no restriction on transfer resources to the company, for example, in the form of dividends.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The summarized financial statements are as follows:
| FIC | Cnova N.V. | Tuya | ||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||
| Current assets | ||||||||
| Non-current assets | ||||||||
| Total assets | ||||||||
| Current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Shareholders’ equity | ( |
( |
||||||
| Total liabilities and shareholders’ equity | ||||||||
| FIC | Cnova N.V. | Tuya | |||||||||
| Statements of Income: | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||
| Revenues | |||||||||||
| Operating income (loss) | ( |
( |
|||||||||
| Net income (loss) for the year | ( |
( |
( |
( |
|||||||
In applying the equity method in FIC, a special goodwill
reserve of R$
| 12.3. | Breakdown of investments and rollfoward: |
| Bellamar | Tuya | Cnova N.V | Other | Total | |
| Balances at 12.31.2020 | ( |
||||
| Share of profit (loss) of associates – continuing operation | ( |
( | |||
| Dividends and interest on own capital - continuing operation | ( |
- | - - | ( | |
| Share of other comprehensive income | - | ( |
( |
( | |
| Capital increase | - | - - | - | | |
| Balances at 12.31.2021 | |
( |
|
||
| Share of profit (loss) of associates – continuing operation | ( |
( | |||
| Share of profit (loss) of associates – discontinuing operation | ( |
( | |||
| Dividends and interest on own capital - continuing operation | |||||
| Share of other comprehensive income | ( |
( |
( | ||
| Capital increase | |||||
| Other | ( |
( | |||
| Assets held for sale or distribution (Note 1.2) | ( |
( |
( |
( | |
| Balances at 12.31.2022 | ( |
( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
12.4 Share buyback
On March 24, 2022, it was approved the proposal to
distribute to shareholders the results of Grupo Éxito in the amount of 487 billion Colombian pesos, of which 237 billion Colombian
pesos were paid on March 31, 2022 as dividends and the remaining amount of 250 billion of Colombian pesos (equivalent to R$315 as of March
31, 2022) were related to the share buyback program of Grupo Éxito. It was allocated 147 billion Colombian pesos to this program
(equivalent to R$
On June 1, 2022, the members of the Company's Board
of Directors approved the adhesion to the Share Buyback Program of subsidiary Éxito, for the sale of
| 13. | Investment properties |
Investment properties are measured at historical cost, including transaction costs, net of accumulated depreciation and impairment loss, if any. The cost of investment properties acquired in a business combination is determined at fair value, in accordance with IFRS 3 - Business combination.
Investment properties are written off when they are sold or no longer used and no future economic benefit is expected from its use. An investment property is also classified as held for sale when there is an intention and plan to sell. The difference between the net amount obtained from the sale and the carrying amount of the asset is recognized in the Statements of Income in the period in which the asset is disposed of. The useful life of buildings is presented in Note 14.
The investment properties of the Group correspond to commercial areas and lots that are maintained for income generation or future price appreciation.
The Company performed an impairment test to verify
the operating assets of investment properties that could not be recoverable in the year ended December 31, 2022. Based on the tests carried
out, it was necessary to record a loss in the amount of R$
| Balance at 12.31.2021 | Additi-ons | Impair-ment |
Depre- ciation |
Write-off | Exchange rate | Transfers(*) | Assets held for sale or distribution | Balance at 12.31.2022 | |
| Land | ( |
( |
( |
( |
|||||
| Buildings | ( |
( |
( |
( |
|||||
| Construction in progress | ( |
( |
|||||||
| Total | ( |
( |
( |
( |
| (*) |
| Balance at 12.31.2020 | Additi-ons | Impair-ment |
Depre- ciation |
Write-off | Exchange rate | Transfers (*) | Balance at 12.31.2021 | |
| Land | ( |
( |
||||||
| Buildings | ( |
( |
( |
( |
||||
| Construction in progress | ( |
( |
||||||
| Total | ( |
( |
( |
( |
| (*) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2022 | Balance at 12.31.2021 | ||||||||||
| Cost | Accumulated depreciation | Net | Cost | Accumulated depreciation | Net | ||||||
| Land | |||||||||||
| Buildings | ( |
||||||||||
| Construction in progress | |||||||||||
| Total | ( |
||||||||||
The net result generated by investment properties is as follows:
| 2022 | 2021 | |
| Lease revenue | ||
| Operating expenses from investment properties that generate revenue | ( |
( |
| Operating expenses from investment properties that do not generate revenue | ( |
( |
| Net result generated by investment properties |
The amounts are recorded in the discontinued operation (Note 1.2).
As of December 31, 2022, the fair value of investment
properties in use was R$
| Range | ||
| Discount rate | ||
| Vacancy rate | ||
| Terminal capitalization rate | ||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 14. | Property and equipment |
Property and equipment are stated at cost, net of accumulated depreciation and/or impairment losses, if any. When significant components of property and equipment are replaced, they are recognized as individual assets with specific useful lives and depreciation. Likewise, when a major replacement is performed, its cost is recognized as the carrying amount of the equipment as a replacement, if the recognition criteria are met. All other repair and maintenance costs are recognized in the Statements of Income for the year as incurred.
| Asset category | Useful life (in years) |
| Buildings | |
| Leasehold improvements | |
| Machinery and equipment | |
| Facilities | |
| Furniture and fixtures | |
| Others |
Property and equipment items and eventual significant parts are written off when sold or no future economic benefits are expected from its use. Any gains or losses arising from the disposals of the assets are included in the Statements of Income for the year.
The residual value, the useful life of assets and the depreciation methods are reviewed at the end of each reporting period and adjusted prospectively, if applicable. The Company reviewed the useful lives of property and equipment items for fiscal year 2022 and no significant changes were deemed necessary.
Interest on borrowings and financing directly attributable to the acquisition or construction of an asset that requires a substantial period of time to be completed for its intended use or sale (qualifying asset), are capitalized as part of the cost of the respective assets during its construction phase. From the date that the asset is placed in operation, capitalized costs are depreciated over the estimated useful life of the asset.
| 14.1. | Impairment of non-financial assets |
Impairment testing is designed so that the Group can present the net realizable value of an asset. This amount may be realized directly or indirectly, respectively, through the sale of the asset or the cash generated by the use of the asset in the Group’s activities.
The Group tests its non-financial assets for impairment annually or whenever there is internal or external evidence that they may be impaired.
An asset’s recoverable amount is defined as the asset’s fair value less cost to sell or its value in use, whichever is higher, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and an impairment loss is recorded to adjust its carrying amount to its recoverable amount. In assessing the recoverable amount, the estimated future cash flows are discounted to present value using a pre-tax discount rate that represents the Company’s weighted average cost of capital (“WACC”), reflecting current market assessments of the time value of money and the risks specific to the asset. The impairment test for intangibles including goodwill is presented in note 15.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Impairment test of stores operating assets
An impairment assessment is performed on operating assets (property and equipment) and intangible assets (such as Commercial rights) directly attributable to stores, as follows:
• Step 1: the book value of properties in rented stores was compared to a sales multiple (30% to 35%) representing transactions between retail companies. Stores for which the multiple of sales was lower than their book value and owned stores, a more detailed test is made, as described in Step 2 below.
• Step 2: the Group considers the highest value between: a) the discounted cash flows of stores using sales growth average 5.4%% (4.8% in 2021) for periods exceeding the next five years and a discount rate of 11.6% (10.6% in 2021) and b) a valuation prepared by independent experts for owned stores.
The Group assessed if any of its long-lived assets were impaired at December 31, 2021. Based on the tests performed, it was necessary to record an impairment provision amounting R$8 in the consolidated financial statements (R$5 at December 31, 2021).
Impairment losses are recognized in profit or loss for the year consistent with the function of the respective impaired asset. Previously recognized impairment losses are reversed only if there is a change in the assumptions used to determine the asset’s recoverable amount at its initial or most recent recognition, except for goodwill, which cannot be reversed in future periods.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2021 | Additions | Remea-surement | Impairment | Depreciation | Write-offs | Transfers (*) | Exchange rate changes | Assets held for sale or distribution (**) | Balance at 12.31.2022 | |
| Land | - | - | - | ( |
( |
( |
( |
|||
| Buildings | - | - | ( |
( |
( |
( |
( |
|||
| Leasehold improvements | - | ( |
( |
( |
( |
( |
||||
| Machinery and equipment | - | - | ( |
( |
( |
( |
||||
| Facilities | - | - | ( |
( |
( |
|||||
| Furniture and fixtures | - | - | ( |
( |
( |
( |
||||
| Construction in progress | - | - | - | ( |
( |
( |
( |
|||
| Other | - | - | ( |
( |
( |
( |
||||
| Total | - | ( |
( |
( |
( |
( |
( |
|||
| Lease – right of use: | ||||||||||
| Buildings | ( |
( |
( |
- | ( |
( |
||||
| Equipment | - | - | ( |
- | - | ( |
( |
|||
| Land | - | - | ( |
- | - | - | ( |
|||
| ( |
( |
( |
- | ( |
( |
|||||
| Total | ( |
( |
( |
( |
( |
( |
| (*) | The main effects are R$126 transferred to intangible assets and R$33 to real estate inventory – Grupo Éxito. |
| (**) | Note 1.2 |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2020 | Additions | Remeasurement (*) | Impairment | Depreciation | Write-offs (**) | Merger | Transfers (***) | Exchange rate changes | Balance at 12.31.2021 | |
| Land | - | ( |
( |
( |
( |
( |
||||
| Buildings | - | ( |
( |
( |
- | ( |
( |
|||
| Leasehold improvements | - | ( |
( |
( |
( |
( |
||||
| Machinery and equipment | - | - | ( |
( |
( |
( |
||||
| Facilities | - | - | ( |
( |
- | ( |
- | |||
| Furniture and fixtures | - | - | ( |
( |
- | ( |
( |
|||
| Construction in progress | - | - | - | ( |
( |
( |
( |
|||
| Other | - | - | ( |
- | - | - | ||||
| Total | - | ( |
( |
( |
( |
( |
( |
|||
| Lease – right of use: | ||||||||||
| Buildings | ( |
- | ( |
( |
- | ( |
||||
| Equipment | - | ( |
( |
- | - | ( |
||||
| Land | - | - | - | - | - | - | ||||
| ( |
- | ( |
( |
- | ( |
|||||
| Total | ( |
( |
( |
( |
( |
( |
( |
| (*) |
| (**) |
| (***) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2022 | Balance at 12.31.2021 | ||||||||||
| Cost | Accumulated depreciation | Net | Cost | Accumulated depreciation | Net | ||||||
| Land | - | - | |||||||||
| Buildings | ( |
( |
|||||||||
| Leasehold improvements | ( |
( |
|||||||||
| Machinery and equipment | ( |
( |
|||||||||
| Facilities | ( |
( |
|||||||||
| Furniture and fixtures | ( |
( |
|||||||||
| Construction in progress | - | - | |||||||||
| Other | ( |
( |
|||||||||
| ( |
( |
||||||||||
| Lease – right of use: | |||||||||||
| Buildings | ( |
( |
|||||||||
| Equipment | ( |
- | ( |
||||||||
| Land | - | - | - | ( |
|||||||
| ( |
( |
||||||||||
| Total | ( |
( |
|||||||||
| 14.2. | Guarantees |
At December 31, 2022 and 2021, the Group had collateralized property and equipment items in relation to certain legal claims, as disclosed in note 21.8.
| 14.3. | Capitalized borrowing costs |
Capitalized borrowing costs for the year ended
December 31, 2022 were R$
| 14.4. | Additions to property and equipment for cash flow presentation purposes are as follows: |
| 2022 | 2021 | ||
| Additions (i) | |||
| Lease | ( |
( | |
| Capitalized borrowing costs | ( |
( | |
| Property and equipment financing - Additions (ii) | ( |
( | |
| Property and equipment financing - Payments (ii) | |||
| Total |
| (i) |
| (ii) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 14.5. | Other information |
At December 31, 2022, the Group recorded in cost
of sales an amount of R$
| 15. | Intangible assets |
Intangible assets acquired separately are measured at cost, less amortization and impairment losses, if any. Internally generated intangible assets, excluding capitalized software development costs, are recognized as expenses when incurred.
Intangible assets consist mainly of software acquired from third parties, software developed for internal use, commercial rights (stores’ rights of use), customer lists and brands.
Intangible assets with definite useful lives are amortized by the straight-line method. The amortization period and method are reviewed, at least, at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimate.
Software development costs recognized as assets
are amortized over their useful lives (
Intangible assets with indefinite useful lives are not amortized, but tested for impairment at the end of each reporting period or whenever there are indications that their carrying amount may be impaired either individually or at the level of the cash-generating unit. The assessment is reviewed annually to determine whether the indefinite life assumption remains appropriate. Otherwise, the useful life is changed prospectively from indefinite to definite.
When applicable, gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net proceeds from the sale of the asset and its carrying amount, any gain or loss is recognized in the Statements of Income in the year the asset is derecognized.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2021 | Additions | Impairment | Amortization | Write-off | Remeasurement | Exchange rate changes | Transfer (**) | Assets held for sale or distribution | Balance at 12.31.2022 | |
| Goodwill | - | - | - | - | - | ( |
- | ( |
||
| Tradename | - | ( |
- | - | - | ( |
- | ( |
||
| Commercial rights (note 15.2) | - | - | ( |
- | - | ( |
( |
|||
| Contractual rights | - | - | ( |
- | - | ( |
||||
| Software | - | ( |
( |
- | ( |
( |
||||
| ( |
( |
( |
- | ( |
( |
|||||
| Lease-right of use: | ||||||||||
|
Right of use Paes Mendonça (*) |
- | - | ( |
( |
- | ( |
- | |||
| Software | - | - | ( |
( |
- | - | - | - | ||
| - | - | ( |
( |
- | ( |
- | ||||
| Total | ( |
( |
( |
( |
( |
| (*) |
| Balance at 12.31.2020 | Additions | Impairment | Amortization | Write-off | Remeasurement | Exchange rate changes | Transfer (**) | Balance at 12.31.2021 | |
| Goodwill | - | - | - | - | - | ( |
- | ||
| Tradename | - | ( |
- | - | - | ( |
- | ||
| Commercial rights (note 15.2) | - | - | - | - | - | - | |||
| Contractual rights | - | - | - | - | - | - | - | ||
| Software | - | ( |
( |
- | ( |
||||
| ( |
( |
( |
- | ( |
|||||
| Lease-right of use: | |||||||||
|
Right of use Paes Mendonça (*) |
- | - | ( |
- | - | ( |
|||
| Software | - | - | ( |
- | - | - | - | ||
| - | - | ( |
- | - | ( |
||||
| Total | ( |
( |
( |
( |
( |
| (*) |
| (**) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2022 | Balance at 12.31.2021 | ||||||||||
| Cost | Accumulated amortization |
Net | Cost | Accumulated amortization |
Net | ||||||
| Goodwill | - | - | |||||||||
| Tradename | - | - | |||||||||
| Commercial rights (note 15.2) | - | ( |
|||||||||
| Contractual rights | ( |
( |
|||||||||
| Software | ( |
( |
|||||||||
| ( |
( |
||||||||||
| Lease-right of use: | |||||||||||
| Right of use Paes Mendonça | ( |
( |
|||||||||
| Software | ( |
( |
|||||||||
| ( |
( |
||||||||||
| Total intangibles | ( |
( |
|||||||||
| 15.1. | Impairment assessment on intangible assets with indefinite useful life, including goodwill |
The impairment test of intangibles uses the same practices described in Note 14 Property and equipment.
For impairment testing purposes, goodwill acquired through business combinations and tradenames (brands) with indefinite life were allocated to a group of cash generating units, which correspond to our operating segments, used to be Brazilian retail and Éxito Group.
CGU’s recoverable value is calculated using
the value in use based on estimated cash flow based on financial budgets approved by Board of Directors for the next three years.
The Éxito Group
Sensitivity analysis
Based on the probable scenario, a
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 15.2. | Commercial right |
Commercial rights are the right to operate the stores under acquired rights, or through business combinations.
Commercial rights are considered recoverable either through the expected cash flows of the related store or the sale to third parties.
Commercial rights with a defined useful life are tested using the same assumptions for the Company's impairment test, following the term of use of these assets.
| 15.3. | Additions to intangible assets for cash flow presentation purposes: |
| 2022 | 2021 | ||
| Additions | |||
| Intangible assets financing - Addition | ( |
||
| Total |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 16. | Trade payables and agreement suppliers, net |
| 2022 | 2021 | |
| Product suppliers | ||
| Service suppliers | ||
| Bonuses from suppliers (note 16.2) | ( |
( |
| Agreement suppliers (note 16.1) | ||
| 16.1. | Agreement between suppliers, the Group and banks |
The Group entered into certain agreements with financial institutions in order to allow suppliers to use the Group's lines of credit, and to anticipate receivables arising from the sale of goods and services.
These transactions were assessed by management that determined that they have commercial characteristics, since there are no changes to the original terms of the payables in relation to price and / or terms, including financial charges. The anticipation is also solely at the suppliers’ discretion. Additionally, there is no exposure to any financial institution individually related to these operations and these resulting liabilities are not considered net debt and have no restrictive covenants (financial or non-financial) related.
These balances are classified as "agreement suppliers" and payments are made to financial institutions under the same conditions as originally agreed with the supplier. As a result, all cash flow from these operations is presented as operational in the cash flow statement.
| 16.2. | Bonuses from suppliers |
It includes considerations and discounts obtained from suppliers. These amounts are established in agreements and include amounts for discounts on purchase volumes, joint marketing campaigns, freight reimbursements, and other similar programs. The settlement of these receivables is through offsetting the amounts payable to suppliers, according to the terms of supply agreements.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 17. | Borrowings and financing |
| 17.1. | Debt breakdown |
| Weighted average rate | 2022 | 2021 | |||
| Debentures and promissory note | |||||
| Debentures, certificate of agribusiness receivables and promissory notes (note 17.4) |
|
||||
| Borrowings and financing | |||||
| Local currency | |||||
| Working capital | |||||
| Working capital | |||||
| Swap contracts (note 17.7) | - | ( | |||
| Unamortized borrowing costs | ( |
( | |||
| Foreign currency (note 17.5) | |||||
| Working capital | |||||
| Working capital | - | ||||
| Working capital | - | ||||
| Credit letter | - | ||||
| Swap contracts (note 17.7) | |||||
| Total | |||||
| Non-current assets | - | ||||
| Current liabilities | |||||
| Non-current liabilities |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 17.2. | Changes in borrowings |
| At December 31, 2021 | ||
| Additions | ||
| Accrued interest | ||
| Accrued swap | ||
| Mark-to-market | ( | |
| Monetary and exchange rate changes | ( | |
| Borrowing cost | ||
| Interest paid | ( | |
| Payments | ( | |
| Swap paid | ( | |
| Liabilities related to assets held for sale or distribution | ( | |
| Foreign currency translation adjustment | ( | |
| At December 31, 2022 |
| At December 31, 2020 | ||
| Additions | ||
| Accrued interest | ||
| Accrued swap | ( | |
| Mark-to-market | ||
| Monetary and exchange rate changes | ||
| Borrowing cost | ||
| Interest paid | ( | |
| Payments | ( | |
| Swap paid | ( | |
| Foreign currency translation adjustment | ( | |
| At December 31, 2021 |
| 17.3. | Maturity schedule of non-current borrowings and financing |
| Year | ||
| From 1 to 2 years | ||
| From 2 to 3 years | ||
| From 3 to 4 years | ||
| From 4 to 5 years | ||
| After 5 years | ||
| Subtotal | ||
| Unamortized borrowing costs | ( | |
| Total |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 17.4. | Debentures, Promissory Note and Certificate of Agribusiness Receivables |
| Date | Consolidated | ||||||||
| Type | Issue Amount |
Outstanding debentures (units) |
Issue | Maturity | Financial charges | Unit price (in reais) | 12.31.2022 | 12.31.2021 | |
| 17th Issue of Debentures - CDB | No preference | - | - | - | |||||
| 18th Issue of Debentures – CBD (1st series) (*) | No preference | |
|||||||
| 18th Issue of Debentures – CBD (2nd series) (*) | No preference | |
|
||||||
| 5th Issue of Promissory Notes – CBD (1st series) | No preference | |
|
||||||
| 5th Issue of Promissory Notes – CBD (2nd series) | No preference | |
|||||||
| Borrowing cost | - | ( |
( | ||||||
| Current liabilities | |||||||||
| Non-current liabilities | |||||||||
| (*) |
| (**) | The 17th issue of debentures was settled in advance on September 16, 2022 with part of the proceeds from the sale of stores (note 1.1), as authorized in the respective indenture |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
GPA issues debentures to strengthen its working capital, maintain its cash strategy, lengthening its debt profile and make investments. The debentures issued are unsecured, without renegotiation clauses and not convertible into shares.
The amortization of the 1st series of the 18th issuance of debentures occurs with payments in two installments in 2025 and 2026 with the semiannual remuneration and the 2nd series of the 18th issuance occurs with payments in two installments in 2027 and 2028 with the semiannual remuneration and for the 17th issuance the payment will be made in two installments in the years 2022 and 2023. The amortization and remuneration of the 5th issue of promissory notes will occur with an exclusive payment at maturity.
On the second quarter of 2021, the 18th issuance of
simple, non-convertible, unsecured debentures took place, in up to 2 series, with maturity between
On July 20, 2021, the Company's Board of Directors
approved its 5th issue of commercial promissory notes, in 2 series, with maturity between
The debentures and promissory notes are used to reinforce working capital and/or lengthen the debt profile.
| 17.5. | Borrowings in foreign currencies |
On December 31, 2022 the Group has loans in foreign currencies (US dollar) to strengthen its working capital, maintain its cash strategy, lengthening its debt profile and make investments.
| 17.6. | Guarantees |
The Group has signed promissory notes for some loan contracts.
| 17.7. | Swap contracts |
The Group uses swap transactions for 100% of its
borrowings denominated in US dollars and fixed interest rates, exchanging these obligations for Real linked to CDI (floating) interest
rates. These contracts include a total amount of the debt with the objective to protect the interest and principal and are signed, generally,
with the same due dates and in the same economic group. The weighted average annual rate in December 2022 was
| 17.8. | Financial covenants |
In connection with the debentures and promissory notes and for a portion of borrowings denominated in foreign currencies and working capital, the Company is required to maintain certain debt financial covenants. In connection of the reorganization disclosed in note 1.1, certain conditions were renegotiated. These ratios are quarterly calculated based on consolidated financial statements of the Company prepared in accordance with accounting practices adopted in Brazil, as follows: (i) net debt (debt minus cash and cash equivalents and trade accounts receivable) should not exceed the amount of equity and (ii) consolidated net debt/EBITDA ratio should be lower than or equal to 3.25. At December 31, 2022, GPA complied with these ratios.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 18. | Financial instruments |
The main financial instruments and their carrying amounts, by category, are as follows:
| Carrying amount | |||
| 2022 | 2021 | ||
| Financial assets: | |||
| Amortized cost | |||
| Cash and cash equivalents | |||
| Related parties - assets | |||
| Trade receivables and other receivables | |||
| Others assets | |||
| Fair value through profit or loss | |||
| Financial instruments – Fair value hedge | |||
| Financial instruments about lease – Fair value hedge | |||
| Suppliers’ financial instruments – Fair value hedge | |||
| Others assets | |||
| Fair value through other comprehensive income | |||
| Trade receivables - credit card companies and sales vouchers | |||
| Others assets | |||
| Financial liabilities: | |||
| Other financial liabilities - amortized cost | |||
| Related parties – liabilities | ( |
( | |
| Trade payables | ( |
( | |
| Financing for purchase of assets | ( |
( | |
| Debentures and promissory notes | ( |
( | |
| Borrowings and financing | ( |
( | |
| Lease | ( |
( | |
| Fair value through profit or loss | |||
| Borrowings and financing (Hedge accounting underlying) | ( |
( | |
| Financial instruments – Fair Value Hedge – liabilities side | ( |
( | |
| Financial instruments about lease – Fair value hedge – liabilities side | |||
| Suppliers financial instruments - Fair value hedge - liabilities side | ( | ||
| Disco Group put option (*) | ( | ||
| (*) |
The financial instruments measured at amortized cost, the related fair values of which differ from the carrying amounts, are disclosed in note 18.3. The fair value of other financial instruments detailed in table above approximates the carrying amount based on the existing terms and conditions.
| 18.1 | Considerations on risk factors that may affect the business of the Group |
| (i) | Credit risk |
| · | Cash and cash equivalents: in order to minimize credit risk, the Group adopts investment policies at financial institutions approved by the Group’s Financial Committee, also taking into consideration monetary limits and financial institution evaluations, which are regularly updated. |
| · | Credit risk related to trade receivables is minimized by the fact that a large portion of sales are paid with credit cards, and the Group sells these receivables to banks and credit card companies, aiming to strengthen working capital. The sales of receivables result in derecognition of the accounts receivable due to the transfer of the credit risk, benefits and control of such assets. Additionally, regarding the trade receivables collected in installments, the Group monitor the risk through the credit concession and by periodic analysis of the provision for losses. |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| · | The Group also has counterparty risk related to the derivative instruments; which is mitigated by the Group’s carrying out transactions, according to policies approved by governance boards. |
| · | There are no amounts receivable that are individually, higher than 5% of accounts receivable or sales, respectively. |
| (ii) | Interest rate risk |
The Group obtains borrowings and financing with major financial institutions for cash needs for investments. As a result, the Group is, mainly, exposed to relevant interest rates fluctuation risk, especially in view of derivatives liabilities (foreign currency exposure hedge) and CDI indexed debt. The balance of cash and cash equivalents, indexed to CDI, partially offsets the interest rate risk.
| (iii) | Foreign currency exchange rate risk |
The Group is exposed to exchange rate fluctuations, which may increase outstanding balances of foreign currency-denominated borrowings. The Group uses derivatives, such as swaps, aiming to mitigate the foreign currency exchange rate risk, converting the cost of debt into domestic currency and interest rates.
Éxito Group uses derivatives to hedge foreign currency exchange rate on goods imports and leases.
| (iv) | Capital risk management |
The main objective of the Group’s capital management is to ensure that the Group maintain its credit rating and a well-balanced equity ratio, in order to support businesses and maximize shareholder value. The Group manages the capital structure and makes adjustments taking into account changes in the economic conditions. There were no changes to the objectives, policies and processes during the period ended December 31, 2022.
The Group capital structure is as follows:
| 2022 | 2021 | ||
| Cash and cash equivalents | |||
| Trade receivables | |||
| Financial instruments – Fair value hedge | ( |
||
| Borrowings, financing and debentures | ( |
( | |
| Net financial debt | ( |
||
| Shareholders’ equity | ( |
( | |
| Net debt to equity ratio |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| (v) | Liquidity risk management |
The Group manages liquidity risk through the daily analysis of cash flows and maturities of financial assets and liabilities.
The table below summarizes the aging profile of the Group’s financial liabilities as at December 31, 2022.
| Up to 1 Year | 1 – 5 years | More than 5 years | Total | |
| Borrowings and financing | ||||
| Lease liabilities | ||||
| Trade payables | ||||
| Total |
| (vi) | Derivative financial instruments |
Swap transactions are designated as fair value hedges, with the objective to hedge the exposure to changes in foreign exchange rates and fixed interest rates (U.S. dollars), converting the debt into domestic interest rates and currency.
At December 31, 2022 the notional amount of these
contracts was R$
According to the Group’s treasury policies, swaps cannot be contracted with restrictions (“caps”), margins, as well as return clauses, double index, flexible options or any other types of transactions different from traditional “swap” and “forwards” transactions to hedge against debts.
The Group calculates the effectiveness of hedge transactions at the inception date and on a continuing basis. Hedge transactions contracted in the year ended December 31, 2022 were effective in relation to the covered risk. For derivative transactions that qualify as hedge accounting, the debt, which is the hedged item, is also adjusted to fair value.
| Notional value | Fair value | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Fair value hedge | |||||
| Hedge object (debt) | |||||
| Long position (buy) | |||||
| Prefixed rate | TR + 9.80% per year | ||||
| US$ + fixed | USD + 2.12% per year | ||||
| Short position (sell) | |||||
| CDI + 1.67% per year | ( |
( |
( |
( | |
| Hedge position - asset | |||||
| Hedge position - liability | ( |
( | |||
| Net hedge position | ( |
( | |||
Realized and unrealized gains and losses on these contracts
during the year ended December 31, 2022 are recorded as financial income or expenses and the balance payable at fair value is R$
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| v) | Fair value of derivative financial instruments |
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Fair value is calculated using projected the future cash flows, using the CDI curves and discounting to present value, using CDI market rates for swaps both disclosed by B3.
The fair value of exchange coupon swaps versus the CDI rate was determined based on market exchange rates effective at the date of the financial statements and projected based on currency coupon curves.
| 18.2 | Sensitivity analysis |
According to Management’s assessment, the most probable scenario is what the market has been estimating through market curves (currency and interest rates) of B3, on the maturity dates of each transaction.
Therefore, in the probable scenario (I), there is no impact on the fair value of financial instruments. For scenarios (II) and (III), for the sensitivity analysis effect, the Management considers an increase of 10% and a decrease of 10% was taken into account, respectively, on risk variables, up to one year of the financial instruments.
For the probable scenario, weighted exchange rate was
R$
In case of derivative financial instruments (aiming at hedging the financial debt), changes in scenarios are accompanied by respective hedges objects, indicating that the effects are not significant.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The Group disclosed the net exposure of the derivative financial instruments, each of the scenarios mentioned above in the sensitivity analysis as follows:
| (i) | Other financial instruments |
| Transactions | Risk (CDI variation) | Balance at 2022 | Scenario I | Scenario II | Scenario III | |||||
| Fair value hedge (fixed rate) | ( |
( |
( |
( | ||||||
| Fair value hedge (exchange rate) | ( |
( |
( |
( | ||||||
| Debentures and promissory notes | ( |
( |
( |
( | ||||||
| Bank loans | ( |
( |
( |
( | ||||||
| Total borrowings and financing exposure | ( |
( |
( |
( | ||||||
| Cash and cash equivalents (*) | ||||||||||
| Net exposure | ( |
( |
( |
( | ||||||
| (*) |
| 18.3 | Fair value measurements |
The Group discloses the fair value of financial instruments measured at fair value and of financial instruments measured at amortized cost, the fair value of which differ from the carrying amount, in accordance with IFRS13, which refer to the requirements of measurement and disclosure. The fair value hierarchy levels are defined below:
Level 1: Quoted (unadjusted) market prices in active markets for assets or liabilities.
Level 2: Valuation techniques for which the lowest level inputs that is significant to the fair value measurement is directly or indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The data used in fair value models are obtained, whenever possible, from observable markets or from information in comparable transactions in the market, the benchmarking of the fair value of similar financial instruments, the analysis of discounted cash flows or other valuation models. Judgment is used in the determination of assumptions in relation to liquidity risk, credit risk and volatility. Changes in assumptions may affect the reported fair value of financial instruments.
The fair values of cash and cash equivalents, trade receivables and trade payables approximate their carrying amounts.
The table below presents the fair value hierarchy of financial assets and liabilities measured at fair value and of financial instruments measured at amortized cost, for which the fair value is disclosed in the consolidated financial statements:
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Carrying amount | Fair value | ||
| 12.31.2022 | 12.31.2022 | Level | |
| Financial assets and liabilities | |||
| Trade receivables with credit card companies and sales vouchers | 2 | ||
| Cross-currency interest rate swap | ( |
( |
2 |
| Borrowings and financing (FVPL) | ( |
( |
2 |
| Borrowings and financing and debentures (amortized cost) | ( |
( |
2 |
| Total | ( |
( |
There were no changes between the fair value measurements hierarchy levels during the year ended December 31, 2022.
Cross-currency and interest rate swaps and borrowings and financing are classified in level 2 since the fair value of such financial instruments was determined based on readily observable inputs, such as expected interest rate and current and future foreign exchange rate.
| 18.4 | Consolidated position of derivative transactions |
The Group has derivative contracts with the following financial institutions: Itaú BBA, Scotiabank, Bogotá Bank, BBVA, Davivenda, Bancolombia, Santander, Banco Popular, Banco Occidente, Corpbanca and Corficolombia.
The outstanding derivative financial instruments are presented in the table below:
| Risk |
Notional (millions) |
Due date | 2022 | 2021 |
| Debt | ||||
| USD – BRL | US$ |
( |
( | |
| USD – BRL | US$ |
( |
||
| Interest rate – BRL | R$ |
|||
| Derivatives – Fair value hedge | ( |
( | ||
The effects of the fair value hedge recorded in the
Statements of Income for the year ended December 31, 2022 resulted in a loss of R$
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 19. | Taxes payable |
In Brazil, revenue from sales of goods or services are subject to taxation by State Value-Added Tax (“ICMS”) and Services Tax (“ISS”), calculated based on the rates applicable to each state and city, as well as contributions for the Social Integration Program (“PIS”) and Social Security Financing (“COFINS”), and are presented as a reduction of sales revenue.
Revenue and expenses are recognized net of taxes, except when the taxes paid on the purchase of assets or services is not recoverable from the tax authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as cost or expense item, as applicable.
19.1 Taxes and contributions payable and taxes payable in installments are as follows:
| 2022 | 2021 | |||
| Taxes payable in installments - Law 11,941/09 (ii) | ||||
| Taxes payable in installments – PERT(i) | ||||
| ICMS | ||||
| Provision for income tax and social contribution | ||||
| Other | ||||
| Taxes payable – Éxito Group | ||||
| Current | ||||
| Non-current | ||||
| (i) |
| (ii) |
| 19.2 | Maturity schedule of taxes payable in installments in non-current liabilities: |
| From 1 to 2 years | |
| From 2 to 3 years | |
| From 3 to 4 years | |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 20. | Income tax and social contribution |
Current income tax and social contribution
Current income tax and social contribution assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to calculate taxes are those enacted or substantially enacted at the balance sheet date.
Income taxes comprise Corporate Income Tax (“IRPJ”)
and Social Contribution on Net Income (“CSLL”), calculated based on taxable income, at the statutory rates set forth in the
legislation in force:
Deferred income tax and social contribution
Deferred income tax and social contribution assets are recognized for all future deductible temporary differences and unused tax loss carryforwards to the extent that it is probable that taxable income will be available to be compensated against these temporary differences and unused tax loss carryforwards, except where the deferred income tax and social contribution assets relating to the deductible temporary difference arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor tax income or losses.
Deferred income tax and social contribution liabilities are recognized for all future taxable temporary differences, except when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction other than a business combination and which, at the time of the transaction, affects neither accounting profit nor tax losses.
With respect to deductible temporary differences associated with investments in subsidiaries and associates, deferred income tax and social contribution are recognized only to the extent that it is probable that these temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized.
The carrying amount of deferred income tax and social contribution assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of these assets to be utilized. Unrecognized deferred income tax and social contribution assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable income will allow these assets to be recovered.
Deferred income tax and social contribution assets and liabilities are measured at the tax rates that are expected to apply when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting period.
Deferred taxes related to items directly recognized in equity are also recognized in equity and not in the Statements of Income.
Deferred income tax and social contribution assets and liabilities are offset if there is a legal or contractual right to offset tax assets against income tax liabilities, and relates to the same taxpayer entity and to the same tax authority.
In virtue of nature and complexity of the Group's businesses, the differences between the actual results and the assumptions adopted, or the future changes to these assumptions, may result in future adjustments to tax revenues and expenses already recorded. The Company and its subsidiaries set up provisions, based on reasonable estimates, for taxes due. The value of these provisions is based on several factors, such as the experience of previous inspections and the different interpretations of tax regulations by the taxpayer and the responsible tax authority. These differences in interpretation can refer to a wide variety of issues, depending on the conditions in force at the home of the respective entity.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 20.1 | Income tax and social contribution effective rate reconciliation |
| 2022 | 2021 | 2020 | ||
| Income (loss) before income tax and social contribution (Continued operations) | ( |
( |
||
| Credit (expense) of Income tax and social contribution expense at the nominal rate | ( | |||
| Tax penalties | ( |
( |
( | |
| Share of profit of associates | ( |
( |
||
| Interest on own capital | ( | |||
| Tax benefits | ||||
| Sendas spin-off | ( | |||
| Tax Credits (*) | ||||
| Subsidy for investments (**) | ||||
| Tax on results earned abroad | ( |
( |
||
| Provision for non-realization of tax losses | ( |
|||
| Recognition of Negative Base - CSLL (***) | ( |
|||
| Other permanent differences | ( |
( |
||
| Effective income tax and social contribution expense | ( | |||
| Credit (expense) income tax and social contribution expense for the year: | ||||
| Current | ( | |||
| Deferred | ( | |||
| Credit (expense) income tax and social contribution expense | ( | |||
| Effective rate |
| (*) |
| (**) |
| (***) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 20.2 | Breakdown of deferred income tax and social contribution |
| 2022 | 2021 | ||||||
| Asset | Liability | Net | Asset | Liability | Net | ||
| Tax losses and negative basis of social contribution | - | - | |||||
| Provision for risks | - | - | |||||
| Goodwill tax amortization | - | ( |
( |
- | ( |
( | |
| Mark-to-market adjustment | - | ( |
( |
- | ( |
( | |
| Fixed assets, tradename and investment property | - | ( |
( |
- | ( |
( | |
| Unrealized gains with tax credits | - | ( |
( |
- | ( |
( | |
| Net adjustments of IFRS 16 | - | - | |||||
| Cash flow hedge | - | - | - | - | ( |
( | |
| Other | - | - | |||||
| Presumed profit on equity of Éxito | - | - | - | - | |||
| Deferred income tax and social contribution | ( |
( |
( | ||||
| Off-set assets and liabilities | ( |
( |
- | ||||
| Deferred income tax and social contribution assets/(liabilities), net | ( |
( | |||||
Management has assessed the future realization of deferred tax assets, considering the projections of future taxable income. This assessment was based on information from the strategic planning report previously approved by the Group’s Board of Directors.
The Company estimates the recovery of the deferred tax assets as follows:
| Up to one year | |
| From 1 to 2 years | |
| From 2 to 3 years | |
| From 3 to 4 years | |
| From 4 to 5 years | |
| Above 5 years | |
| 20.3 | Movement in deferred income tax and social contribution |
| 2022 | 2021 | 2020 | ||
| Opening balance | ( |
( |
( | |
| Credit (expense) for the year – Continuing operations | ( | |||
| Credit (expense) for the year - Discontinued operations | ( |
|||
| Exchange rate changes | ( | |||
| Assets held for sale or distribution and discontinued operations | ||||
| Deconsolidation - Sendas | ||||
| Other | ( |
( | ||
| Recognition of Negative Base - CSLL (*) | ||||
| Fair value - exchange of shares (**) | ( |
|||
| Liabilities related to assets held for sale or distribution | ||||
| At the end of the period | ( |
( |
| (*) |
| (**) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 21. | Provision for risks |
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the obligation can be reliably estimated. The expense related to the provision is recognized in Statements of Income for the year, net of any reimbursement. In case of attorney’s fees in favorable court decisions, the Group’s policy is to record a provision when fees are incurred, i.e., upon final judgment on lawsuits, as well as disclose in notes the estimated amounts involved in lawsuits in progress.
In order to assess the outcome´s probability the Group considers available evidence, the hierarchy of laws, prior court decisions in similar cases and their legal significance, as well as the legal counsel’s opinion.
The provision for risks is estimated by the Group’s management, supported by its legal counsel, for an amount considered sufficient to cover probable losses.
| Tax | Social security and labor | Civil and Regulatory | Total | |
| Balance at December 31, 2021 | ||||
| Additions | ||||
| Payments | ( |
( |
( |
( |
| Reversals | ( |
( |
( |
( |
| Monetary adjustment | ||||
| Exchange rate changes | ( |
( |
( |
( |
| Liabilities related to assets held for sale or disdistribution | ( |
( |
( |
( |
| Balance at December 31, 2022 |
| Tax | Social security and labor | Civil and Regulatory | Total | |
| Balance at December 31, 2020 | ||||
| Additions | ||||
| Payments | ( |
( |
( |
( |
| Reversals | ( |
( |
( |
( |
| Monetary adjustment | ||||
| Exchange rate changes | ( |
( |
( |
( |
| Balance at December 31, 2021 |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 21.1 | Tax |
As per prevailing legislation, tax claims are subject to monetary restatement, which refers to an adjustment to the provision for tax claims according to the indexation rates used by each tax jurisdiction. In all cases, both the interest charges and penalties, when applicable, were computed and fully provisioned.
