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 | |
| OR | |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| 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
(Jurisdiction of incorporation or organization)
_______________________________________________________________________
Phone:
(Address of principal executive offices)
_______________________________________________________________________
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* |
|
|
|
|
_______________________________________________________________________
*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, 2021, 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
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
Page
i
ii
| PART III | 139 | |
| ITEM 17. | FINANCIAL STATEMENTS | 139 |
| ITEM 18. | FINANCIAL STATEMENTS | 139 |
| ITEM 19. | EXHIBITS | 139 |
| iii |
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) the “Colombian government” are references to the federal government of the Federative Republic of Colombia, or Colombia; (iv) the “Argentinian government” are references to the federal government of the Federative Republic of Argentina, or Argentina; (v) “common shares” are references to our authorized and outstanding common shares (ações ordinárias), without par value; and (vi) “preferred shares” are references to our formerly issued preferred shares, all of which were converted into common shares on February 28, 2020. For additional 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$” are to the Brazilian real, the official currency of Brazil. All references to “COP$” are to Colombian pesos, the official currency of Colombia. 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. We have translated some of the real amounts contained in this annual report into U.S. dollars and COP. The rate used to translate the U.S. dollars amounts as of December 31, 2021 was R$5.5805 to US$1.00, which was the commercial selling rate of U.S. dollars in effect as of December 31, 2021, as reported by the Central Bank of Brazil, or the Central Bank. Unless otherwise stated, the rate used to translate the Colombian pesos amounts as of December 31, 2021 was COP$0.0015 to R$1.00, which was the commercial selling rate of Colombian pesos in effect as of December 31, 2021, as reported by the Central Bank. The U.S. dollar and Colombian pesos 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 and Colombian pesos 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 “Brazilian retail segment” refers to our food and non-food retail operating segment in Brazil that operates under different formats through the banners Pão de Açúcar, Extra Hiper, Mercado Extra, Compre Bem, Mini Extra, Minuto Pão de Açúcar, Aliados Minimercado and Pão de Açúcar Adega, and GPA Malls, our real estate business unit that operates in Brazil; |
| · | 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 additional information on our direct and indirect shareholders, see “Item 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 additional information on our investment in Cnova, see “Item 4A. History and Development of the Company—Changes in Our Business;” |
| iv |
| · | 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 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 additional information on the Cnova reorganization, see “Item 4A. History and Development of the Company;” |
| · | “Éxito” are to Almacenes Éxito S.A., a Colombian corporation, one of our consolidated subsidiaries, which became part of the Pão de Açúcar Group in November 2019. For additional information on the acquisition of Éxito, see “Item 4A. History and Development of the Company—Changes in our Business—Acquisition of Grupo Éxito;” |
| · | “Grupo Éxito” are to Éxito and its consolidated subsidiaries; |
| · | “Grupo Éxito segment” refers to Grupo Éxito’s food and non-food retail operating segment in Colombia, Uruguay and Argentina |
| · | “FIC” are to Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, a Brazilian financial services company; |
| · | the term “home appliances” refers to durable goods (i.e., electronics, furniture and other items for the home); |
| · | the term “low-cost supermarkets” refers to a grocery store or supermarket retail format that sell products at prices that are in principle lower than the regular retail price; |
| · | the term “private label” refers to our own branded products, including Qualitá, Taeq, Cheftime, Casino, Club des Sommeliers, Fábrica 1959, Confraria, Finlandek, Arkitect, Bronzini, Cast, Bambini, Boomy Nous, Frescampo and Custer; |
| · | 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 additional information on the spin-off and separation of Sendas, see “Item 4. Information on the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment.” |
| · | “Sendas Separation” refers to our separation from Sendas. On December 14, 2020, we entered into a Separation Agreement with Sendas to provide a framework for our relationship with Sendas following the Separation and the Sendas Spin-Off. For more information on the Separation Agreement, see “Item 7B. Related Party Transactions—Agreements With Sendas”; |
