20-F: Sendas Distribuidora S.A. Files 20-F Report: Details 2023 Financial Performance and Corporate Developments

Sendas Distribuidora S.A. releases its 20-F filing, outlining its financial results for 2023 and providing updates on corporate governance, risk factors, and future outlook.

Summary

• Sendas Distribuidora S.A., a Brazilian retailer, filed its 20-F report with the SEC on April 23, 2024.
• The report details the company's financial performance for the fiscal year ended December 31, 2023, along with information on its operations, risk factors, and corporate governance.
• In 2023, Sendas's net operating revenue increased by 22.0% to R$66,503 million, driven by new store openings and maturation of existing stores.
• However, net income decreased by 41.8% to R$710 million.
• The company opened 27 new stores in 2023, expanding its sales area by 152 thousand square meters.
• As of December 31, 2023, Sendas operated 288 stores.
• The report also discusses the company's debt profile, capital expenditures, and compliance with financial covenants.
• Significant corporate developments include management changes, debenture issuances, and proposed changes to management compensation structure.
• The company is subject to various risks, including economic conditions in Brazil, competition, and cyberattacks.
• Sendas is committed to sustainability and has implemented various environmental, social, and governance initiatives.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While revenue increased, net income decreased significantly. There are also several risk factors that could negatively impact the company's future performance. The outlook is cautiously optimistic.

Positives

• Net operating revenue increased by 22.0% in 2023.
• Opened 27 new stores in 2023, expanding sales area.
• Gross profit increased by 20.7% to R$10,821 million in 2023.
• Same store gross sales increased 1.5% in 2023.
• The company is committed to sustainability and has implemented various environmental, social, and governance initiatives.
• Fitch upgraded Brazils sovereign credit rating at BB with a stable outlook on December 15, 2023.
• S&P upgraded Brazils sovereign credit rating at BB with a stable outlook on December 19, 2023.

Negatives

• Net income decreased by 41.8% in 2023.
• Net financial results, expenses, increased by R$1,216 million to R$2,731 million in 2023.
• The company has a negative working capital of R$1,810 million as of December 31, 2023.
• The company is subject to various risks, including economic conditions in Brazil, competition, and cyberattacks.

Risks

• The Brazilian cash and carry industry is sensitive to decreases in consumer purchasing power and unfavorable economic cycles.
• The company faces significant competition and pressure to adapt to changing consumer habits.
• The company's indebtedness could adversely affect its business.
• The company's systems are subject to cyberattacks and security and privacy breaches.
• The company could be materially adversely affected by violations of anti-corruption laws.
• The company may not be able to renew or maintain its stores and distribution centers lease agreements on acceptable terms.
• The company's product distribution is dependent on a limited number of distribution centers.
• The company is dependent on credit card sales.
• The company may be unable to attract or retain key personnel.
• The company may not be able to provide sufficient volume and variety of products at competitive prices or properly manage its inventory.
• The company does not have a controlling shareholder or control group, which may leave it susceptible to shareholders alliances, conflicts among shareholders and other events arising from the absence of a controlling shareholder or control group.
• Unfavorable decisions in legal or administrative proceedings could have a material adverse effect on the company.
• The company may not be able to protect its intellectual property rights.
• The company faces competition from internet sales.
• Losses not covered by the company's insurance may result in a material adverse effect on its business.
• The company may encounter difficulties in opening and operating new stores.
• The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.
• Political instability in Brazil has adversely affected and may continue to adversely affect the company's business.
• Changes in the Brazilian tax legislation may adversely affect the company's operations.
• Brazilian government efforts to combat inflation may hinder the growth of the Brazilian economy.
• Exchange rate volatility may adversely affect the Brazilian economy and the company.
• Global economic and political instability and geopolitical conflicts could adversely affect the company's business.
• Any further downgrading of Brazil's credit rating may adversely affect the trading price of the Sendas common shares and the Sendas ADSs.
• Developments and the perception of risk in other countries may adversely affect the price of securities of Brazilian issuers.
• The outbreak of communicable diseases around the world may lead to higher volatility in the global capital markets and recessionary pressure on the Brazilian economy.
• The volatility and illiquidity of the Brazilian securities markets and of the Sendas common shares may substantially limit your ability to sell the Sendas common shares underlying the Sendas ADSs at the price and time you desire.
• If a liquid and active trading market is not developed or maintained, the trading price of the Sendas common shares and the Sendas ADSs may be negatively affected.
• Future sales, or the perception of future sales, of substantial amounts of the Sendas common shares on the B3 or the Sendas ADSs on the NYSE, or the anticipation of these sales, could adversely affect the market price of the Sendas common shares and the Sendas ADSs prevailing from time to time or their liquidity and could impair our ability to raise capital through the sale of equity securities.
• If you exchange the Sendas ADSs for Sendas common shares, as a result of Brazilian regulations you may risk losing the ability to remit foreign currency abroad.
• Holders of Sendas ADSs are not entitled to attend shareholders meetings and may only vote through the Sendas Depositary.
• Holders of Sendas ADSs may not be entitled to a jury trial with respect to claims arising under the Sendas Deposit Agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
• You might be unable to exercise preemptive rights with respect to the Sendas common shares underlying the Sendas ADSs, as a result of which your investment may be diluted.
• Holders of Sendas common shares and Sendas ADSs may not receive any dividends.
• 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.
• 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.
• Holders of Sendas common shares and Sendas ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
• Holders of Sendas common shares are required to resolve disputes with us, our senior management and holders of Sendas common shares only through arbitration in Brazil.
• The protections afforded to minority shareholders in Brazil are different, and may be more difficult to enforce, than those in the United States and some European countries.
• Acquisition, ownership and disposal of Sendas common shares or Sendas ADSs could result in substantial U.S. tax liability for you.
• We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of the Sendas common shares and the Sendas ADSs.
• Acquisition, ownership and disposal of Sendas common shares or Sendas ADSs could result in substantial Brazilian tax liability for you.