The main provisioned tax claims are as follows:
Social Contribution on Net Income
Since 1992 the Company had a res judicata decision regarding the non-payment of Social Contribution over Profit. Since then, the Company evaluated the assessments related to this issue as Remote risk, based on the evaluation of its legal advisors.
The Federal Supreme Court decided for the limitation
of the res judicata and modulated its effects to reach taxable events as from September 2007. Company revaluated the assessment
notices for periods after the mentioned date, leading to the recognition of a provision for contingencies in the amount of R$
As mentioned in note 20.1, the Company estimated
the recalculated the balances of negative basis, temporary differences and taxes on profits abroad considering the new tax rate, representing
a gain of R$
In summary, Company recorded in 2022 a provision
for contingencies in the amount of R$
ICMS
There are cases assessed by
São Paulo State tax authorities related to the refund of ICMS over tax substitution without proper compliance with accessory tax
obligations introduced by CAT Administrative Rule 17. Considering recent court decisions the Group accrued R$
Supplementary Law 110/2001
The Group claims in court
the eligibility to not pay to the Government Severance Indemnity Fund for Employees (FGTS) costs. The accrued amount as of December 31,
2022 is R$
Other tax claim
According to the assessment of its external legal
counsel, were provisioned by the Group refer to: (i) challenge on the non-application of the Accident Prevention Factor - FAP; (ii) undue
credit (iii) no social charges on benefits granted to its employees, due to an unfavorable decision in the Court; (iv) IPI requirement
on the resale of imported products; (v) discussions related to IPTU (vi) other minor claims. The amount accrued for these claims as of
December 31, 2022 was R$
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Indemnification with Sendas
The Company is responsible
for the legal proceedings of Sendas Distribuidora prior to Assai's activity. At December 31, 2022, the accrued amount of tax lawsuits
is R$
21.2 Labor and social security taxes
The Group is part in various labor lawsuits mainly
due to termination of employees in the ordinary course of business. At December 31, 2022, the Group recorded a provision of R$
21.3 Civil and others
The Group is part in civil lawsuits at several court levels (indemnities and collections, among others) and at different courts. Management records a provision for amounts it considers sufficient to cover unfavorable court decisions, when its internal and external legal counsels assess that a negative outcome is probable.
Among these lawsuits, we highlight the following:
| · | The Group is part in various lawsuits requesting
the renewal of rental agreements and the review of the current rent paid. The Group recognizes a provision for the difference between
the amount originally paid by the stores and the amounts claimed by the owner of the property, when its internal and external legal counsels
assessed that it is probable that such difference will be actually paid by the Group. As of December 31, 2022, the amount accrued for
these lawsuits is R$ |
·
The Group is part of claims related to penalties applied by regulatory
agencies, from the Federal, State and Municipal Administrations, among which includes Consumer Protection Agencies (Procon), National
Institute of Metrology, Standardization and Industrial Quality (INMETRO) and Municipalities and some lawsuits involving contract terminations
with suppliers. Management, with the assistance of its legal counsels, assessed these claims, and recorded a provision. On December 31,
2022 the amount accrued for this provision is R$
·
In relation to the provisioned amounts remaining for other civil jurisdiction
claims on December 31, 2022, it is an accrual of R$
Total civil lawsuits and other claims as of December
31, 2022 amount to an accrual of R$
| 21.4 | Possible contingent liabilities |
The Group is part of other litigations for which
an outcome has been assessed by Management with the support of legal advisors as possible, therefore, the Group has not recorded a provision.
Possible losses amounted to R$
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| · | INSS (Social Security Contribution) –The
Group was assessed for non-levy of payroll charges on benefits granted to its employees, among other matters, totaling R$ |
| · | IRPJ, withholding income tax - IRRF, CSLL,
tax on financial transactions - IOF, withholding income tax on net income – Group has several assessment notices regarding offsetting
proceedings, rules on the deductibility of provisions, payment divergences and overpayments; fine for failure to comply with accessory
obligations, among other less significant taxes. The amount involved is R$ |
| · | COFINS, PIS and IPI – the Group has
been challenged about offsets of IPI credits acquired from third parties with a final and an-appeal over the decision, fine for failure
to comply with accessory obligations, taxation of discounts received from suppliers, disallowance of COFINS and PIS credits, among other
minor claims. These lawsuits await decision at the administrative and court levels. The amount involved in these assessments is R$ |
| · | ICMS – The Group received tax assessment
notices by the State tax authorities in relation to: (i) utilization of energy bills credits; (ii) purchases from suppliers considered
not qualified in the State Finance Department registry; (iii) purchases of merchandise for resale (own ICMS); (iv) resulting from financed
sales; and (v) among other matters. The total amount of these assessments is R$ |
| · | Municipal service tax - ISS, Municipal Real
Estate Tax (“IPTU”), rates and others – these refer to assessments on withholdings of third parties, IPTU payment divergences,
penalties for failure to comply with accessory obligations, ISS and sundry taxes, in the amount of R$ |
| · | Other litigations – these refer to
administrative proceedings and lawsuits in which the Group claims the renewal of rental agreements and setting of rents according to market
values in the civil court, special civil court, Consumer Protection Agency - PROCON (in many States), Institute of Weights and Measure
- IPEM, National Institute of Metrology, Standardization and Industrial Quality - INMETRO and National Health Surveillance Agency - ANVISA,
among others, totaling R$ |
The Group is part of other tax claims, including
the improper tax deduction of goodwill amortization, for which, based on the management’s understanding and assessment of external
legal counsel, the Group has the right for an indemnization from its former and current shareholders, related to the years 2007 to 2013.
These assessments amounted to R$
The Group is responsible for the legal processes
of GLOBEX prior to the association with Casas Bahia (Via Varejo). As of December 31, 2021, the amount involved in tax proceedings is R$
The Company is responsible for the legal proceedings
of Sendas Distribuidora prior to the Assai activity. At December 31, 2022, the amount involved is R$
The Group engages external legal counsels to represent
it in the tax assessments, whose fees are contingent on the final outcome of the lawsuits. This percentage may vary according to qualitative
and quantitative factors of each claim, and as
of December 31, 2022 the estimated amount, in case of success in all lawsuits, is approximately R$
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 21.5 | Restricted deposits for legal proceedings |
The Group is challenging the payment of certain taxes, contributions and labor-related obligations and has made restricted deposits in the corresponding amounts, as well as escrow deposits related to the provision for legal proceedings.
The Group has recorded restricted deposits as follows.
| 2022 | 2021 | ||
| Tax | |||
| Labor | |||
| Civil and other | |||
| Total |
| 21.6 | Guarantees |
| Lawsuits | Property and equipment | Letter of Guarantee | Total | |||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||
| Tax | ||||||||
| Labor | ||||||||
| Civil and other | ||||||||
| Total | ||||||||
The cost of letter of guarantees is approximately 0.4% per year of the amount of the lawsuits and is recorded as financial expense.
| 21.7 | Deduction of ICMS from the calculation basis for PIS and COFINS |
The Group has claimed the right to deduct ICMS taxes from the calculation basis of PIS and COFINS. On March 15, 2017, the Supreme Court ruled that ICMS should be excluded from the calculation basis of PIS and COFINS. The Attorney General's Office of the National Treasury (PGFN), appealed against this decision, aiming the modulation of its effects and clarification of the ICMS value that should, after all, be object of suppression from the PIS and COFINS basis of calculation.
In 2019, some of the Company's subsidiaries obtained a favorable decision in their own proceedings, resulting in the recording of tax credits in the amount of R$382, of which R$198 in the financial result.
On October 29, 2020, a final decision was issued in favor of the Company and granted a tax credit, of R$1,609 (of which R$613 in the financial result), as of December 31, 2020, net of provisions for portions that are eventually considered unrealizable. On May 13, 2021, the STF considered the appeals presented by PGFN in relation to that decision taken on March 15, 2017 and expressed an understanding in line with that of the Company and its legal advisors.
During calendar year 2021, the Company reassessed the tax credit, reversing part of the provisions previously constituted in the amount of R$280 (R$109 of which in the financial result).
The calculations prepared by the Company are based on the understanding of its legal advisors and the estimated realization of the asset is, at most, 7 (seven) years.
Similarly, Via obtained a favorable decision in May, 2020, which includes amount for which GPA is entitled to be reimbursed for, according to the terms of the association agreement signed between GPA and the Klein family in the transaction that created Via. The periods which GPA is entitled to be reimbursed relate to the subsidiary Globex (that was merged in the formation of Via) for the years between 2003 and 2010. CBD has already recognized in fiscal year 2020, R$231 of a receivable with Via and R$278 in 2022. The related gain was recognized in net income from discontinued operations.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 21.8 | Arbitration Península |
On September 12, 2017, the Company received a notice from the Brazil-Canada Chamber of Commerce regarding a request for arbitration (“Proceeding”) filed by Banco Ourinvest S.A., a financial institution, in its capacity as fund manager and acting in the exclusively interest of the quotaholders of Fundo de Investimento Imobiliário Península ("Península").
The Proceeding discussed the calculation of the rental fees and other operational matters related to 60 stores owned by Peninsula, which are under several lease agreements and contracts entered into between the Company and Peninsula during 2005 (the "Agreements"). The Agreements assure to CBD the rent of the stores for a period of twenty (20) years, which may be extended for an additional 20-year term, at CBD’s discretion.
As communicated to the market, on July 7, 2021, the parties reached an agreement to amicably resolve past disputes and terminate the Proceedings. The agreement improved the Agreements, maintaining the long-term lease term of 20 years, renewable for another 20 years at CBD's discretion, but introduced new rules that are more adapted to the current market, which allow for the optimization of the use of properties and bring potential for gain for both Parties with the best use of real estate spaces. As a result of this agreement, the Company recorded in the 2021 result the amount of R$17 in other operating expenses, in addition to the remeasurement related to contractual changes in accordance with IFRS 16.
| 21.9 | Via |
The Company ceased to exercise corporate control over Via in June 2019. In the 2nd quarter of 2021, Via took certain measures and fully replaced the guarantees that had been provided to third parties by GPA in favor of that company, with no further obligations remaining of GPA on this matter. The Operating Agreement previously signed expired in October 2021 and is therefore terminated. Via still uses the Extra brand for the sale of products under the Extra Brand Usage License Agreement, which allows Via to carry out e-commerce activities through the Extra.com domain. With the termination of the Operating Agreement, GPA can also promote electronic commerce in electronics on any platforms.
GPA, together with Sendas, Via and Itaú Unibanco are partners in Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento (“FIC”). CBD is the holder of a claim against Via arising from a final and unappealable tax action, the amounts of which are being calculated by a specialized company hired by the parties involved, as well as being responsible, on the other hand, for any supervenience liabilities incurred up to a certain date, if final and unappealable, on behalf of the former Globex.
| 22 | Leases |
| 22.1 | Lease obligations |
When entering into a contract, the Company assesses whether the contract is, or contains, a lease. The contract is, or contains, a lease if it transfers the right to control the use of the identified asset for a specified period in exchange for consideration.
The Company leases equipment and commercial spaces,
including stores and distribution centers, under cancellable and non-cancellable lease agreements. The terms of the contracts vary substantially
between
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The Group as lessee
The Group evaluates its lease agreements in order
to identify lease terms for a right to use, using the exemptions provided for contracts with a term of less than twelve months and an
individual asset value below US$
The contracts are then recorded, when the lease begins, as a Lease Liability against the Right of Use (notes 14 and 15), both at the present value of the minimum lease payments, using the interest rate implicit in the contract, if this can be used, or an incremental borrowing rate considering loans obtained by the Group.
The lease term used in the measurement corresponds to the term that the lessee is reasonably certain to exercise the option to extend the lease or not to exercise the option to terminate the lease.
Subsequently, payments made are segregated between financial charges and reduction of the lease liability, in order to obtain a constant interest rate on the liability balance. Financial charges are recognized as financial expenses for the period.
Right of use assets are amortized over the lease term. Improvements and renovations carried out in stores are amortized over their estimated useful life or the expected term of use of the asset, limited if there is evidence that the lease will not be extended.
Variable rents are recognized as expenses in the years in which they are incurred.
The Group as lessor
Leases where the Group does not substantially transfer all the risks and rewards of ownership of the asset are classified as operating leases. The initial direct costs of negotiating operating leases are added to the book value of the leased asset and recognized over the term of the contract, on the same basis as rental income.
Variable rents are recognized as income in the years in which they are earned.
Aging of leases liability:
Leasing contracts totaled R$
| 2022 | 2021 | ||
| Lease liability – minimum lease payments: | |||
| Up to 1 year | |||
| 1 - 5 years | |||
| Over 5 years | |||
| Present value of finance lease agreements | |||
| Future financing charges | |||
| Gross amount of finance lease agreements |
The interest expense on lease liabilities is presented
in note 28 The average incremental borrowing rate of the Group at the date of signing the agreements was
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 22.2 | Movement of lease liabilities |
| At December 31, 2021 | ||
| Additions | ||
| Remeasurement | ||
| Accrued interest | ||
| Payments | ( | |
| Anticipated lease contract termination | ( | |
| Exchange rate changes | ( | |
| Liabilities on Non-Current Assets for Sale or distribution | ( | |
| At December 31, 2022 | ||
| Current | ||
| Non-current | ||
| At December 31, 2020 | ||
| Additions | ||
| Remeasurement (*) | ( | |
| Accrued interest | ||
| Payments | ( | |
| Anticipated lease contract termination | ( | |
| Exchange rate changes | ( | |
| Liabilities on Non-Current Assets for Sale | ( | |
| At December 31, 2021 | ||
| Current | ||
| Non-current | ||
| (*) |
| 22.3 | Lease expense on variable rents, low value assets and short-term agreements |
| 2022 | 2021 | 2020 | |
| Expenses (income) for the year: | |||
| Variable (0.1% to 4.5% of sales) | |||
| Sublease rentals (*) | ( |
( |
( |
| (*) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 23. | Deferred revenues |
The Group received amounts from business partners on exclusivity in the intermediation of additional or extended warranty services, and the subsidiary Sendas received amounts for the rental of back lights for exhibition of products from certain suppliers at its stores.
| 2022 | 2021 | ||
| Deferred revenue in relation to sale of real estate property | |||
| Additional or extended warranties | |||
| Services rendering agreement | |||
| Revenue from credit card operators and banks | |||
| Gift Card | |||
| Others | |||
| Current | |||
| Non-current | |||
| 24. | Shareholders’ equity |
| a. | Capital stock |
The subscribed and paid-up capital as of December
31, 2022 is represented by ( as of December 31, 2021) in thousands of registered shares with no par value. At December
31, 2022, capital is R$
The Company is authorized to increase its capital
stock up to the limit of
At the Board of Directors’ Meetings held on February 23, 2022, March 28, 2022, April 29, 2022, July 27,22, November 3, 2022, December 12, 22 and December 23, 2022, it was approved a capital increase totaling R$2(R$ at December 31, 2022) through the issuance of thousand shares ( at December 31, 2022)
| b. | Share rights |
Pursuant to the Brazilian Corporation Law, the Bylaws or the resolutions taken by the shareholders in a General Meeting may not deprive the shareholders of their right to: (i) participate in the Company's corporate profits; (ii) participate, in the event of liquidation of the Company, in the distribution of any remaining assets, in proportion to their interest in the capital stock; (iii) supervise the management, as provided for in the Brazilian Corporation Law; (iv) preference in the subscription of future capital increases, except in certain circumstances provided for in the Brazilian Corporation Law; and (v) withdraw from the Company in the cases provided for in the Brazilian Corporation Law.
Regarding the right to dividends, the Bylaws provide
that
| c. | Earnings reserve |
| (i) | Legal reserve: corresponds to appropriations
of |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| (ii) | Business growth reserve: corresponds
to appropriations of the amount determined by shareholders to reserve funds to finance additional fixed and working capital investment
through the allocation of up to |
| d. | Stock options |
The Company recognizes the expenses associated to the group of executives’ share-based payments in accordance with IFRS 2 – Share-based payment.
Employees and senior executives of the Company and its subsidiaries may receive compensation in the form of share-based payment, whereby employees render services in exchange for equity instruments (“equity-settled transactions”).
The Group calculates compensation expense in relation to share based payments based on the fair value of the awards at the grant date. Estimating of the volatility and dividend return awards requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires a definition of the most appropriate information for the valuation model, including the expected useful life of the stock options, volatility and dividend yield, as well as making assumptions about them.
The cost of equity-settled transactions is recognized as an expense for the year, together with a corresponding increase in shareholders' equity, over the period in which the performance and / or service provision conditions are met. Accumulated expenses recognized in relation to equity instruments at each reporting date until the vesting date reflect the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.
The expense or reversal of expenses for each year represents the change in the accumulated expenses recognized at the beginning and end of the year. No expenses is recognized for services that have not completed the vesting period, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vested irrespective of whether or not the market or non-vesting condition is met, provided that all other performance and / or service provision conditions are met.
When an equity instrument is modified, the minimum expense recognized is the expense that would have been incurred if the terms had not been modified. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee, as measured on the date of modification.
When an equity instrument is cancelled, it is treated as fully vested on the date of cancellation, and any unrecognized expenses related to the premium are immediately recognized in profit or loss for the year. This includes any premium whose non-vesting conditions within the control of either the Company or the employee are not met. However, if the canceled plan is replaced by another plan and designated as a replacement grants on the grant date, the cancelled grant and the new plan are treated as if they were a modification of the original grant, as described in the previous paragraph. All cancellations of equity-settled transactions are treated equally.
The dilutive effect of outstanding options is reflected as an additional share dilution in the calculation of diluted earnings per share.
The following describes the Stock Option Plans on December 31, 2022.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Compensation Plan
The Compensation Plan is managed by the Board of Directors, who has assigned to the Human Resources and the Compensation Committee the responsibility to grant the options and act as an advisory in managing the Compensation Plan (the "Committee").
Committee members meet to decide on the grant of options and Compensation Plan series or whenever necessary. Each series of the options granted are assigned the letter "B" followed by number.
Options granted to a participant vest on a period
of
The participants may exercise their total purchase options or in part, in one or more times, if for each year, the option exercise term is submitted during the Exercise Period.
The exercise price of each stock option granted under the Compensation Plan should correspond to R$ (one cent) ("Exercise Price").
The exercise price of the options shall be paid in full in local currency by check or wire transfer available to the bank account held by the Company, in the tenth (10th) day preceding the date of acquisition of the shares.
The participants are precluded for a period of 180 (one hundred and eighty) days from the date of acquisition of the shares, directly or indirectly, sell, assign, exchange, dispose of, transfer, grant to the capital of another company, grant option, or even celebrate any act or agreement which results or may result in the sale, directly or indirectly, costly or free, all or any of the shares acquired by the exercise of the purchase option under the option Plan.
The Group withholds any applicable tax under Brazilian tax law, less the number of shares delivered to the participant amount equivalent to taxes withheld.
Option Plan
The Stock Option Plan is managed by the Board of Directors, who assigns to Human Resources and the Compensation Committee the responsibility to grant options and to provide advice in managing the Stock Option Plan (the "Committee").
Committee members meet when options under the Option Plan are granted, and, when necessary, to make decisions in relation to the Stock Option Plan. Each series of options granted receive the letter "C" followed by a number. For the year ended December 31, 2021, the series C6 and C7 of the Option Plan were granted.
For each series of stock options granted under the Option Plan, , Commodities and Futures prior to the date of the Committee meeting that decides upon the granting of the options ("Exercise Price").
Options granted to a Participant vest in a period
of
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Participants may exercise the options in full or in part, in one or more times, by the formalization of the exercise.
The options exercise price shall be paid in full in local currency by check or wire transfer available to the bank account held by the Company, provided that the payment deadline will always be the tenth (10th) day preceding the date to acquire the shares.
Information on the plans are summarized below:
| 2022 | ||||||||
| Number of options (in thousands) | ||||||||
| Series granted | Grant date | 1st date of exercise | Exercise price at the grant date |
Granted |
Exercised | Cancelled | Expired | Outstanding |
| B6 | ( |
( |
( |
|||||
| C6 | ( |
( |
( |
|||||
| B7 | ( |
( |
||||||
| C7 | ( |
( |
||||||
| B8 | ( |
|||||||
| C8 | ||||||||
| ( |
( |
( |
||||||
According to the terms of the series plans, each
option gives its beneficiary the right to purchase one share of the Company's stock. In both plans, the vesting period is
According to the plans, the options granted in each of the series may represent maximum % of the total shares issued by the Company.
At December 31, 2022 there were thousands treasury preferred shares which may be used upon exercised of the options granted in the plan. The preferred share market price was R$ per share.
The table below shows the dilutive effect if all options granted were exercised:
| 2022 | 2021 | |
| Number of shares | ||
| Balance of effective stock options granted | ||
| Maximum percentage of dilution | % | % |
The fair value of each option granted is estimated at the grant date using the option pricing model Black & Scholes, taking into account the following assumptions for the B6 and C6 series: (a) dividend expectation of %, (b) volatility expectation of nearly % and (c) the weighted average interest rate of .%.
The fair value of each option granted is estimated at the grant date using the option pricing model Black & Scholes, taking into account the following assumptions for the B7 and C7 series: (a) dividend expectation of %, (b) volatility expectation of nearly % and (c) the weighted average interest rate of %.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The fair value of each option granted is estimated at the grant date using the option pricing model Black & Scholes, taking into account the following assumptions for the B8 and C8 series: (a) dividend expectation of %, (b) volatility expectation of nearly % and (c) the weighted average interest rate of %.
The expectation of remaining average life of the series outstanding at December 31, 2022 is year ( year at December 31, 2021). The weighted average fair value of options granted at December 31, 2022 was R$ (R$ at December 31, 2021).
The movement of shares above refers to the Company's shares, after the spin-off from Sendas Distribuidora, and during the transition period, certain executives of the Company receive compensation in Sendas Distribuidora shares, recorded as an expense. The movement in the number of options granted, the weighted average of the exercise price and the weighted average of the remaining term are presented in the table below:
| Shares in thousands | Weighted average of exercise price | Weighted average of remaining contractual term | |
| At December 31, 2021 | |||
| Granted during the period | |||
| Cancelled during the period | ( |
||
| Exercised during the period | ( |
||
| Expired during the period | ( |
||
| Outstanding at the end of the period | |||
| Total to be exercised at December 31, 2021 | |||
| At December 31, 2022 | |||
| Granted during the period | |||
| Cancelled during the period | ( |
||
| Exercised during the period | ( |
||
| Expired during the period | ( |
||
| Outstanding at the end of the period | |||
| Total to be exercised at December 31, 2022 |
The amounts recorded in the Statements of Income, for the year ended December 31, 2022 were R$ (R$ as of December 31, 2021 and R$ as of December 2020).
| 24.1. | Other comprehensive income |
Exchange variation of foreign subsidiaries
The exchange rate differences arising from the translation
are recognized in other comprehensive income (“OCI”).Cumulative effect of exchange gains and losses on the translation of
assets, liabilities and profit (loss) denominated in Colombian Pesos to Brazilian Reais, corresponding to the investment in the subsidiary
Éxito, and denominated in Euros to Reais corresponding to the investment associate in Cnova N.V. The effect was R$
| 24.2. | Governmental incentive reserve |
As mentioned in note 20.1, many of the tax incentives granted by the States started to be characterized as subsidies for investments, not achieved by the taxation of income tax and social contribution.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The respective amounts of these incentives must be allocated, in shareholders' equity, in a tax incentive reserve account. As provided for in article 30 of Law No. 12,973/14, said reserve may be used to absorb losses, provided that the other profit reserves have already been fully absorbed, with the exception of the legal reserve, or to increase capital.
This same legal provision provides that the amounts computed in the tax incentive reserve should not form the basis for calculating the minimum mandatory dividend, and the Company must submit amounts that may be allocated to partners or shareholders for taxation by the IRPJ and CSLL.
On June 29, 2018, and in December 2018, an extraordinary
shareholders’ meeting approved Management’s proposal to transfer a total R$
In December 2020 the Management’s proposal
an additional R$
In December 2021, the Company allocated another
R$
In December 2022, the Company allocated an additional
R$
| 24.3. | Dividends and interest on own capital |
Dividend distribution to the Group's shareholders is recognized as a liability at the year-end, based on the minimum mandatory dividends established by the Bylaws. Additional dividends are only recorded when approved by the Group’s Board of Directors.
The Company's Bylaws establish the minimum payment
of
The Group may pay interest on own capital as remuneration calculated over the shareholders' equity accounts, observing the rate and limits determined by law.
| Proposed dividends | |||
| 2022 | 2021 | 2020 | |
| Net (loss) income for the year | ( |
||
| Legal reserve | ( |
( | |
| Governmental subsidy reserve | ( |
( | |
| Calculation basis of dividends | |||
| Mandatory minimum dividends – 25% | |||
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 24.4. | Dividends distributed to non-controlling interests. |
The Company, through its subsidiary Éxito,
has investments with non-controlling interest in some real estate projects and in Grupo Disco del Uruguay S.A., as detailed in Note 12.
On December 31, 2022 dividends in the amount of R$
| 25. | Revenue from the sale of goods and / or services |
IFRS 15 establishes a comprehensive framework to determine when and for how much revenue form contracts with customers should be recognized.
Sale of goods
Revenue from sale of goods is recognized when control of the goods is transferred to the customer, usually when delivered in the store, and at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. No revenue is recognized if collection is uncertain.
Service revenue
The Company acts as agent in insurance extended warranty, financial protection insurance, personal accident insurance, technical assistance, and mobile phone credits recharge. Revenues from these services are presented net of related costs and recognized when control of the service is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services.
| 2022 | 2021 | 2020 | ||
| Note 2 | Note 2 | |||
| Gross sales | ||||
| Goods | ||||
| Services rendered | ||||
| Sales returns and cancellations | ( |
( |
( | |
| Taxes on sales | ( |
( |
( | |
| Net operating revenue |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 26. | Expenses by nature |
Cost of goods sold
The cost of goods sold comprises the acquisition cost of inventory net of discounts and considerations received from suppliers and logistics costs.
Rebates received from suppliers are measured based on contracts and agreements signed with them.
The cost of sales includes the cost of logistics operations managed or outsourced by the Group, comprising warehousing, handling and freight costs incurred until the goods are ready for sale, including any depreciation and amortization.
Selling expenses
Selling expenses comprise all store expenses, such as salaries, marketing, occupancy, maintenance, fees charged by credit card companies, etc.
Marketing expenses refer to advertising campaigns for each segment in which the Group operates. The main media used by the Group are: radio, television, newspapers and magazines. These expenses are recognized in profit or loss through campaign period.
General and administrative expenses
General and administrative expenses correspond to overhead and the cost of corporate units, including purchasing and procurement, information technology and financial activities.
| 2022 | 2021 | 2020 | ||
| Note 2 | Note 2 | |||
| Cost of inventories | ( |
( |
( | |
| Personnel expenses | ( |
( |
( | |
| Outsourced services | ( |
( |
( | |
| Overhead expenses | ( |
( |
( | |
| Commercial expenses | ( |
( |
( | |
| Other expenses | ( |
( |
( | |
| ( |
( |
( | ||
| Cost of sales | ( |
( |
( | |
| Selling expenses | ( |
( |
( | |
| General and administrative expenses | ( |
( |
( | |
| ( |
( |
( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 27. | Other operating expenses, net |
Other operating income and expenses correspond to the effects of major or nonrecurring events occurred during the year that do not meet the definition for the other Statements of Income lines.
| 2022 | 2021 | 2020 | ||
| Note 2 | Note 2 | |||
| Tax installments and other tax risks | ( |
( | ||
| Restructuring expenses (i) | ( |
( |
( | |
| Gain on disposal of property and equipment(ii) | ||||
| Corporate reorganization (iii) | ||||
| Prevention spending – Covid-19 (iv) | ( | |||
| Others | ( |
|||
| Total | ( |
( |
| (i) |
| (ii) |
| (iii) |
| (iv) |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 28. | Financial income (expenses), net |
Financial income includes income generated by highly liquid short-term investments and gains arising from measurement of derivative financial instruments at fair value.
Interest income is recorded for all financial assets measured at amortized cost, using the effective interest rate, which is the rate that discounts for the estimated future cash payments or receipts through the expected term of the financial instrument or shorter period, where appropriate, from the carrying amount of the financial asset or liability.
Financial expenses include substantially interest and financial charges on borrowings and financing and discounting receivables during the year, losses arising from measurement of derivative financial instruments at fair value, losses on disposals of financial assets, financial charges on provisions on lawsuits and taxes and interest charges on leases, as well as discount charges.
| 2022 | 2021 | 2020 | ||
| Note 2 | Note 2 | |||
| Finance expenses: | ||||
| Cost of debt | ( |
( |
( | |
| Cost of the discounting of receivables | ( |
( |
( | |
| Monetary restatement loss | ( |
( |
( | |
| Interest on lease liabilities | ( |
( |
( | |
| Other finance expenses | ( |
( |
( | |
| Total financial expenses | ( |
( |
( | |
| Financial income: | ||||
| Income from short term instruments | ||||
| Monetary restatement gain (*) | ||||
| Other financial income | ||||
| Total financial income | ||||
| Total | ( |
( |
( |
| (*) |
The gains or losses on derivative financial instruments are recorded as cost of debt and disclosed in Note 18.
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 29. | Earnings per share |
Basic earnings per share are calculated based on the weighted average number of outstanding shares of each category during the year.
Diluted earnings per share are calculated as follows:
| · | Numerator: profit for the year adjusted by dilutive effects from stock options. |
| · | Denominator: the number of shares of each category adjusted to include potential shares corresponding to dilutive instruments (stock options), less the number of shares that could be bought back at market, if applicable. |
Equity instruments that will or may be settled with the Company’s shares are only included in the calculation when its settlement has a dilutive impact on earnings per share.
The table below presents the determination of net income available to holders of common shares and the weighted average number of common shares outstanding used to calculate basic and diluted earnings per share in each reporting exercise:
| 2022 | 2021 | 2020 | |||
| Note 2 | Note 2 | ||||
| Basic numerator | |||||
| Net income (loss) allocated to controlling shareholder – continuing operations | ( |
||||
| Net income (loss) allocated to controlling shareholder - discontinued operations | |||||
| Net income allocated to controlling shareholder | ( |
||||
| Basic denominator (millions of shares) | |||||
| Weighted average of shares | |||||
| Basic earnings (loss) per share (R$) – continuing operations | ( |
||||
| Basic earnings (loss) per share (R$) – discontinued operations | |||||
| Basic earnings per share (R$) – total | ( |
||||
| Diluted numerator | |||||
| Net income (loss) allocated to ordinary controlling shareholders – continuing operations | ( |
||||
| Net income (loss) allocated to ordinary controlling shareholders - discontinued operations | |||||
| Net income allocated to ordinary controlling shareholders | ( |
||||
| Diluted denominator | |||||
| Weighted average of outstanding shares (in millions) | |||||
| Stock option (in millions) | |||||
| Diluted weighted average of outstanding shares (millions) | |||||
| Diluted earnings (loss) per share (R$) – continuing operations | ( |
||||
| Diluted earnings (loss) per share (R$) – discontinued operations | |||||
| Diluted earnings per share (R$) – total | ( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| 30. | Segment information |
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker who has been identified as the Chief Executive Officer.
Management considers that it has only one segment called “Retail”–which includes the banners “Pão de Açúcar”, “Extra Supermercado”, “Mercado Extra”, “Minimercado Extra”, “Minuto Pão de Açúcar”, “Compre Bem”, “Posto Extra”, and “GPA Malls”.
As described in note 1.2, Grupo Éxito, previously presented as a separate segment, is being presented as a discontinued operation, being considered a segment until the conclusion of the distribution of shares held by the Company to its direct shareholders.
The cash and carry segment, Assai, has been contributed to the Company’s shareholders and is also presented as a discontinued operation (note 1.3). Those segments are maintained in this note for reconciliation purposes.
“Other businesses” also include the operations of James (incorporated into the parent company in December 2022), Stix and equity pick up from Cdiscount,
Results and balances of each segment are presented net of intrasegment eliminations.
The debentures obtained for funding the acquisition of Éxito and related interest expenses were allocated to Éxito Group, as well as other acquisition related expenses incurred
Management monitors the operating results of its business units separately making decisions about resource allocation and performance assessment. The segment performance is regularly reviewed by the chief operating decision-maker (CODM), using the accounting practices under IFRS and mainly based on “Operating Income”, which is measured consistently with “Profit from continued operations before net financial expenses and share of profit of associates” in the financial statements and includes certain corporate overhead allocations. However, other performance measures are also used by the CODM in this process as included in the table below:
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| Description | Brazilian retail | Discontinued operations | Other Businesses | Total | |||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||
| Note 2 | Note 2 | Note 2 | Note 2 | ||||||||||||
| Net operating revenue | |
|
|
|
|||||||||||
| Gross profit | |||||||||||||||
| Depreciation and amortization | ( |
( |
( |
( |
( |
( |
( |
( |
( | ||||||
| Operating income | ( |
( |
( |
( |
( |
||||||||||
| Net financial expenses | ( |
( |
( |
( |
( |
( |
( |
( |
( | ||||||
| Share of profit of associates | ( |
( |
( |
( |
( |
||||||||||
| Profit(loss) before income tax and social contribution | ( |
( |
( |
( |
( |
( |
( |
||||||||
| Income tax and social contribution | ( |
( |
( | ||||||||||||
| Net income (loss) for continuing operations | ( |
|
( |
( |
( |
( |
|
||||||||
| Net income (loss) for discontinued operations | |
( |
|
||||||||||||
| Net income (loss) of year end | ( |
( |
( |
( |
( |
||||||||||
| Current assets | |||||||||||||||
| Non-current assets | |
||||||||||||||
| Current liabilities | |
||||||||||||||
| Non-current liabilities | ( |
||||||||||||||
| Shareholders' equity | |
( |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
The Company and its subsidiaries operate primarily as a retailer of food and other products. Total revenues are composed of the following brands:
| 2022 | 2021 | 2020 | |||
| Pão de Açúcar | |||||
| Extra / Compre Bem | |||||
| Proximity | |||||
| Gas stations / Delivery | |||||
| Other businesses | |||||
| Total net operating revenue |
| 31. | Non cash transactions |
The Group had the following non-cash transactions:
| · | Purchase of property plant and equipment items not yet paid as per note 14.3; |
| · | Purchase of intangible assets not yet paid as per note 15.3; |
| · | Capital increase with fixed assets: note 12.2. |
| · | New leases agreements: note 22.2 |
| · | Classification for non current assets held for sale or distribution |
| 32. | Non-current assets held for sale |
Non-current assets and group of assets are reclassified as held for sale if the carrying amount will be recovered through a sale transaction, instead of continuous use. This condition is met only when the asset is available for sale in the present condition, exposed only to the terms that are usual to sales of these assets and the sale is highly probable. Management has to be committed to complete within one year.
When the Company is committed to a sale plan involving the loss of control over a subsidiary, all the assets and liabilities of this subsidiary are classified as held for sale when the criteria above is met, even if the Company keeps a non-controlling interest in its former subsidiary after the sale. Additionally, the net income of the entity classified as held for sale is presented as discontinued operations in a single caption in the Statements of Income.
Non-current assets classified as held for sale are measured based on the lower amount between their carrying amount and their fair value less cost to sell.
| Breakdown | 2022 | 2021 | |
| Properties / lands held for sale | |||
| Extra Hiper Stores (Note 1.1) | |||
| Grupo Éxito (note nº1.2) | |||
| Assets held for sale | |||
| Extra Hiper Stores / Lease liability (Note 1.1) | |||
| Grupo Éxito (note nº1.2) | |||
| Others | |||
| Liabilities held for sale |
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Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
Impairment test and fair value
Assets held for sale are assessed for impairment before being reclassified. After the reclassification, it is subject to valuation according to IFRS 5, that is, at fair value less cost of sale at the end of each year.
The Company estimates that the market value less cost
of distributing Éxito to shareholders is greater than the book value of net assets, based on the discounted cash flow prepared
by external advisors, using assumptions of
| 33. | Discontinued operations |
| a) | Éxito: |
At December 31, 2022, the company presents Éxito as a discontinued operation, note 1.2. The summarized balance sheet, and statements of income and cash flows of Grupo Éxito before related party eliminations are as follows:
| Balance sheet | 2022 | 2021 |
| Assets | ||
| Current | ||
| Total current assets | ||
|
Non-current |
||
| Total non-current assets | ||
| Total assets | ||
| Liabilities | ||
| Current | ||
| Total current liabilities | ||
| Non-current | ||
| Total non-current liabilities | ||
| Shareholders’ equity | ||
| Total liabilities and shareholders’ equity | ||
| Cash flow: | 2022 | 2021 | 2020 |
| Cash flow provided by operating activities | |||
| Net cash used in investing activities | ( |
( |
( |
| Net cash used in financing activities | ( |
( |
( |
| Cash variation in the period | ( |
( |
| Statement of income | 2022 | 2021 | 2020 | |
| Net operating revenue | ||||
| Net income before income tax and social contribution(*) | ||||
| Income tax and social contribution | ( |
( |
( | |
| Net income (loss) | ( |
| (*) |
| F-100 |
| Table of Contents |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| b) | Extra Hiper: |
At December 31, 2021, the Company started the process of demobilization and discontinuing operations under the Extra Hiper banner, and the net result is presented as a discontinued operation (Note 1.1).
| Income statement | 2022 | 2021 | 2020 | |
| Net operating revenue | ||||
| Net income before income tax and social contribution(*) | ||||
| Income tax and social contribution | ( |
( | ||
| Net income for the period |
| (*) |
| c) | Sendas |
On December 31, 2020, the Company lost control of the subsidiary Sendas (note 1.3), as a result of the spin off, Sendas' net result is presented as a discontinued operation.
| Cash flow: | 2020 |
| Cash flow provided by operating activities | |
| Net cash used in investing activities | ( |
| Net cash used in financing activities | ( |
| Cash variation in the year |
| Statement of income | 2020 |
| Net operating revenue | |
| Net income before income tax and social contribution | |
| Income tax and social contribution | ( |
| Net income for the period |
| F-101 |
| Table of Contents |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2022, 2021 and 2020 (In millions of Brazilian Reais, unless otherwise stated) |
| d) | Breakdown of discontinued operations: |
| 2022 | 2021 | 2020 | ||
| Grupo Éxito | ( |
|||
| Extra Hiper | ||||
| Sendas | ||||
| Via(*) | ( |
|||
| Net income (loss) from discontinued operations |
| (*) |
| 34. | Insurance coverage |
The insurance coverage as of December 31, 2022 is summarized as follows:
| Insured assets | Covered risks | Amount insured | |
| Property and equipment and inventories | |||
| Business interruption | |||
| Cars and Others (*) |
The Company also has specific insurance policies
for general civil liability of R$
| (*) |
| 35. | Subsequent events |
| a) | Debentures’ issuance |
On January 23, 2023, the Board of Directors approved:
(i) the holding of the 19th issuance of simple debentures, in two series, in the initial amount of R$
| b) | Sales and leaseback transactions |
In June 2023, the Company entered a Sales and Leaseback transaction signing a Private Instrument of Commitment to Purchase and Sale of Real Estate and subsequent lease, with the purpose of selling 11 GPA supermarket stores to a private fund for a total amount of R$330, R$140 had already been received on June 30, 2023. The remaining amount was received on July 7, 2023. The initial Lease Agreements are for 15 years, except for 3 stores the initial lease agreements are for 18 years, renewable for an additional same period, ensuring the continuity of GPA's operations at the Stores under sustainable financial conditions. The gain on this sales and leaseback operation recognized was R$85 in June 2023. The right of use increased by R$81 and the lease liability increased by R$183.
| F-102 |
INDEX TO FINANCIAL STATEMENTS
Almacenes Éxito S.A.
| Audited Consolidated Financial Statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 5070) | F-104 |
| Management’s Annual Report on Internal Control over Financial Reporting | F-108 |
| Consolidated Statements of Financial Position | F-109 |
| Consolidated Statements of Profit or Loss | F-110 |
| Consolidated Statements of Other Comprehensive Income | F-111 |
| Consolidated Statement of Changes in Equity | F-112 |
| Consolidated Statements of Cash Flows | F-113 |
| Notes to the Consolidated Financial Statements | F-115 |
| F-103 |
| Table of Contents |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Almacenes Éxito S.A.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Almacenes Éxito S.A. and subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 3, 2023 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-104 |
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of value in use of the groups of cash generating units
As discussed in Notes 4 and 34.2 to the consolidated financial statements, as of December 31, 2022, goodwill and intangible assets with indefinite useful lives amounted to COP$3,484,303 million and COP$324,391 million, respectively. Annually, the Company conducts impairment tests by comparing the recoverable amount to the carrying value of the groups of cash generating units (CGUs) to which goodwill and intangible assets with an indefinite useful life are allocated. The recoverable amount was determined based on the value in use and its estimate involves certain assumptions that require significant judgment on the part of the Company, including those relating to the future cash flows such as: discount rates and revenue growth rates on perpetuity, which are based on the Company’s expectations about future market conditions.