| · | “Sendas Spin-Off” refers to 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 4A. History and Development of the Company—Changes in Our Business—Spin-Off of Cash and Carry Operating Segment; and |
| · | 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. |
| · | 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. Via’s operations were classified and presented as discontinued operations in the periods from November 2016 through June 2019. On June 14, 2019, we consummated the sale of all equity interest we held in Via. For additional information on the sale of the discontinued operations of Via, see “Item 4. Information on the Company—4A. History and Development of the Company—Recent Changes in Our Business—Via Sale;” |
| v |
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 events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things:
| · | the economic, financial, political and social effects of the COVID-19 pandemic, including new variants, and any restrictive measures imposed by governmental authorities to contain the COVID-19 pandemic (or other pandemics, epidemics and similar crises) particularly in Brazil and in other Latin American countries where we operate, and to the extent that they continue to cause negative macroeconomic effects, thus prompting and exacerbating the risks described under “Item 3. Key Information—3D. Risk Factors;” |
| · | the impacts of the COVID-19 pandemic, and new variants, on customer demand and purchasing habits, as well as on our expected results of operations, financial condition and cash flows; |
| · | fluctuations in crude oil prices and its effect on fuel costs, especially in light of the conflict between Russia and Ukraine; |
| · | global economic conditions, including any adverse effects arising from the ongoing war between Russia and Ukraine, and their impact on consumer spending patterns, particularly in Brazil, including, but not limited to, unemployment rates, interest rates, monetary policies and inflation rates; |
| · | our ability to sustain or improve our performance; |
| · | competition in the retail industry of Brazil, Colombia, Uruguay and Argentina in the sectors in which we operate; |
| · | government regulations and tax matters in the countries where 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.
| vi |
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. Selected Financial Data
We present in this section summary financial and operating data derived from our audited consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019, or our audited consolidated financial statements, included elsewhere in this annual report and prepared in accordance with IFRS as issued by the IASB, and from our audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018, not included in this annual report and prepared in accordance with IFRS as issued by the IASB.
IFRS 16 – Leases, or IFRS 16, became effective on January 1, 2019 and supersedes (i) IAS 17 – Leases, (ii) IFRIC 4 – Determining whether an Arrangement contains a Lease, (iii) SIC-15 – Operating Leases-Incentives, and (iv) SIC-27 – Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets forth the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize most leases on the balance sheet.
Lessor accounting under IFRS 16 is substantially unchanged when compared to IAS 17. Lessors will continue to classify leases as either operating or finance leases using principles that are similar to IAS 17. Accordingly, IFRS 16 does not have an adverse impact on the recognition of a lease by the lessor.
We adopted IFRS 16 using the full retrospective method of adoption on January 1, 2019. Accordingly, operating lease expenses are replaced by depreciation expenses related to the right-of-use and interest expenses in connection with lease liabilities. We have also applied the practical expedient that exempts us from the reassessment of contracts as to whether they contain a lease. Additionally, we elected not to recognize a right-of-use and lease liabilities for leases with a lease term of 12 months or less.
As a result of the application of the full retrospective method of adoption of IFRS 16, we have recasted the comparative financial information as of and for the years ended December 31, 2018 and 2017 with the following impacts:
|
As of and for the Year Ended December 31, | ||
|
2018 |
2017 | |
| (millions of R$) | ||
| Right-of-use assets | 4,545 | 4,108 |
| Lease liabilities | 5,787 | 5,267 |
| Depreciation expense | (481) | (483) |
| Interest expense | (587) | (565) |
The following tables present certain of our summary historical consolidated financial and operating data for each of the periods indicated. Solely for the convenience of the reader, real amounts as of and for the year ended December 31, 2021, have been translated into U.S. dollars at a rate of R$5.5805 to US$1.00, which was the commercial selling rate of U.S. dollars in effect as of December 31, 2021, as reported by the Central Bank.