Future Outlook

The company aims to open approximately 15 new stores in 2024 and is focused on maintaining efficient, decentralized, and low-cost operations.

Management Comments

• Management believes that the Extra Transaction allowed the company to accelerate its expansion through the conversion of stores in dense regions without significant overlap with existing operations.
• Management believes that existing resources and operating income will be sufficient for the company's capital expenditures and investment plan and to meet its liquidity requirements.

Industry Context

The cash and carry segment has been strengthening over the past few years in Brazil, with growth year after year. According to Nielsen, 73.0% of Brazilian homes made at least one purchase from cash and carry stores in 2023, and the sales in the segment reported an increase of 15.1% in 2023, as compared to 2022.

Comparison to Industry Standards

• According to ABAAS, the Brazilian retail food industry represented approximately 7.0% of Brazils GDP in 2022.
• The food retail industry in Brazil recorded gross revenues of approximately R$695.7 billion in 2022.
• The cash and carry segment represented in December 2023 only 24.0% of the Brazilian monthly purchases in the retail food industry.
• The market share of the cash and carry segment relative to total sales from the retail food industry reached 48.3% in December 2023.
• The company is the second largest company in terms of total gross revenue in 2023, when compared with the main competitors in the Brazilian retail market.
• The company's main competitors are Atacado, Grupo Mateus, Maxxi, Fort, Tenda and Roldo, as well as various regional players.

Management Changes

Corporate Governance

Legal Proceedings

• The company is party to legal and administrative proceedings related to civil, regulatory, environmental, tax and labor matters.
• An amount of R$1.5 billion related to a legal proceeding is identified as potential losses and is guaranteed by CBD.

Related Party Transactions

• As a result of the Casino Group’s disposition of our common shares in 2022 and 2023, the Casino Group and CBD are no longer considered our related parties.
• For the period from January 1, 2023 to the date of this annual report, we were not party to any material or unusual transactions with related parties, and no such transactions are presently proposed.

Stakeholder Impact

• The company's performance and strategic decisions can impact shareholders, employees, customers, suppliers, and creditors.
• The company's commitment to sustainability and social measures can affect communities where it operates.

Next Steps

• Shareholders will vote on a new management compensation model at the ordinary and extraordinary general shareholders meetings to be held on April 26, 2024.
• The company aims to open approximately 15 new stores in 2024.

Key Dates

Keywords

Sendas Distribuidora, 20-F, Financial Report, Retail, Cash and Carry, Brazil, Financial Performance, Corporate Governance, Risk Factors, Securities and Exchange Commission, ASAI, NYSE, B3, Financial Results