We identified the assessment of value in use of the groups of cash generating units as a critical audit matter. Specifically, complex auditor judgment and also specialized skills and knowledge was required to assess the Company’s determination of the discount rates and revenue growth rates (the assumptions) used in the future cash flows to estimate the value in use. Minor changes to these assumptions could have a significant effect on the Company’s assessment of the recoverable amount of the goodwill and intangible assets with an indefinite useful life.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the goodwill and intangible assets with indefinite useful lives’ impairment process, specifically a control over the determination of the assumptions used in estimating the recoverable amount of the groups of CGUs. We involved valuation professionals with specialized skills and knowledge who assisted in:
| – | comparing the Company’s historical cash flows forecasts to actual results to evaluate the Company’s ability to accurately forecast. |
| – | evaluating the Company’s discount rates by comparing them to a discount rate range that was independently developed using publicly available market data for comparable entities. |
| – | evaluating the Company’s revenue growth rates on perpetuity by comparing them to rates that were independently developed using publicly available market data for comparable entities. |
| – | Developing an estimate of the value in use of groups of CGUs using the cash flow assumptions and independently developed discount rates, and compared the result of the Company’s estimate. |
/s/ KPMG S.A.S.
We have served as the Company’s auditor since 2022.
Medellín, Colombia
July 3, 2023
| F-105 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors Almacenes Éxito S.A.:
Opinion on Internal Control Over Financial Reporting
We have audited Almacenes Éxito S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2022, the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated July 3, 2023 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment. The Company did not have sufficiently trained resources resulting in an ineffective risk assessment process related to internal control over financial reporting for certain processes that defined clear financial reporting objectives and evaluated risks, including risks related to specific changes that could significantly impact the system of internal control. As a result:
| · | The Company did not have an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting. Therefore, all process-level manual and automated controls dependent upon the accuracy and completeness of information were also ineffective because they could have been adversely impacted. |
| · | The Company did not effectively design, implement or operate process-level control activities related to the monthly adjustment for the difference between standard cost and actual cost for manufactured products within the inventory process. |
| · | The Company did not effectively design, implement or operate process-level control activities over complex transactions. |
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
| F-106 |
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG S.A.S.
Medellín, Colombia
July 3, 2023
| F-107 |
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by IASB (IFRS).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with applicable generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that the receipts and expenditures of the Company are being made only in accordance with appropriate authorization of management and the board of directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.
Management, under the oversight of our Board of Directors, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management concluded that Exito’s internal control over financial reporting was not effective as of December 31, 2022 due to the material weaknesses in internal control over financial reporting as follows:
Management did not have sufficiently trained resources resulting in an ineffective risk assessment process related to internal control over financial reporting for certain processes that defined clear financial reporting objectives and evaluated risks, including risks related to specific changes that could significantly impact the system of internal control. As a result:
| · | Management did not have an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting. Therefore, all process-level manual and automated controls dependent upon the accuracy and completeness of information were also ineffective because they could have been adversely impacted. |
| · | Management did not effectively design, implement or operate process-level control activities related to the monthly adjustment for the difference between standard cost and actual cost for manufactured products within the inventory process. |
| · | Management did not effectively design, implement or operate process-level control activities over complex transactions. |
These deficiencies resulted in both immaterial and material misstatements in our consolidated financial statements during the year ended December 31, 2022, of which the material misstatements were corrected by our management, and immaterial misstatements in our consolidated financial statements for the years ended December 31, 2021 and 2020, of which certain misstatements have been corrected by our management. Because there is a reasonable possibility that a material misstatement in the consolidated financial statements may not be prevented or detected on a timely basis, management concluded that these deficiencies represent material weaknesses.
Remediation plan:
A remediation plan will be designed and implemented through the remainder of 2023. This plan will include additional staffing efforts to be able to appropriately assess the internal control risks in relation with our operations. The more robust risk assessment will allow us to more effectively design controls over:
| · | The accuracy and completeness of reports used to perform process-level manual and automated controls dependent upon the accuracy and completeness of information |
| · | Inventory |
| · | Accounting and disclosures for complex transactions |
| · | Any changes that could significantly impact our system of internal controls |
| F-108 |
Almacenes Éxito S.A.
Consolidated statements of financial position
At December 31, 2022 and 2021
(Amounts expressed in millions of Colombian pesos)
| Notes | 2022 | 2021 | ||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 7 | 1,733,673 | 2,541,579 | |||||||||
| Trade receivables and other receivables | 8 | 779,355 | 625,931 | |||||||||
| Prepayments | 9 | 39,774 | 36,515 | |||||||||
| Receivables from related parties | 10 | 47,122 | 56,475 | |||||||||
| Inventories, net | 11 | 2,770,443 | 2,104,303 | |||||||||
| Financial assets | 12 | 45,812 | 14,331 | |||||||||
| Tax assets | 24 | 509,884 | 429,625 | |||||||||
| Assets held for sale | 40 | 21,800 | 24,601 | |||||||||
| Total current assets | 5,947,863 | 5,833,360 | ||||||||||
| Non-current assets | ||||||||||||
| Trade receivables and other receivables | 8 | 50,521 | 58,120 | |||||||||
| Prepayments | 9 | 6,365 | 9,195 | |||||||||
| Receivables from related parties | 10 | 35,000 | 24,500 | |||||||||
| Financial assets | 12 | 32,572 | 40,630 | |||||||||
| Deferred tax assets | 24 | 142,589 | 205,161 | |||||||||
| Rights of use asset, net | 15 | 1,443,469 | 1,370,512 | |||||||||
| Other intangible assets, net | 16 | 424,680 | 363,987 | |||||||||
| Investment property, net | 14 | 1,841,228 | 1,656,245 | |||||||||
| Property, plant and equipment, net | 13 | 4,474,280 | 4,024,697 | |||||||||
| Goodwill | 17 | 3,484,303 | 3,024,983 | |||||||||
| Investments accounted for using the equity method | 18 | 300,021 | 289,391 | |||||||||
| Other assets | 398 | 398 | ||||||||||
| Total non-current assets | 12,235,426 | 11,067,819 | ||||||||||
| Total assets | 18,183,289 | 16,901,179 | ||||||||||
| Current liabilities | ||||||||||||
| Loans, borrowings and other financial liability | 20 | 915,604 | 674,927 | |||||||||
| Employee benefits | 21 | 4,555 | 2,482 | |||||||||
| Provisions | 22 | 27,123 | 24,175 | |||||||||
| Payables to related parties | 10 | 79,189 | 65,646 | |||||||||
| Trade payables and other payable | 23 | 5,651,303 | 5,136,626 | |||||||||
| Lease liabilities | 15 | 263,175 | 234,178 | |||||||||
| Tax liabilities | 24 | 109,726 | 81,519 | |||||||||
| Derivative instruments and collections on behalf of third parties | 25 | 136,223 | 81,544 | |||||||||
| Other liabilities | 26 | 228,496 | 217,303 | |||||||||
| Total current liabilities | 7,415,394 | 6,518,400 | ||||||||||
| Non-current liabilities | ||||||||||||
| Loans, borrowings and other financial liability | 20 | 539,980 | 742,084 | |||||||||
| Employee benefits | 21 | 32,090 | 17,896 | |||||||||
| Provisions | 22 | 15,254 | 11,086 | |||||||||
| Trade payables and other payable | 23 | 70,472 | 49,929 | |||||||||
| Lease liabilities | 15 | 1,392,780 | 1,360,465 | |||||||||
| Deferred tax liabilities | 24 | 277,713 | 166,751 | |||||||||
| Tax liabilities | 24 | 2,749 | 3,924 | |||||||||
| Other liabilities | 26 | 2,411 | 2,167 | |||||||||
| Total non-current liabilities | 2,333,449 | 2,354,302 | ||||||||||
| Total liabilities | 9,748,843 | 8,872,702 | ||||||||||
| Shareholders' equity | ||||||||||||
| Share capital | 4,482 | 4,482 | ||||||||||
| Reserves | 1,541,586 | 1,306,445 | ||||||||||
| Other equity components | 5,592,920 | 5,444,087 | ||||||||||
| Equity attributable to non-controlling interest | 1,295,458 | 1,273,463 | ||||||||||
| Total shareholders' equity | 8,434,446 | 8,028,477 | ||||||||||
| Total liabilities and shareholders' equity | 18,183,289 | 16,901,179 | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-109 |
Almacenes Éxito S.A.
Consolidated statements of profit or loss
For the years ended December 31, 2022 and 2021 and 2020
(Amounts expressed in millions of Colombian pesos)
| Year ended December 31, | ||||||||||||||||
| Notes | 2022 | 2021 | 2020 | |||||||||||||
| Continuing operations | ||||||||||||||||
| Revenue from contracts with customers | 28 | 20,619,673 | 16,922,385 | 15,735,839 | ||||||||||||
| Cost of sales | 11 | (15,380,090 | ) | (12,488,856 | ) | (11,778,910 | ) | |||||||||
| Gross profit | 5,239,583 | 4,433,529 | 3,956,929 | |||||||||||||
| Distribution, administrative and selling expenses | 29 | (4,231,887 | ) | (3,489,920 | ) | (3,240,216 | ) | |||||||||
| Other operating expenses, net | 31 | (17,562 | ) | (24,201 | ) | (105,468 | ) | |||||||||
| Operating profit | 990,134 | 919,408 | 611,245 | |||||||||||||
| Financial income | 32 | 219,909 | 173,819 | 200,195 | ||||||||||||
| Financial cost | 32 | (600,383 | ) | (369,574 | ) | (445,826 | ) | |||||||||
| Share of profit (loss) in associates and joint ventures | (34,720 | ) | 7,234 | 19,668 | ||||||||||||
| Profit before income tax from continuing operations | 574,940 | 730,887 | 385,282 | |||||||||||||
| Income tax expense | 24 | (325,702 | ) | (137,670 | ) | (54,179 | ) | |||||||||
| Profit for the year from continuing operations | 249,238 | 593,217 | 331,103 | |||||||||||||
| Net loss from discontinued operations | — | (280 | ) | (1,201 | ) | |||||||||||
| Profit for the year | 249,238 | 592,937 | 329,902 | |||||||||||||
| Net profit attributable to: | ||||||||||||||||
| Equity holders of the Parent | 99,072 | 474,681 | 230,872 | |||||||||||||
| Non-controlling interests | 150,166 | 118,256 | 99,030 | |||||||||||||
| Profit for the year | 249,238 | 592,937 | 329,902 | |||||||||||||
| Earnings per share (*) | ||||||||||||||||
| Basic and diluted earnings per share (*): | ||||||||||||||||
| Basic and diluted earnings per share attributable to the shareholders of the Parent | 33 | 75.16 | 365.74 | 177.89 | ||||||||||||
| Basic and diluted earnings per share from continuing operations attributable to the shareholders of the Parent | 33 | 75.16 | 365.96 | 178.82 | ||||||||||||
| Basic and diluted (losses) earnings per share from discontinued operations attributable to the shareholders of the Parent | 33 | — | (0.22 | ) | (0.93 | ) | ||||||||||
(*) Amounts expressed in Colombian pesos.
The accompanying notes are an integral part of the consolidated financial statements.
| F-110 |
Almacenes Éxito S.A.
Consolidated statements of other comprehensive income
For the years ended December 31, 2022 and 2021 and 2020
(Amounts expressed in millions of Colombian pesos)
| Year ended December 31, | ||||||||||||||||
| Notes | 2022 | 2021 | 2020 | |||||||||||||
| Profit for the year | 249,238 | 592,937 | 329,902 | |||||||||||||
| Other comprehensive income | ||||||||||||||||
Components of other comprehensive income that will not be reclassified to profit and loss, net of taxes | 27 | |||||||||||||||
| Remeasurement gain (loss) on defined benefit plans | 2,123 | 1,812 | (542 | ) | ||||||||||||
| (Loss) gain from financial instruments designated at fair value through other comprehensive income | (4,003 | ) | (932 | ) | 1,936 | |||||||||||
Total other comprehensive (loss) income that will not be reclassified to period results, net of taxes | (1,880 | ) | 880 | 1,394 | ||||||||||||
Components of other comprehensive income that may be reclassified to profit and loss, net of taxes | ||||||||||||||||
| Gain (loss) from translation exchange differences (1) | 27 | 266,807 | 111,657 | (269,461 | ) | |||||||||||
| Net loss on hedge of a net investment in a foreign operation | 27 | 2,473 | (5,755 | ) | (14,236 | ) | ||||||||||
| Gain (loss) from cash flows hedges | 27 | 4,495 | 4,909 | (797 | ) | |||||||||||
Total other comprehensive income (loss) that may be reclassified to profit or loss, net of taxes | 273,775 | 110,811 | (284,494 | ) | ||||||||||||
| Total other comprehensive income (loss) | 271,895 | 111,691 | (283,100 | ) | ||||||||||||
| Total comprehensive income | 521,133 | 704,628 | 46,802 | |||||||||||||
| Comprehensive income (loss) attributable to: | ||||||||||||||||
| Equity holders of the Parent | 372,327 | 585,186 | (50,678 | ) | ||||||||||||
| Non-controlling interests | 148,806 | 119,442 | 97,480 | |||||||||||||
(1) Represents exchange differences arising from the translation of assets, liabilities, equity and results of foreign operations into the reporting currency.
The accompanying notes are an integral part of the consolidated financial statements.
| F-111 |
Almacenes Éxito S.A.
Consolidated statement of changes in equity
For the years ended December 31, 2022 and 2021 and 2020
(Amounts expressed in millions of Colombian pesos)
| Attributable to the equity holders of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issued share capital | Premium on the issue of shares | Treasury shares | Legal reserve | Occasional reserve | Reserves for acquisition of treasury shares | Reserve for future dividends distribution | Other reserves | Total reserves | Other comprehensive income | Retained earnings | Hyperinflation effects and transactions between shareholders | Total | Non-controlling interests | Total shareholders' equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 27 | Note 2.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | 4,482 | 4,843,466 | (2,734 | ) | 7,857 | 1,771,022 | 22,000 | 155,412 | 199,280 | 2,155,571 | (1,069,112 | ) | 618,031 | 620,999 | 7,170,703 | 1,274,139 | 8,444,842 | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | — | (1,091,259 | ) | — | — | — | (1,091,259 | ) | — | — | — | (1,091,259 | ) | (74,574 | ) | (1,165,833 | ) | ||||||||||||||||||||||||||||||||||||||||
| Profit for the period | — | — | — | — | — | — | — | — | — | — | 230,872 | — | 230,872 | 99,030 | 329,902 | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), excluding translation adjustments to the put option | — | — | — | — | — | — | — | — | — | (316,861 | ) | — | — | (316,861 | ) | (1,550 | ) | (318,411 | ) | |||||||||||||||||||||||||||||||||||||||||
| Appropriation to reserves | — | — | — | — | 57,602 | — | — | — | 57,602 | — | (57,602 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Changes in interest in the ownership of subsidiaries that do not result in loss of control | — | — | — | — | — | — | — | — | — | — | — | (2,055 | ) | (2,055 | ) | 2,619 | 564 | |||||||||||||||||||||||||||||||||||||||||||
| Equity impact on the inflationary effect of subsidiary Libertad S.A. | — | — | — | — | — | — | — | — | — | — | — | 163,521 | 163,521 | — | 163,521 | |||||||||||||||||||||||||||||||||||||||||||||
| Changes in financial liability of the put option on non-controlling interests, and related translation adjustments (Notes 4 and 20) | — | — | — | — | — | — | — | — | — | 35,311 | — | (52,453 | ) | (17,142 | ) | (20,706 | ) | (37,848 | ) | |||||||||||||||||||||||||||||||||||||||||
| Other movements | — | — | — | — | (2,583 | ) | — | — | 138,384 | 135,801 | — | (147,995 | ) | — | (12,194 | ) | (270 | ) | (12,464 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 4,482 | 4,843,466 | (2,734 | ) | 7,857 | 734,782 | 22,000 | 155,412 | 337,664 | 1,257,715 | (1,350,662 | ) | 643,306 | 730,012 | 6,125,585 | 1,278,688 | 7,404,273 | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | — | (49,609 | ) | — | — | — | (49,609 | ) | — | (123,614 | ) | — | (173,223 | ) | (127,773 | ) | (300,996 | ) | |||||||||||||||||||||||||||||||||||||||
| Profit for the period | — | — | — | — | — | — | — | — | — | — | 474,681 | — | 474,681 | 118,256 | 592,937 | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, excluding translation adjustments to the put option | — | — | — | — | — | — | — | — | — | 154,889 | — | — | 154,889 | 1,186 | 156,075 | |||||||||||||||||||||||||||||||||||||||||||||
| Appropriation to reserves | — | — | — | — | 107,258 | — | — | — | 107,258 | — | (107,258 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Changes in interest in the ownership of subsidiaries that do not result in loss of control | — | — | — | — | — | — | — | — | — | — | — | (5,506 | ) | (5,506 | ) | 3,419 | (2,087 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Equity impact on the inflationary effect of subsidiary Libertad S.A. | — | — | — | — | — | — | — | — | — | — | — | 278,474 | 278,474 | — | 278,474 | |||||||||||||||||||||||||||||||||||||||||||||
| Changes in the financial liability of the put option on non-controlling interests, and related translation adjustments (Notes 4 and 20) | — | — | — | — | — | — | — | — | — | (44,384 | ) | — | (48,113 | ) | (92,497 | ) | 12 | (92,485 | ) | |||||||||||||||||||||||||||||||||||||||||
| Other movements | — | — | — | — | (784 | ) | — | — | (8,135 | ) | (8,919 | ) | — | 1,530 | — | (7,389 | ) | (325 | ) | (7,714 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 4,482 | 4,843,466 | (2,734 | ) | 7,857 | 791,647 | 22,000 | 155,412 | 329,529 | 1,306,445 | (1,240,157 | ) | 888,645 | 954,867 | 6,755,014 | 1,273,463 | 8,028,477 | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | — | (12,330 | ) | — | — | — | (12,330 | ) | — | (225,348 | ) | — | (237,678 | ) | (156,808 | ) | (394,486 | ) | |||||||||||||||||||||||||||||||||||||||
| Profit for the period | — | — | — | — | — | — | — | — | — | — | 99,072 | — | 99,072 | 150,166 | 249,238 | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), excluding translation adjustments to the put option | — | — | — | — | — | — | — | — | — | 450,086 | — | — | 450,086 | (1,360 | ) | 448,726 | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury shares | — | — | (316,756 | ) | — | — | — | — | — | — | — | — | — | (316,756 | ) | — | (316,756 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Appropriation to reserves | — | — | — | — | (147,108 | ) | 396,442 | — | — | 249,334 | — | (249,334 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Changes in interest in the ownership of subsidiaries that do not result in loss of control | — | — | — | — | — | — | — | — | — | — | — | (14,072 | ) | (14,072 | ) | (6,426 | ) | (20,498 | ) | |||||||||||||||||||||||||||||||||||||||||
| Equity impact on the inflationary effect of subsidiary Libertad S.A. | — | — | — | — | — | — | — | — | — | — | — | 581,478 | 581,478 | — | 581,478 | |||||||||||||||||||||||||||||||||||||||||||||
| Changes in the financial liability of the put option on non-controlling interests, and related translation adjustments (Notes 4 and 20) | — | — | — | — | — | — | — | — | — | (176,831 | ) | — | (1,620 | ) | (178,451 | ) | 36,423 | (142,028 | ) | |||||||||||||||||||||||||||||||||||||||||
| Other movements | — | — | — | — | (1,863 | ) | — | — | — | (1,863 | ) | — | 2,529 | (371 | ) | 295 | — | 295 | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 4,482 | 4,843,466 | (319,490 | ) | 7,857 | 630,346 | 418,442 | 155,412 | 329,529 | 1,541,586 | (966,902 | ) | 515,564 | 1,520,282 | 7,138,988 | 1,295,458 | 8,434,446 | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-112 |
Almacenes Éxito S.A.
Consolidated statements of cash flows
For the years ended December 31, 2022 and 2021 and 2020
(Amounts expressed in millions of Colombian pesos)
| Year ended December 31, | ||||||||||||||||
| Notes | 2022 | 2021 | 2020 | |||||||||||||
| Operating activities | ||||||||||||||||
| Profit for the year | 249,238 | 592,937 | 329,902 | |||||||||||||
| Adjustments to reconcile profit for the year | ||||||||||||||||
| Current income tax | 24 | 192,268 | 122,096 | 117,393 | ||||||||||||
| Deferred income tax | 24 | 133,434 | 15,574 | (63,214 | ) | |||||||||||
| Interest, loans and lease expenses | 32 | 210,558 | 147,148 | 211,026 | ||||||||||||
| (Gain) loss from changes in fair value of derivative financial instruments | 32 | (13,213 | ) | (26,780 | ) | 25,325 | ||||||||||
| Impairment of receivables, net | 8.1 | 4,709 | 8,027 | 13,681 | ||||||||||||
| Impairment (reversal) losses of inventories, net | 11.1 | 1,813 | (5,844 | ) | 2,475 | |||||||||||
| Impairment of property, plant and equipment, investment properties, intangible assets and right of use assets | 13; 14; 15; 16 | 2,201 | 4,527 | 16,895 | ||||||||||||
| Employee benefit provisions | 21 | 19,411 | 2,463 | 1,537 | ||||||||||||
| Provisions | 22 | 26,562 | 30,735 | 81,503 | ||||||||||||
| Depreciation of property, plant and equipment, right of use asset and investment property | 13; 14; 15 | 556,686 | 510,498 | 485,794 | ||||||||||||
| Amortization of intangible assets | 16 | 27,216 | 17,693 | 19,217 | ||||||||||||
| Share of profit (loss) in associates and joint ventures accounted for using the equity method | 18 | 34,720 | (7,234 | ) | (19,668 | ) | ||||||||||
| (Gain) loss from the disposal of non-current assets | 31 | (11,100 | ) | 17,971 | 9,186 | |||||||||||
| Loss from reclassification of assets held for sale | 230 | — | — | |||||||||||||
| Interest income | 32 | (27,040 | ) | (17,277 | ) | (22,014 | ) | |||||||||
| Other adjustments from items other than cash | 62,326 | 4,531 | 3,109 | |||||||||||||
| Cash generated from operating activities before changes in working capital | 1,470,019 | 1,417,065 | 1,212,147 | |||||||||||||
| Increase in trade receivables and other receivables | (120,532 | ) | (169,941 | ) | (129,936 | ) | ||||||||||
| Decrease in prepayments | 849 | 2,603 | 3,398 | |||||||||||||
| Decrease (increase) in receivables from related parties | 9,275 | (17,015 | ) | 15,385 | ||||||||||||
| Increase in inventories | (586,328 | ) | (150,859 | ) | (65,222 | ) | ||||||||||
| Increase in tax assets | (6,195 | ) | (11,940 | ) | (5,235 | ) | ||||||||||
| Decrease in employee benefits | (2,784 | ) | (2,660 | ) | (3,306 | ) | ||||||||||
| Decrease in other provisions | (18,556 | ) | (38,135 | ) | (69,738 | ) | ||||||||||
| Increase in trade payables and other accounts payable | 322,166 | 375,684 | 87,071 | |||||||||||||
| Increase in accounts payable to related parties | 16,588 | 15,627 | 5,264 | |||||||||||||
| Increase in tax liabilities | 19,099 | 7,594 | 5,315 | |||||||||||||
| (Decrease) increase in other liabilities | (368 | ) | 52,518 | 50,123 | ||||||||||||
| Income tax paid | (201,804 | ) | (136,915 | ) | (127,665 | ) | ||||||||||
| Net cash flows from operating activities | 901,429 | 1,343,626 | 977,601 | |||||||||||||
| Investing activities | ||||||||||||||||
| Advances to joint ventures | (55,850 | ) | (24,500 | ) | (37,002 | ) | ||||||||||
| Acquisition of property, plant and equipment | 13.1 | (380,815 | ) | (330,450 | ) | (204,417 | ) | |||||||||
| Acquisition of other assets | (7,002 | ) | (708 | ) | (34 | ) | ||||||||||
| Acquisition of investment property | 14 | (81,838 | ) | (86,149 | ) | (10,596 | ) | |||||||||
| Acquisition of intangible assets | 16 | (27,519 | ) | (42,774 | ) | (37,853 | ) | |||||||||
| Proceeds of the sale of property, plant and equipment and intangible assets. | 23,095 | 4,396 | 4,886 | |||||||||||||
| Net cash flows used in investing activities | (529,929 | ) | (480,185 | ) | (285,016 | ) | ||||||||||
| Financing activities | ||||||||||||||||
| Proceeds from financial assets | 3,462 | 23,625 | 7,527 | |||||||||||||
| Proceeds from (payments of) derivative instruments and other liabilities with third parties | 49,242 | 11,679 | (30,889 | ) | ||||||||||||
| F-113 |
| Proceeds from loans and borrowings | 20 | 876,798 | 370,620 | 1,622,096 | ||||||||||||
| Repayment of loans and borrowings | 20 | (995,865 | ) | (500,834 | ) | (866,866 | ) | |||||||||
| Payments of interest of loans and borrowings | 20 | (98,872 | ) | (54,178 | ) | (76,283 | ) | |||||||||
| Lease liabilities paid | 15 | (266,357 | ) | (220,830 | ) | (173,703 | ) | |||||||||
| Interest on lease liabilities paid | 15 | (96,959 | ) | (94,909 | ) | (130,286 | ) | |||||||||
| Dividends paid | 37 | (397,022 | ) | (303,483 | ) | (1,182,231 | ) | |||||||||
| Interest received | 32 | 27,040 | 17,277 | 22,014 | ||||||||||||
| Payments of share buy-back | (316,756 | ) | — | — | ||||||||||||
| (Payment) proceeds from transactions with non-controlling interest | (20,532 | ) | (3,178 | ) | 1,677 | |||||||||||
| Other | — | 1,137 | 1,264 | |||||||||||||
| Net cash flows used in financing activities | (1,235,821 | ) | (753,074 | ) | (805,680 | ) | ||||||||||
| Net (decrease) increase in cash and cash equivalents | (864,321 | ) | 110,367 | (113,095 | ) | |||||||||||
| Effects of the variation in exchange rates | 56,415 | 21,821 | (40,188 | ) | ||||||||||||
| Cash and cash equivalents at the beginning of period | 7 | 2,541,579 | 2,409,391 | 2,562,674 | ||||||||||||
| Cash and cash equivalents at the end of period | 7 | 1,733,673 | 2,541,579 | 2,409,391 |
The accompanying notes are an integral part of the consolidated financial statements.
| F-114 |
Note 1. General information
Almacenes Éxito S.A. was incorporated pursuant to Colombian laws on March 24, 1950; its headquarter is located Carrera 48 No. 32B Sur - 139, Envigado, Colombia. Here and after Almacenes Éxito S.A. and its subsidiaries are referred to as the “Éxito Group”.
Almacenes Éxito S.A. is listed on the Colombia Stock Exchange (BVC) since 1994 and is under the supervision of the Financial Superintendence of Colombia.
These consolidated financial statements were authorized for issue in accordance with resolution of directors of Almacenes Éxito S.A. on June 29, 2023.
Éxito Group´s corporate purpose is to:
| - | Acquire, store, transform and, in general, distribute and sell under any trading figure, including funding thereof, all kinds of goods and products, produced either locally or abroad, on a wholesale or retail basis, physically or online. |
| - | Provide ancillary services, namely grant credit facilities for the acquisition of goods, grant insurance coverage, carry out money transfers and remittances, provide mobile phone services, trade tourist package trips and tickets, repair and maintain furnishings, complete paperwork and energy trade. |
| - | Give or receive in lease trade premises, receive or give, in lease or under occupancy, spaces or points of sale or commerce within its trade establishments intended for the exploitation of businesses of distribution of goods or products, and the provision of ancillary services. |
| - | Incorporate, fund or promote with other individuals or legal entities, enterprises or businesses intended for the manufacturing of objects, goods, articles or the provision of services related with the exploitation of trade establishments. |
| - | Acquire property, build commercial premises intended for establishing stores, malls or other locations suitable for the distribution of goods, without prejudice to the possibility of disposing of entire floors or commercial premises, give them in lease or use them in any convenient manner with a rational exploitation of land approach, as well as invest in property, promote and develop all kinds of real estate projects. |
| - | Invest resources to acquire shares, bonds, trade papers and other securities of free movement in the market to take advantage of tax incentives established by law, as well as make temporary investments in highly liquid securities with a purpose of short-term productive exploitation; enter into firm factoring agreements using its own resources; encumber its chattels or property and enter into financial transactions that enable it to acquire funds or other assets. |
| - | In the capacity as wholesaler and retailer, distribute oil-based liquid fuels through service stations, alcohols, biofuels, natural gas for vehicles and any other fuels used in the automotive, industrial, fluvial, maritime and air transport sectors, of all kinds. |
The immediate holding company, or controlling entity of Almacenes Éxito S.A. is Companhia Brasileira de Distribuição (hereinafter CBD), which owns 91.52% at December 31, 2022 (at December 31, 2021 - 91.57%) of its ordinary shares. CBD is controlled by Casino, Guichard-Perrachon S.A., which is ultimately controlled by Mr. Jean-Charles Henri Naouri.
Almacenes Éxito S.A. is registered in the Camara de Comercio Aburrá Sur.
Note 1.1. Stock ownership in subsidiaries included in the consolidated financial statements
Below is a detail of the stock ownership in subsidiaries included in the consolidated financial statements at December 31, 2022, which was the same as in 2021:
| Name | Direct controlling entity | Segment | Country | Stock ownership of direct controlling entity 2022 |
Stock ownership in the direct parent | Total direct and indirect ownership | Total Non-controlling interest |
| Directly owned entities | |||||||
| Almacenes Éxito Inversiones S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Logística, Transporte y Servicios Asociados S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Marketplace Internacional Éxito y Servicios S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Depósitos y Soluciones Logísticas S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Marketplace Internacional Éxito S.L. | Almacenes Éxito S.A. | Colombia | Spain | 100.00% | n/a | 100.00% | 0.00% |
| Fideicomiso Lote Girardot | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Transacciones Energéticas S.A.S. E.S.P. (a) | Almacenes Éxito S.A. | Colombia | Colombia | 100.00% | n/a | 100.00% | 0.00% |
| Éxito Industrias S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 97.95% | n/a | 97.95% | 2.05% |
| Éxito Viajes y Turismo S.A.S. | Almacenes Éxito S.A. | Colombia | Colombia | 51.00% | n/a | 51.00% | 49.00% |
| Gestión Logística S.A. (b) | Almacenes Éxito S.A. | Colombia | Panama | 100.00% | n/a | 100.00% | 0.00% |
| F-115 |
| Patrimonio Autónomo Viva Malls | Almacenes Éxito S.A. | Colombia | Colombia | 51.00% | n/a | 51.00% | 49.00% |
| Spice Investment Mercosur S.A. | Almacenes Éxito S.A. | Uruguay | Uruguay | 100.00% | n/a | 100.00% | 0.00% |
| Onper Investment 2015 S.L. | Almacenes Éxito S.A. | Argentina | Spain | 100.00% | n/a | 100.00% | 0.00% |
| Patrimonio Autónomo Iwana | Almacenes Éxito S.A. | Colombia | Colombia | 51.00% | n/a | 51.00% | 49.00% |
| Indirectly owned entities | |||||||
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 90.00% | 51.00% | 45.90% | 54.10% |
| Patrimonio Autónomo Viva Laureles | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 80.00% | 51.00% | 40.80% | 59.20% |
| Patrimonio Autónomo Viva Sincelejo | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 51.00% | 51.00% | 26.01% | 73.99% |
| Patrimonio Autónomo Viva Villavicencio | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 51.00% | 51.00% | 26.01% | 73.99% |
| Patrimonio Autónomo San Pedro Etapa I | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 51.00% | 51.00% | 26.01% | 73.99% |
| Patrimonio Autónomo Centro Comercial | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 51.00% | 51.00% | 26.01% | 73.99% |
| Patrimonio Autónomo Viva Palmas | Patrimonio Autónomo Viva Malls | Colombia | Colombia | 51.00% | 51.00% | 26.01% | 73.99% |
| Geant Inversiones S.A. | Spice Investment Mercosur S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Larenco S.A. | Spice Investment Mercosur S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Lanin S.A. | Spice Investment Mercosur S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Grupo Disco Uruguay S.A. | Spice Investment Mercosur S.A. | Uruguay | Uruguay | 62.49% | 100.00% | 62.49% | 37.51% |
| Devoto Hermanos S.A. | Lanin S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Mercados Devoto S.A. | Lanin S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| 5 Hermanos Ltda. | Lanin S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Sumelar S.A. | Lanin S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Tipsel S.A. | Lanin S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Tedocan S.A. | Mercados Devoto S.A. | Uruguay | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Supermercados Disco del Uruguay S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Ameluz S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Fandale S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Odaler S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| La Cabaña S.R.L. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Ludi S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Hiper Ahorro S.R.L. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Maostar S.A. | Grupo Disco Uruguay S.A. | Uruguay | Uruguay | 50.01% | 62.49% | 31.25% | 68.75% |
| Semin S.A. | Supermercados Disco del Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Randicor S.A. | Supermercados Disco del Uruguay S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Ciudad del Ferrol S.C. | Supermercados Disco del Uruguay S.A. | Uruguay | Uruguay | 98.00% | 62.49% | 61.24% | 38.76% |
| Setara S.A. | Odaler S.A. | Uruguay | Uruguay | 100.00% | 62.49% | 62.49% | 37.51% |
| Mablicor S.A. | Fandale S.A. | Uruguay | Uruguay | 51.00% | 62.49% | 31.87% | 68.13% |
| Vía Artika S. A. | Onper Investment 2015 S.L. | Argentina | Uruguay | 100.00% | 100.00% | 100.00% | 0.00% |
| Gelase S. A. | Onper Investment 2015 S.L. | Argentina | Belgium | 100.00% | 100.00% | 100.00% | 0.00% |
| Libertad S.A. | Onper Investment 2015 S.L. | Argentina | Argentina | 100.00% | 100.00% | 100.00% | 0,00% |
| Spice España de Valores Americanos S.L. | Vía Artika S. A. | Argentina | Spain | 100.00% | 100.00% | 100.00% | 0.00% |
| (a) | On December 3, 2020, subsidiary Gemex O&W S.A.S. changed its corporate name to Transacciones Energéticas S.A.S. On February 16, 2021, subsidiary Transacciones Energéticas S.A.S. changed its corporate name to Transacciones Energéticas S.A.S. E.S.P. |
| F-116 |
| (b) | Subsidiary created on September 7, 2021. |
Note 1.2. Subsidiaries with material non-controlling interests
At December 31, 2022 and 2021 the following subsidiaries have material non-controlling interests:
Percentage of equity interest held by non-controlling interests | |||
| Year ended December 31, | |||
| Country | 2022 | 2021 | |
| Patrimonio Autónomo Viva Palmas | Colombia | 73.99% | 73.99% |
| Patrimonio Autónomo Viva Sincelejo | Colombia | 73.99% | 73.99% |
| Patrimonio Autónomo Viva Villavicencio | Colombia | 73.99% | 73.99% |
| Patrimonio Autónomo San Pedro Etapa I | Colombia | 73.99% | 73.99% |
| Patrimonio Autónomo Centro Comercial | Colombia | 73.99% | 73.99% |
| Patrimonio Autónomo Viva Laureles | Colombia | 59.20% | 59.20% |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | Colombia | 54.10% | 54.10% |
| Patrimonio Autónomo Iwana | Colombia | 49.00% | 49.00% |
| Éxito Viajes y Turismo S.A.S. | Colombia | 49.00% | 49.00% |
| Patrimonio Autónomo Viva Malls | Colombia | 49.00% | 49.00% |
| Grupo Disco Uruguay S.A. | Uruguay | 37.51% | 37.51% |
Below is a summary of financial information relevant to the assets, liabilities, profit or loss and cash flows of subsidiaries, as reporting entities, that hold material non-controlling interests, that have been included in the consolidated financial statements. Balances are shown before the eliminations required as part of the consolidation process.
| Statement of financial position | Profit or loss and Total comprehensive income | |||||||||||||
| Company | Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
Equity | Controlling interest |
Non-controlling interest |
Revenue from contracts with customers | Income from continuing operations |
Total comprehensive income |
Comprehensive income attributable to equity holders of the Parent | Comprehensive income attributable to non-controlling interest |
Profit or loss attributable to non-controlling interest | |
| For the year-ended at December 31, 2022 | ||||||||||||||
| Grupo Disco Uruguay S.A. | 565,381 | 1,114,329 | 641,985 | 94,249 | 943,476 | 2,335,708 | 87,092 (*) | 2,247,060 | 140,290 | 140,290 | 86,467 | 52,623 | 53,822 | |
| Éxito Viajes y Turismo S.A.S. | 44,592 | 4,263 | 38,387 | 583 | 9,885 | 5,176 | 4,844 | 31,342 | 8,682 | 8,682 | 4,342 | 4,254 | 4,254 | |
| Patrimonio Autónomo Viva Malls | 81,805 | 1,816,209 | 19,288 | - | 1,878,726 | 1,021,744 | 920,576 | 211,186 | 148,294 | 148,294 | 77,613 | 72,664 | 72,664 | |
| Patrimonio Autónomo Viva Sincelejo | 3,687 | 76,948 | 3,337 | - | 77,298 | 39,422 | 37,876 | 8,764 | 2,784 | 2,784 | 1,420 | 1,364 | 1,364 | |
| Patrimonio Autónomo Viva Villavicencio | 4,676 | 211,370 | 6,346 | - | 209,700 | 104,322 | 102,753 | 28,654 | 17,770 | 17,770 | 9,146 | 8,707 | 8,707 | |
| Patrimonio Autónomo San Pedro Etapa I | 918 | 31,542 | 975 | - | 31,485 | 16,057 | 15,428 | 4,533 | 2,863 | 2,863 | 1,460 | 1,403 | 1,403 | |
| F-117 |
| Patrimonio Autónomo Centro Comercial | 3,351 | 103,912 | 2,463 | - | 104,800 | 52,657 | 51,352 | 14,390 | 9,195 | 9,195 | 4,715 | 4,506 | 4,506 | |
| Patrimonio Autónomo Iwana | 67 | 5,520 | 66 | - | 5,521 | 3,025 | 2,705 | 336 | (161) | (161) | (103) | (79) | (79) | |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 12,693 | 308,084 | 7,783 | - | 312,994 | 281,695 | 31,299 | 54,414 | 18,596 | 18,596 | 16,737 | 9,112 | 9,112 | |
| Patrimonio Autónomo Viva Laureles | 3,167 | 102,237 | 2,931 | - | 102,473 | 81,978 | 20,495 | 18,943 | 10,690 | 10,690 | 8,552 | 2,138 | 2,138 | |
| Patrimonio Autónomo Viva Palmas | 951 | 32,896 | 3,299 | - | 30,548 | 15,579 | 14,969 | 4,289 | (2,260) | (2,260) | (1,153) | (1,107) | (1,107) | |
| Eliminations and other NCI | 6,069 | (6,779) | (6,618) | |||||||||||
| Total | 1,295,458 | 148,806 | 150,166 | |||||||||||
| For the year-ended at December 31, 2021 | ||||||||||||||
| Grupo Disco Uruguay S.A. | 449,087 | 799,024 | 412,180 | 60,200 | 775,731 | 1,798,354 | 96,483 (*) | 1,679,924 | 112,768 | 112,768 | 69,461 | 42,299 | 43,307 | |
| Éxito Viajes y Turismo S.A.S. | 39,518 | 3,049 | 33,683 | 406 | 8,478 | 4,545 | 4,154 | 20,669 | 4,626 | 4,626 | 2,160 | 2,266 | 2,266 | |
| Patrimonio Autónomo Viva Malls | 60,916 | 1,787,039 | 43,692 | - | 1,804,263 | 974,979 | 884,089 | 179,919 | 116,412 | 116,412 | 67,853 | 57,042 | 57,042 | |
| Patrimonio Autónomo Viva Sincelejo | 3,381 | 75,766 | 3,613 | - | 75,534 | 38,522 | 37,012 | 7,068 | 2,194 | 2,194 | 1,119 | 1,075 | 1,075 | |
| Patrimonio Autónomo Viva Villavicencio | 8,032 | 209,021 | 3,989 | - | 213,064 | 105,954 | 104,401 | 21,627 | 11,419 | 11,419 | 6,069 | 5,595 | 5,595 | |
| Patrimonio Autónomo San Pedro Etapa I | 1,327 | 32,095 | 1,209 | - | 32,213 | 16,428 | 15,784 | 3,709 | 2,315 | 2,315 | 1,181 | 1,134 | 1,134 | |
| Patrimonio Autónomo Centro Comercial | 5,967 | 107,038 | 1,964 | - | 111,041 | 55,814 | 54,410 | 11,629 | 7,019 | 7,019 | 3,605 | 3,439 | 3,439 | |
| Patrimonio Autónomo Iwana | 68 | 5,668 | 43 | - | 5,693 | 3,134 | 2,790 | 333 | (125) | (125) | (64) | (61) | (61) | |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 19,930 | 313,447 | 6,828 | - | 326,549 | 293,895 | 32,665 | 45,001 | 12,793 | 12,793 | 11,513 | 1,283 | 1,283 | |
| F-118 |
| Patrimonio Autónomo Viva Laureles | 5,523 | 102,638 | 2,389 | - | 105,772 | 84,618 | 21,154 | 16,261 | 9,345 | 9,345 | 7,476 | 1,869 | 1,869 | |
| Patrimonio Autónomo Viva Palmas | 1,907 | 32,237 | 3,340 | - | 30,804 | 15,710 | 15,094 | 3,883 | 1,854 | 1,854 | 946 | 908 | 908 | |
| Eliminations and other NCI | 5,427 | 2,593 | 399 | |||||||||||
| Total | 1,273,463 | 119,442 | 118,256 | |||||||||||
| For the year-ended at December 31, 2020 | ||||||||||||||
| Grupo Disco Uruguay S.A. | 400,771 | 708,040 | 353,438 | 51,201 | 704,172 | 1,577,881 | 96,486 (*) | 1,671,612 | 121,302 | 121,302 | 74,807 | 45,500 | 46,495 | |
| Éxito Viajes y Turismo S.A.S. | 31,098 | 4,400 | 23,479 | 1,101 | 10,918 | 6,005 | 5,350 | 13,597 | 1,921 | 1,921 | 1,146 | 942 | 942 | |
| Patrimonio Autónomo Viva Malls | 105,970 | 2,049,430 | 65,317 | - | 2,090,083 | 967,463 | 885,018 | 251,174 | 82,464 | 82,464 | 54,882 | 40,408 | 40,408 | |
| Patrimonio Autónomo Viva Sincelejo | 3,079 | 73,273 | 4,444 | - | 71,908 | 36,673 | 35,235 | 14,335 | 916 | 916 | 467 | 449 | 449 | |
| Patrimonio Autónomo Viva Villavicencio | 7,316 | 215,149 | 2,147 | - | 220,318 | 109,408 | 107,956 | 22,963 | 13,737 | 13,737 | 6,927 | 6,731 | 6,731 | |
| Patrimonio Autónomo San Pedro Etapa I | 1,228 | 32,099 | 261 | - | 33,066 | 16,864 | 16,202 | 2,968 | 1,199 | 1,199 | 612 | 588 | 588 | |
| Patrimonio Autónomo Centro Comercial | 4,116 | 110,078 | 512 | - | 113,682 | 57,136 | 55,704 | 9,210 | 4,642 | 4,642 | 2,393 | 2,275 | 2,275 | |
| Patrimonio Autónomo Iwana | 52 | 5,815 | 44 | - | 5,823 | 3,200 | 2,853 | 411 | (46) | (46) | 10 | (23) | (23) | |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 12,046 | 320,536 | 6,032 | - | 326,550 | 293,895 | 32,655 | 32,867 | 3,014 | 3,014 | 2,712 | 301 | 301 | |
| Patrimonio Autónomo Viva Laureles | 3,717 | 104,894 | 2,165 | - | 106,446 | 85,157 | 21,289 | 14,492 | 7,080 | 7,080 | 5,664 | 1,416 | 1,416 | |
| Patrimonio Autónomo Viva Palmas | 971 | 30,889 | 1,487 | - | 30,373 | 15,490 | 14,883 | 3,038 | (1,428) | (1,428) | (728) | (700) | (700) | |
| Eliminations and other NCI | 5,057 | (407) | 148 | |||||||||||
Total
|
1,278,688 | 97,480 | 99,030 | |||||||||||
| F-119 |
(*) The non-controlling interest presented for Grupo Disco Uruguay S.A. does not include the amounts that are subject to the put option (Note 20).
|
| Cash flows for the year ended December 31, 2022 | Cash flows for the year ended December 31, 2021 | Cash flows for the year ended December 31, 2020 | ||||||||||||
| Company | Operating activities |
Investment activities |
Financing activities |
Net increase (decrease) in cash |
Operating activities |
Investment activities |
Financing activities |
Net increase (decrease) in cash |
Operating activities |
Investment activities |
Financing activities |
Net increase (decrease) in cash |
||
| Grupo Disco Uruguay S.A. | 213,384 | (51,151) | (235,941) | (73,708) | 118,443 | (34,913) | (103,090) | (19,560) | 114,766 | (49,181) | (32,109) | 33,476 | ||
| Éxito Viajes y Turismo S.A.S. | 8,476 | (118) | (4,930) | 3,428 | 10,275 | (67) | (5,605) | 4,603 | (2,924) | (225) | 931 | (2,218) | ||
| Patrimonio Autónomo Viva Malls | 142,499 | (23,218) | (100,955) | 18,326 | 117,111 | 5,190 | (142,839) | (20,538) | 87,429 | (1,895) | (41,239) | 44,295 | ||
| Patrimonio Autónomo Viva Sincelejo | 3,937 | (2,766) | (1,094) | 77 | 3,540 | (4,368) | 956 | 128 | 5,934 | (1,053) | (5,080) | (199) | ||
| Patrimonio Autónomo Viva Villavicencio | 24,201 | (8,727) | (19,166) | (3,692) | 18,922 | (876) | (17,138) | 908 | 17,069 | (1,658) | (16,347) | (936) | ||
| Patrimonio Autónomo San Pedro Etapa I | 3,879 | (775) | (3,407) | (303) | 3,286 | (806) | (2,777) | (297) | 2,463 | (360) | (1,395) | 708 | ||
| Patrimonio Autónomo Centro Comercial | 11,775 | (48) | (15,103) | (3,376) | 10,554 | (245) | (8,381) | 1,928 | 7,512 | (3,284) | (3,436) | 792 | ||
| Patrimonio Autónomo Iwana | 38 | - | (11) | 27 | (22) | - | (4) | (26) | 16 | - | (56) | (40) | ||
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 28,221 | (2,642) | (31,079) | (5,500) | 23,347 | (1,329) | (12,463) | 9,555 | 4,720 | (9,157) | 3,923 | (514) | ||
| Patrimonio Autónomo Viva Laureles | 13,302 | (2,019) | (13,742) | (2,459) | 11,993 | (350) | (9,795) | 1,848 | 9,218 | (616) | (7,149) | 1,453 | ||
| Patrimonio Autónomo Viva Palmas | (2,431) | (500) | 2,023 | (908) | 868 | (492) | 436 | 812 | 171 | (1,323) | 720 | (432) | ||
| F-120 |
Note 1.3. Restrictions on the transfer of funds
At December 31, 2022 and 2021, there are no restrictions on the ability of subsidiaries to transfer funds to Almacenes Éxito S.A. in the form of cash dividends, or loan repayments or advance payments.
Note 1.4. Disclosure and compliance with IFRS
The Exito Group has adopted IFRS 1, First-time adoption of international financial reporting standards, on December 31, 2021, with a transition date of January 1, 2020. IFRS 1 applies when an entity adopts IFRS for the first time by an explicit and unreserved statement of compliance with IFRS. The application requires that the Exito Group adopts accounting policies based on the standards and related interpretations effective at the reporting date of its first annual IFRS financial statements. These accounting policies were applied as of the date of transition to IFRS and throughout all periods presented in the first IFRS consolidated financial statements. In accordance with IFRS 1, assets and liabilities were recognized and measured in accordance with those IFRS required to be applied as of January 1, 2020.
The Exito Group used the exemption to not apply IFRS 3 Business Combinations to acquisitions that occurred before January 1, 2020, and the previous carrying amounts of assets and liabilities from these acquisitions are their deemed cost at the date of acquisition. The Exito Group did not recognize any assets or liabilities that were not recognized under previous generally accepted accounting principles (GAAP) or exclude any previously recognized amounts as a result of IFRS recognition requirements.
IFRS 1 requires that an entity explains how the transition from previous GAAP to IFRS affected its reported financial position, financial performance, and cash flows. As the Exito Group has previously complied with all the recognition, measurement, and classification requirements of IFRS, there is no impact on the reported statement of profit or loss, statement of other comprehensive income and statement of financial position, statement of changes in equity or the statement of cash flows.
Note 2. Basis of preparation and other significant accounting policies
The consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and financial instruments measured at fair value.
The Exito Group has prepared the financial statements on the basis that it will continue to operate as a going concern.
Note 2.1. Voluntary correction of an immaterial error
During the preparation of the consolidated financial statements for 2022, the Exito Group identified an immaterial error in relation to the non-controlling interest of Grupo Disco Uruguay S.A., part of which is subject to the put option as further disclosed in Note 20. Although the error was not material, the Exito Group has voluntarily elected to correct prior periods. This error correction resulted in a decrease to equity attributable to the equity holders of the parent and an increase to non-controlling interest of $126,390 at December 31, 2021, $78,277 at December 31, 2020 and $25,825 at January 1, 2020. As a result, the consolidated statement of changes in equity has been corrected to present all the impacts in equity of the accounting for the put option, including the related foreign currency translation adjustment of the put option liability, in one single line item: “changes in the financial liability of the put option on non-controlling interests, and related translation adjustments”. In addition, the difference between the carrying amount of the non-controlling interest subject to the put option and the put option financial liability amount at the end of the reporting period has been included in the “Hyperinflation effects and transactions between shareholders” column within equity attributable to the equity holders of the parent.
Such correction of an immaterial error did not impact consolidated assets, liabilities or total shareholder's equity as of December 31, 2021 and 2020, or profit for the year, comprehensive income or cash flows for the years ended December 31, 2021 and 2020.
Note 3. Basis for consolidation
All significant transactions and material balances among subsidiaries have been eliminated upon consolidation; non-controlling interests represented by third parties' ownership interests in subsidiaries have been recognized and separately included in the consolidated shareholders' equity.
These consolidated financial statements include the financial statements of Almacenes Éxito S.A. and all of its subsidiaries. Subsidiaries (including special-purpose vehicles) are entities over which Almacenes Éxito S.A. has direct or indirect control. Special-purpose vehicles are stand-alone trust funds (Patrimonios Autónomos, in Spanish) established with a defined purpose or limited term. A listing of subsidiaries is included in Note 1.
"Control" is the power to govern relevant activities, such as the financial and operating policies of a controlled company (subsidiary). Control is when Éxito has power over an investee, is exposed to variable returns from its involvement and has the ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Exito Group has less than a majority of the voting or similar rights of an investee, the Exito Group considers all relevant facts and circumstances in assessing whether it has power over an investee.
At the time of assessing whether Éxito has control over a subsidiary, analysis is made of the existence and effect of currently exercisable potential voting rights. Subsidiaries are consolidated as of the date on which control is gained until Éxito ceases to control the subsidiary.
Transactions involving a change in ownership percentage without loss of control are recognized in shareholders' equity. Cash flows provided or paid to non-controlling interests which represent a change in ownership interests not resulting in a loss of control are classified as financing activities in the statement of cash flows.
| F-121 |
In transactions involving a loss of control, the entire ownership interest in the subsidiary is derecognized, including the relevant items of the other comprehensive income, and the retained interest is recognized at fair value. Any gain or loss arising from the transaction is recognized in profit or loss. Cash flows from the acquisition or loss of control over a subsidiary are classified as investing activities in the statement of cash flows.
Whenever a subsidiary is made available for sale or its operation is discontinued, but control over it is still maintained, its assets and liabilities are classified as assets held for sale and presented in a single line item in the statement of financial position. Results from discontinued operations are presented separately in the consolidated statement of profit or loss.
Income for the period and each component in other comprehensive income are attributed to the owners of the parent and to non-controlling interests.
In consolidating the financial statements, all subsidiaries apply the same policies and accounting principles implemented by Almacenes Éxito S.A.
Subsidiaries' assets and liabilities, revenue and expenses, as well as Almacenes Éxito S.A.'s revenue and expenses in foreign currency have been translated into Colombian pesos at observable market exchange rates on each reporting date and at period average, as follows:
| Closing rates (*) | Average rates (*) | |||||||
| Year ended December 31, | ||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||
| US Dollar | 4,810.20 | 3,981.16 | 3,432.50 | 4,255.44 | 3,743.09 | 3,693.36 | ||
| Uruguayan peso | 120.97 | 89.06 | 80.81 | 103.69 | 85.91 | 87.86 | ||
| Argentine peso | 27.16 | 38.77 | 40.83 | 32.99 | 39.39 | 52.76 | ||
| Euro | 5,133.73 | 4,527.39 | 4,199.86 | 4,471.09 | 4,424.86 | 4,214.11 | ||
| (*) | Expressed in Colombian pesos. |
Note 4. Significant accounting policies
The accompanying consolidated financial statements at December 31, 2022 have been prepared using the same accounting policies, measurements and bases used to present the consolidated financial statements for the year ended December 31, 2021.
The significant accounting policies applied in the preparation of the consolidated financial statements are the following:
Significant accounting estimates, judgments and assumptions
The preparation of the consolidated financial statements requires Management to make judgments, estimates and assumptions that impact the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the year; however, uncertainty about these assumptions and estimates could result in outcomes that would require material adjustments to the carrying amount of the asset or liability impacted in future periods.
Estimates and relevant assumptions are reviewed regularly, and their results are recorded in the period in which the estimate is reviewed and in subsequent periods.
In the process of applying the Exito Group’s accounting policies, Management has made the following judgments and estimates, which have the most significant impact on the amounts recognized in the consolidated financial statements:
| - | The assumptions used to estimate the fair value of financial instruments (Note 35), |
| - | The estimation of expected credit losses on trade receivables (Note 8), |
| - | The estimation of useful lives of property, plant and equipment, and the amortization period of intangible assets (Notes 13 and 16), |
| - | Assumptions used to assess the recoverable amount of non-financial assets and define the indicators of impairment of non-financial assets (Note 34) |
| - | Assumptions used to assess and determine inventory losses and obsolescence (Note 11), |
| - | The estimation of the discount rate used to measure lease liabilities (Note 15), |
| - | Actuarial assumptions used to estimate retirement benefits and long-term employee benefit liabilities, such as inflation rate, death rate, discount rate, and the possibility of future salary increases. (Note 21), |
| - | The estimation of the probability and amount of loss to recognize provisions related to lawsuits (Notes 22 and 36), |
| - | The estimation of future taxable profits to recognize deferred tax assets (Note 24), |
Classification between current or non-current
The Exito Group presents assets and liabilities in the statement of financial position based on current and non-current classification.
An asset is current when it is realized or will become available in a term not to exceed one year from the reporting date. All other assets are classified as non-current.
A liability is current when it is expected to be settled within twelve months from the end of the reporting periods. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as “non-current” and presented net when appropriate in accordance with the provisions of IAS 12 – Income Tax.
Presentation and functional currency
| F-122 |
The Exito Group’s consolidated financial statements are presented in millions of Colombian pesos, except otherwise stated, which is also Almacenes Exito S.A.’s functional currency. For each entity, the Exito Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.
Hyperinflation
Argentina’s accumulated inflation rate over the past three years at December 31, 2022 calculated using different consumer price index combinations has exceeded 100%, and therefore is considered to be hyperinflationary. Financial statements related to the subsidiary in Argentina, Libertad S.A., have been adjusted for hyperinflation pursuant to IAS 29 - Financial Reporting in Hyperinflationary Economies. As such, Libertad S.A.’s financial statements and the corresponding figures for previous periods have been restated for the changes in the general purchasing power of the functional currency and, as a result, are stated in terms of the measuring unit current at the end of the reporting period. In applying the provisions of IAS 29, the Exito Group has used the historical cost approach.
Foreign operations
The financial statements of subsidiaries that are carried in a functional currency other than the Colombian peso have been translated into Colombian pesos. Transactions and balances are translated as follows, except for subsidiaries located in hyperinflationary economies in which case all balances and transactions are translated at closing rates:
| - | Assets and liabilities are translated into Colombian pesos at the period closing exchange rate, |
| - | Income-related items are translated into Colombian pesos using the period's average exchange rate, |
| - | Equity transactions in foreign currency are translated into Colombian pesos at the exchange rate on the date of each transaction. |
Exchange differences arising from the translation are directly recognized in a separate component of equity and are reclassified to the statement of profit or loss upon loss of control in the subsidiary.
Foreign currency transactions
Transactions in foreign currency are defined as those denominated in a currency other than the functional currency. During the reporting periods, exchange differences arising from the settlement of such transactions, between the historical exchange rate when recognized and the exchange rate in force on the date of collection or payment, are recorded as exchange gains or losses and presented as part of the net financial results in the statement of profit or loss.
Monetary balances at reporting date expressed in a currency other than the functional currency are updated based on the exchange rate at the end of the reporting period, and the resulting exchange differences are recognized as part of the net financial results in the statement of profit or loss. For this purpose, monetary balances are translated into the functional currency using the market spot rate.
Non-monetary items are not translated at period closing exchange rate but are measured at historical cost (at the exchange rates on the date of each transaction), except for non-monetary items measured at fair value such as forward and swap financial instruments, which are translated using the exchange rates on the date of measurement of the fair value thereof.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Fair value measurement
The fair value is the price to be received upon the sale of an asset or paid out upon transferring a liability under an orderly transaction carried out by market participants on the date of measurement.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Éxito Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
| • | Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities, |
| • | Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable, |
| • | Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. |
| F-123 |
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Éxito Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Investments in associates and joint arrangements
An associate is an entity over which Éxito is in a position of exercising significant influence, but not control or joint control, through the power of participating in decisions regarding operating and financial policies of the associate. In general, significant influence is presumed where Éxito has an ownership interest higher than 20%.
A joint arrangement is an agreement by means of which two or more parties maintain joint control. Joint arrangements can be joint operations or joint ventures. There is joint control only when decisions on significant activities require the unanimous consent of the parties that share control. Acquisitions of such arrangements are recorded using the principles applicable to business combinations set out by IFRS 3.
A joint venture is a joint arrangement by which the parties having joint control over the arrangement are entitled to the net assets of the arrangement. Such parties are known as participants in a joint venture.
A joint operation is a joint arrangement by means of which the parties having joint control over the arrangement are entitled to the assets and liability-related obligations associated with the arrangement. Such parties are known as joint operators.
Investments in associates or joint ventures are accounted for using the equity method.
Under the equity method, investment in associates and joint ventures is recorded at cost upon initial recognition and subsequently the carrying amount of the investment is adjusted to recognize changes in the Exito Group’s share of net assets of the associate or joint venture since the acquisition date. Such changes are recognized in profit or loss or in other comprehensive income, as appropriate. Dividends received from an investee are deducted from the carrying value of the investment.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Éxito Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Éxito Group.
Unrealized gains or losses from transactions between Éxito and associates and joint ventures are eliminated in the proportion of Éxito's interest in such entities upon application of the equity method.
After application of the equity method, the Éxito Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Éxito Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Éxito Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss within ‘Share of profit of an associate and joint ventures’ in the statement of profit or loss.
Transactions involving a loss of significant influence over an associate or joint venture are booked recognizing any ownership interest retained at its fair value, and the gain or loss arising from the transaction is recognized in profit or loss including the relevant items of other comprehensive income.
Dividends are recognized when the right to receive payment for investments classified as financial instruments arise; dividends received from associates and joint ventures, that were measure using the equity method, are recognized as a financial income against a decrease in the carrying amount of the investment in these associates or joint ventures.
Goodwill
Goodwill is recognized as the excess of the fair value of the consideration transferred over the fair value of net assets acquired. After initial recognition, goodwill is carried at cost less any accumulated impairment losses. For purposes of impairment testing, from the date of the acquisition, goodwill is allocated to the cash-generating unit or group of cash-generating units that are expected to benefit from the business combination.
Refer to Note 34 for goodwill impairment.
Put options on the holders of non-controlling interests
Under current IFRS, it is not clear how to account for put options that are granted to holders of non-controlling interests (“NCI”) at the date of acquiring control of a subsidiary. There is a lack of explicit guidance in IFRS and potential contradictions between the requirements of IFRS 10 (in respect of accounting for NCI and changes in ownership without loss of control) and IAS 32.
As such the Exito Group has developed an accounting policy, which has been consistently applied.
Under such accounting policy, since the Company does not have a present ownership interest in the shares subject to the put, the requirements of IFRS 10 take precedence over those of IAS 32.
While the NCI put remains unexercised, the accounting at the end of each reporting period is as follows:
| · | The Éxito Group determines the amount that would have been recognized for NCI, including the allocations of profit or loss, allocations of changes in other comprehensive income and dividends declared for the reporting period, as required by IFRS 10 paragraph B94; |
| · | The NCI is de-recognized as if it were acquired at that date; and, |
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| · | A financial liability is recognized at the present value of the amount payable on exercise of the NCI put in accordance with IFRS 9. |
Any difference between the financial liability and the carrying amount of the NCI is considered an equity transaction between controlling shareholders and non-controlling interests with no change in control and accounted for in equity (see Note 20).
The IASB is considering the accounting for written puts on NCI as part of its ongoing project on Financial Instruments with Characteristics of Equity. There may be changes in the accounting going forward pending resolution of the standard setting project.
Intangible assets
Intangible assets acquired separately are initially recognized at cost.
Internally-generated trademarks are not recognized in the statement of financial position.
The cost of intangible assets includes acquisition cost, import duties, indirect not-recoverable taxes and costs directly incurred to bring the asset to the place and use conditions foreseen by Éxito Group's management, after trade discounts and rebates, if any.
Intangible assets having indefinite useful lives are not amortized, but are subject to impairment testing, on an annual basis or whenever there is indication of impairment.
Intangible assets having a defined useful life are amortized using the straight-line method over their estimated useful lives. Estimated useful lives are:
| Acquired software | Between 3 and 5 years |
| ERP-like acquired software | Between 5 and 8 years |
Amortization expense and impairment losses are recognized in the statement of profit or loss.
An intangible asset is derecognized upon disposal or when no future economic benefit is expected from its use or disposal. The gain or loss from derecognition of an asset is calculated as the difference between the net proceeds of sale and the carrying amount of the asset and is included in profit or loss.
Useful lives and amortization methods are reviewed at each reporting date and changes, if any, are applied prospectively.
Property, plant and equipment
Property, plant and equipment are initially measured at cost; subsequently they are measured at cost less accumulated depreciation and less accumulated impairment losses.
The cost of property, plant and equipment items includes acquisition cost, import duties, non-recoverable indirect taxes, future dismantling costs, if any, borrowing costs directly attributable to the acquisition of a qualifying asset and the costs directly attributable to place the asset in the site and usage conditions foreseen by Éxito Group's management, net of trade discounts and rebates.
Costs incurred for expansion, modernization and improvements that increase productivity, capacity or efficiency, or an increase in the useful lives thereof, are capitalized. Maintenance and repair costs from which no future benefit is foreseen are expensed.
Land and buildings are deemed to be individual assets, whenever they are material and physical separation is feasible from a technical viewpoint, even if they have been jointly acquired.
Assets under construction are transferred to operating assets upon completion of the construction or commencement of operation and depreciated as of that moment.
The useful life of land is unlimited and consequently it is not depreciated. All other items of property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.
The categories of property, plant and equipment and relevant useful lives are as follows:
| Computers | 5 years |
| Vehicles | 5 years |
| Machinery and equipment | From 10 to 20 years |
| Furniture and office equipment | From 10 to 12 years |
| Other transportation equipment | From 5 to 20 years |
| Surveillance team armament | 10 years |
| Other property, plant and equipment | From 10 to 20 years |
| Installations | From 40 to 50 years |
| Buildings | From 40 to 50 years |
| Improvements to third-party properties | 40 years or the term of the lease agreement or the remaining of the lease term, whichever is less |
Residual values, useful lives and depreciation methods are reviewed at the end of each year, and changes, if any, are applied prospectively.
An item of property, plant and equipment is derecognized (a) upon its sale or (b) whenever no future economic benefit is expected from use or it is disposed. The gain or loss from derecognition of an asset is the difference between the net proceeds of sale and the carrying amount of the asset. Such effect is recognized in profit or loss.
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Investment property
This category includes the shopping malls and other property owned by the Éxito Group.
Investment properties are initially measured at cost, including transaction costs. Following initial recognition, they are stated at historical cost less accumulated depreciation and accumulated impairment losses.
Investment property is depreciated using the straight-line method over the estimated useful life. The useful life estimated to depreciate buildings classified as investment property is from 40 to 50 years.
Transfers are made from investment properties to other assets and from other assets to investment properties only whenever there is a change in the use of the asset. For transfers from investment property to property, plant and equipment or to inventories, the cost taken into consideration for subsequent accounting is the carrying amount on the date the use is changed. If a property, plant and equipment item would become investment property, it will be recorded at carrying amount on the date it changes.
Investment property is derecognized upon its sale or whenever no future economic benefit is expected from the use or disposition thereof.
The gain or loss from derecognition of investment properties is the difference between the net proceeds of sale and the carrying amount of the asset and recognized in profit or loss.
The fair values of investment property are updated on an annual basis for the purposes of disclosure in the financial statements.
Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.
The criteria for classification as held for sale is regarded as met whenever an asset or group of assets are available for immediate sale, under current condition, and the sale is highly probable to occur. In order for the sale to be highly probable, the management must be committed to a plan to sell the asset (or assets or disposal groups) and the sale is expected within the year following the classification date.
Non-current assets and disposal groups are measured at the lower of carrying amount or fair value, less costs to sell, and are not depreciated or amortized as of the date they are classified as held for sale. Such assets or disposal groups are presented separately as current items in the statement of financial position.
In the statement of profit or loss for the current period and for that of the comparative previous period, revenue, costs and expenses from a discontinued operation are presented separately from those from continuing activities, in one single line item as profit or loss after tax from discontinued operations. An operation is deemed to be discontinued whenever it represents a business line or geographical area of operations that are material to Éxito Group.
Leases
The Exito Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as a lessee
The Éxito Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Éxito Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
Right of use asset
The Éxito Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
The right-of-use assets are also subject to impairment.
Lease liabilities
At the commencement date of the lease, the Éxito Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Éxito Group and payments of penalties for terminating the lease, if the lease term reflects the Éxito Group exercising the option to terminate.
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Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Éxito Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
Éxito Group as a lessor
Leases in which the Éxito Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Short term leases and leases of low value assets
The Éxito Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value, such as furniture and office equipment, computers, machinery and equipment and intangibles. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or manufacturing of a qualifying asset, in other words an asset that necessarily takes a substantial period (generally more than six months) to become ready for its intended use or sale, are capitalized as part of the cost of the respective asset. Other borrowing costs are accounted for as expenses during the period they are incurred. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds.
Impairment of non-financial assets
The Éxito Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Éxito Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
To assess impairment losses, assets are grouped at the level of cash-generating units, and estimation is made of the recoverable amount. The Éxito Group has defined each store or each shop as an individual cash-generating unit.
When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
To determine the fair value less the costs of disposal, a pricing model is used in accordance with the cash-generating unit or groups of cash-generating units, if it can be established.
To assess the value in use:
| - | Estimation is made of future cash flows of the cash-generating unit over a period not to exceed five years. Cash flows beyond a 3-year period are estimated by applying a steady or declining growth rate. |
| - | The terminal value is estimated by applying a perpetual growth rate, according to the forecasted cash flow at the end of the five-year period. |
| - | The cash flows and terminal value are discounted to present value, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. |
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Éxito Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.
Impairment losses are accounted in profit or loss in the amount of the excess of the carrying amount of the asset over recoverable amount thereof; first, reducing the carrying amount of the goodwill allocated to the cash-generating unit or group of cash-generating units; and second, if there would be a remaining balance, by reducing all other assets of the cash-generating unit or group of units as a function of the carrying amount of each asset until such carrying amount reaches zero.
Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually as at 31 December at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
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Inventories
Inventories include goods acquired with the purpose of being sold in the ordinary course of business, goods in process of manufacturing or construction with a view to such sale, and goods to be consumed in the process of production or provision of services.
Inventories in transit are recognized upon receipt of all substantial risks and benefits attached to the asset, according to performance obligations satisfied by the seller, as appropriate under procurement conditions.
Inventories also include real estate property where construction or development of a real estate project has been initiated with a view to future selling.
Inventories purchased are recorded at cost, including warehouse and handling costs, to the extent that these costs are necessary to bring inventories to their present location and condition, that is to say, upon completion of the production process or receipt at the store. Inventories are measured using the first-in-first-out (FIFO) method. Logistics costs and supplier discounts are capitalized as part of the inventories and recognized in cost of goods sold upon sale. Unrealized bonuses are presented as a reduction to inventories at each reporting date.
Inventories are accounted for at the lower of cost or net realizable value. Net realizable value is the selling price in the ordinary course of business, less the estimated costs to sell.
Rebates and discounts received from suppliers are measured and recognized based upon executed contracts and agreements and recorded as cost of sales when the corresponding inventories are sold.
Inventories are adjusted for obsolescence and damages, which are periodically reviewed and assessed.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Financial assets are recognized in the statement of financial position when the Éxito Group becomes party to the contractual provisions of the instrument. Financial assets are classified at initial recognition, as subsequently measured at:
| − | Fair value through profit or loss, |
| − | Amortized cost, and |
| − | Fair value through other comprehensive income. |
The classification depends on the business model used to manage financial assets and on the characteristics of the cash flows from the financial asset; such classification is defined upon initial recognition. Financial assets are classified as current assets, if they mature in less than one year; otherwise they are classified as non-current assets.
| a. | Financial assets measured at fair value through profit or loss |
Includes financial assets incurred mainly seeking to manage liquidity through frequent sales of the instrument. These instruments carried in the statement of financial position at fair value with net changes in fair value are recognized in the statement of profit or loss.
| b. | Financial assets measured at amortized cost |
These are non-derivative financial assets with known payments and fixed maturity dates, for which there is an intention and capability of collecting the cash flows from the instrument under a contract.
These Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. The amortized cost is estimated by adding or deducting any premium or discount, revenue or incremental cost, during the remaining life of the instrument. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
| c. | Financial assets at fair value through other comprehensive income |
They represent variable-income investments not held for trading nor deemed an acquirer's contingent consideration in a business combination. Éxito made an irrevocable election at initial recognition for these investments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income.
In case these assets are derecognized, the gains and losses previously recognized in other comprehensive income are reclassified to retained earnings.
| d. | Loans and accounts receivable |
Loans and accounts receivable are financial assets issued or acquired in exchange for cash, goods or services delivered to a debtor.
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Accounts receivable from sales transactions are measured at invoice values less allowance for expected credit losses. These accounts receivable are recognized when all risks and benefits have been transferred to a third party and all performance obligations agreed upon with the customer have been met or are in the process of being met.
Long-term loans (more than one year of issuance date) are measured at amortized cost using the effective interest method. Expected credit losses are recognized in the statement of profit or loss.
These instruments are included as current assets, except for those maturing after 12 months of the reporting date, which are classified as non-current assets. Accounts receivable expected to be settled over a period of more than 12 months and include payments during the first 12 months, are shown as non-current portion and current portion, respectively.
| e. | Effective interest method |
Is the method to estimate the amortized cost of a financial asset and the allocation of interest revenue during the entire relevant period. The effective interest rate is the rate that exactly discounts the estimated net future cash flows receivable (including all charges received that are an integral part of the effective interest rate, transaction costs and other rewards or discounts), during the expected life of a financial asset.
| f. | Impairment of financial assets |
Given that trade accounts receivable and other accounts receivable are deemed to be short-term receivables of less than 12 months as of the date of issue and do not contain a significant financial component, impairment thereof is estimated from initial recognition and on each presentation date as the expected loss for the following 12 months.
For financial assets other than those measured at fair value, expected losses are measured over the life of the relevant asset. For this purpose, determination is made of whether the credit risk arising from the asset assessed on an individual basis has significantly increased, by comparing the risk of default on the date of presentation against that on the date of initial recognition; if so, an impairment loss is recognized in profit or loss in the amount of the credit losses expected over the following 12 months.
| g. | Derecognition |
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or the Exito Group transfers the contractual rights to receive the cash flows of the financial asset.
Financial liabilities
Financial liabilities are recognized in the statement of financial position when the Éxito Group becomes party pursuant to the instrument´s terms and conditions. Financial liabilities are classified and subsequently measured at fair value through profit or loss or amortized cost.
| a. | Financial liabilities measured at fair value through profit or loss. |
Financial liabilities are classified under this category when held for trading or when upon initial recognition they are designated at fair value through profit or loss.
| b. | Financial liabilities measured at amortized cost. |
Include loans and bonds issued, which are initially measured at the actual amount received net of transaction costs and subsequently measured at amortized cost using the effective interest method.
| c. | Effective interest method |
The effective interest method is the method to calculate the amortized cost of a financial liability and the allocation of interest expenses over the relevant period. The effective interest rate is the rate that accurately discounts estimated future cash flows payable during the expected life of a financial liability, or, as appropriate, a shorter period whenever a prepayment option is associated to the liability and it is likely to be exercised.
| d. | Derecognition |
A financial liability or a part thereof is derecognized upon settlement or expiry of the contractual obligation.
Interest income
Interest income is recognized using the effective interest method.
Cash and cash equivalents
Include cash at hand and in banks, and highly liquid investments. To be classified as cash equivalents, investments should meet the following criteria:
| (a) | Short-term investments, in other words, with terms less than or equal to three months as of acquisition date, |
| (b) | Highly liquid investments, |
| (c) | Readily convertible into a known amount of cash, and |
| (d) | Subject to an insignificant risk of change in value. |
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In the statement of financial position, overdraft accounts with financial institutions are classified as financial liabilities. In the statement of cash flows such overdrafts are shown as a component of cash and cash equivalents, provided they are an integral part of Éxito Group's cash management system.
Derivative financial instruments
The Exito Group uses derivative financial instruments to mitigate the exposure to variation in interest and exchange rates. These derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value at the end of each reporting period. They are presented as non-current assets or non-current liabilities whenever the remaining maturity of the hedged item exceeds 12 months, otherwise they are presented as current assets and current liabilities.
Gains or losses arising from changes in the fair value of derivatives are recognized as financial income or expenses. Derivative financial instruments that meet hedge accounting requirements are accounted for pursuant to the hedge accounting policy, described below.
Hedge accounting
The Éxito Group uses hedge instruments to mitigate the risks associated with changes in the exchange rates related to its investments in foreign operations and in the exchange and interest rates related to its financial liabilities.
A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
| • | There is ‘an economic relationship’ between the hedged item and the hedging instrument. |
| • | The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. |
| • | The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Exito Group actually hedges and the quantity of the hedging instrument that the Éxito Group actually uses to hedge that quantity of hedged item. |
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Éxito Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined).
Hedges are classified and booked as follows, upon compliance with hedge accounting criteria:
| - | Cash flow hedges include hedges covering the exposure to the variation in cash flows arising from a particular risk associated to a recognized asset or liability or to a foreseen transaction whose occurrence is highly probable and may have an impact on period results. |
Derivative instruments are recorded as cash flow hedge, using the following principles:
| • | The effective portion of the gain or loss on the hedge instrument is recognized directly in stockholders’ equity in other comprehensive income. In case the hedge relationship no longer meets the hedging ratio but the objective of management risk remains unchanged, the Exito Group should “rebalance” the hedge ratio to meet the eligibility criteria. |
| • | Any remaining gain or loss on the hedge instrument (including arising from the "rebalancing" of the hedge ratio) is ineffective, and therefore should be recognized in profit or loss. |
| • | Amounts recorded in other comprehensive income are immediately transferred to the profit or loss together with the hedged transaction, for example, when the hedged financial income or expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts recorded in equity are transferred to the initial carrying amount of the non-financial asset or liability. |
| • | The Éxito Group should prospectively discontinue hedge accounting only when the hedge relationship no longer meets the qualification criteria (after taking into account any rebalancing of the hedge relationship). |
| • | If the expected transaction or firm commitment is no longer expected, amounts previously recognized in OCI are transferred to the Statements of Income If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its hedge classification is revoked, gains or losses previously recognized in comprehensive income remain deferred in equity in other comprehensive income until the expected transaction or firm commitment affect profit or loss |
| - | Fair-value hedges: this category includes hedges covering the exposure to changes in the fair value of recognized assets or liabilities or unrecognized firm commitments. |
A change in the fair value of a derivative that is a fair-value hedging instrument is recognized in the statement of profit or loss as financial expense or income. A change in the fair value of a hedged item attributable to the hedged risk is booked as part of the carrying amount of the hedged item and is also recognized in the statement of profit or loss as financial expense or revenue.
Whenever an unrecognized firm commitment is identified as a hedged item, the subsequent accrued change in the fair value of the firm commitment attributable to the hedged risk will be recognized as an asset or liability and the relevant gain or loss will be recognized in profit or loss. For the years ended 2022 and 2021, the Éxito Group has not designated any derivative financial instrument as fair value hedge.
| - | Net investment hedges in a foreign operation: this category includes hedges covering exposure to the variation in exchange rates arising from the translation of foreign businesses to Almacenes Exito S.A.'s reporting currency. |
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The effective portion of the changes in the fair value of derivative instruments defined as instruments to hedge a net investment in a foreign operation is recognized in other comprehensive income. The gain or loss related to the non-effective portion is recognized in the statement of profit or loss.
If the Éxito Group would dispose of a foreign business, in whole or in part, the accrued value of the effective portion recorded to other comprehensive income is reclassified to the statement of profit or loss.
Employee benefits
| a. | Post-employment: defined contribution plans |
Post-employment benefit plans under which there is an obligation to make certain predetermined contributions to a separate entity (a retirement fund or insurance company) and there is no further legal or constructive obligation to pay additional contributions. Such contributions are recognized as expenses in the statement of profit or loss, in as much as the relevant contributions are enforceable.
| b. | Post-employment: defined benefit plans |
Post-employment defined benefit plans are those under which there is an obligation to directly provide retirement pension payments and retroactive severance pay, pursuant to Colombian legal requirements. the Éxito Group has no specific assets intended for guaranteeing the defined benefit plans.
Post-employment defined benefit plan liabilities are estimated for each plan, with the support of independent third parties, applying the projected credit unit's actuarial valuation method, using actuarial assumptions on the date of the period reported, such as discount rate, salary increase expectations, average time of employment, life expectancy and personnel turnover. Actuarial gains or losses are recognized in other comprehensive income. Interest expense on post-employment benefits plans, as well as settlements and plan reductions, are recognized in profit or loss as financial costs.
| c. | Long-term employee benefits |
These are benefits not expected to be fully settled within twelve months following the reporting date regarding which employees render their services. These benefits relate to time-of-service bonuses and similar benefits. The Éxito Group has no specific assets intended for guaranteeing long-term benefits.
The liability for long-term benefits is determined separately for each plan with the support of independent third parties, following the actuarial valuation of the forecasted credit unit method, using actuarial assumptions on the date of the reporting period. The cost of current service, cost of past service, cost for interest, actuarial gains and losses, as well as settlements or reductions in the plan are recognized in the statement of profit or loss.
| d. | Short-term employee benefits |
These are benefits expected to be fully settled within twelve months and after the reporting date regarding which the employees render their services. Such benefits include a share of profits payable to employees based on performance. Short-term benefit liabilities are measured based on the best estimation of disbursements required to settle the obligations on the reporting date.
| e. | Employee termination benefits |
The Éxito Group pays employees certain benefits upon termination, whenever decision is made to terminate a labor contract earlier than on the ordinary retirement date, or whenever an employee accepts a benefit offer in exchange for termination of his labor contract.
Termination benefits are classified as short-term employee benefits and are recognized in profit or loss when they are expected to be fully settled within 12 months of the end of the reporting period; and are classified as long-term employee benefits when they are expected to be settled after 12 months of the end of the reporting period.
Provisions, contingent assets and liabilities
The Éxito Group recognizes a provision for all present obligations resulting from past events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and can be reliably estimated.
Provisions are recognized at the present value of the best estimation of cash outflows required to settle the liability. In those cases where there is expectation that the provision will be reimbursed, in full or in part, the reimbursement is recognized as a separate asset only if virtually certain.
The provisions are revised periodically and estimated based on the best information available on the reporting date.
Provisions for onerous contracts are recognized whenever unavoidable costs to be incurred in performing under the contract exceed the economic benefits expected to be received.
A restructuring provision is recognized whenever there is a constructive obligation to conduct a reorganization, when a formal and detailed restructuring plan has been prepared and has raised a valid expectation in those affected and announced prior to the reporting date.
Contingent liabilities are obligations arising from past events, whose existence is subject to the occurrence or non-occurrence of future events not entirely under the control of the Éxito Group; or current obligations arising from past events, from which the amount of the obligation cannot be reliably measured or it is not probable that an outflow of resources will be required to settle the obligation. Contingent liabilities are not recognized; instead they are disclosed in notes to the financial statements, unless the possibility of any outflow is remote.
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A contingent asset is a possible asset that arises from past events, whose existence will be confirmed only by the occurrence or non-occurrence of future events not entirely under the control of the Éxito Group. Contingent assets are not recognized in the statement of financial position unless realization is virtually certain. Instead, they are disclosed in the notes to the financial statements when an inflow of economic benefit is probable.
Taxes
Taxes include the following income and non-income taxes:
Colombia:
| - | Income tax, |
| - | Real estate tax, and |
| - | Industry and trade tax. |
Argentina:
| - | Income tax, |
| - | Province taxes, |
| - | Tax on personal property - substitute responsible party, and |
| - | Municipal trade and industry tax. |
Uruguay:
| - | Income tax (Impuesto a las Rentas de Industria y Comercio -IRIC, in Spanish), |
| - | Tax on equity, |
| - | Real property tax, |
| - | Industry and trade tax, |
| - | Tax on Control of Stock Corporations (Impuesto de Control a las Sociedades Anónimas – ICOSA, in Spanish), |
| - | National tax on wine production, and |
| - | Tax on the Disposal or Transfer of Agricultural and Livestock Assets (Impuesto a la Enajenación de Bienes Agropecuarios – IMEBA, in Spanish) |
Current income tax
Current income tax in Colombia is assessed on the higher of the presumed profits and the taxable net income at the enacted rate applicable to the corresponding fiscal year and the end of the period of presentation of financial statements.
For subsidiaries in Uruguay and Argentina, current income tax is assessed at enacted tax rates.
The Exito Group continuously evaluates the positions assumed in the tax declarations with respect to situations in which certain interpretations may exist in the tax laws to adequately record the amounts that are expected to be paid.
Current tax assets and liabilities are offset for presentation purposes if there is a legally enforceable right, they have been incurred with the same tax authority and the intention is to settle them at net value or realize the asset and settle the liability simultaneously.
Deferred income tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred income tax arises from temporary differences that give rise to differences between the accounting base and the taxable base of assets and liabilities. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting period.
Deferred income tax assets are only recognized if it is probable that there will be future taxable income against which such deductible temporary differences may be offset. Deferred income tax liabilities are always recognized.
The effects of the deferred tax are recognized in income for the period or in other comprehensive income depending on where the originating profits or losses were booked, and they are shown in the statement of financial position as non-current items.
For presentation purposes, deferred tax assets and liabilities are offset if there is a legally enforceable right and they have been incurred with the same tax authority.
No deferred tax liabilities are carried for the total of the differences that may arise between the accounting balances and the taxable balances of investments in associates and joint ventures, since the exemption contained in IAS 12 is applied when recording such deferred income tax liabilities.
Revenue from contracts with customers
Revenue is measured at the fair value of the consideration received or to be received, net of trade rebates, cash discounts and volume discounts; value added tax is excluded.
| F-132 |
Retail sales
Revenue from retail sales is recognized at the point in time when control of the asset is transferred to the customer, upon delivery of the goods and receipt of consideration.
| - | Loyalty programs |
Under their loyalty programs, certain subsidiaries award customer points on purchases, which may be exchanged in future for benefits such as prizes or goods available at the stores, means of payment or discounts, redemption with allies and continuity programs, among other. Points are measured at fair value, which is the value of each point received by the customer, taking the various redemption strategies into consideration. The fair value of each point is estimated at the end of each accounting period.
The obligation of awarding such points is recorded in the liability side as a deferred revenue that represents the portion of unredeemed benefits at fair value, considering for such effect the redemption rate and the estimated portion of points expected not to be redeemed by the customers
Revenue from services
Revenue from the provision of services is recognized at a point in time, when the performance obligations agreed upon with the customer have been satisfied. Revenue from services recognized over time is not material.
Lease income
Lease income on investment properties is recognized on a straight-line basis over the term of the agreement.
Other revenue
Royalties are recognized upon fulfilment of the conditions set out in the agreements.
Principal or agent
Contracts to provide goods or services to customers on behalf of other parties are analyzed on the grounds of specific criteria to determine when the Éxito Group acts as principal and when as a commission agent.
When another party is involved in providing goods or services to a customer, Éxito Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (principal) or to arrange for those goods or services to be provided by the other party (agent). Revenue from contracts in which the Exito Group acts as an agent are immaterial.
Earnings per share
Basic earnings per share are calculated by dividing the profit for the period attributable to equity holders of the parent, by the weighted average of common shares outstanding during the year, excluding, if any, common shares acquired by Éxito and held as treasury shares.
For the purpose of calculating diluted earnings per share, profit or loss attributable to equity holders of the parent entity, and the weighted average number of shares outstanding, are adjusted for the effects of all dilutive potential ordinary shares, if any.
There were no dilutive potential ordinary shares outstanding at the end of the reporting period.
| F-133 |
Note 5. Adoption of new standards, amendments to and interpretations of existing standards issued by the IASB
Note 5.1. New and amended standards and interpretations
Exito Group applied amendments and new interpretations to IFRS as issued by IASB, which were effective for accounting periods beginning on or after January 1, 2020. The main new standards adopted are as follows:
| Statement | Description | Impact | ||
| IAS16 - Fixed Assets – Resources Before Intended Use | The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from the sale of items produced before the asset is available for use, which must be recognized in profit or loss. | These changes did not have any impact in the consolidated financial statements. | ||
| Changes in IFRS 9: Reform of the reference interest rate | The amendments to standard IFRS 9 provide exemptions that apply to all hedge relationships directly affected by the reference interest rate reform. A relationship of hedge is directly affected if the reform raises uncertainties about the period, or the value, of cash flows based on the reference interest rate of the hedge item or hedging instrument. | These changes did not have any impact in the consolidated financial statements. | ||
| Changes in IFRS 16 | Improvements in IFRS 16: Leases: The amendments exclude the concept of reimbursement for improvements in third-party properties. | These changes did not have any impact in the consolidated financial statements. | ||
| Amendments to IAS 1 and IAS 8 - Definition of material | In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. | These changes did not have any impact in the consolidated financial statements. | ||
| Amendments to IFRS 16: COVID-19 related rent concessions | Amendments related to concession to tenants, in the application of the guidelines of IFRS 16, on the modification of the lease, when accounting for related benefits as a direct consequence of the Covid-19 pandemic. | These changes did not have any impact in the consolidated financial statements. | ||
| Amendments to IFRS 3: Definition of business | Describes that to be considered a business an integrated set activities and assets must include, at least, input of resources and a substantive process, that together contribute significantly to the capacity to generate output of resources. | These changes did not have any impact in the consolidated financial statements. | ||
| Revision of the Conceptual Framework | Concepts and guidelines on presentation and disclosure, measurement basis, financial report objectives and useful information. | These changes did not have any impact in the consolidated financial statements. |
Note 5.2. New and revised standards and interpretations issued and not yet effective
Exito Group has not early adopted the following new and revised IFRSs, which have already been issued but not yet in effect, up to the date of the issuance of the Group’s consolidated financial statements:
| F-134 |
| Accounting pronouncement | Description | Applicable to annual periods starting in or after | ||
| Amendments to IAS 1: Classification of liabilities as current or non-current and concept of materiality | In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, in order to specify the requirements for classifying the liability as current or non-current. The amendments clarify:
• Which means a right to postpone liquidation; • That the right to postpone must exist on the base date of the report; • That this classification is not affected by the likelihood that an entity will exercise its right to postpone • That only if a derivative embedded in a convertible liability is itself an equity instrument would the terms of a liability not affect its classification
In February 2021, the IASB issued amendments to IAS1, providing guides and examples to help entities apply materiality judgment to the disclosure of accounting policies. |
01/01/2023 | ||
| Amendments to IAS 8: Definition of accounting estimates | The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and error correction and how entities use measurement techniques and inputs to develop accounting estimates. | 01/01/2023 | ||
| Amendments to IFRS 10 - Consolidated Financial Statements and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | Gains and losses resulting from (i) loss of control of a subsidiary that does not contain a business in a transaction with an associate or joint venture accounted for using the equity method are recognized in the parent's income only in proportion to the interest held by investors not related to that affiliate or joint venture; (ii) remeasurement of investments retained in a former subsidiary at fair value are recognized in the former parent's income in proportion to the interest held by unrelated investors in the new associate or joint venture. | The effective date has not yet been set by the IASB |
Exito Group does not expect a significant impact on the Group's consolidated financial statements.
Note 6. Relevant facts
Covid-19 pandemic
On January 30, 2020, the World Health Organization declared the outbreak of the new coronavirus which first appeared in Wuhan, province of Hubei, China, called Covid-19, as a public health emergency of international significance. Later, on March 11, 2020 and because of the alarming levels of dissemination of the virus around the world, Covid-19 was described as a pandemic.
The Éxito Group assessed and did not identify specific situations or negative material effects on the value of its investments, on the measurement of inventories, on the depreciation of properties, plants and equipment, on the measurement of the expected losses on trade receivables, on provision liabilities or on restructuring plans, on the measurement of employee benefits, on the estimation and recognition of the deferred income tax, on transactions with related parties, on the impairment of assets, on revenue from ordinary activities arising from contracts with customers, on lease contracts, on non-current assets held for sale, on discontinued operations, and generally on all of its liabilities, that might have an effect on the financial position or on the results of the operations, or that might impair its sustainability and operation.
Corporate reorganization of Companhia Brasileira de Distribuição - CBD
The corporate reorganization of Companhia Brasileira de Distribuição - CBD was completed on December 31, 2020. As a result of this reorganization, Companhia Brasileira de Distribuição – CBD became the controlling shareholder of Éxito with 96.57% interest in its share capital. Under Colombian commercial regulations, Éxito had fallen in grounds for dissolution since more than 95% of its capital stock was held by one single shareholder at December 31, 2020.
In March 2021, Companhia Brasileira de Distribuição - CBD overcame the grounds for dissolution through a transfer of shares of Éxito Company to a related third party (GPA2 Empreendimentos E Participacoes), thus its new shareholding in Éxito's capital stock was 91.57%.
Share buy-back
General Meetings of Shareholders held on March 24, 2022 and June 9, 2022 authorized and approved a share buy-back program. As a result, Éxito bought back 14,982,863 of its outstanding shares (representing 44,948,589 shares after the share split).
Share split
| F-135 |
Éxito's General Meeting of Shareholders approved the share split on October 25, 2022, as follows:
| a. | Prior to the share split, Éxito’s capital was represented by 448,240,151 common shares with a nominal value of $10 Colombian pesos. The number of outstanding shares was 432,621,453 and the number of treasuries shares was 15,618,698. The authorized capital was comprised of 530,000,000 common shares. |
| b. | The share split for subscribed and paid-in capital was made in a proportion of 1 into 3, increasing the number of common shares to 1,344,720,453 and decreasing their nominal value to $3.3333 Colombian pesos. The new number of outstanding shares is 1,297,864,359 and the new number of treasury shares is 46,856,094. Authorized share capital increased to 1,590,000,000. |
The number of shares and calculation of earnings per share for all periods presented has been retrospectively adjusted for the effects of the share split.
Note 7. Cash and cash equivalents
The balance of cash and cash equivalents is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Cash at banks and on hand | 1,700,987 | 2,472,151 |
| Fiduciary rights – money market like | 30,652 | 68,716 |
| Funds | 1,139 | - |
| Term deposit certificates | 870 | 681 |
| Other cash equivalents | 25 | 31 |
| Total cash and cash equivalents | 1,733,673 | 2,541,579 |
(1) Represents the Collective Investment Fund with Fiduciaria Corficolombiana created to guarantee the payment of the lease fee on the Éxito Poblado and Cedi Avenida 68 properties. These funds must be maintained until March 2027, when the guaranteed contracts expire.
At December 31, 2022, the Éxito Group recognized interest income from cash at banks and on hand and cash equivalents in the amount of $27,040 (December 31, 2021 - $17,277), which were recognized as financial income as detailed in Note 32.
At December 31, 2022 and 2021, cash and cash equivalents were not restricted or levied in any way as to limit availability thereof.
Note 8. Trade receivables and other receivables
The balance of trade receivables and other receivables is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Trade receivables (Note 8.1) | 506,342 | 387,353 |
| Other receivables (Note 8.2) | 323,534 | 296,698 |
| Total trade receivables and other receivables | 829,876 | 684,051 |
| Current | 779,355 | 625,931 |
| Non-Current | 50,521 | 58,120 |
Note 8.1. Trade receivables
The balance of trade receivables is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Trade accounts | 385,766 | 272,920 |
| Sale of real-estate project inventories | 66,831 | 67,434 |
| Rentals and dealers | 64,260 | 62,426 |
| Employee funds and lending | 12,367 | 9,841 |
| Allowance for expected credit loss | (22,882) | (25,268) |
| Trade receivables | 506,342 | 387,353 |
| F-136 |
The allowance for expected credit loss is recognized as expense in profit or loss. The movement in the allowance for expected credit losses during the periods was as follows:
| Balance at January 1, 2020 | 21,931 |
| Additions | 36,360 |
| Reversal of allowance for expected credit losses | (22,679) |
| Write-off of receivables | (6,759) |
| Reclassifications to non-current assets held for sale | 27 |
| Effect of exchange difference from translation into presentation currency | (1,320) |
| Balance at December 31, 2020 | 27,560 |
| Additions | 39,615 |
| Reversal of allowance for expected credit losses | (31,588) |
| Write-off of receivables | (10,049) |
| Effect of exchange difference from translation into presentation currency | (270) |
| Balance at December 31, 2021 | 25,268 |
| Additions | 30,802 |
| Reversal of allowance for expected credit losses | (26,093) |
| Write-off of receivables | (4,976) |
| Effect of exchange difference from translation into presentation currency | (2,119) |
| Balance at December 31, 2022 | 22,882 |
An analysis is performed at each reporting date to estimate expected credit losses. The allowance rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., product type and customer rating). The calculation reflects the probability-weighted outcome and reasonable and supportable information that is available at the reporting date about past events and current conditions. Generally, trade receivables and other receivables are written-off if past due for more than one year.
Note 8.2. Other receivables
| As at December 31, | ||
| 2022 | 2021 | |
| Recoverable taxes | 106,631 | 32,474 |
| Loans or advances to employees | 84,885 | 78,088 |
| Business agreements | 57,989 | 84,973 |
| Money transfer services | 20,370 | 63,811 |
| Money remittances | 16,347 | 8,205 |
| Sale of fixed assets, intangible assets and other assets | 6,278 | 673 |
| Maintenance fees | 4,074 | 4,737 |
| Long-term receivable | 2,895 | 1,720 |
| Tax claims | - | 1,360 |
| Other | 24,065 | 20,657 |
| Total other receivables | 323,534 | 296,698 |
Note 8.3. Trade receivables and other receivables by age
The detail by age of trade receivables and other receivables, without considering impairment, is shown below:
| Period | Total | Less than 30 days | From 31 to 60 days | From 61 to 90 days | More than 90 days |
| December 31, 2022 | 852,758 | 740,340 | 13,667 | 5,778 | 92,973 |
| December 31, 2021 | 709,319 | 603,596 | 16,150 | 5,201 | 84,372 |
Note 9. Prepayments
| As at December 31, | ||
| 2022 | 2021 | |
| Insurance | 20,161 | 19,359 |
| Lease payments made before commencement date | 9,645 | 10,658 |
| Advertising | 6,060 | 3,730 |
| Maintenance | 5,811 | 5,304 |
| Other prepayments | 4,462 | 6,659 |
| Total prepayments | 46,139 | 45,710 |
| Current | 39,774 | 36,515 |
| Non-current | 6,365 | 9,195 |
Note 10. Related parties
Note 10.1. Significant agreements
Transactions with related parties refer mainly to transactions between the Exito Group. its subsidiaries, joint ventures and other related entities and were substantially accounted for in accordance with the prices, terms and conditions agreed upon between the parties. The agreements are detailed as follows:
Casino Group: The Éxito Group entered into various contracts with Casino Group entities:
| F-137 |
| (a) | Casino international, International Retail Trade and Services IG and Distribution Casino France: Commercial agreement to regulate the terms pursuant to which Casino International renders international retail and trade services to Éxito Group (e.g., negotiation of commercial services with international suppliers, prospecting global suppliers and intermediating the purchases provided by Casino, purchase and importation of products and reimbursement for promotions realized in stores). |
| (b) | Insurance agreements entered into between the Group and Casino for intermediation of renewals of certain insurance policies. |
| (c) | Cost reimbursement agreements between the Éxito Group and Casino entities (Euris, Casino Services and Casino Guichard Perrachon S.A.) to foster the sharing of know-how and experience on certain areas of operation, and also the reimbursement of expenses related to expatriates of the Casino Group. |
Greenyellow: the Éxito Group entered into a service agreement with Greenyellow Energía de Colombia S.A.S. (GY), pursuant to which GY will provide oversight and monitoring services relating to energy efficiency.
Puntos Colombia: the Éxito Group entered into an agreement with Puntos Colombia S.A.S., a joint venture with Bancolombia, providing for the terms and conditions for the redemption of points collected under their loyalty program, among other services.
Tuya: The Éxito Group entered into partnership agreements with Tuya, a joint venture with Grupo Bancolombia, to promote (i) the sale of products and services offered by Éxito through Éxito co-branded credit cards, (ii) the use of these credit cards in and out of the Éxito stores and (iii) the use of other financial services agreed between the parties inside Éxito stores. The Éxito Group also entered into an agreement for the reimbursement of expenses, among other matters.
Companhia Brasileira de Distribuição (CBD): The Éxito Group entered into a cost reimbursement agreement related to the sharing of know-how and experience of CBD on certain areas (strategy, finance, human resources, legal, communication and investors relations). The Éxito Group also entered into an agreement for the reimbursement of expenses related to the relocation of employees among the Éxito Group.
Note 10.2. Transactions with related parties
Transactions with related parties relate to revenue from retail sales and other services, as well as to costs and expenses related to risk management and technical assistance support, purchase of goods and services received.
The amount of revenue, costs and expenses arising from transactions with related parties is as follows:
| Revenue | |||
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Joint ventures (1) | 72,748 | 132,530 | 66,170 |
| Casino Group companies (2) | 4,606 | 7,972 | 8,219 |
| Controlling entity (3) | - | - | 369 |
| Total revenue | 77,354 | 140,502 | 74,758 |
| Costs and expenses | |||
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Joint ventures (1) | 110,665 | 89,299 | 87,211 |
| Casino Group companies (2) | 62,311 | 60,700 | 46,525 |
| Controlling entity (3) | 12,248 | 9,777 | 9,848 |
| Members of the Board | 2,666 | 1,593 | 1,736 |
| Total cost and expenses | 187,890 | 161,369 | 145,320 |
| (1) | The amount of revenue and costs and expenses with each joint venture is as follows: |
Revenue:
| F-138 |
| Compañía de Financiamiento Tuya S.A. | Puntos Colombia S.A.S. | ||||||
| Year ended December 31, | |||||||
| Description | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |
| Commercial activation recovery | 53,398 | 52,047 | 43,739 | - | - | - | |
| Yield on bonus, coupons and energy | 11,638 | 14,224 | 14,122 | - | - | - | |
| Lease of real estate | 4,520 | 4,886 | 5,247 | - | - | - | |
| Services | 1,837 | 923 | 1,836 | 1,355 | 1,401 | 1,226 | |
| Corporate collaboration agreement | - | 59,049 | - | - | - | - | |
| Total revenue | 71,393 | 131,129 | 64,944 | 1,355 | 1,401 | 1,226 | |
Costs and expenses:
| Compañía de Financiamiento Tuya S.A. | Puntos Colombia S.A.S. | ||||||
| Year ended December 31, | |||||||
| Description | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |
| Cost of customer loyalty program | - | - | - | 100,301 | 83,649 | 83,064 | |
| Commissions on means of payment | 10,364 | 5,650 | 4,147 | - | - | ||
| Total costs and expenses | 10,364 | 5,650 | 4,147 | 100,301 | 83,649 | 83,064 | |
| (2) | Revenue mainly relates to the provision of services and success fees from suppliers. Costs and expenses accrued mainly arise from energy optimization services received and intermediation in the import of goods, procurement of goods and consultancy services. |
Revenue by each company is as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Greenyellow Energía de Colombia S.A.S. | 1,901 | 442 | 451 |
| Casino International | 1,175 | 6,783 | 6,941 |
| Relevan C Colombia S.A.S. | 701 | - | - |
| Distribution Casino France | 534 | 48 | 499 |
| International Retail and Trade Services IG. | 295 | 699 | 321 |
| Casino Services | - | - | 7 |
| Total revenue | 4,606 | 7,972 | 8,219 |
Costs and expenses by each company are as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Greenyellow Energía de Colombia S.A.S. | 40,841 | 36,152 | 23,336 |
| Casino Guichard Perrachon S.A. | 14,229 | 12,975 | 10,369 |
| Distribution Casino France | 6,404 | 5,329 | 8,604 |
| Relevan C Colombia S.A.S. | 595 | - | - |
| Casino Services | 229 | 2,778 | 1,288 |
| Cdiscount S.A. | 13 | 43 | - |
| Euris | - | 1,742 | 1,669 |
| International Retail and Trade Services IG. | - | 1,681 | 1,259 |
| Total costs and expenses | 62,311 | 60,700 | 46,525 |
| (3) | Costs and expenses related to consulting services provided by Companhia Brasileira de Distribuição – CBD. |
Note 10.3. Other information on related party transactions
Financial assets measured at fair value through other comprehensive income
Éxito Group has 659,383 shares in Cnova NV in the amount of $9,222.
Financial assets measured at amortized cost
According to Note 12, Éxito Group has investment in bonds issued by Compañía de Financiamiento Tuya S.A., which has the intention and capability of holding to obtain contractual cash flows until maturity in amount of $- (December 31, 2021 - $5,046). The interests on these bonds are at market terms and conditions.
Note 10.4. Receivables from related parties
| F-139 |
| Receivable | Other non-financial assets | ||||
| As at December 31, | As at December 31, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Joint ventures (1) | 41,909 | 47,739 | 35,000 | 24,500 | |
| Casino Group companies (2) | 4,925 | 8,448 | - | - | |
| Controlling entity (3) | 288 | 288 | - | - | |
| Total | 47,122 | 56,475 | 35,000 | 24,500 | |
| Current | 47,122 | 56,475 | - | - | |
| Non-Current | - | - | 35,000 | 24,500 | |
| (1) | Balances relate to the following joint ventures and the following detail: |
| - | The balance of receivables by joint ventures is shown below: |
Compañía de Financiamiento Tuya S.A. |
Puntos Colombia S.A.S. | Sara ANV S.A. | ||||
As at December 31,
| ||||||
| Description | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 |
Reimbursement of shared expenses, collection of coupons and other |
5,407 | 4,403 | - | - | - | - |
| Corporate collaboration agreement | - | 10,494 | - | - | - | - |
| Redemption of points | - | - | 33,805 | 30,356 | - | - |
| Other services | 2,329 | 2,229 | - | 257 | 368 | - |
| Total receivable | 7,736 | 17,126 | 33,805 | 30,613 | 368 | - |
| - | Other non-financial assets: |
The balance of $35,000 at December 31, 2022 and $24,500 at December 31, 2021, relates to payments made to Compañía de Financiamiento Tuya S.A. for the future subscription of shares. Given that prior to December 31, 2022 and December 31, 2021, Compañía de Financiamiento Tuya S.A. had not received authorization from the Colombian Financial Superintendence to register a capital increase, amounts disbursed were not recognized as an investment in such company. During the year ended December 31, 2022, Compañía de Financiamiento Tuya S.A effectively subscribed and issued shares for the amount of $44,493 representing an increase in such investment.
| (2) | Receivable from Casino Group companies represents reimbursement for payments to expats, supplier agreements and energy efficiency solutions. |
| As at December 31, | ||
| 2022 | 2021 | |
| Casino International | 3,893 | 7,341 |
| International Retail and Trade Services | 344 | 725 |
| Distribution Casino France | 232 | 49 |
| Relevan C Colombia S.A.S. | 193 | - |
| Casino Services | 7 | 7 |
| Greenyellow Energía de Colombia S.A.S. | 2 | 113 |
| Other | 254 | 213 |
| Total Casino Group companies | 4,925 | 8,448 |
| (3) | Represents the balance of personnel expenses receivable from Companhia Brasileira de Distribuição - CBD. |
Note 10.5. Payables to related parties
The balance of payables to related parties is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Joint ventures (1) | 62,772 | 42,619 |
| Casino Group companies (2) | 16,374 | 23,027 |
| Members of the Board | 43 | - |
| Total | 79,189 | 65,646 |
| (1) | Mainly represents the balance outstanding in favor of Puntos Colombia S.A.S. arising from points (accumulations) issued. |
| (2) | Payables to Casino Group companies such as energy efficiency solutions received, intermediation in the import of goods, and consulting and technical assistance services. |
| F-140 |
| As at December 31, | ||
| 2022 | 2021 | |
| Casino Guichard Perrachon S.A. | 14,659 | 11,415 |
| Distribution Casino France | 934 | 224 |
| Relevan C Colombia S.A.S. | 508 | - |
| Greenyellow Energía de Colombia S.A.S. | 125 | 9,456 |
| Casino Services | 100 | 1,637 |
| International Retail and Trade Services IG | - | 164 |
| Other | 48 | 131 |
| Total Casino Group companies | 16,374 | 23,027 |
Note 10.6. Other financial liabilities with related parties
| As at December 31, | ||
| 2022 | 2021 | |
| Joint ventures (1) | 26,218 | 17,461 |
| Total | 26,218 | 17,461 |
| (1) | Mainly represents collections received from customers related to the Tarjeta Éxito cards owned by Tuya. |
Note 10.7. Key management personnel compensation
Transactions between the Éxito Group and key management personnel, including legal representatives and/or administrators, mainly relate to labor agreements executed by and between the parties.
Compensation of key management personnel is as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Short-term employee benefits | 96,078 | 89,817 | 74,444 |
| Post-employment benefits | 2,318 | 2,427 | 2,604 |
| Termination benefits | - | - | 1,192 |
| Total key management personnel compensation | 98,396 | 92,244 | 78,240 |
Note 11. Inventories, net and cost of sales
Note 11.1. Inventories, net
| As at December 31, | ||
| 2022 | 2021 | |
| Inventories (1) | 2,640,995 | 1,973,452 |
| Inventories in transit | 73,066 | 65,884 |
| Raw materials | 29,105 | 10,668 |
| Materials, spares, accessories and consumable packaging | 18,941 | 11,536 |
| Production in process | 5,123 | 25,244 |
| Real estate project inventories | 3,213 | 17,519 |
| Total inventories (2) | 2,770,443 | 2,104,303 |
| (1) | The movement of the allowance for losses on inventory obsolescence and damages during the reporting periods is shown below: |
| Balance at January 1, 2020 | 16,398 |
| Allowance recognized during the period | 5,325 |
| Allowance reversal | (2,850) |
| Effect of exchange difference from translation into presentation currency | (557) |
| Balance at December 31, 2020 | 18,316 |
| Allowance recognized during the period | 5,251 |
| Allowance reversal | (11,095) |
| Effect of exchange difference from translation into presentation currency | (113) |
| Balance at December 31, 2021 | 12,359 |
| Allowance recognized during the period | 2,313 |
| Allowance reversal | (500) |
| Effect of exchange difference from translation into presentation currency | (1,022) |
| Balance at December 31, 2022 | 13,150 |
| F-141 |
| (2) | Includes $21,901 of products sold in 2021, which do not affect the reasonableness of cost of sales for 2022. |
At December 31, 2022, there are no restrictions or liens on the sale of inventories.
Note 11.2. Cost of sales
The following is the information related with the cost of sales, allowance for losses on inventory obsolescence and damages, and allowance reversal on inventories:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Cost of goods sold (1) | 17,086,294 | 13,794,658 | 13,014,815 |
| Logistics costs (2) | 579,791 | 493,630 | 484,174 |
| Damage and loss | 202,573 | 171,747 | 167,941 |
| (Reversal) allowance for inventory losses, net | 1,813 | (5,844) | 2,475 |
| Trade discounts and purchase rebates | (2,490,381) | (1,965,335) | (1,890,495) |
| Total cost of sales | 15,380,090 | 12,488,856 | 11,778,910 |
| (1) | At December 31, 2022 includes $98,259 of depreciation and amortization cost (December 31, 2021 - $82,311). |
| (2) | At December 31, 2022 includes $308,614 of employee benefits (December 31, 2021 - $274,557). |
Note 12. Financial assets
The balance of financial assets is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Financial assets measured at fair value through other comprehensive income | 29,043 | 29,392 |
| Derivative financial instruments (1) | 27,300 | 11,057 |
| Derivative financial instruments designated as hedge instruments (2) | 14,480 | 6,023 |
| Financial assets measured at amortized cost (3) | 6,939 | 6,896 |
| Financial assets measured at fair value through profit or loss | 622 | 1,593 |
| Total financial assets | 78,384 | 54,961 |
| Current | 45,812 | 14,331 |
| Non-current | 32,572 | 40,630 |
| (1) | Relates to forward and swap contracts used to hedge the variation in the exchange rates and interest rates of financial liabilities in foreign currency. The fair value of these instruments is estimated based on valuation models who use variables other than quoted prices, directly or indirectly observable for financial assets or liabilities. |
The detail of maturities of these instruments at December 31, 2022 was as follows:
| Less than 1 month | From 1 to 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total | |
| Forward | - | 24,382 | 2,918 | - | - | 27,300 |
The detail of maturities of these instruments at December 31, 2021 was as follows:
| Less than 1 month | From 1 to 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total | |
| Forward | 3,016 | 4,587 | 3,454 | - | - | 11,057 |
| (2) | Derivative instruments designated as hedging instrument relates to interest and exchange rate swaps. The fair value of these instruments is determined based on valuation models. |
At December 31, 2022, relates to the following transactions:
Nature of risk hedged |
Hedged item | Range of rates for hedged item |
Range of rates for hedge instruments |
Fair value | |
| Swap | Interest rate | Loans and borrowings | IBR 3M e IBR 1M | 9.0120% y 3.9% | 14,480 |
The detail of maturities of these hedge instruments at December 31, 2022 is shown below:
| Less than 1 month | From 1 to 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total | |
| Swap | - | 3,980 | 4,725 | 4,149 | 1,626 | 14,480 |
At December 31, 2021, relates to the following transactions:
| F-142 |
Nature of risk hedged |
Hedged item | Range of rates for hedged item |
Range of rates for hedge instruments |
Fair value | |
| Swap | Interest rate | Loans and borrowings | IBR 3M | 2.0545% - 2.145% | 6,023 |
The detail of maturities of these hedge instruments at December 31, 2021 is shown below:
| Less than 1 month | From 1 to 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total | |
| Swap | (262) | - | 483 | 2,470 | 3,332 | 6,023 |
| (3) | Financial assets measured at amortized cost represented: |
| As at December 31, | ||
| 2022 | 2021 | |
| Term deposit | 5,461 | - |
| National Treasury bonds | 1,478 | 1,850 |
| Investment in bonds (a) | - | 5,046 |
| Total financial assets measured at amortized cost | 6,939 | 6,896 |
| (a) | Investment in bonds issued by Tuya and for which Éxito had the intention and capability of holding to obtain contractual cash flows until maturity. These investments were part of Tarjeta Éxito corporate collaboration agreement. At December 31, 2022 the nominal value amounts to $- (December 31, 2021 - $5,000) and the maturity ranged from 1 to 10 years and yields CPI + 6%. |
At December 31, 2022 and 2021, there are no restrictions or liens on financial assets that restrict their sale, except for (a) the investment in bonds of Compañía de Financiamiento Tuya S.A. which were issued as part of the business collaboration agreement on Tarjeta Éxito, and (b) judicial deposits relevant to the subsidiary Libertad S.A.
None of the assets were impaired at December 31, 2022 and 2021.
Note 13. Property, plant and equipment, net
| As at December 31, | ||
| 2022 | 2021 | |
| Land | 1,278,822 | 1,137,865 |
| Buildings | 2,348,627 | 2,115,633 |
| Machinery and equipment | 1,176,246 | 1,033,499 |
| Furniture and fixtures | 789,622 | 655,019 |
| Assets under construction | 50,305 | 45,009 |
| Installations | 197,097 | 132,928 |
| Improvements to third-party properties | 776,293 | 635,377 |
| Vehicles | 28,712 | 23,873 |
| Computers | 404,938 | 346,091 |
| Other property, plant and equipment | 16,050 | 16,050 |
| Total property, plant and equipment, gross | 7,066,712 | 6,141,344 |
| Accumulated depreciation | (2,587,996) | (2,111,908) |
| Impairment | (4,436) | (4,739) |
| Total property, plant and equipment, net | 4,474,280 | 4,024,697 |
| F-143 |
The movement of the cost of property, plant and equipment, accumulated depreciation and impairment loss during the reporting periods is shown below:
| Cost | Land | Buildings | Machinery and equipment |
Furniture and fixtures |
Assets under construction |
Installations | Improvements to third party properties |
Vehicles | Computers | Other property, plant and equipment |
Total | |||||||||
| Balance at January 1, 2020 | 1,013,078 | 1,901,719 | 951,405 | 604,591 | 82,196 | 113,362 | 553,014 | 19,006 | 224,545 | 16,050 | 5,478,966 | |||||||||
| Additions | - | 3,409 | 9,012 | 5,166 | 162,665 | 3,826 | 3,781 | 378 | 5,090 | - | 193,327 | |||||||||
Increase (decrease) from movements between property, plant and equipment accounts |
- | 47,030 | 29,246 | 31,298 | (151,419) | 3,597 | 18,417 | 773 | 21,058 | - | - | |||||||||
| Increase (decrease) from transfers from (to) investment property | 13,435 | 28,070 | 1,408 | 29 | (17,548) | - | - | - | - | - | 25,394 | |||||||||
| Disposals and derecognition | (10) | (3,418) | (46,030) | (44,136) | (986) | (12) | (17,127) | (521) | (15,128) | - | (127,368) | |||||||||
Increase (decrease) from transfers from (to) non-current assets held for sale (1) |
13,345 | (737) | - | - | 3,041 | - | - | - | - | - | 15,649 | |||||||||
Effect of exchange differences on translation into presentation Currency |
(50,685) | (70,031) | (12,851) | (14,471) | (2,683) | (9,338) | (15,913) | (1,572) | (9,805) | - | (187,349) | |||||||||
Increase (decrease) from transfers to (from) other balance sheet Accounts |
9,435 | (95) | 2,770 | 797 | (12,577) | - | (19) | (187) | 612 | - | 736 | |||||||||
| Hyperinflation adjustments | 37,808 | 47,381 | 6,062 | 5,409 | 1,448 | - | - | 1,782 | 5,973 | - | 105,863 | |||||||||
| Balance at December 31, 2020 | 1,036,406 | 1,953,328 | 941,022 | 588,683 | 64,137 | 111,435 | 542,153 | 19,659 | 232,345 | 16,050 | 5,505,218 | |||||||||
| Additions | 1,506 | 39,396 | 113,128 | 59,137 | 28,519 | 3,296 | 45,476 | 525 | 130,303 | - | 421,286 | |||||||||
(Decrease) increase from movements between property, plant and equipment accounts |
- | (22,546) | 2,499 | 6,202 | (34,331) | 6,477 | 40,500 | 433 | 766 | - | - | |||||||||
| Increase (decrease) from transfers from (to) investment property | 19,657 | 40,682 | 259 | - | (5,747) | - | - | - | - | - | 54,851 | |||||||||
| Disposals and derecognition | - | (3,896) | (25,585) | (13,343) | (716) | (15) | (12,489) | (1,713) | (12,487) | - | (70,244) | |||||||||
Effect of exchange differences on translation into presentation Currency |
9,904 | 21,306 | 7,910 | 10,098 | 1,087 | 11,735 | 20,779 | (278) | 2,824 | - | 85,365 | |||||||||
Increase (decrease) from transfers to (from) other balance sheet Accounts |
424 | 1,191 | (17,846) | (6,610) | (10,496) | - | (1,042) | 1,890 | (20,257) | - | (52,746) | |||||||||
| Hyperinflation adjustments | 69,968 | 86,172 | 12,112 | 10,852 | 2,556 | - | - | 3,357 | 12,597 | - | 197,614 | |||||||||
| Balance at December 31, 2021 | 1,137,865 | 2,115,633 | 1,033,499 | 655,019 | 45,009 | 132,928 | 635,377 | 23,873 | 346,091 | 16,050 | 6,141,344 | |||||||||
| Additions | 8,922 | 28,881 | 138,155 | 82,438 | 70,190 | 2,377 | 65,911 | 1,879 | 44,697 | - | 443,450 | |||||||||
Increase (decrease) from movements between property, plant and equipment accounts |
- | 4,165 | 3,745 | 19,713 | (49,114) | 12,771 | 8,713 | - | 7 | - | - | |||||||||
| (Decrease) from transfers from (to) investment property | (1,643) | (1,756) | - | - | (12,232) | - | - | - | - | - | (15,631) | |||||||||
Increase (decrease) from transfers from (to) non-current assets held for sale |
(446) | (647) | (1,093) | |||||||||||||||||
| Disposals and derecognition | (466) | (2,436) | (29,871) | (11,784) | (627) | (957) | (20,755) | (226) | (9,613) | - | (76,735) | |||||||||
Effect of exchange differences on translation into presentation currency |
6,219 | 36,390 | 27,542 | 38,182 | 2,496 | 49,978 | 89,656 | (2,633) | 5,065 | - | 252,895 | |||||||||
(Decrease) Increase from transfers to (from) other balance sheet accounts |
(929) | (741) | (18,610) | (11,548) | (266) | - | (2,609) | 143 | (5,078) | - | (39,638) | |||||||||
| Hyperinflation adjustments | 129,300 | 168,491 | 21,786 | 17,602 | (4,504) | - | - | 5,676 | 23,769 | - | 362,120 | |||||||||
| Balance at December 31, 2022 | 1,278,822 | 2,348,627 | 1,176,246 | 789,622 | 50,305 | 197,097 | 776,293 | 28,712 | 404,938 | 16,050 | 7,066,712 |
| F-144 |
| Accumulated depreciation | Land | Buildings | Machinery and equipment |
Furniture and fixtures |
Assets under construction |
Installations | Improvements to third party properties |
Vehicles | Computers | Other property, plant and equipment |
Total | |||||||||
| Balance at January 1, 2020 | 326,935 | 443,859 | 350,634 | 61,124 | 260,343 | 12,968 | 169,154 | 4,009 | 1,629,026 | |||||||||||
| Depreciation | 47,080 | 87,643 | 60,282 | 7,790 | 32,486 | 1,802 | 23,316 | 788 | 261,187 | |||||||||||
Increase (decrease) from movements between property, plant and equipment accounts |
- | (9,575) | 9,337 | - | 422 | 213 | (397) | - | - | |||||||||||
| Increase because of transfers from investment property | 20,210 | - | - | - | - | - | - | 20,210 | ||||||||||||
| Disposals and derecognition | (375) | (34,465) | (34,918) | (4) | (10,964) | (367) | (13,406) | - | (94,499) | |||||||||||
Effect of exchange differences on translation into presentation currency |
(20,015) | (9,489) | (11,637) | (5,338) | (6,903) | (1,129) | (8,208) | - | (62,719) | |||||||||||
| Other | (31) | 1 | 51 | - | - | - | 28 | - | 49 | |||||||||||
| Hyperinflation adjustments | 18,199 | 5,332 | 4,730 | - | - | 1,585 | 7,050 | - | 36,896 | |||||||||||
| Balance at December 31, 2020 | 392,003 | 483,306 | 378,479 | 63,572 | 275,384 | 15,072 | 177,537 | 4,797 | 1,790,150 | |||||||||||
| Depreciation | 49,909 | 86,118 | 56,701 | 8,152 | 30,637 | 1,675 | 31,408 | 788 | 265,388 | |||||||||||
| Disposals and derecognition | (1,178) | (18,607) | (9,535) | (5) | (6,254) | (1,582) | (11,815) | - | (48,976) | |||||||||||
| (Decrease) from transfers (to) investment property | (16) | - | - | - | - | - | - | - | (16) | |||||||||||
Effect of exchange differences on translation into presentation currency |
5,102 | 5,460 | 8,889 | 6,790 | 8,541 | (231) | 2,289 | - | 36,840 | |||||||||||
| Other | (278) | (489) | - | - | - | (5) | 6 | - | (766) | |||||||||||
| Hyperinflation adjustments | 34,532 | 10,057 | 9,068 | - | - | 3,048 | 12,583 | - | 69,288 | |||||||||||
| Balance at December 31, 2021 | 480,074 | 565,845 | 443,602 | 78,509 | 308,308 | 17,977 | 212,008 | 5,585 | 2,111,908 | |||||||||||
| Depreciation | 51,704 | 88,988 | 58,975 | 9,933 | 36,580 | 2,097 | 34,328 | 788 | 283,393 | |||||||||||
| Disposals and derecognition | (669) | (23,868) | (9,317) | (509) | (16,858) | (193) | (9,562) | - | (60,976) | |||||||||||
| (Decrease) from transfers (to) investment property | 526 | - | - | - | - | - | - | - | 526 | |||||||||||
Increase (decrease) from transfers from (to) non-current assets held for sale |
(436) | (436) | ||||||||||||||||||
Effect of exchange differences on translation into presentation currency |
5,988 | 18,227 | 32,472 | 29,690 | 34,381 | (2,339) | 3,806 | - | 122,225 | |||||||||||
| Other | 32 | (7) | - | - | - | (333) | 1,307 | - | 999 | |||||||||||
| Hyperinflation adjustments | 67,528 | 18,408 | 15,673 | - | - | 5,585 | 23,163 | - | 130,357 | |||||||||||
| Balance at December 31, 2022 | 604,747 | 667,593 | 541,405 | 117,623 | 362,411 | 22,794 | 265,050 | 6,373 | 2,587,996 |
| Impairment | Land | Buildings | Machinery and equipment |
Furniture and fixtures |
Assets under construction |
Installations | Improvements to third party properties |
Vehicles | Computers | Other property, plant and equipment |
Total | |||||||||
| Balance at January 1, 2020 | 1,280 | 1,007 | - | - | - | 2,561 | - | - | - | 4,848 | ||||||||||
| Impairment loss | 641 | 1,977 | - | - | - | 214 | - | - | - | 2,832 | ||||||||||
Effect of exchange differences on translation into presentation currency |
- | - | - | - | - | (214) | - | - | - | (214) | ||||||||||
| Balance at December 31, 2020 | 1,921 | 2,984 | - | - | - | 2,561 | - | - | - | 7,466 | ||||||||||
| Impairment loss | - | 756 | - | - | - | 1,735 | - | - | - | 2,491 | ||||||||||
| Reversal of Impairment loss | (1,921) | (2,857) | - | - | - | - | - | - | - | (4,778) | ||||||||||
| Disposals and derecognition | - | (756) | - | - | - | - | - | - | - | (756) | ||||||||||
Effect of exchange differences on translation into presentation currency |
- | - | - | - | - | 316 | - | - | - | 316 | ||||||||||
| Balance at December 31, 2021 | - | 127 | - | - | - | 4,612 | - | - | - | 4,739 | ||||||||||
| Impairment loss | - | 241 | - | - | - | 1,403 | - | - | - | 1,644 | ||||||||||
| Reversal of Impairment loss | - | (17) | - | - | - | (2,786) | - | - | - | (2,803) | ||||||||||
| Disposals and derecognition | - | (241) | - | - | - | (239) | - | - | - | (480) | ||||||||||
Effect of exchange differences on translation into presentation currency |
- | - | - | - | - | 1,336 | - | - | - | 1,336 | ||||||||||
| Balance at December 31, 2022 | - | 110 | - | - | - | 4,326 | - | - | - | 4,436 |
| F-145 |
| (1) | At December 31, 2020 and given the impossibility of achieving the sale, the Hotel Cota plot of land and real estate project were transferred from non-current assets held for sale back to property, plant and equipment. |
Assets under construction are represented by those assets in process of construction and process of assembly not ready for their intended use as expected by Éxito Group management, and on which costs directly attributable to the construction process continue to be capitalized if they are qualifying assets.
The cost of property, plant and equipment does not include the balance of estimated dismantling and similar costs, based on the assessment and analysis made by the Éxito Group which concluded that there are no contractual or legal obligations at acquisition.
At December 31, 2022 and 2021 no restrictions or liens have been imposed on items of property, plant and equipment that limit their sale, and there are no commitments to acquire, build or develop property, plant and equipment.
Information about impairment testing is disclosed in Notes 34 and 35.
Note 13.1 Additions to property, plant and equipment for cash flow presentation purposes
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Additions | 443,450 | 421,286 | 193,327 |
| Additions to trade payables for deferred purchases of property, plant and equipment | (546,817) | (411,044) | (181,799) |
| Payments for deferred purchases of property, plant and equipment | 484,182 | 320,208 | 192,889 |
| Acquisition of property, plant and equipment in cash | 380,815 | 330,450 | 204,417 |
Note 14. Investment property, net
Éxito Group's investment properties are business premises and land held to generate income from operating leases or future appreciation of their value.
The net balance of investment properties is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Land | 312,399 | 281,119 |
| Buildings | 1,744,190 | 1,597,106 |
| Constructions in progress | 109,563 | 29,059 |
| Total cost of investment property | 2,166,152 | 1,907,284 |
| Accumulated depreciation | (317,665) | (241,348) |
| Impairment | (7,259) | (9,691) |
| Total investment property, net | 1,841,228 | 1,656,245 |
The movement of the cost of investment property, accumulated depreciation and impairment loss during the reporting periods is shown below:
Cost |
Land |
Buildings |
Constructions in progress |
Total |
| Balance at January 1, 2020 | 313,899 | 1,470,745 | 8,223 | 1,792,867 |
| Additions | 201 | 4,338 | 6,057 | 10,596 |
| Disposals and derecognition | (12) | - | - | (12) |
| (Decrease) from transfers (to) property, plant and equipment | (13,435) | (10,060) | (1,899) | (25,394) |
| Effect of exchange differences on the translation into presentation currency | (9,188) | (61,289) | (154) | (70,631) |
| Increase from transfers from non-current assets held for sale (1) | - | 597 | - | 597 |
| Hyperinflation adjustments | 5,634 | 61,678 | 159 | 67,471 |
| Other | (9,707) | 1,354 | (314) | (8,667) |
| Balance at December 31, 2020 | 287,392 | 1,467,363 | 12,072 | 1,766,827 |
| Additions | 629 | 63,445 | 22,075 | 86,149 |
| (Decrease) from transfers (to) property, plant and equipment | (19,657) | (31,809) | (3,385) | (54,851) |
| (Decrease) from transfers (to) real estate project inventories | (776) | - | - | (776) |
| Disposals and derecognition | - | (6,276) | - | (6,276) |
| Effect of exchange differences on the translation into presentation currency | 3,589 | (8,769) | (29) | (5,209) |
| Hyperinflation adjustments | 10,366 | 113,108 | 220 | 123,694 |
| Other | (424) | 44 | (1,894) | (2,274) |
| Balance at December 31, 2021 | 281,119 | 1,597,106 | 29,059 | 1,907,284 |
| Additions | - | 1,618 | 80,220 | 81,838 |
| Increase from transfers from property, plant and equipment | 1,643 | 11,128 | 2,860 | 15,631 |
| Increase (decrease) from movements between investment properties accounts | - | 2,756 | (2,756) | - |
| Disposals and derecognition | (39) | (1,844) | - | (1,883) |
| Increases from transfers from non-current assets held for sale | 1,229 | 1,844 | - | 3,073 |
| Effect of exchange differences on the translation into presentation currency | 8,852 | (88,535) | (262) | (79,945) |
| Hyperinflation adjustments | 20,175 | 220,592 | 569 | 241,336 |
| Other | (580) | (475) | (127) | (1,182) |
| Balance at December 31, 2022 | 312,399 | 1,744,190 | 109,563 | 2,166,152 |
| F-146 |
Accumulated depreciation |
Buildings |
| Balance at January 1, 2020 | 163,183 |
| Depreciation expenses | 31,416 |
| (Decrease) from transfers (to) property, plant and equipment | (20,210) |
| Effect of exchange differences from translation into presentation currency | (11,805) |
| Increase from transfers from non-current assets held for sale (1) | 41 |
| Hyperinflation adjustments | 17,195 |
| Balance at December 31, 2020 | 179,820 |
| Depreciation expenses | 30,180 |
| Increase arising from transfers from property, plant and equipment accounts | 16 |
| Disposals and derecognition | (71) |
| Effect of exchange differences on the translation into presentation currency | (1,741) |
| Hyperinflation adjustments | 33,365 |
| Other | (221) |
| Balance at December 31, 2021 | 241,348 |
| Depreciation expenses | 31,174 |
| Decrease arising from transfers (to) property, plant and equipment accounts | (526) |
| Disposals and derecognition | (189) |
| Increases from transfers from non-current assets held for sale | 870 |
| Effect of exchange differences on the translation into presentation currency | (21,452) |
| Hyperinflation adjustments | 66,589 |
| Other | (149) |
| Balance at December 31, 2022 | 317,665 |
| Impairment | Land | Buildings | Total |
| Balance at January 1, 2020 | 1,159 | 2,305 | 3,464 |
| Impairment loss | 509 | 4,288 | 4,797 |
| Balance at December 31, 2020 | 1,668 | 6,593 | 8,261 |
| Impairment loss | 336 | 7,538 | 7,874 |
| Reversal of Impairment loss | (192) | (868) | (1,060) |
| Disposals and derecognition | - | (5,384) | (5,384) |
| Balance at December 31, 2021 | 1,812 | 7,879 | 9,691 |
| Impairment loss | - | 556 | 556 |
| Reversal of Impairment loss | (173) | (2,259) | (2,432) |
| Disposals and derecognition | - | (556) | (556) |
| Balance at December 31, 2022 | 1,639 | 5,620 | 7,259 |
| (1) | Given the impossibility of achieving the sale, the Pereira Plaza Trade Premises were transferred back to investment property. |
At December 31, 2022 and 2021, there are no limitations or liens imposed on investment property that restrict realization or tradability thereof.
At December 31, 2022 and 2021, the Éxito Group is not committed to acquire, build or develop new investment property.
Information about impairment testing is disclosed in Note 34. Note 35 discloses the fair value of investment property, based on the appraisal carried out by an independent third party.
During the years ended December 31, 2022 and 2021 the results at the Éxito Group from the investment property are as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Lease rental income | 340,746 | 300,541 | 220,706 |
| Operating expense related to leased investment properties | (75,031) | (75,210) | (55,931) |
| Operating expense related to investment properties that are not leased | (81,306) | (71,138) | (118,038) |
| Net gain from investment property | 184,409 | 154,193 | 46,737 |
Note 15. Leases
Note 15.1 Right of use asset, net
| As at December 31, | ||
| 2022 | 2021 | |
| Right of use asset | 2,826,607 | 2,553,975 |
| Accumulated depreciation | (1,377,029) | (1,183,463) |
| Impairment | (6,109) | - |
| Total right of use asset, net | 1,443,469 | 1,370,512 |
| F-147 |
The movement of right of use asset and depreciation thereof, during the reporting periods, is shown below:
| Cost | |
| Balance at January 1, 2020 | 2,413,037 |
| Increase from new contracts | 356,658 |
| Remeasurements from existing contracts (1) | 219,207 |
| Derecognition, reversal and disposal (2) | (664,459) |
| Effect of exchange differences on translation into presentation currency | (22,553) |
| Balance at December 31, 2020 | 2,301,890 |
| Increase from new contracts | 97,446 |
| Remeasurements from existing contracts (1) | 170,764 |
| Derecognition, reversal and disposal (2) | (43,987) |
| Effect of exchange differences on the translation into presentation currency | 27,862 |
| Balance at December 31, 2021 | 2,553,975 |
| Increase from new contracts | 174,190 |
| Increase from new contracts, prepaid | 7,002 |
| Remeasurements from existing contracts (1) | 137,047 |
| Derecognition, reversal and disposal (2) | (166,587) |
| Hyperinflation adjustments | 2,149 |
| Effect of exchange differences on the translation into presentation currency | 118,831 |
| Balance at December 31, 2022 | 2,826,607 |
| Accumulated depreciation | |
| Balance at January 1, 2020 | 1,109,389 |
| Depreciation | 193,191 |
| Remeasurements from existing contracts (1) | (421) |
| Derecognition and disposal (2) | (308,257) |
| Effect of exchange differences on the translation into presentation currency | (9,557) |
| Balance at December 31, 2020 | 984,345 |
| Depreciation | 214,930 |
| Remeasurements from existing contracts (1) | (320) |
| Derecognition and disposal (2) | (27,746) |
| Effect of exchange differences on the translation into presentation currency | 12,254 |
| Balance at December 31, 2021 | 1,183,463 |
| Depreciation | 242,119 |
| Remeasurements from existing contracts (1) | (1,190) |
| Derecognition and disposal (2) | (105,459) |
| Hyperinflation adjustments | 517 |
| Effect of exchange differences on the translation into presentation currency | 57,579 |
| Balance at December 31, 2022 | 1,377,029 |
| Impairment | |
| Balance at December 31, 2021 | - |
| Impairment loss | 5,236 |
| Effect of exchange differences on the translation into presentation currency | 873 |
| Balance at December 31, 2022 | 6,109 |
| (1) | Mainly results from the extension of contract terms, indexation or lease modifications. |
| (2) | Mainly results from the early termination of lease contracts. |
The cost of right of use asset by class of underlying asset is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Lands | 9,128 | 6,373 |
| Buildings | 2,782,432 | 2,512,434 |
| Vehicles | 24,771 | 26,876 |
| Equipment | 10,276 | 8,292 |
| Total | 2,826,607 | 2,553,975 |
| F-148 |
Accumulated of depreciation of right of use assets by class of underlying asset is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Lands | 4,754 | 2,958 |
| Buildings | 1,357,351 | 1,163,200 |
| Vehicles | 10,182 | 14,947 |
| Equipment | 4,742 | 2,358 |
| Total | 1,377,029 | 1,183,463 |
Depreciation expense by class of underlying asset is shown below:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Lands | 631 | 429 | 299 |
| Buildings | 234,907 | 206,666 | 185,808 |
| Vehicles | 4,876 | 5,903 | 4,841 |
| Equipment | 1,705 | 1,932 | 2,243 |
| Total depreciation | 242,119 | 214,930 | 193,191 |
The Éxito Group is not exposed to the future cash outflows for extension options and termination options. Additionally, there are no residual value guarantees, and there are no restrictions or covenants related to these leases.
As at December 31, 2022, the average remaining term of lease contracts is 8.8 years (9.2 years as at December 31, 2021), which is also the average remaining period over which the right of use asset is depreciated.
Note 15.2 Lease liability
| As at December 31, | ||
| 2022 | 2021 | |
| Lease liabilities | 1,655,955 | 1,594,643 |
| Current | 263,175 | 234,178 |
| Non-current | 1,392,780 | 1,360,465 |
| Balance at January 1, 2020 | 1,530,231 |
| Additions | 356,928 |
| Accrued interest | 133,322 |
| Remeasurements | 219,628 |
| Terminations | (375,971) |
| Payments of lease liabilities including interests | (303,989) |
| Effect of exchange differences on the translation into presentation currency | (16,997) |
| Other | (257) |
| Balance at December 31, 2020 | 1,542,895 |
| Additions | 96,738 |
| Accrued interest | 94,555 |
| Remeasurements | 171,083 |
| Terminations | (15,406) |
| Payments of lease liabilities including interests | (315,739) |
| Effect of exchange differences on the translation into presentation currency | 20,601 |
| Other | (84) |
| Balance at December 31, 2021 | 1,594,643 |
| Additions | 174,190 |
| Accrued interest | 99,324 |
| Remeasurements | 138,237 |
| Terminations | (66,937) |
| Payments of lease liabilities including interests | (363,316) |
| Effect of exchange differences on the translation into presentation currency | 79,950 |
| Other | (136) |
| Balance at December 31, 2022 | 1,655,955 |
Below are the future lease liability payments at December 31, 2022:
| Up to one year | 337,809 |
| From 1 to 5 years | 991,809 |
| More than 5 years | 782,572 |
| Minimum lease liability payments | 2,112,190 |
| Future financing (expenses) | (456,235) |
| Total minimum net lease liability payments | 1,655,955 |
| F-149 |
The Éxito Group is not exposed to the future cash outflows for extension options or termination options. Additionally, there are no residual value guarantees, and there are no restrictions nor covenants imposed by leases.
Note 15.3. Short term leases and leases of low value assets of the Éxito Group as a lessee
Leases of low value assets are for items such as furniture and fixtures, computers, machinery and equipment and office equipment. Variable lease payments apply to some of the Éxito Group’s property leases and are detailed below:
| Year ended December 31, | ||
| 2022 | 2021 | |
| Variable lease payments | 54,711 | 39,768 |
| Short term leases | 11,288 | 9,896 |
| Total | 65,999 | 49,664 |
Note 15.4. Operating leases of the Éxito Group as a lessor
The Éxito Group has executed operating lease agreements on investment properties. Total future minimum instalments under non-cancellable operating lease agreements at the reporting dates are:
| Year ended December 31, | ||
| 2022 | 2021 | |
| Up to one year | 227,423 | 204,750 |
| From 1 to 5 years | 270,281 | 244,942 |
| More than 5 years | 163,414 | 153,603 |
| Total minimum instalments under non-cancellable operating leases | 661,118 | 603,295 |
Operating lease agreements cannot be cancelled during their term. Prior agreement of the parties is needed to terminate and a minimum cancellation payment is required ranging from 1 to 12 monthly instalments, or a fixed percentage on the remaining term.
For the year ended December 31, 2022 lease rental income was $409,009 (December 31, 2021 - $302,262) mostly comprised of investment property rental income for $340,746 (December 31, 2021 - $300,541). Income from variable lease payments was $225,506 (December 31, 2021 - $162,172).
Note 16. Other intangible assets, net
The net balance of other intangible assets, net is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Trademarks | 299,688 | 242,170 |
| Computer software | 274,480 | 249,324 |
| Rights | 24,703 | 22,538 |
| Other | 147 | 114 |
| Total cost of other intangible assets | 599,018 | 514,146 |
| Accumulated amortization | (174,338) | (150,159) |
| Total other intangible assets, net | 424,680 | 363,987 |
| F-150 |
The movement of the cost of other intangible assets, of accumulated depreciation and of impairment losses is shown below:
| Cost | Trademarks (1) | Computer Software |
Rights (2) | Other | Total |
| Balance at January 1, 2020 | 219,923 | 172,044 | 27,034 | 86 | 419,087 |
| Additions | - | 37,853 | - | - | 37,853 |
| Disposals and derecognition | - | (800) | - | - | (800) |
| Effect of exchange differences on translation into presentation currency | (18,853) | (1,428) | (12) | (17) | (20,310) |
| Hyperinflation adjustments | 12,255 | - | 1,096 | 17 | 13,368 |
| Transfers | - | 195 | - | - | 195 |
| Other | - | 284 | - | - | 284 |
| Balance at December 31, 2020 | 213,325 | 208,148 | 28,118 | 86 | 449,677 |
| Additions | - | 40,003 | 2,771 | - | 42,774 |
| Disposals and derecognition | - | (2,140) | (9,266) | - | (11,406) |
| Effect of exchange differences on translation into presentation currency | 6,386 | 1,823 | (57) | (3) | 8,149 |
| Hyperinflation adjustments | 22,459 | - | 972 | 31 | 23,462 |
| Transfers | - | 470 | - | - | 470 |
| Other | - | 1,020 | - | - | 1,020 |
| Balance at December 31, 2021 | 242,170 | 249,324 | 22,538 | 114 | 514,146 |
| Additions | - | 27,519 | - | - | 27,519 |
| Disposals and derecognition | - | (10,191) | - | - | (10,191) |
| Effect of exchange differences on translation into presentation currency | 13,804 | 8,275 | (613) | (27) | 21,439 |
| Hyperinflation adjustments | 43,714 | - | 2,778 | 60 | 46,552 |
| Transfers | - | (410) | - | - | (410) |
| Other | - | (37) | - | - | (37) |
| Balance at December 31, 2022 | 299,688 | 274,480 | 24,703 | 147 | 599,018 |
Accumulated amortization |
Trademarks (1) | Computer Software |
Rights (2) | Other | Total |
| Balance at January 1, 2020 | 114,792 | 40 | 40 | 114,872 | |
| Amortization | 19,214 | - | 3 | 19,217 | |
| Effect of exchange differences on translation into presentation currency | (1,183) | (10) | (10) | (1,203) | |
| Hyperinflation adjustments | - | 144 | 18 | 162 | |
| Disposals and derecognition | (436) | - | - | (436) | |
| Other | (7) | 9 | - | 2 | |
| Balance at December 31, 2020 | 132,380 | 183 | 51 | 132,614 | |
| Amortization | 17,684 | 6 | 3 | 17,693 | |
| Effect of exchange differences on translation into presentation currency | 1,503 | (9) | (3) | 1,491 | |
| Hyperinflation adjustments | - | 506 | 37 | 543 | |
| Disposals and derecognition | (1,941) | - | - | (1,941) | |
| Other | (235) | (6) | - | (241) | |
| Balance at December 31, 2021 | 149,391 | 680 | 88 | 150,159 | |
| Amortization | 26,737 | 479 | - | 27,216 | |
| Effect of exchange differences on translation into presentation currency | 6,692 | (203) | (26) | 6,463 | |
| Hyperinflation adjustments | - | 1,105 | 63 | 1,168 | |
| Disposals and derecognition | (10,190) | - | - | (10,190) | |
| Other | - | (479) | 1 | (478) | |
| Balance at December 31, 2022 | 172,630 | 1,582 | 126 | 174,338 | |
| Impairment | |||||
| Balance at January 1, 2020 | - | - | - | - | - |
| Impairment loss | - | - | 9,266 | - | 9,266 |
| Balance at December 31, 2020 | - | - | 9,266 | - | 9,266 |
| Disposals and derecognition (2) | - | - | (9,266) | - | (9,266) |
| Balance at December 31, 2021 | - | - | - | - | - |
| Impairment loss | - | - | - | - | - |
| Balance at December 31, 2022 | - | - | - | - | - |
| (1) | The balance relates to the following trademarks: |
| As at December 31, | ||||
| Operating segment | Brand | Useful life | 2022 | 2021 |
| Uruguay | Miscellaneous | Indefinite | 128,103 | 94,319 |
| Low cost and other (Colombia) | Súper Ínter | Indefinite | 63,704 | 63,704 |
| Argentina | Libertad | Indefinite | 90,454 | 66,720 |
| Low cost and other (Colombia) | Surtimax | Indefinite | 17,427 | 17,427 |
| 299,688 | 242,170 | |||
| F-151 |
The trademarks have an indefinite useful life. The Éxito Group estimates that there is no foreseeable time limit over which these assets are expected to generate net cash inflows, and consequently they are not amortized.
| (2) | Exploitation rights on trade premises impaired during 2020 were derecognized at December 31, 2021 in the amount of $9,266. |
The rights have an indefinite useful life. The Éxito Group estimates that there is no foreseeable time limit over which these assets are expected to generate net cash inflows, and consequently these are not amortized, except for rights of Libertad S.A.
Information about impairment testing is disclosed in Notes 34 and 35.
At December 31, 2022 and 2021, other intangible assets are not limited or subject to lien that would restrict their sale. In addition, there are no commitments to acquire or develop other intangible assets.
Note 17. Goodwill
Changes in goodwill are shown below:
| Cost | Impairment | Net | |
| Balance at January 1, 2020 | 2,930,768 | (1,017) | 2,929,751 |
| Effect of exchange differences on the translation into presentation currency | (122,399) | - | (122,399) |
| Hyperinflation adjustments | 46,183 | - | 46,183 |
| Balance at December 31, 2020 | 2,854,552 | (1,017) | 2,853,535 |
| Effect of exchange differences on the translation into presentation currency | 86,805 | - | 86,805 |
| Hyperinflation adjustments | 84,643 | - | 84,643 |
| Balance at December 31, 2021 | 3,026,000 | (1,017) | 3,024,983 |
| Effect of exchange differences on the translation into presentation currency | 294,578 | - | 294,578 |
| Hyperinflation adjustments | 164,742 | - | 164,742 |
| Balance at December 31, 2022 | 3,485,320 | (1,017) | 3,484,303 |
Goodwill was not impaired at December 31, 2022 and 2021.
Information about impairment testing is disclosed in Notes 34 and 35.
Note 18. Investments accounted for using the equity method
The balance of investments accounted for using the equity method includes:
| As at December 31, | |||
| Company | Classification | 2022 | 2021 |
| Compañía de Financiamiento Tuya S.A. | Joint venture | 287,657 | 279,790 |
| Puntos Colombia S.A.S. | Joint venture | 11,514 | 9,601 |
| Sara ANV S.A- | Joint venture | 850 | - |
| Total investments accounted for using the equity method | 300,021 | 289,391 | |
Note 18.1. Non-financial information
Information regarding country of domicile, functional currency, main economic activity, ownership percentage and shares held in investments accounted for using the equity method is shown below:
| Company | Country | Functional currency |
Primary economic activity |
Ownership percentage | Number of shares | ||
| As at December 31, | |||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| Compañía de Financiamiento Tuya S.A. | Colombia | Colombian peso | Credit | 50% | 50% | 13.097.457.027 | 11.084.732.098 |
| Puntos Colombia S.A.S. | Colombia | Colombian peso | Services | 50% | 50% | 9.000.000 | 9.000.000 |
| Sara ANV S.A. | Colombia | Colombian peso | Services | 50% | - | 850.000 | - |
| F-152 |
Note 18.2. Financial information
Financial information regarding investments accounted for using the equity method at December 31, 2022:
| Companies | Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
Equity | Revenue from ordinary activities |
Income from continuing operations |
Other comprehensive Income (*) |
| Compañía de Financiamiento Tuya S.A. | 4,968,085 | 133,262 | 2,160,570 | 2,400,687 | 540,090 | 1,530,333 | (73,266) | - |
| Puntos Colombia S.A.S. | 196,826 | 37,789 | 199,105 | 12,483 | 23,027 | 320,137 | 3,826 | - |
| Sara ANV S.A. | 850 | 1,230 | 380 | - | 1,700 | - | - | - |
| Companies | Cash and cash equivalents |
Current financial liabilities |
Non-current financial liabilities |
Revenue from interest |
Interest expense |
Depreciation and amortization |
Income tax expense |
| Compañía de Financiamiento Tuya S.A. | 523,859 | 2,036,426 | 2,382,673 | 1,412 | (13,010) | (28,508) | (13,828) |
| Puntos Colombia S.A.S. | 39,496 | 64,500 | 1,288 | 3,011 | (23) | (747) | (3,034) |
| Sara ANV S.A. | 850 | 380 | - | - | - | - | - |
Financial information regarding investments accounted for using the equity method at December 31, 2021:
| Companies | Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
Equity | Revenue from ordinary activities |
Income from continuing operations |
Other comprehensive income (*) |
| Compañía de Financiamiento Tuya S.A. | 3,851,907 | 113,490 | 1,956,776 | 1,484,265 | 524,356 | 1,074,933 | 10,681 | - |
| Puntos Colombia S.A.S. | 167,340 | 11,320 | 151,408 | 8,051 | 19,201 | 259,482 | 3,787 | - |
| Companies | Cash and cash equivalents |
Current financial liabilities |
Non-current financial liabilities |
Revenue from interest |
Interest expense |
Depreciation and amortization |
Income tax expense |
| Compañía de Financiamiento Tuya S.A. | 353,348 | 1,598,249 | 1,465,860 | 624,858 | (89,465) | (21,113) | (13,828) |
| Puntos Colombia S.A.S. | 57,493 | 16 | - | 1,194 | - | (5,151) | (1,876) |
Financial information regarding investments accounted for using the equity method at December 31, 2020:
| Companies | Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
Equity | Revenue from ordinary activities |
Income from continuing operations |
Other comprehensive income (*) |
| Compañía de Financiamiento Tuya S.A. | 3,104,242 | 131,233 | 1,058,139 | 1,692,661 | 484,675 | 1,164,209 | 26,665 | - |
| Puntos Colombia S.A.S. | 135,435 | 15,336 | 129,616 | 5,740 | 15,415 | 238,215 | 12,669 | - |
| Companies | Cash and cash equivalents |
Current financial liabilities |
Non-current financial liabilities |
Revenue from interest |
Interest expense |
Depreciation and amortization |
Income tax expense |
| Compañía de Financiamiento Tuya S.A. | 339,044 | 783,730 | 1,659,232 | 655,695 | (142,770) | (18,693) | (142,770) |
| Puntos Colombia S.A.S. | 39,856 | 29 | - | 2,551 | - | (4,686) | - |
| (*) | There are no other comprehensive income figures proceeding from this companies. |
Note 18.3. Corporate purpose
Compañía de Financiamiento Tuya S.A.
A joint venture and a joint control investment which was acquired on October 31, 2016. It is a private entity, authorized by the Colombian Financial Superintendence, having its main place of business in Medellín. Its main corporate purpose is to issue credit cards and grant consumer loans to low-income segments that the traditional banking system does not serve, promoting financial access.
Puntos Colombia S.A.S.
A joint venture established on April 19, 2017 under Colombian law. Its main corporate purpose is operating a loyalty program, pursuant to which its users earn points when purchasing from the Éxito Group and its partners. These points are redeemable for products or services available at the Puntos Colombia platform.
| F-153 |
Sara ANV S.A.
Joint venture established on June 17, 2022. Its main corporate purpose is the performance of all operations, businesses, acts, services, or activities that, by of the applicable financial regulation, result from acquirer activities, whether carried out directly or through third parties. Its main address is located at Carrera 48 number 32B Sur – 139, Envigado, Colombia. The term of duration of the company is until June 16, 2122.
Note 18.4. Other information
The reconciliation of summarized financial information reported to the carrying amount of associates and joint ventures in the consolidated financial statements is shown below:
| December 31, 2022 | ||||
| Companies | Net assets | Ownership percentage |
Proportionate share of net assets |
Carrying amount (1) |
| Compañía de Financiamiento Tuya S.A. | 540,090 | 50% | 270,045 | 287,611 |
| Puntos Colombia S.A.S. | 23,027 | 50% | 11,514 | 11,514 |
| Sara ANV S.A. | 1,700 | 50% | 850 | 799 |
| December 31, 2021 | ||||
| Companies | Net assets | Ownership percentage |
Proportionate share of net assets |
Carrying amount (1) |
| Compañía de Financiamiento Tuya S.A. | 524,356 | 50.00% | 262,178 | 279,753 |
| Puntos Colombia S.A.S. | 19,201 | 50.00% | 9,601 | 9,601 |
| (1) | Amount of investment and goodwill. |
No dividends were received from joint ventures during the years ended December 31, 2022, December 31, 2021 and December 31, 2020.
There are no restrictions on the capability of joint ventures to transfer funds to Éxito in the form of cash dividends, or loan repayments or advance payments.
Éxito has no contingent liabilities incurred related to its participation therein.
There are no constructive obligations acquired by Éxito on behalf of joint ventures arising from losses exceeding the interest held in them.
These investments have no restrictions or liens that affect the interest held in them.
Note 19. Non-cash transactions
During 2022, 2021 and 2020, the Éxito Group had non-cash additions to property, plant and equipment, and to right of use assets, that were not included in the statement of cash flow, presented in Note 13.1 and 15, respectively.
Note 20. Loans, borrowing and other financial liability
The balance of loans, borrowing and other financial liability is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Bank loans | 791,098 | 898,267 |
| Put option on non-controlling interests (1) | 651,899 | 509,870 |
| Letters of credit | 12,587 | 8,874 |
| Total loans, borrowing and other financial liability | 1,455,584 | 1,417,011 |
| Current | 915,604 | 674,927 |
| Non-current | 539,980 | 742,084 |
(1) Represents the put option liability on part of the non-controlling interest in Grupo Disco Uruguay S.A. (“Grupo Disco”). The Éxito Group has a non-controlling interest in Grupo Disco of 37.51%, of which 29.82% is subject to a put option held by non-controlling shareholders. Such put option is exercisable by the holders at any time until expiry on June 30, 2025. The put option exercise price is the greater of following three measures: (i) a fixed price per share of $0.30 in US dollars as stated in the put option contract adjusted at a rate of 5% per year, (ii) a multiple of 6 times the average EBITDA of the last two years minus the net debt of Grupo Disco as of the exercise date, or (iii) a multiple of 12 times the average net income of the past two years of the Grupo Disco. On December 31, 2022, 2021 and 2020, the greater of these three measures was the updated fixed price in US dollars. See accounting policy in Note 4.
| F-154 |
The movement in loans, borrowing and other financial liability during the reporting periods is shown below:
| Balance at January 1, 2020 | 660,353 |
| Proceeds from loans and borrowings | 1,622,096 |
| Changes in the fair value of the put option recognized in equity | 37,848 |
| Interest accrued | 77,704 |
| Exchange difference | 1,264 |
| Translation difference | (454) |
| Repayments of loans and borrowings | (866,866) |
| Repayments of interest on loans and borrowings | (76,283) |
| Balance at December 31, 2020 | 1,455,662 |
| Proceeds from loans and borrowings | 370,620 |
| Changes in the fair value of the put option recognized in equity | 92,485 |
| Interest accrued | 52,593 |
| Exchange difference | 725 |
| Translation difference | (62) |
| Repayments of loans and borrowings | (500,834) |
| Repayments of interest on loans and borrowings | (54,178) |
| Balance at December 31, 2021 | 1,417,011 |
| Proceeds from loans and borrowings | 876,798 |
| Changes in the fair value of the put option recognized in equity | 142,028 |
| Interest accrued | 111,234 |
| Translation difference | 3,250 |
| Repayments of loans and borrowings | (995,865) |
| Repayments of interest on loans and borrowings | (98,872) |
| Balance at December 31, 2022 | 1,455,584 |
Below is a detail of maturities for non-current loans and borrowings outstanding at December 31, 2022, discounted at present value:
| Year | Total |
| 2024 | 318,791 |
| 2025 | 114,935 |
| 2026 | 60,183 |
| >2027 | 46,071 |
| 539,980 |
Éxito Group has available unused credit lines to minimize liquidity risks, as follows:
As at December 31, 2022 | |
| Banco Davivienda S.A. | 500,000 |
| Bancolombia S.A. | 500,000 |
| Total | 1,000,000 |
| Covenants |
Under loans and borrowing contracts, the Éxito Group is subject to comply with the following financial covenants:
Maintain a leverage financial ratio, defined as adjusted recurring EBITDA to gross financial liabilities of less than 2.8x. Such ratio will be measured annually on April 30 or the following business day, based on the audited separate financial statements of Éxito.
As at December 31, 2022, 2021 and 2020, Éxito Group complied with its covenants.
Note 21. Employee benefits
The balance of employee benefits is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Defined benefit plans | 35,091 | 18,794 |
| Long-term benefit plan | 1,554 | 1,584 |
| Total employee benefits | 36,645 | 20,378 |
| Current | 4,555 | 2,482 |
| Non-Current | 32,090 | 17,896 |
| F-155 |
Note 21.1. Defined benefit plans
The Éxito Group has the following defined benefit plans:
| a. | Retirement pension plan |
Under the plan, each of Éxito's employees will receive, upon retirement, a monthly pension payment, pension adjustments pursuant to legal regulations, survivor's pension, assistance with funeral expenses and June and December bonuses established by law. Such amount depends on factors such as: employee age, time of service and salary. The above plan also applies to Uruguayan subsidiaries’ employees starting beginning of 2022.
Éxito Group is responsible for the payment of retirement pensions to employees who meet the following requirements: (a) employees who at January 1, 1967 had served more than 20 years (full liability), and (b) employees and former employees who at January 1, 1967 had served more than 10 years but less than 20 years (partial liability).
| b. | Retroactive severance pay plan |
Retroactivity of severance pay is estimated for those employees whom labor laws applicable are those prior to Law 50 of 1990, and who did not move to the new severance pay system. Under the plan, a retroactive amount as severance pay will be paid to employees upon retirement, after deduction of advance payments. This social benefit is calculated over the entire time of service, based on the latest salary earned.
Such benefits are estimated on an annual basis or whenever there are material changes, using the projected credit unit. During the years ended December 31, 2022 and 2021, there were no material changes in the methods or nature of assumptions applied when preparing the estimates and sensitivity analyses.
Balances and movement:
The following are balances and movement of defined benefit plans:
Retirement Pensions |
Retroactive severance pay |
Old age pension and disability retirement bonus |
Total | |
| Balance at January 1, 2020 | 20,719 | 952 | 391 | 22,062 |
| Cost of current service | - | 17 | - | 17 |
| (Gain) from cost of past service | - | (19) | (405) | (424) |
| Interest expense | 1,293 | 47 | - | 1,340 |
| Actuarial loss (gain) from changes in experience | 206 | (56) | 14 | 164 |
| Actuarial loss from financial assumptions | 590 | 21 | - | 611 |
| Benefits paid | (2,266) | (379) | - | (2,645) |
| Balance at December 31, 2020 | 20,542 | 583 | - | 21,125 |
| Cost of current service | - | 15 | - | 15 |
| Cost of past service | 1,227 | - | - | 1,227 |
| Interest expense | 1,146 | 24 | - | 1,170 |
| Actuarial loss (gain) from changes in experience | 675 | (57) | - | 618 |
| Actuarial gain from financial assumptions | (2,915) | (32) | - | (2,947) |
| Benefits paid | (2,242) | (172) | - | (2,414) |
| Balance at December 31, 2021 | 18,433 | 361 | - | 18,794 |
| Cost of current service | 16,419 | 11 | - | 16,430 |
| Interest expense | 2,655 | 26 | - | 2,681 |
| Actuarial loss from changes in experience | 118 | 40 | - | 158 |
| Actuarial gain (losses) from financial assumptions | (3,290) | 18 | - | (3,272) |
| Benefits paid | (2,401) | (53) | - | (2,454) |
| Effect of exchange differences on translation | 2,754 | - | - | 2,754 |
| Balance at December 31, 2022 | 34,688 | 403 | - | 35,091 |
| F-156 |
Actuarial assumptions used for calculation:
Discount rates, salary increase rates, inflation rates and death dates are as follows:
| As at December 31, | |||||
| 2022 | 2021 | ||||
| Retirement pensions | Retroactive severance pay |
Retirement pensions | Retroactive severance pay | ||
| Discount rate | 13.7% | 13.60% | 8.50% | 7.80% | |
| Annual salary increase rate | 5.5% | 5.5% | 3.50% | 3.50% | |
| Future annuities increase rate | 4.5% | 0.00% | 3.50% | - | |
| Annual inflation rate | 5.5% | 5.5% | 3.50% | 3.50% | |
| Mortality rate - men (years) | 60-62 | 60-62 | 60-62 | 60-62 | |
| Mortality rate - women (years) | 55-57 | 55-57 | 55-57 | 55-57 | |
| Mortality rate - men | 0.001117% - 0.034032% | 0.001117% - 0.034032% | 0.001117% - 0.034032% | 0.001117% - 0.034032% | |
| Mortality rate - women | 0.000627% - 0.019177% | 0.000627% - 0.019177% | 0.000627% - 0.019177% | 0.000627% - 0.019177% | |
Employee turnover, disability and early retirement rates:
| As at December 31, | ||
| Years of service | 2022 | 2021 |
| From 0 to less than 5 | 20.56% | 25.70% |
| From 5 to less than 10 | 10.01% | 12.51% |
| From 10 to less than 15 | 5.89% | 7.37% |
| From 15 to less than 20 | 4.39% | 5.49% |
| From 20 to less than 25 | 3.37% | 4.22% |
| 25 and more | 2.54% | 3.18% |
Sensitivity analysis:
A quantitative sensitivity analysis regarding a change in a relevant actuarial assumption, would affect in the following variation over defined benefit plans net liability, using for that sensitive analysis the assumptions for changes in discount rate and annual salary increase rate:
| As at December 31, | |||||
| 2022 | 2021 | ||||
| Variation expressed in basis points | Retirement Pensions |
Retroactive severance pay |
Retirement Pensions |
Retroactive severance pay | |
| Discount rate + 25 | (187) | (3) | (283) | (4) | |
| Discount rate – 25 | 192 | 3 | 292 | 4 | |
| Discount rate + 50 | (370) | (6) | (558) | (7) | |
| Discount rate – 50 | 389 | 6 | 594 | 7 | |
| Discount rate + 100 | (722) | (11) | (1,083) | (14) | |
| Discount rate – 100 | 799 | 12 | 1,225 | 15 | |
| Annual salary increase rate + 25 | N/A | 5 | N/A | 7 | |
| Annual salary increase rate - 25 | N/A | (5) | N/A | (7) | |
| Annual salary increase rate + 50 | N/A | 10 | N/A | 13 | |
| Annual salary increase rate - 50 | N/A | (10) | N/A | (13) | |
| Annual salary increase rate + 100 | N/A | 20 | N/A | 27 | |
| Annual salary increase rate - 100 | N/A | (19) | N/A | (26) | |
Contributions for the next years funded with Éxito Group's own resources are foreseen as follows:
| As at December 31, | |||||
| 2022 | 2021 | ||||
| Year | Retirement pensions |
Retroactive severance pay |
Retirement pensions |
Retroactive severance pay | |
| 2022 | - | - | 2,256 | 5 | |
| 2023 | 2,427 | 59 | 2,249 | 49 | |
| 2024 | 2,437 | 4 | 2,218 | 4 | |
| 2025 | 2,419 | 185 | 2,172 | 163 | |
| >2026 | 38,126 | 385 | 29,626 | 285 | |
| Total | 45,409 | 633 | 38,521 | 506 | |
| F-157 |
Other considerations:
The average duration of the liability for defined benefit plans at December 31, 2022 is 5.5 years (December 31, 2021 - 6.8 years, December 31, 2020 - 7.4 years).
The Éxito Group has no specific assets intended for guaranteeing the defined benefit plans.
The defined contribution plan expense at December 31, 2022 amounted to $127,618 (December 31, 2021 - $101,042, December 31, 2020 - $88,055).
Note 21.2. Long-term benefit plans
The long-term benefit plans involve a time-of-service bonus associated to years of service payable to the employees of Almacenes Éxito S.A. and to the employees of subsidiaries Logística, Transporte y Servicios Asociados S.A.S.
Such benefit is estimated on an annual basis or whenever there are material changes, using the projected credit unit. During the years ended December 31, 2022, December 31, 2021 and December 31, 2020, there were no material changes in the methods or nature assumptions applied when preparing the estimates and sensitivity analyses.
During 2015 Almacenes Éxito S.A. reached agreement with several employees who voluntarily decided to replace the time-of-service bonus with a special single one-time bonus.
Balances and movement:
The following are balances and movement of the long-term defined benefit plan:
| Balance at January 1, 2020 | 1,836 |
| Cost of current service | 76 |
| Interest expense | 104 |
| Actuarial loss from change in experience | 84 |
| Actuarial loss from demographic changes | 23 |
| Benefits paid | (425) |
| Actuarial loss from financial assumptions | 81 |
| Balance at December 31, 2020 | 1,779 |
| Cost of current service | 74 |
| Interest expense | 89 |
| Actuarial loss from change in experience | 75 |
| Benefits paid | (246) |
| Actuarial gain from financial assumptions | (187) |
| Balance at December 31, 2021 | 1,584 |
| Cost of current service | 78 |
| Past service Cost | (13) |
| Interest expense | 115 |
| Actuarial loss from change in experience | 200 |
| Benefits paid | (93) |
| Actuarial gain from financial assumptions | (317) |
| Balance at December 31, 2022 | 1,554 |
Actuarial assumptions used to make the calculations:
Discount rates, salary increase rates, inflation rates and death dates are as follows:
| As at December 31, | ||
| 2022 | 2021 | |
| Discount rate | 13.60% | 8.10% |
| Annual salary increase rate | 5.5% | 3.50% |
| Annual inflation rate | 5.5% | 3.50% |
| Mortality rate - men | 0.001117% - 0.034032% | 0.001117% - 0.034032% |
| Mortality rate - women | 0.000627% - 0.019177% | 0.000627% - 0.019177% |
Employee turnover, disability and early retirement rates are as follows:
| As at December 31, | ||
| Years of service | 2022 | 2021 |
| From 0 to less than 5 | 20.56% | 25.70% |
| From 5 to less than 10 | 10.01% | 12.51% |
| From 10 to less than 15 | 5.89% | 7.37% |
| From 15 to less than 20 | 4.39% | 5.49% |
| From 20 to less than 25 | 3.37% | 4.22% |
| 25 and more | 2.54% | 3.18% |
| F-158 |
Sensitivity analysis:
A quantitative sensitivity analysis regarding a change in a relevant actuarial assumption, would affect in the following variation over long-term benefit plans net liability, using for that sensitive analysis the assumptions for changes in discount rate and annual salary increase rate:
| As at December 31, | ||
| Variation expressed in basis points | 2022 | 2021 |
| Discount rate + 25 | (15) | (18) |
| Discount rate - 25 | 16 | 19 |
| Discount rate + 50 | (31) | (37) |
| Discount rate - 50 | 32 | 38 |
| Discount rate + 100 | (60) | (72) |
| Discount rate - 100 | 65 | 78 |
| Annual salary increase rate + 25 | 17 | 16 |
| Annual salary increase rate - 25 | (17) | (16) |
| Annual salary increase rate + 50 | 34 | 32 |
| Annual salary increase rate - 50 | (33) | (31) |
| Annual salary increase rate + 100 | 70 | 65 |
| Annual salary increase rate - 100 | (65) | (61) |
Contributions for the next years funded with Éxito Group's own resources are foreseen as follows:
| As at December 31, | ||
| Year | 2022 | 2021 |
| 2022 | - | 221 |
| 2023 | 207 | 169 |
| 2024 | 343 | 300 |
| 2025 | 373 | 319 |
| >2026 | 2,009 | 1,498 |
| Total | 2,932 | 2,507 |
Other considerations:
The average duration of the liability for long-term benefits at December 31, 2022 is 4.3 years (December 31, 2021 - 5.1 years).
The Éxito Group has not devoted specific assets to guarantee payment of the time-of-service bonus.
The effect on the statement of profit or loss from the long-term benefit plan at December 31, 2022 was recognized as an income in the amount of $82 (December 31, 2021 was recognized as a expense in the amount of $129, December 31, 2020 was recognized as a expense in the amount of $13).
Note 22. Provisions
The balance of provisions is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Legal proceedings (1) | 19,101 | 17,595 |
| Restructuring | 10,517 | 2,708 |
| Taxes other than income tax | 4,473 | 3,549 |
| Other | 8,286 | 11,409 |
| Total provisions | 42,377 | 35,261 |
| Current | 27,123 | 24,175 |
| Non-current | 15,254 | 11,086 |
At December 31, 2022 and 2021, there are no provisions for onerous contracts.
| (1) | Provisions for lawsuits are recognized to cover estimated potential losses arising from lawsuits brought against the Éxito Group, related to labor, civil, administrative and regulatory matters, which are assessed based on the best estimation of cash outflows required to settle a liability on the date of preparation of the financial statements. The balance is comprised of: |
| As at December 31, | ||
| 2022 | 2021 | |
| Labor legal proceedings | 10,902 | 10,418 |
| Civil legal proceedings | 5,516 | 5,371 |
| Administrative and regulatory proceedings | 2,683 | 1,806 |
| Total legal proceedings | 19,101 | 17,595 |
| F-159 |
Balances and movement of provisions during the reporting periods are as follows:
Legal proceedings |
Taxes other than income tax |
Restructuring | Other | Total | |||||
| Balance at January 1, 2020 | 14,889 | 8,552 | 269 | 9,708 | 33,418 | ||||
| Increase | 8,145 | - | 67,458 | 28,873 | 104,476 | ||||
| Uses | (35) | - | (3,996) | 25 | (4,006) | ||||
| Payments | (2,701) | (605) | (42,619) | (19,807) | (65,732) | ||||
| Reversals (not used) | (4,517) | (861) | (16,789) | (806) | (22,973) | ||||
Effect of exchange differences on the translation into presentation currency |
(169) | (258) | - | (82) | (509) | ||||
| Other reclassifications | 36 | - | - | (36) | - | ||||
| Balance at December 31, 2020 | 15,648 | 6,828 | 4,323 | 17,875 | 44,674 | ||||
| Increase | 14,597 | - | 13,801 | 11,225 | 39,623 | ||||
| Uses | (9) | - | (12) | - | (21) | ||||
| Payments | (9,093) | - | (12,059) | (16,962) | (38,114) | ||||
| Reversals (not used) | (3,801) | (3,273) | (1,103) | (711) | (8,888) | ||||
| Other reclassifications | 72 | - | (2,086) | 17 | (1,997) | ||||
Effect of exchange differences on the translation into presentation currency |
181 | (6) | (156) | (35) | (16) | ||||
| Balance at December 31, 2021 | 17,595 | 3,549 | 2,708 | 11,409 | 35,261 | ||||
| Increase | 8,141 | 967 | 15,211 | 7,672 | 31,991 | ||||
| Uses | (787) | - | - | - | (787) | ||||
| Payments | (2,838) | - | (5,448) | (9,483) | (17,769) | ||||
| Reversals (not used) | (3,462) | - | (920) | (1,047) | (5,429) | ||||
| Other reclassifications | - | - | (485) | - | (485) | ||||
Effect of exchange differences on the translation into presentation currency |
452 | (43) | (549) | (265) | (405) | ||||
| Balance at December 31, 2022 | 19,101 | 4,473 | 10,517 | 8,286 | 42,377 |
Note 23. Trade payables and other payable
| As at December 31, | ||
| 2022 | 2021 | |
| Payables to suppliers of goods | 3,080,264 | 2,418,848 |
| Payables and other payable - agreements (1) | 1,485,905 | 1,866,092 |
| Payables to other suppliers | 406,595 | 323,333 |
| Employee benefits | 354,431 | 278,325 |
| Purchase of assets | 186,421 | 120,748 |
| Tax payable | 149,557 | 120,188 |
| Dividends payable | 10,886 | 22,487 |
| Other | 47,716 | 36,534 |
| Total trade payables and other payable | 5,721,775 | 5,186,555 |
| Current | 5,651,303 | 5,136,626 |
| Non-current | 70,472 | 49,929 |
| (1) | The detail of payables and other payable - agreements is shown below: |
| As at December 31, | ||
| 2022 | 2021 | |
| Payables to suppliers of goods | 1,439,118 | 1,771,857 |
| Payables to other suppliers | 46,787 | 93,921 |
| Purchase of assets | - | 314 |
| Total payables and other payable - agreements | 1,485,905 | 1,866,092 |
In Colombia, receivable anticipation transactions are initiated by suppliers who, at their sole discretion, choose the banks that will advance financial resources before invoice due dates, according to terms and conditions negotiated with the Éxito Group. The Group cannot direct a preferred or financially related bank to the supplier or refuse to carry out transactions, as local legislation ensures the supplier's right to freely transfer the title/receivable to any bank through endorsement.
The Éxito Group has entered into agreements with some financial institutions in Colombia, which grant an additional payment period, without interest charges. The terms under such agreements are not unique to the Exito Group but are based on market practices in Colombia applicable to other payers in the market.
| F-160 |
Note 24. Income tax
Note 24.1. Tax regulations applicable to Almacenes Éxito S.A. and to its Colombian subsidiaries
Income tax rate applicable to Almacenes Éxito S.A. and its Colombian subsidiaries
| a. | For 2021 the income tax rate for legal entities was 31% (32% in 2020). On September 14, 2021, the congress of the Republic of Colombia approved law 2155 enacting the Social Investment Act and other regulations. The income tax rate for legal entities is 35%, effective from 2022. |
| b. | For 2021, the base to assess the income tax under the presumptive income model is 0% of the net equity held on the last day of the immediately preceding taxable period (0.5% in 2020). |
| c. | From 2023 onwards, according to the Tax reform of December 13, 2022, the minimum tax rate calculated on financial profit may not be less than 15%. |
Tax credits of Almacenes Éxito S.A and its Colombian subsidiaries
Pursuant to tax regulations in force as of 2017, the time limit to offset tax losses is 12 years following the year in which the loss was incurred.
Excess presumptive income over ordinary income may be offset against ordinary net income assessed within the following five years.
Company losses are not transferrable to shareholders. In no event tax losses arising from revenue other than income and occasional gains, and from costs and deductions not related with the generation of taxable income, will be offset against the taxpayer's net income.
| (a) | Tax credits of Almacenes Éxito S.A |
At December 31, 2022 Almacenes Éxito S.A. has accrued $211,190 (at December 31, 2021 - $346,559) excess presumptive income over net income.
The movement of Alamacenes Éxito S.A.’s excess presumptive income over net income during the reporting year is shown below:
| Balance at January 1, 2020 | 506,677 |
| Adjustments to excess presumptive income of previous periods | 11,336 |
| Balance at December 31, 2020 | 518,013 |
| Offsetting of presumptive income against net income for the period | (171,454) |
| Balance at December 31, 2021 | 346,559 |
| Offsetting of presumptive income against net income for the period | (135,369) |
| Balance at December 31, 2022 | 211,190 |
At December 31, 2022, Almacenes Éxito S.A. has accrued tax losses amounting to $740,337 (at December 31, 2021 - $738,261).
The movement of tax losses at Almacenes Éxito S.A. during the reporting year is shown below:
| Balance at January 1, 2020 | 643,898 |
| Adjustment to tax losses from prior periods (1) | 94,363 |
| Balance at December 31, 2020 | 738,261 |
| Adjustment to tax losses from prior periods | - |
| Balance at December 31, 2021 | 738,261 |
| Adjustment to tax losses from prior periods | 2,076 |
| Balance at December 31, 2022 | 740,337 |
| (1) | Represents the application of the tax adjustment to the balance of tax losses accrued at December 31, 2016. The adjustment percentage applied is that defined by the authorities for 2017. |
| (b) | Movement of tax losses for Colombian subsidiaries for the reporting years is shown below |
| Balance at January 1, 2020 | 27,647 |
| Marketplace Internacional Éxito y Servicios S.A.S. | 177 |
| Depósitos y Soluciones Logísticas S.A.S. | 85 |
| Éxito Industrias S.A.S. | (1,136) |
| Balance at December 31, 2020 | 26,773 |
| Transacciones Energéticas S.A.S. E.S.P. (i) | 33,380 |
| Depósitos y Soluciones Logísticas S.A.S. | 78 |
| Éxito Industrias S.A.S. | (26,324) |
| Marketplace Internacional Éxito y Servicios S.A.S. | (283) |
| Balance at December 31, 2021 | 33,624 |
| Transacciones Energéticas S.A.S. E.S.P. (i) | 158 |
| Depósitos y Soluciones Logísticas S.A.S. | (220) |
| Balance at December 31, 2022 | 33,562 |
| (i) | No deferred tax has been calculated for these tax losses because of the uncertainty on the recoverability with future taxable income. |
| (c) | The movement of the offsetting of tax credits from Almacenes Éxito S.A. and Colombian subsidiaries is as follows: |
| F-161 |
| Year ended December 31, | ||
| 2022 | 2021 | |
| Offsetting of presumptive income against net income for the period of Almacenes Éxito S.A. | (135,369) | (171,454) |
| Offsetting of tax losses from the period of Depósitos y Soluciones Logísticas S.A.S | (220) | - |
Offsetting of presumptive income against net income for the period Depósitos y Soluciones Logísticas S.A.S |
(27) | - |
| Offsetting of tax losses from the period of Éxito Industrias S.A.S. | - | (18,795) |
| Offsetting of tax losses from the period of Marketplace Internacional Éxito y Servicios S.A.S. | - | (278) |
Offsetting of presumptive income against net income for the period of Marketplace Internacional Éxito y Servicios S.A.S. |
- | (16) |
| Total | (135,616) | (190,543) |
Note 24.2. Tax rates applicable to foreign subsidiaries
Income tax rates applicable to foreign subsidiaries are:
| - | Uruguay applies a 25% income tax rate in 2022 (25% in 2021); |
| - | Argentina applies a 30% income tax rate in 2022 (35% in 2021). |
Note 24.3. Current tax assets and liabilities
The balances of current tax assets and liabilities recognized in the statement of financial position are:
Current tax assets:
| As at December 31, | ||
| 2022 | 2021 | |
| Income tax balance receivable by Almacenes Éxito S.A. and its Colombian subsidiaries | 282,659 | 228,040 |
| Tax discounts applied by Almacenes Éxito S.A. and its Colombian subsidiaries | 111,440 | 88,369 |
Industry and trade tax advances and withholdings of Almacenes Éxito S.A. and its Colombian subsidiaries |
63,408 | 56,231 |
| Tax discounts of Éxito from taxes paid abroad | 24,631 | 23,899 |
| Other current tax assets of subsidiary Spice Investment Mercosur S.A. | 18,268 | 14,605 |
| Current income tax assets of subsidiary Spice Investments Mercosur S.A. | 8,007 | 3,008 |
| Current income tax assets of subsidiary Onper Investment 2015 S.L. | 1,024 | 15,364 |
| Other current tax assets of subsidiary Onper Investment 2015 S.L. | 447 | 109 |
| Total current tax assets | 509,884 | 429,625 |
Current tax liabilities
| As at December 31, | ||
| 2022 | 2021 | |
| Industry and trade tax payable of Almacenes Éxito S.A. and its Colombian subsidiaries | 92,815 | 77,284 |
| Current income tax liabilities of some Colombian subsidiaries | 10,976 | - |
| Taxes of subsidiary Onper Investment 2015 S.L. other than income tax | 3,743 | 3,490 |
| Tax on real estate of Almacenes Éxito S.A. and its Colombian subsidiaries | 1,762 | 516 |
| Taxes of subsidiary Spice Investments Mercosur S.A. other than income tax | 430 | 229 |
| Total current tax liabilities | 109,726 | 81,519 |
Note 24.4. Income tax
The components of the income tax expense recognized in the statement of profit or loss were:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Current income tax (expense) | (183,105) | (122,096) | (117,393) |
| Adjustment in respect of current income tax of prior periods | (9,164) | (526) | (14,767) |
| Changes in tax rates | (78,382) | 34,012 | (15,020) |
| Deferred income tax (expense) (Note 24.5) | (55,051) | (49,060) | 93,001 |
| Total income tax (expense) | (325,702) | (137,670) | (54,179) |
| F-162 |
The reconciliation of average effective tax rate to applicable tax rate is shown below:
| Year ended December 31, | ||||||
| 2022 | Rate | 2021 | Rate | 2020 | Rate | |
| Profit before income tax from continuing operations | 574,940 | 730,887 | 385,282 | |||
| Tax expense at enacted tax rate in Colombia | (201,229) | (35%) | (226,575) | (31%) | (123,290) | (32%) |
| Unrecognition deferred tax from prior periods | 3,407 | (11,638) | - | |||
| Adjustment to current taxes from prior periods | (9,164) | (526) | (14,767) | |||
| Tax impact of readjustment to carry forward losses | 727 | - | 31,355 | |||
| Non-deductible / Non taxable domestic operation | (27,410) | 2,556 | 17,703 | |||
| Equity method in joint venture domestic operations | (12,152) | 2,243 | 6,293 | |||
| Tax rates differences from foreign operations | 22,362 | 11,228 | 13,669 | |||
| Accounting effects of NCI domestic operations without tax impact | 31,991 | 22,408 | 16,462 | |||
| Non-deductible/ Non taxable foreign operation | (55,852) | 28,622 | 13,415 | |||
| Changes in tax rates | (78,382) | 34,012 | (15,020) | |||
| Total income tax expense | (325,702) | (57%) | (137,670) | (19%) | (54,179) | (14%) |
Note 24.5. Deferred tax
| As at December 31, | ||||
| 2022 | 2021 | |||
Deferred tax assets |
Deferred tax liabilities |
Deferred tax assets |
Deferred tax liabilities | |
| Tax losses | 259,118 | - | 258,710 | - |
| Excess presumptive income | 73,917 | - | 121,296 | - |
| Tax credits | 62,943 | - | 82,257 | - |
| Other provisions | 10,893 | - | 24,188 | - |
| Investment property | - | (148,031) | - | (123,114) |
| Goodwill | - | (218,308) | - | (144,997) |
| Property, plant and equipment | 59,162 | (341,631) | 80,113 | (328,311) |
| Leases | 641,886 | (553,947) | 656,222 | (581,055) |
| Other | 103,215 | (84,341) | 28,264 | (35,163) |
| Total | 1,211,134 | (1,346,258) | 1,251,050 | (1,212,640) |
The breakdown of deferred tax assets and liabilities for the three jurisdictions in which the Éxito Group operates are grouped as follows:
| As at December 31, | ||||
| 2022 | 2021 | |||
Deferred tax assets |
Deferred tax liabilities |
Deferred tax assets |
Deferred tax liabilities | |
| Colombia | 98,372 | - | 150,888 | - |
| Uruguay | 44,217 | - | 54,273 | - |
| Argentina | - | (277,713) | - | (166,751) |
| Total | 142,589 | (277,713) | 205,161 | (166,751) |
The reconciliation of the movement of net deferred tax to the statement of profit or loss and the statement of comprehensive income is shown below:
| As at December 31, | |||
| 2022 | 2021 | 2020 | |
| (Expense) benefit from deferred tax recognized in income | (55,051) | (49,060) | 93,001 |
| Adjustment with respect to the current income tax of previous periods | (9,164) | (526) | (14,767) |
| Changes in tax rates | (78,382) | 34,012 | (15,020) |
| Expense from deferred tax recognized in other comprehensive income | (206) | (5,982) | (118) |
| Effect of the translation of the deferred tax recognized in other comprehensive income (1) | (30,731) | (56,024) | (7,872) |
| Total movement of net deferred tax | (173,534) | (77,580) | 55,224 |
(1) Such effect resulting from the translation at the closing rate of deferred tax assets and liabilities of foreign subsidiaries is included in the line item “Exchange difference from translation” in Other comprehensive income (Note 27).
Temporary differences related to investments in associates and joint ventures, for which no deferred tax liabilities have been recognized at December 31, 2022 amounted to $32,279 (at December 31, 2021 - $66,999).
| F-163 |
Note 24.6. Effects of the distribution of dividends on the income tax
There are no income tax consequences attached to the payment of dividends in either 2022 or 2021 by the Éxito Group to its shareholders.
Note 24.7. Non-Current tax liabilities
The $2,749 balance at December 31, 2022 (at December 31, 2021 - $3,924) relates to taxes payable of subsidiary Libertad S.A. for federal taxes and incentive program by instalments.
Note 25. Derivative instruments and collections on behalf of third parties
| As at December 31, | ||
| 2022 | 2021 | |
| Collections on behalf of third parties (1) | 130,819 | 80,710 |
| Derivative financial instruments (2) | 5,404 | 592 |
| Derivative financial instruments designated as hedge instruments (3) | - | 242 |
| Total | 136,223 | 81,544 |
| (1) | Collections on behalf of third parties includes amounts received for services where the Éxito Group acts as an agent, such as travel agency sales, and payments and banking services provided to customers. |
| (2) | The detail of maturities of these instruments at December 31, 2022 is shown below: |
| Derivative | Less than 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total |
| Forward | 3,149 | 2,255 | - | - | 5,404 |
The detail of maturities of these instruments at December 31, 2021 is shown below:
| Derivative | Less than 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total |
| Forward | 309 | 283 | - | - | 592 |
| (3) | Derivative instruments under hedge accounting are as follows: |
At December 31, 2022 and 2021, swap transactions was used to hedge exchange and/or interest risks of financial liabilities taken to acquire property, plant and equipment.
The Éxito Group documents the hedge relationship and conduct effectiveness testing from initial recognition and over the time of the hedge relationship until its derecognition. No ineffectiveness has been identified during the reporting periods.
At December 31, 2021:
| Hedge instrument | Nature of risk Hedged |
Hedged item | Nature of the hedge | Range of rates for the hedged item |
Range of rates for hedge instruments |
Fair value |
| Swap | Interest rate | Loans and borrowings | Cash-flow hedge | IBR 3M | 2.0545% - 2.145% | 242 |
The detail of maturities of these hedge instruments is shown below:
| Less than 1 month | From 1 to 3 months | From 3 to 6 months | From 6 to 12 months | More than 12 months | Total | |
| Swap | - | 242 | - | - | - | 242 |
| F-164 |
Note 26. Other liabilities
The balance of other liabilities is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Deferred revenues (1) | 154,265 | 174,395 |
| Customer loyalty programs | 56,165 | 37,015 |
| Advance on contract covering assets held for sale | 14,360 | 2,046 |
| Advance payments under lease agreements and other projects | 4,891 | 5,655 |
| Repurchase coupon | 942 | 99 |
| Instalments received under "plan resérvalo" | 284 | 260 |
| Total other liabilities | 230,907 | 219,470 |
| Current | 228,496 | 217,303 |
| Non-Current | 2,411 | 2,167 |
| (1) | Mainly relates to payments received for the future sale of products, property leases and strategic alliances. |
The movement of deferred revenue and customer loyalty programs, and the related revenue recognized during the reporting years, is shown below:
| Deferred revenue | Customer loyalty programs | |
| Balance at January 1, 2020 | 81,763 | 27,106 |
| Additions | 667,742 | 14,500 |
| Revenue recognized | (622,504) | (11,296) |
| Others | 4,834 | 1,352 |
| Effect of exchange difference from translation into presentation currency | (861) | (2,482) |
| Balance at December 31, 2020 | 130,974 | 29,180 |
| Additions | 1,174,455 | 14,608 |
| Revenue recognized | (1,130,709) | (10,075) |
| Others | - | 258 |
| Effect of exchange difference from translation into presentation currency | (325) | 3,044 |
| Balance at December 31, 2021 | 174,395 | 37,015 |
| Additions | 1,290,023 | 19,053 |
| Revenue recognized | (1,309,193) | (13,736) |
| Others | - | 407 |
| Effect of exchange difference from translation into presentation currency | (960) | 13,426 |
| Balance at December 31, 2022 | 154,265 | 56,165 |
Note 27. Shareholders’ equity
At December 31, 2022, Éxito's authorized capital is represented by 1,590,000,000 common shares with a nominal value of $3.3333 Colombian pesos. The number of outstanding shares is 1,297,864,359 (1,342,812,948 in 2021) and the number of treasury shares is 46,856,094 (1,907,505 in 2021). The number of shares is adjusted for the effects of the share split (see Note 6).
The premium on the issue of shares represents the surplus paid over the par value of the shares. Pursuant to Colombian legal regulations, this balance may be distributed upon liquidation of the company or capitalized. Capitalization means the transfer of a portion of such premium to a capital account as the result of a distribution of dividends paid in shares of Éxito.
Reserves
Reserves are appropriations made by Almacenes Éxito's S.A.’s General Meeting of Shareholders on the results of prior periods. In addition to the legal reserve, there is an occasional reserve, a reserve for acquisition of treasury shares and a reserve for future dividend distribution.
| F-165 |
Other comprehensive income
The tax effect on the components of other comprehensive income is shown below:
| As at December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Gross value | Tax effect | Net value | Gross value | Tax effect | Net value | Gross value | Tax effect | Net value | |
| Loss from financial instruments designated at fair value through other comprehensive income | (16,202) | - | (16,202) | (12,199) | - | (12,199) | (11,267) | - | (11,267) |
| Remeasurement loss on defined benefit plans | (536) | 334 | (202) | (3,582) | 1,257 | (2,325) | (5,910) | 1,773 | (4,137) |
| Translation exchange differences | (997,445) | - | (997,445) | (1,264,252) | - | (1,264,252) | (1,375,909) | - | (1,375,909) |
| Gain (loss) from cash-flow hedges | 12,939 | (4,529) | 8,410 | 6,023 | (2,108) | 3,915 | (1,435) | 441 | (994) |
| Loss on hedge of net investment in foreign operations | (18,977) | - | (18,977) | (18,312) | (3,138) | (21,450) | (15,474) | (221) | (15,695) |
| Total other comprehensive income | (1,020,221) | (4,195) | (1,024,416) | (1,292,322) | (3,989) | (1,296,311) | (1,409,995) | 1,993 | (1,408,002) |
| Other comprehensive income of non-controlling interests | (57,514) | (56,154) | (57,340) | ||||||
| Other comprehensive income of the parent | (966,902) | (1,240,157) | (1,350,662) | ||||||
Note 28. Revenue from contracts with customers
The amount of revenue from contracts with customers is as shown:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Retail sales (1) (Note 39) | 19,754,076 | 16,105,756 | 15,141,244 |
| Service revenue (2) | 741,246 | 609,303 | 512,280 |
| Other revenue (3) | 124,351 | 207,326 | 82,315 |
| Total revenue from contracts with customers | 20,619,673 | 16,922,385 | 15,735,839 |
| (1) | Retail sales represent the sale of goods and real estate projects net of returns and sales rebates. This amount includes the following items: |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Retail sales, net of sales returns and rebates | 19,725,311 | 16,048,995 | 15,073,989 |
| Sale of real estate project inventories (a) | 28,765 | 56,761 | 67,255 |
| Total retail sales | 19,754,076 | 16,105,756 | 15,141,244 |
| (a) | At December 31, 2022, represents the sale of a percentage of the Montevideo real estate project inventory in the amount of $26,620 and the sale of a percentage of La Secreta real estate project inventory in the amount of $2,505. At December 31, 2021, represents the sale of a percentage of the Montevideo real estate project inventory in the amount of $56,306 and the sale of a percentage of La Secreta real estate project inventory in the amount of $455. |
| (2) | Revenues from services and rental income comprise: |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Leases and real estate related income | 409,009 | 302,262 | 218,528 |
| Advertising | 94,802 | 80,300 | 83,917 |
| Distributors | 84,424 | 94,988 | 91,354 |
| Telephone services | 34,811 | 30,517 | 30,617 |
| Transport | 29,837 | 31,449 | 18,223 |
| Commissions | 27,354 | 25,931 | 22,807 |
| Banking services | 19,082 | 16,392 | 15,143 |
| Other | 41,927 | 27,464 | 31,691 |
| Total service revenue | 741,246 | 609,303 | 512,280 |
| F-166 |
| (3) | Other revenue relates to: |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Real estate projects (a) | 63,203 | 87,174 | 14,920 |
| Marketing events | 19,402 | 18,305 | 21,809 |
| Royalty revenue | 7,158 | 14,682 | 9,514 |
| Collaboration agreements (b) | 4,809 | 63,742 | - |
| Other | 29,779 | 23,423 | 36,072 |
| Total other revenue | 124,351 | 207,326 | 82,315 |
| (a) | For 2022, it corresponds mainly to the bonus received for operating results generated in real estate projects for $32,948, to the bonus received to ensure the permanence in a leased property for $6,000 and to income from compliance with commercial alliance goals for $4,422. For 2021, it corresponds mainly to income from fees for coordinating the development and construction of real estate projects for $74,938. |
| (b) | Represents revenue from the following collaboration agreements: |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Compañía de Financiamiento Tuya S.A. | - | 59,050 | - |
| Kiire | 3,656 | 3,106 | - |
| Éxito Media | 1,153 | 1,586 | - |
| Total revenue from collaboration agreements | 4,809 | 63,742 | - |
Note 29. Distribution, administrative and selling expenses
The amount of distribution, administrative and selling expenses by nature is:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Employee benefits (Note 30) | 1,577,911 | 1,285,924 | 1,213,284 |
| Depreciation and amortization | 505,068 | 465,073 | 443,308 |
| Taxes other than income tax | 343,794 | 266,605 | 224,036 |
| Services | 290,308 | 234,801 | 239,847 |
| Fuels and power | 251,046 | 192,001 | 181,849 |
| Repairs and maintenance | 242,659 | 202,209 | 158,967 |
| Advertising | 165,589 | 143,073 | 127,288 |
| Commissions on debit and credit cards | 139,288 | 102,285 | 105,524 |
| Professional fees | 100,002 | 85,281 | 74,779 |
| Leases | 61,234 | 46,502 | 43,453 |
| Packaging and marking materials | 55,874 | 41,085 | 35,917 |
| Insurance | 48,036 | 42,934 | 35,002 |
| Transport | 44,904 | 47,359 | 58,982 |
| Administration of trade premises | 43,382 | 37,421 | 35,062 |
| Other | 362,792 | 297,367 | 262,918 |
| Total distribution, administrative and selling expenses | 4,231,887 | 3,489,920 | 3,240,216 |
| Distribution expenses | 2,253,239 | 1,856,544 | 1,720,331 |
| Administrative and selling expenses | 400,737 | 347,452 | 306,601 |
| Employee benefit expenses | 1,577,911 | 1,285,924 | 1,213,284 |
| F-167 |
Note 30. Employee benefit expenses
The amount of employee benefit expenses incurred by each significant category is as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Wages and salaries | 1,284,582 | 1,062,505 | 1,010,025 |
| Contributions to the social security system | 45,453 | 35,160 | 34,127 |
| Other short-term employee benefits | 54,695 | 52,968 | 49,137 |
| Total short-term employee benefit expenses | 1,384,730 | 1,150,633 | 1,093,289 |
| Post-employment benefit expenses, defined contribution plans | 127,618 | 101,042 | 88,055 |
| Post-employment benefit expenses, defined benefit plans | 16,472 | 1,174 | (478) |
| Total post-employment benefit expenses | 144,090 | 102,216 | 87,577 |
| Termination benefit expenses | 14,506 | 6,702 | 6,137 |
| Other personnel expenses | 34,667 | 26,502 | 26,268 |
| Other long-term employee benefits | (82) | (129) | 13 |
| Total employee benefit expenses | 1,577,911 | 1,285,924 | 1,213,284 |
The cost of employee benefit include in cost of sales is shown in Note 11.2.
Note 31. Other operating expenses, net
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Reversal of allowance for expected credit loss on trade receivables | 26,093 | 31,588 | 22,680 |
| Tax on wealth expense | (21,239) | (15,981) | (18,356) |
| Restructuring expenses, net | (14,291) | (12,698) | (50,669) |
| Covid-19 related expenses | - | - | (36,574) |
| Write-off of assets | (13,507) | (20,524) | (31,617) |
| Impairment loss on assets | (2,201) | (4,527) | (16,895) |
| (Loss) gain from the early termination of lease contracts | 5,809 | (835) | 19,768 |
| Gain from the sale of assets | 19,597 | 4,266 | 11,191 |
| Other | (17,823) | (5,490) | (4,996) |
| Total other operating expenses, net | (17,562) | (24,201) | (105,468) |
Note 32. Financial income and cost
The amount of financial income and cost is as follows:
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Gain from derivative financial instruments | 74,864 | 25,287 | 77,370 |
| Gain from exchange differences | 51,006 | 52,167 | 72,953 |
| Gain from fair value changes in derivative financial instruments | 28,824 | 28,261 | 48 |
| Interest income on cash and cash equivalents (Note 7) | 27,040 | 17,277 | 22,014 |
| Net monetary position results, effect of the statement of profit or loss (1) | 21,993 | - | - |
| Other financial income | 16,182 | 50,827 | 27,810 |
| Total financial income | 219,909 | 173,819 | 200,195 |
| Loss from exchange differences | (181,719) | (89,890) | (87,038) |
| Net monetary position expense, effect of the statement of financial position | (111,754) | (6,191) | (14,097) |
| Interest expense on loan and borrowings | (111,234) | (52,593) | (77,704) |
| Interest expense on lease liabilities | (99,324) | (94,555) | (133,322) |
| Net monetary position results, effect of the statement of profit or loss (1) | - | (62,100) | (8,914) |
| Factoring expenses | (51,537) | (34,048) | (39,325) |
| Loss from fair value changes in derivative financial instruments | (15,611) | (1,481) | (25,373) |
| Loss from derivative financial instruments | (12,846) | (14,862) | (50,964) |
| Other financial expenses | (11,224) | (8,739) | (5,173) |
| Commission expenses | (5,134) | (5,115) | (3,916) |
| Total financial cost | (600,383) | (369,574) | (445,826) |
| Net financial result | (380,474) | (195,755) | (245,631) |
| F-168 |
| (1) | The indicator used to adjust for inflation in the financial statements of Libertad S.A. is the Internal Wholesales Price Index (IPIM) published by the Instituto Nacional de Estadística y Censos de la República Argentina (INDEC). The price index and corresponding changes are presented below: |
| Price Index | Annual change | |
| January 1, 2020 | 446.28 | - |
| December 31, 2020 | 595.19 | 33.37% |
| December 31, 2021 | 900.78 | 51.34% |
| December 31, 2022 | 1,754.58 | 94.78% |
Note 33. Earnings per share
Basic earnings per share are calculated based on the weighted average number of outstanding shares of each category during the year.
There were no dilutive potential ordinary shares outstanding at the end of the reporting period.
The calculation of basic earnings per share for all periods presented has been adjusted retrospectively for the effects of the share split (Note 6).
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Net profit attributable to equity holders of the parent | 99,072 | 474,681 | 230,872 |
Weighted average of the number of ordinary shares attributable to basic earnings per share (basic and diluted) |
1.318.183.584 | 1,297,864,359 | 1,297,864,359 |
Basic and diluted earnings per share attributable to the equity holders of the parent (in Colombian pesos) |
75.16 | 365.74 | 177.89 |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Net profit from continuing operations | 249,238 | 593,217 | 331,103 |
Less: net income from continuing operations attributable to non-controlling interests |
150,166 | 118,256 | 99,030 |
Net profit from continuing operations attributable to the equity holders of the parent |
99,072 | 474,961 | 232,073 |
Weighted average of the number of ordinary shares attributable to basic earnings per share (basic and diluted) |
1.318.183.584 | 1,297,864,359 | 1,297,864,359 |
Basic and diluted earnings per share from continuing operations attributable to the equity holders of the parent (in Colombian pesos) |
75.16 | 365.96 | 178.82 |
| Year ended December 31, | |||
| 2022 | 2021 | 2020 | |
| Net (loss) from discontinued operations | - | (280) | (1,201) |
Less: net income from discontinued operations attributable to non-controlling interests |
- | - | - |
Net (loss) from discontinued operations attributable to the equity holders of the parent |
- | (280) | (1,201) |
Weighted average of the number of ordinary shares attributable to basic earnings per share (basic and diluted) |
1.318.183.584 | 1,297,864,359 | 1,297,864,359 |
Basic and diluted (loss) per share from discontinued operations attributable to the equity holders of the parent (in Colombian pesos) |
- | (0.22) | (0.93) |
Note 34. Impairment of assets
Note 34.1. Financial assets
No impairment losses on financial assets were identified at December 31, 2022 and 2021.
Note 34.2. Non-financial assets
December 31, 2022
The carrying amount of the groups of cash-generating units is made of property, plant and equipment, investment properties, other intangible assets other than goodwill, net working capital items and the goodwill and intangible assets acquired through business combinations.
| F-169 |
For the purposes of impairment testing, the goodwill obtained through business combinations, trademarks and the rights to exploit trade premises with indefinite useful lives were allocated to the following groups of cash-generating units:
| Groups of cash-generating units | ||||||||
| Éxito | Carulla | Surtimax | Súper Ínter | Surtimayorista | Uruguay | Argentina | Total | |
| Goodwill (Note 17) | 90,674 | 856,495 | 37,402 | 464,332 | 4,174 | 1,690,339 | 340,887 | 3,484,303 |
| Trademarks with indefinite useful life (Note 16) | - | - | 17,427 | 63,704 | - | 128,103 | 90,454 | 299,688 |
| Rights with indefinite useful life (Note 16) | 17,720 | 2,771 | - | - | - | - | 4,212 | 24,703 |
The recoverable amount of the cash generating units in Colombia and Uruguay was determined as their value in use.
The value in use was estimated based on the expected cash flows as forecasted by Company management over a five-year period, on the grounds of the price growth rate in Colombia and Uruguay (Consumer Price Index - CPI), trend analyses based on past results, expansion plans, strategic projects to increase sales, and optimization plans.
Cash flows beyond the five-year period were determined using a real growth rate of 0%. For the Éxito Group, this is a conservative approach that reflects the ordinary growth expected for the industry in absence of unexpected factors that might have an effect on growth.
The tax rate included in the forecast of cash flows is the rate at which Almacenes Éxito S.A. expects to pay its taxes during the next years. The tax rate used in the projection of cash flows of the Éxito, Carulla, Surtimax, Súper Ínter and Surtimayorista cash-generating units was 35% for 2023 onwards, which is the enacted rate in Colombia as at December 31, 2022.
For goodwill allocated to the Uruguayan cash-generating unit, the tax rate used was 25%.
Expected cash flows were discounted at the weighted average cost of capital (WACC) using a market indebtedness structure for the type of industry where Éxito Group operates, which was 7.40% for 2023 onwards.
The WACC used to discount the cash flows of the Uruguayan cash-generating unit was 8.55% for 2023 onwards.
The variables that have the greater impact on the determination of the value in use of the cash-generating units are the discount rate and the perpetual growth rate. These variables are defined as follows:
| (a) | Growth rate in perpetuity: Nominal growth rates in perpetuity are the long-term inflation expectations for the relevant country, i.e. a real growth rate of zero. A decrease in real growth rates to below zero is not considered reasonably possible given cash flows are expected to increase at least in line with inflation, and up to 4% above inflation. |
| (b) | Discount rate: The estimation of the discount rate is based on an analysis of the market indebtedness for Almacenes Éxito S.A.; a change is deemed reasonable if the discount rate would increase by 1%, in which event no impairment in the value of the groups of cash-generating units would arise. |
The recoverable amount of the Argentina group of cash generating units was determined as the fair value less costs of disposal of its retail estate portfolio.
This was estimated based on the appraisals performed by an independent appraiser on all the properties owned by the subsidiary in Argentina, minus the total liabilities, plus cash of Libertad S.A. as of December 31, 2022 excluding non-monetary and intercompany items. The cost of disposal is an estimated brokerage commission on the sale of real estate equivalent to 3% of the total amount of the property values. The main variables used in the appraisals are the real estate index in Argentina and the exposure to foreign exchange (USD more specifically). A decrease of 2% in the fair value less costs to sell would trigger an impairment charge.
Assets are grouped into stores, which generate independent cash flows. The recoverable amount was the value in use of the stores.
The recoverable amount of investment properties owned by the Éxito Group was determined as their value in use.
December 31, 2021
The carrying amount of the groups of cash-generating units is made of property, plant and equipment, investment properties, other intangible assets other than goodwill, net working capital items and the goodwill and intangible assets acquired through business combinations.
For the purposes of impairment testing, the goodwill obtained through business combinations, trademarks and the rights to exploit trade premises with indefinite useful lives were allocated to the following groups of cash-generating units:
| Groups of cash-generating units | ||||||||
| Éxito | Carulla | Surtimax | Súper Ínter | Surtimayorista | Uruguay | Argentina | Total | |
| Goodwill (Note 17) | 90,674 | 856,495 | 37,402 | 464,332 | 4,174 | 1,320,465 | 251,441 | 3,024,983 |
| Trademarks with indefinite useful life (Note 16) | - | - | 17,427 | 63,704 | - | 94,319 | 66,720 | 242,170 |
| Rights with indefinite useful life (Note 16) | 17,720 | 2,771 | - | - | - | - | 2,047 | 22,538 |
The recoverable amount of the cash generating units in Colombia and Uruguay was determined as their value in use.
| F-170 |
The value in use was estimated based on the expected cash flows as forecasted by Company management over a five-year period, on the grounds of the price growth rate in Colombia and Uruguay (Consumer Price Index - CPI), trend analyses based on past results, expansion plans, strategic projects to increase sales, and optimization plans.
Cash flows beyond the five-year period were determined using a real growth rate of 0%. For the Éxito Group, this is a conservative approach that reflects the ordinary growth expected for the industry in absence of unexpected factors that might have an effect on growth.
The tax rate included in the forecast of cash flows is the rate at which Éxito expects to pay its taxes during the next years. The tax rate used in the projection of cash flows of the Éxito, Carulla, Surtimax, Súper Ínter and Surtimayorista cash-generating units was 35% for 2022 onwards, which is the enacted rate in Colombia as at December 31, 2021.
For goodwill allocated to the Uruguayan cash-generating unit, the tax rate used was 25%.
Expected cash flows were discounted at the weighted average cost of capital (WACC) using a market indebtedness structure for the type of industry where Éxito operates, which was 7.40% for 2022 onwards.
The WACC used to discount the cash flows of the Uruguayan cash-generating unit was 8.55% for 2022 onwards.
The variables that have the greater impact on the determination of the value in use of the cash-generating units are the discount rate and the perpetual growth rate. These variables are defined as follows:
| (a) | Growth rate in perpetuity: Nominal growth rates in perpetuity are the long-term inflation expectations for the relevant country, i.e. a real growth rate of zero. A decrease in real growth rates to below zero is not considered reasonably possible given cash flows are expected to increase at least in line with inflation, and up to 4% above inflation. |
| (b) | Discount rate: The estimation of the discount rate is based on an analysis of the market indebtedness for Éxito; a change is deemed reasonable if the discount rate would increase by 1%, in which event no impairment in the value of the groups of cash-generating units would arise. |
The recoverable amount of the Argentina group of cash generating units was determined as the fair value less costs of disposal of its retail estate portfolio.
This was estimated based on the appraisals performed by an independent appraiser on all the properties owned by the subsidiary in Argentina, minus the total liabilities, plus cash of Libertad S.A. as of December 31, 2021 excluding non-monetary and intercompany items. The cost of disposal is an estimated brokerage commission on the sale of real estate equivalent to 3% of the total amount of the property values. The main variables used in the appraisals are the real estate index in Argentina and the exposure to foreign exchange (USD more specifically). A decrease of 2% in the fair value less costs to sell would trigger an impairment charge.
Assets are grouped into stores, which generate independent cash flows. The recoverable amount was the value in use of the stores.
The recoverable amount of investment properties owned by the Éxito Group was determined as their value in use.
| F-171 |
Note 35. Fair value measurement
Below is a comparison, by class, of the carrying amounts and fair values of investment property, property, plant and equipment and financial instruments, other than those with carrying amounts that are a reasonable approximation of fair values.
| As at December 31, | ||||
| 2022 | 2021 | |||
| Carrying amount | Fair value | Carrying amount | Fair value | |
| Financial assets | ||||
| Investments in private equity funds | 426 | 426 | 1,476 | 1,476 |
| Forward contracts measured at fair value through income (Note 12) | 27,300 | 27,300 | 11,057 | 11,057 |
| Derivative swap contracts denominated as hedge instruments (Note 12) | 14,480 | 14,480 | 6,023 | 6,023 |
| Investment in bonds (Note 12) | 6,939 | 6,939 | 6,896 | 6,828 |
| Investment in bonds through other comprehensive income | 18,367 | 18,367 | 18,716 | 18,716 |
| Equity investments | 10,676 | 10,676 | 10,676 | 10,676 |
| Non-financial assets | ||||
| Investment property (Note 14) | 1,841,228 | 3,968,389 | 1,656,245 | 2,797,335 |
| Property, plant and equipment, and investment property held for sale (Note 40) | 21,800 | 29,261 | 24,601 | 29,981 |
| Financial liabilities | ||||
| Loans and borrowings (Note 20) | 803,685 | 793,624 | 907,141 | 895,472 |
| Put option (Note 20) | 651,899 | 651,899 | 509,870 | 509,870 |
| Swap contracts denominated as hedge instruments (Note 25) | - | - | 242 | 242 |
| Forward contracts measured at fair value through income (Note 25) | 5,404 | 5,404 | 592 | 592 |
| Non-financial liabilities | ||||
| Customer loyalty liability (Note 26) | 56,165 | 56,165 | 37,015 | 37,015 |
| F-172 |
The following methods and assumptions were used to estimate the fair values:
| Hierarchy level | Valuation technique |
Description of the valuation technique | Significant input data | |||||
| Assets | ||||||||
| Loans at amortized cost | Level 2 | Discounted cash flows method | Future cash flows are discounted at present value using the market rate for loans under similar conditions on the date of measurement in accordance with maturity days. | Commercial rate of banking institutions for consumption receivables without credit card for similar term horizons. Commercial rate for housing loans for similar term horizons. | ||||
| Investments in private equity funds | Level 2 | Unit value | The value of the fund unit is given by the preclosing value for the day, divided by the total number of fund units at the closing of operations for the day. The fund administrator appraises the assets daily. | N/A | ||||
| Forward contracts measured at fair value through income | Level 2 | Colombian Peso-US Dollar forward | The difference is measured between the forward agreed- upon rate and the forward rate on the date of valuation relevant to the remaining term of the derivative financial instrument and discounted at present value using a zero-coupon interest rate. The forward rate is based on the average price quoted for the two-way closing price ("bid" and "ask"). | Peso/US Dollar exchange rate set out in the forward contract. Market representative exchange rate on the date of valuation. Forward points of the Peso-US Dollar forward market on the date of valuation. Number of days between valuation date and maturity date. Zero-coupon interest rate. | ||||
| Swap contracts measured at fair value through income | Level 2 | Operating cash flows forecast model | The method uses swap cash flows, forecasted using treasury security curves of the State that issues the currency in which each flow has been expressed, for further discount at present value, using swap market rates disclosed by the relevant authorities of each country. The difference between cash inflows and cash outflows represents the swap net value at the closing under analysis. | Reference Banking Index Curve (RBI) 3 months. Zero-coupon curve. Swap LIBOR curve. Treasury Bond curve. 12-month CPI | ||||
| Derivative swap contracts denominated as hedge instruments | Level 2 | Operating cash flows forecast model | The method uses swap cash flows, forecasted using treasury security curves of the State that issues the currency in which each flow has been expressed, for further discount at present value, using swap market rates disclosed by the relevant authorities of each country. The difference between cash inflows and cash outflows represents the swap net value at the closing under analysis.
|
Reference Banking Index Curve (RBI) 3 months. Zero-coupon curve. Swap LIBOR curve. Treasury Bond curve. 12-month CPI | ||||
| Investment in bonds | Level 2 | Discounted cash flows method | Future cash flows are discounted at present value using the market rate for investments under similar conditions on the date of measurement in accordance with maturity days.
|
CPI 12 months + Basis points negotiated | ||||
| Investment property | Level 2 | Comparison or market method | This technique involves establishing the fair value of goods from a survey of recent offers or transactions for goods that are similar and comparable to those being appraised.
|
N/A | ||||
| F-173 |
| Investment property | Level 3 | Discounted cash flows method | This technique provides the opportunity to identify the increase in revenue over a previously defined period of the investment. Property value is equivalent to the discounted value of future benefits. Such benefits represent annual cash flows (both, positive and negative) over a period, plus the net gain arising from the hypothetical sale of the property at the end of the investment period.
|
Discount rate (10% - 14%) Vacancy rate (0% - 54.45%) Terminal capitalization rate (7.5% - 8.5%) | ||||
| Investment property | Level 3 | Realizable-value method | This technique is used whenever the property is suitable for urban movement, applied from an estimation of total sales of a project under construction, pursuant to urban legal regulations in force and in accordance with the final saleable asset market.
|
Realizable value | ||||
| Investment property | Level 3 | Replacement cost method | The valuation method consists in calculating the value of a brand-new property, built at the date of the report, having the same quality and comforts as that under evaluation. Such value is called replacement value; then an analysis is made of property impairment arising from the passing of time and the careful or careless maintenance the property has received, which is called depreciation.
|
Physical value of building and land. | ||||
| Non-current assets classified as held for trading | Level 2 | Realizable-value method | This technique is used whenever the property is suitable for urban development, applied from an estimation of total sales of a project under construction, pursuant to urban legal regulations in force and in accordance with the final saleable asset market.
|
Realizable Value |
| F-174 |
| Hierarchy level | Valuation technique |
Description of the valuation technique | Significant input data | |||||
| Liabilities | ||||||||
| Financial liabilities measured at amortized cost | Level 2 | Discounted cash flows method | Future cash flows are discounted at present value using the market rate for loans under similar conditions on the date of measurement in accordance with maturity days. | Reference Banking Index (RBI) + Negotiated basis points. LIBOR rate + Negotiated basis points. | ||||
| Swap contracts measured at fair value through income | Level 2 | Operating cash flows forecast model | The method uses swap cash flows, forecasted using treasury security curves of the State that issues the currency in which each flow has been expressed, for further discount at present value, using swap market rates disclosed by the relevant authorities of each country. The difference between cash inflows and cash outflows represents the swap net value at the closing under analysis. | Reference Banking Index Curve (RBI) 3 months. Zero-coupon curve. Swap LIBOR curve. Treasury Bond curve. 12-month CPI | ||||
| Derivative instruments measured at fair value through income | Level 2 | Colombian Peso-US Dollar forward | The difference is measured between the forward agreed upon rate and the forward rate on the date of valuation relevant to the remaining term of the derivative financial instrument and discounted at present value using a zero-coupon interest rate. The forward rate is based on the average price quoted for the two-way closing price ("bid" and "ask"). | Peso/US Dollar exchange rate set out in the forward contract. Market representative exchange rate on the date of valuation. Forward points of the Peso-US Dollar forward market on the date of valuation. Number of days between valuation date and maturity date. Zero-coupon interest rate. | ||||
| Derivative swap contracts denominated as hedge instruments | Level 2 | Discounted cash flows method | The fair value is calculated based on forecasted future cash flows provided by the operation upon market curves and discounting them at present value, using swap market rates.
|
Swap curves calculated by Forex Finance Market Representative Exchange Rate (TRM)
| ||||
| Customer loyalty liability (refer to footnote 26) | Level 3 | Market value | The customer loyalty liability is updated in accordance with the point average market value for the last 12 months and the effect of the expected redemption rate, determined on each customer transaction.
|
Number of points redeemed, expired and issued. Point value. Expected redemption rate. | ||||
| Bonds issued | Level 2 | Discounted cash flows method | Future cash flows are discounted at present value using the market rate for bonds in similar conditions on the date of measurement in accordance with maturity days.
|
12-month CPI | ||||
| Lease liabilities | Level 2 | Discounted cash flows method | Future cash flows of lease contracts are discounted using the market rate for loans in similar conditions on contract start date in accordance with the non-cancellable minimum term. | Reference Banking Index (RBI) + basis points in accordance with risk profile. | ||||
| Put option (refer to footnote 20) | Level 3 | Given formula | Measured at fair value using a given formula under an agreement executed with non-controlling interests of Grupo Disco, using level 3 input data. | Net income of Supermercados Disco del Uruguay S.A. at December 31, 2022 and 2021. US Dollar-Uruguayan peso exchange rate on the date of valuation US Dollar-Colombian peso exchange rate on the date of valuation Total shares Supermercados Disco del Uruguay S.A. | ||||
| F-175 |
| Hierarchy level | Valuation technique |
Description of the valuation technique | Significant input data |
Material non-observable input data and a valuation sensitivity analysis on the valuation of the "put option contract" refer to:
| Material non-observable input data | Range (weighted average) |
Sensitivity of the input data on the estimation of the fair value | ||||
| Put option | Net income of Supermercados Disco del Uruguay S.A. at December 31, 2022 |
$168,684 | The Put option value is defined as the greater of (i) the fixed price of the contract in US dollars updated at 5% per year, (ii) a multiple of EBITDA minus the net debt of Grupo Disco, or (iii ) a multiple of the net income of Grupo Disco.
On December 31, 2022, the value of the put option is recognized based on the fixed contract price.
Grupo Disco's EBITDA should increase by approx. 27% to arrive at a value greater than the recognized value.
Grupo Disco's net income should increase by approx. 9% to reach a value greater than the recognized value
An exchange rate appreciation of 15% would increase the value of the put option by $97,038. | |||
Ebitda of Supermercados Disco del Uruguay S.A., consolidated over 12 months |
$265,114 | |||||
Net financial debt of Supermercados Disco del Uruguay S.A., consolidated over 6 months |
($196,684) | |||||
| Fixed contract price | $672,638 | |||||
| US Dollar-Uruguayan peso exchange rate on the date of valuation | $40.07 | |||||
| US Dollar-Colombian peso exchange rate on the date of valuation | $4,810.20 | |||||
| Total shares Supermercados Disco del Uruguay S.A. | 443,071,575 |
| F-176 |
Changes in hierarchies may occur if new information is available, certain information used for valuation is no longer available, there are changes resulting in the improvement of valuation techniques or changes in market conditions.
There were no transfers between level 1 and level 2 hierarchies during the year ended December 31, 2022. See Notes 20 and 26.
Note 36. Contingent liabilities
Contingent liabilities at December 31, 2022 and 2021 are:
| (a) | The following proceedings are underway, seeking that the Éxito Group be exempted from paying the amounts claimed by the complainant entity: |
| - | Administrative discussion with DIAN (Colombia national directorate of customs) amounting $32,225 (December 31, 2020 - $29,963) relating to Éxito’s 2015 income tax return. |
| - | Resolutions issued by the District Tax Direction of Bogotá to Éxito, relating to alleged inaccuracy in payments made in 2011, in the amount of $11,830 (December 31, 2020 - $11,830). |
| (b) | Guarantees: |
| - | As required by some insurance companies and as a requirement for the issuance of compliance bonds, during 2022 some subsidiaries and Almacenes Éxito S.A., as joint and several debtor of some of its subsidiaries, have granted certain guarantees to these third parties. Below a detail of guarantees granted: |
| Type of guarantee | Description and detail of the guarantee | Insurance company |
| Unlimited promissory note | Compliance bond Éxito acts as joint and several debtors of Patrimonio Autónomo Viva Barranquilla |
Seguros Generales Suramericana S.A. |
| Unlimited promissory note | Compliance bond granted by Éxito Industrias S.A.S. | Seguros Generales Suramericana S.A. |
| Unlimited promissory note | Compliance bond granted by Éxito Viajes y Turismo S.A. | Berkley International Seguros Colombia S.A. |
| Unlimited promissory note | Compliance bond granted by Éxito Viajes y Turismo S.A. | Seguros Generales Suramericana S.A. |
Note 37. Dividends declared and paid
Almacenes Éxito S.A. General Meeting of Shareholders held on March 24, 2022, declared a dividend of $237,678, equivalent to an annual dividend of $531 Colombian pesos per share. Dividends paid during the year ended December 31, 2022 amounted to $237,580.
Dividends declared and paid to the owners of non-controlling interests in subsidiaries during the year ended December 31, 2022 are as follows:
Dividends declared |
Dividends paid | |
| Grupo Disco Uruguay S.A. | 98,278 | 87,528 |
| Patrimonio Autónomo Viva Malls | 34,988 | 48,799 |
| Patrimonio Autónomo Viva Villavicencio | 8,706 | 8,491 |
| Patrimonio Autónomo Centro Comercial | 4,506 | 4,371 |
| Éxito Viajes y Turismo S.A.S. | 3,565 | 3,565 |
| Patrimonio Autónomo Viva Laureles | 2,138 | 2,102 |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 1,860 | 1,772 |
| Patrimonio Autónomo San Pedro Etapa I | 1,403 | 1,329 |
| Patrimonio Autónomo Viva Sincelejo | 1,364 | 1,485 |
| Total | 156,808 | 159,442 |
Éxito's General Meeting of Shareholders held on March 25, 2021, declared a dividend of $173,223, equivalent to an annual dividend of $387 Colombian pesos per share. Dividends paid during the year ended December 31, 2021 amounted to $173,174.
Dividends declared and paid to the owners of non-controlling interests in subsidiaries during the year ended December 31, 2021 are as follows:
Dividends declared |
Dividends paid | |
| Patrimonio Autónomo Viva Malls | 63,487 | 69,550 |
| Grupo Disco Uruguay S.A. | 44,205 | 42,758 |
| Patrimonio Autónomo Viva Villavicencio | 6,414 | 5,639 |
| Patrimonio Autónomo Centro Comercial | 3,825 | 3,193 |
| Éxito Viajes y Turismo S.A.S. | 3,463 | 3,463 |
| Patrimonio Autónomo Viva Laureles | 1,869 | 1,829 |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 1,279 | 1,251 |
| Patrimonio Autónomo San Pedro Etapa I | 1,247 | 1,058 |
| Patrimonio Autónomo Viva Sincelejo | 1,075 | 1,568 |
| Patrimonio Autónomo Viva Palmas | 909 | - |
| Total | 127,773 | 130,309 |
| F-177 |
Dividends declared and paid to the owners of non-controlling interests in subsidiaries during the year ended December 31, 2020 are as follows:
Dividends declared |
Dividends paid | |
| Patrimonio Autónomo Viva Malls | 40,821 | 20,948 |
| Grupo Disco Uruguay S.A. | 18,630 | 19,536 |
| Patrimonio Autónomo Viva Villavicencio | 6,880 | 8,931 |
| Patrimonio Autónomo Viva Sincelejo | 3,671 | 2,264 |
| Patrimonio Autónomo Centro Comercial | 2,282 | 2,665 |
| Patrimonio Autónomo Viva Laureles | 1,416 | 1,432 |
| Patrimonio Autónomo San Pedro Etapa I | 573 | 679 |
| Patrimonio Autónomo Centro Comercial Viva Barranquilla | 301 | 258 |
| Total | 74,574 | 56,713 |
Note 38. Financial risk management policy
At December 31, 2022 and 2021 Éxito Group's financial instruments were comprised of:
| Year ended December 31, | ||
| 2022 | 2021 | |
| Financial assets | ||
| Cash and cash equivalents (Note 7) | 1,733,673 | 2,541,579 |
| Trade receivables and other receivables (Note 8) | 829,876 | 684,051 |
| Accounts receivables from related parties (Note 10) (1) | 47,122 | 56,475 |
| Financial assets (Note 12) | 78,384 | 54,961 |
| Total financial assets | 2,689,055 | 3,337,066 |
| Financial liabilities | ||
| Accounts payable to related parties (Note 10) (1) | 79,189 | 65,646 |
| Trade payables and other accounts payable (Note 23) | 5,721,775 | 5,186,555 |
| Loans and borrowings (Note 20) | 1,455,584 | 1,417,011 |
| Lease liabilities (Note 15) | 1,655,955 | 1,594,643 |
| Derivative instruments and collections on behalf of third parties (Note 25) | 136,223 | 81,544 |
| Total financial liabilities | 9,048,726 | 8,345,399 |
| Net (liability) exposure | (6,359,671) | (5,008,333) |
| (1) | Transactions with related parties refer to transactions between Éxito and its associates, joint ventures and other related parties, and are carried in accordance with market general prices, terms and conditions. |
Capital risk management
Éxito Group manages its equity structure and makes the required adjustments as a function of changes in economic conditions and requirements under financial clauses. To maintain and adjust its capital structure, Éxito may also modify the payment of dividends to shareholders, reimburse capital contributions or issue new shares.
Financial risk management
Besides derivative instruments, the most significant of Éxito Group's financial liabilities include debt, lease liabilities and interest-bearing loans, trade accounts payable and other accounts payable. The main purpose of such liabilities is financing Éxito Group's operations and maintaining proper levels of working capital and net financial debt.
The most significant of Éxito Group's financial assets include loans, trade debtors and other accounts receivable, cash and short-term placements directly resulting from day-to-day transactions. The Éxito Group also has other investments classified as financial assets measured at fair value, which, according to the business model, have effects in income for the period or in other comprehensive income. Further, other rights may arise from transactions with derivative instruments and will be carried as financial assets.
The Éxito Group is exposed to market, credit and liquidity risks. Éxito Group management monitor the manner in which such risks are managed, through the relevant bodies of the organization designed for such purpose. The scope of the Board of Directors' activities includes a financial committee that oversees such financial risks and the financial risk management corporate framework that is most appropriate. The financial committee supports Éxito Group management in that financial risk assumption activities fall within the approved corporate policies and procedures framework, and that such financial risks are identified, measured and managed pursuant to such corporate policies.
Financial risk management activities related to all transactions with derivative instruments are carried out by teams of specialists with the required skills and experience, who are supervised by the organizational structure. Pursuant to Éxito Group's corporate policies, no transactions with derivative instruments may be carried out solely for speculation. Even if hedge accounting models not always are applied, derivatives are negotiated based on an underlying element that in fact requires such hedging in accordance with internal analyses.
| F-178 |
The Board of Directors reviews and agrees on the policies applicable to manage each of these risks, which are summarized below:
| a. | Credit risk |
A credit risk is the risk that a counterparty fails to comply with their obligations on a financial instrument or trade agreement, resulting in a financial loss. The Éxito Group is exposed to credit risk arising from their operating activities (particularly from trade debtors) and from their financial activities, including deposits in banks and financial institutions and other financial instruments. The carrying amount of financial assets represents the maximum exposure to credit risks.
Cash and cash equivalents
The credit risk arising from balances with banks and financial entities is managed pursuant to corporate policies defined for such purpose. Surplus funds are only invested with counterparties approved by the Board of Directors and within previously established jurisdictions. On an ongoing basis, management reviews the general financial conditions of counterparties, assessing the most significant financial ratios and market ratings.
Trade receivables and other receivables
The credit risk associated with trade receivables is low given that most of the Éxito Group’s sales are cash sales (cash and credit cards) and financing activities are conducted under trade agreements that reduce Éxito Group's exposure to risk. In addition, there are administrative collections departments that permanently monitor ratios, figures, payment behaviors and risk models by each third party. There are no trade receivables that individually are equivalent to or exceed 5% of accounts receivable or sales, respectively.
Collaterals
The Éxito Group does not grant guarantees, collaterals or letters of credit, or issues filled-in or blank securities, or other liens or contingent rights in favor of third parties. Exceptionally, the Éxito Group may impose liens, depending on the relevancy of the business, the amount of the contingent liability and the benefit. In addition, there are certain promissory notes used in the regular course of the operation with banks and treasury. As of December 31, 2022, Almacenes Éxito S.A. was a guarantor in favor of its subsidiary Almacenes Éxito Inversiones S.A.S. in the amount of $2,935 to cover potential default of its obligations, acts as joint and several debtor of subsidiary Patrimonio Autónomo Centro Comercial Viva Barranquilla at the request of some insurance companies and as a requirement for the issuance of compliance bonds. Éxito Viajes y Turismo S.A.S. granted a collateral in favor of Aerovías del Continente Americano S.A. in the amount of $264. Subsidiaries Exito Industrias S.A.S. and Éxito Viajes y Turismo S.A.S. granted some guarantees to insurance companies and as a requirement for the issuance of compliance bonds. The subsidiary Transacciones Energéticas S.A.S. E.S.P. granted guarantees to third parties in the amount of $3,248 to cover for the use of the energy transmission system.
| b. | Market risk |
Market risk is the risk that changes in market prices, namely changes in exchange rates, interest rates or stock prices, have a negative effect on Éxito Group's revenue or on the value of the financial instruments it holds. The purpose of market risk management is to manage and control exposure to this risk within reasonable parameters while optimizing profitability.
Interest rate risk
Interest rate risk is the risk that the fair value of financial assets and liabilities, or the future cash flows of financial instruments, fluctuate due to changes in market interest rates. Éxito Group's exposure to interest rate risk is mainly related to debt obligations incurred at variable interest rates or indexed to an index beyond the control of the Éxito Group.
Most of Éxito Group's financial liabilities are indexed to market variable rates. To manage the risk, the Éxito Group performs financial exchange transactions via derivative financial instruments (interest rate swaps) with previously approved financial institutions, under which they agree on exchanging, at specific intervals, the difference between the amounts of fixed interest rates and variable interest rates estimated over an agreed upon nominal principal amount, which turns variable rates into fixed rates and cash flows may then be determined.
Currency risk
Currency risk is the risk that the fair value or future cash flows of financial instruments fluctuate due to changes in exchange rates. Éxito Group's exposure to exchange rate risk is attached to passive transactions in foreign currency associated with long-term debt liabilities and with Éxito Group's operating activities (whenever revenue and expenses are denominated in a currency other than the functional currency), as well as with Éxito Group's net investments abroad.
The Éxito Group manages its exchange rate risk via derivative financial instruments (namely forwards and swaps) whenever such instruments are efficient to mitigate volatility.
When exposed to unprotected currency risk, Éxito Group's policy is to contract derivative instruments that correlate with the terms of the underlying elements that are unprotected. Not all financial derivatives are classified as hedging transactions; however, Éxito Group's policy is not to carry out transactions for speculation.
At December 31, 2022 and 2021, Éxito Group had hedged almost 100% of their purchases and liabilities in foreign currency.
| c. | Liquidity risk |
| F-179 |
Liquidity risk is the risk that the Éxito Group faces difficulties to fulfil its obligations associated with financial liabilities, which are settled by delivery of cash or other financial assets. Éxito Group's approach to manage liquidity is to ensure, in as much as possible, that it will always have the necessary liquidity to meet its obligations without incurring unacceptable losses or reputational risk.
The Éxito Group manages liquidity risks by daily monitoring its cash flows and maturities of financial assets and liabilities, and by maintaining proper relations with the relevant financial institutions.
The Éxito Group maintains a balance between business continuity and the use of financing sources through short-term and long-term bank loans according to requirements, unused credit lines available from financial institutions, among other mechanisms. At December 31, 2022 approximately 33% of Éxito Group's debt will mature in less than one year (December 31, 2021 - 18%) considering the carrying amount of borrowings included in the accompanying financial statements.
The Éxito Group’s liquidity risk is considered to be low as there is no significant restriction for the payment of financial liabilities settling within twelve months from the reporting date. The Éxito Group has access to unused lines of credit.
The following table shows a profile of maturities of Éxito Group's financial liabilities based on non-discounted contractual payments arising from the relevant agreements.
| At December 31, 2022 | Less than 1 year | From 1 to 5 years | More than 5 years | Total |
| Lease liabilities | 337,809 | 991,809 | 782,572 | 2,112,190 |
| Other relevant contractual liabilities | 278,196 | 666,882 | 50,960 | 996,038 |
| Total | 616,005 | 1,658,691 | 833,532 | 3,108,228 |
| At December 31, 2021 | Less than 1 year | From 1 to 5 years | More than 5 years | Total |
| Lease liabilities | 284,621 | 906,480 | 681,837 | 1,872,938 |
| Other relevant contractual liabilities | 160,436 | 772,052 | 83,445 | 1,015,933 |
| Total | 445,057 | 1,678,532 | 765,282 | 2,888,871 |
Sensitivity analysis for 2022 balances
The Éxito Group assessed the potential changes in interest rates of financial liabilities and other significant contract liabilities.
Assuming complete normality and considering 10% variation in interest rates, three scenarios have been assessed:
| − | Scenario I: Latest interest rates known at the end of 2022. |
| − | Scenario II: An increase of 1.1660% was assumed for the Banking Reference Rate. This increase was on the latest published interest rate. |
| − | Scenario III: A decrease of 1.1660% was assumed for the Banking Reference Rate. This reduction was on the latest published interest rate. |
The sensitivity analysis did not result in significant variance among the three scenarios. Potential changes are as follows:
| Operations | Risk | Balance at December 31, 2022 |
Market forecast | ||
| Scenario I | Scenario II | Scenario III | |||
| Borrowings | Changes in interest rates | 803,685 | 807,799 | 820,573 | 795,026 |
| d. | Derivative financial instruments |
The Éxito Group uses derivative financial instruments to hedge risk exposure, with the main purpose of hedging exposure to interest rate risk and exchange rate risk, fixing the interest and exchange rates of the financial debt.
At December 31, 2022, the reference value of these contracts amounted to COP $355.458 million (interest rate swaps), USD 125.5 million y EUR 14.11 million (December 31, 2021 – COP $302.710 million, USD 104.5 million and EUR 6.83 million). Such transactions are generally contracted under identical conditions regarding amounts, terms and transaction costs and, preferably, with the same financial institutions, always in compliance with Éxito Group's limits and policies.
The Éxito Group has designed and implemented internal controls to ensure that these transactions are carried out in compliance with its policies.
| e. | Fair value of derivative financial instruments |
The fair value of derivative financial instruments is estimated under the operating cash flow forecast model, using government treasury security curves in each country and discounting them at present value, using market rates for swaps as disclosed by the relevant authorities in such countries.
Swap market values were obtained by applying market exchange rates valid on the date of the financial information available, and the rates are forecasted by the market based on currency discount curves. A convention of 365 consecutive days was used to calculate the coupon of foreign currency indexed positions.
Note 39. Operating segments
| F-180 |
The Éxito Group’s three reportable segments all meet the definition of operating segments, are as follows:
Colombia:
| - | Éxito: Revenues from retailing activities, with stores under the banner Éxito. |
| - | Carulla: Revenues from retailing activities, with stores under the banner Carulla. |
| - | Low cost and other: Revenues from retailing and other activities, with stores under the banners Surtimax, Súper Inter, Surti Mayorista and B2B format. |
Argentina:
| - | Revenues and services from retailing activities in Argentina, with stores under the banners Libertad and Mini Libertad. |
Uruguay:
| - | Revenues and services from retailing activities in Uruguay, with stores under the banners Disco, Devoto and Géant. |
Éxito discloses information by segment pursuant to IFRS 8 - Operating segments, which are defined as a component of an entity whose operating results are regularly reviewed by the chief operating decision maker (Board of Directors) for decision making purposes about resources to be allocated.
Retail sales by each of the segments are as follows:
| Year ended December 31, | |||||
| Operating segment | Banner | 2022 | 2021 | 2020 | |
| Colombia | Éxito | 10,120,848 | 8,581,274 | 8,049,347 | |
| Carulla | 2,133,700 | 1,782,355 | 1,769,277 | ||
| Low cost and other | 2,262,847 | 1,920,768 | 1,824,061 | ||
| Argentina | 1,683,717 | 1,178,166 | 847,060 | ||
| Uruguay | 3,553,925 | 2,643,858 | 2,654,336 | ||
| Total sales | 19,755,037 | 16,106,421 | 15,144,081 | ||
| Eliminations | (961) | (665) | (2,837) | ||
| Total consolidated | 19,754,076 | 16,105,756 | 15,141,244 | ||
Below is additional information by operating segment:
| For the year ended December 31, 2022 | |||||||||||
| Colombia | Argentina (1) | Uruguay (1) | Total | Eliminations (2) | Total | ||||||
| Retail sales | 14,517,395 | 1,683,717 | 3,553,925 | 19,755,037 | (961) | 19,754,076 | |||||
| Service revenue | 648,806 | 66,658 | 25,782 | 741,246 | - | 741,246 | |||||
| Other revenue | 113,466 | 341 | 10,816 | 124,623 | (272) | 124,351 | |||||
| Gross profit | 3,385,817 | 604,403 | 1,249,056 | 5,239,276 | 307 | 5,239,583 | |||||
| Operating profit | 663,984 | 68,703 | 257,140 | 989,827 | 307 | 990,134 | |||||
| Depreciation and amortization | (506,716) | (24,426) | (72,185) | (603,327) | - | (603,327) | |||||
| Net finance expenses | (263,785) | (97,014) | (19,368) | (380,167) | (307) | (380,474) | |||||
| Income tax | (218,901) | (65,262) | (41,539) | (325,702) | - | (325,702) | |||||
Non-current assets other than financial instruments and deferred tax assets |
7,793,835 | 1,342,002 | 2,832,144 | 11,967,981 | - | 11,967,981 | |||||
| For the year ended December 31, 2021 | |||||||||||
| Colombia | Argentina (1) | Uruguay (1) | Total | Eliminations (2) | Total | ||||||
| Retail sales | 12,284,397 | 1,178,166 | 2,643,858 | 16,106,421 | (665) | 16,105,756 | |||||
| Service revenue | 550,284 | 39,477 | 19,542 | 609,303 | - | 609,303 | |||||
| Other revenue | 198,142 | 826 | 8,993 | 207,961 | (635) | 207,326 | |||||
| Gross profit | 3,099,453 | 412,465 | 921,140 | 4,433,058 | 471 | 4,433,529 | |||||
| Operating profit | 701,974 | 16,152 | 200,809 | 918,935 | 473 | 919,408 | |||||
| Depreciation and amortization | (466,959) | (24,873) | (55,552) | (547,384) | - | (547,384) | |||||
| Net finance expenses | (161,533) | (20,079) | (13,670) | (195,282) | (473) | (195,755) | |||||
| Income tax | (120,671) | 12,769 | (29,768) | (137,670) | - | (137,670) | |||||
| Non-current assets other than financial instruments and deferred tax assets | 7,729,171 | 1,008,084 | 2,052,676 | 10,789,931 | (59,718) | 10,730,213 | |||||
| F-181 |
| For the year ended December 31, 2020 | |||||||||||
| Colombia | Argentina (1) | Uruguay (1) | Total | Eliminations (2) | Total | ||||||
| Retail sales | 11,642,685 | 847,060 | 2,654,336 | 15,144,081 | (2,837) | 15,141,244 | |||||
| Service revenue | 464,531 | 26,639 | 21,110 | 512,280 | - | 512,280 | |||||
| Other revenue | 75,056 | 514 | 7,215 | 82,785 | (470) | 82,315 | |||||
| Gross profit | 2,758,438 | 282,994 | 913,563 | 3,954,995 | 1,934 | 3,956,929 | |||||
| Operating profit | 418,621 | (11,131) | 201,832 | 609,322 | 1,923 | 611,245 | |||||
| Depreciation and amortization | (447,619) | (18,039) | (52,375) | (518,033) | - | (518,033) | |||||
| Net finance expenses | (217,963) | (19,181) | (6,564) | (243,708) | (1,923) | (245,631) | |||||
| Income tax | (27,529) | 2,405 | (29,055) | (54,179) | - | (54,179) | |||||
| Non-current assets other than financial instruments and deferred tax assets | 7,510,630 | 715,595 | 1,858,542 | 10,084,767 | (51,487) | 10,033,280 | |||||
| (1) | For information reporting purposes, non-operating companies (holding companies that hold interests in the operating companies) are allocated by segments to the geographic area to which the operating companies belong. Should the holding company hold interests in various operating companies, it is allocated to the most significant operating company. |
| (2) | Relates to the balances of transactions carried out between segments, which are eliminated in the process of consolidation of financial statements. |
Total assets and liabilities by segment are not reported internally for management purposes and consequently they are not disclosed.
Note 40. Assets held for sale
Assets held for sale
Éxito Group management started a plan to sell certain property seeking to structure projects that allow using such real estate property, increase the potential future selling price and generate resources to Éxito Group. Consequently, certain property, plant and equipment and certain investment property were classified as assets held for sale.
The balance of assets held for sale, included in the statement of financial position, is shown below:
| As at December 31, | ||
| 2022 | 2021 | |
| Property, plant and equipment | 17,875 | 16,340 |
| Investment property | 3,925 | 8,261 |
| Total | 21,800 | 24,601 |
Note 41. Subsequent Events
No events have occurred subsequent to the date of the reporting period that entail significant changes in the financial position and the operations of Éxito Group due to their relevance, are required to be disclosed in the financial statements:
| F-182 |