| 1 |
|
As of and for the Year Ended December 31, | |||||||
|
2021(*) |
2021 |
2020 |
2019(**)(1)(2)(3) |
2018(**)(1)(2) |
2017(**)(1)(2) | ||
| (millions of US$, except per share/ADS data) | (millions of R$, except per share/ADS data) | ||||||
| Statement of operations and comprehensive income | |||||||
| Net operating revenue | 9,191 | 51,291 | 51,253 | 28,838 | 26,490 | 26,195 | |
| Cost of sales |
(6,871) |
(38,341) |
(37,504) |
(21,225) |
(19,046) |
(18,092) | |
| Gross profit |
2,321 |
12,950 |
13,749 |
7,613 |
7,444 |
8,103 | |
| Selling, general and administrative expenses | (1,676) | (9,353) | (9,343) | (5,698) | (5,396) | (5,433) | |
| Depreciation and amortization | (332) | (1,853) | (1,804) | (1,028) | (892) | (935) | |
| Other operating expenses, net |
(1) |
(7) |
(71) |
(386) |
(199) |
(551) | |
| Operating expenses | (2,009) | (11,213) | (11,218) | (7,112) | (6,487) | (6,919) | |
| Profit from operations before net financial expenses and share of profit of associates | 311 | 1,737 | 2,531 | 501 | 957 | 1,184 | |
| Financial income | 87 | 488 | 909 | 353 | 193 | 144 | |
| Financial expenses |
(324) |
(1,809) |
(1,637) |
(1,224) |
(1,095) |
(1,391) | |
| Finance expenses, net |
(237) |
(1,321) |
(728) |
(871) |
(902) |
(1,247) | |
| Share of profit of associates | (8) | (47) | 98 | 2 | 28 | (93) | |
| Profit (loss) before income tax and social contribution |
66 |
369 |
1,901 |
(368) |
83 |
(155) | |
| Income tax and social contribution |
106 |
594 |
(662) |
95 |
41 |
(28) | |
| Net income (loss) for the year from continuing operations |
173 |
963 |
1,239 |
(273) |
124 |
(183) | |
| Net income (loss) for the year from discontinued operations |
(1) |
(3) |
1,087 |
1,109 |
1,160 |
1,012 | |
| Net income for the year |
172 |
960 |
2,326 |
836 |
1,284 |
829 | |
| Attributed to controlling shareholders from continuing operations | 144 | 805 | 1,092 | (287) | 124 | (183) | |
| Attributed to controlling shareholders from discontinued operations |
(1) |
(3) |
1,087 |
1,077 |
1,025 |
682 | |
| Total attributed to controlling shareholders |
144 |
802 |
2,179 |
790 |
1,149 |
499 | |
| Attributed to non-controlling shareholders from continuing operations | 28 | 158 | 147 | 14 | - | - | |
| Attributed to non-controlling shareholders from discontinued operations |
- |
- |
- |
32 |
135 |
330 | |
| Total attributed to non-controlling shareholders |
28 |
158 |
147 |
46 |
135 |
330 | |
| Other comprehensive income (loss) for the year, net of income tax |
(252) |
(1,408) |
2,162 |
218 |
(9) |
(36) | |
| Total comprehensive income (loss) for the year |
(80) |
(448) |
4,488 |
1,054 |
1,275 |
821 | |
| Attributed to controlling shareholders |
(57) | (316) | 3,748 | 945 | 1,132 | 478 | |
| Attributed to non-controlling shareholders | (24) | (132) | 740 | 109 | 143 | 343 | |
| Per share data(4) | |||||||
| Basic earnings per common share (weighted average for the year): | |||||||
| Common – Continuing operations | 0.54 | 3.00 | 4.08 | (1.07) | 0.47 | 1.34 | |
| Common – Total | 0.53 | 2.98 | 8.13 | 2.96 | 4.31 | 1.91 | |
| Diluted earnings per common share (weighted average for the year): | |||||||
| Common – Continuing operations | 0.54 | 2.99 | 4.07 | (1.07) | 0.46 | 1.34 | |
| Common – Total | 0.53 | 2.98 | 8.12 | 2.95 | 4.29 | 1.90 | |
| Weighted average number of common shares outstanding (in thousands) | 268,696 | 268,696 | 267,926 | 267,068 | 266,604 | 266,071 | |
| Dividends declared and interest on own capital per common share | 0.05 | 0.30 | 1.92 | 0.85 | 1.09 | 0.30 | |
| Balance sheet data | |||||||
| Cash and cash equivalents | 1,483 | 8,274 | 8,711 | 7,954 | 4,369 | 3,792 | |
| Property and equipment, net | 2,929 | 16,344 | 19,888 | 24,290 | 14,052 | 13,292 | |
| Assets held for sale | 213 | 1,187 | 109 | 223 | 28,687 | 26,746 | |
| Total assets | 8,860 | 49,443 | 53,295 | 58,475 | 61,657 | 55,862 | |
| Current borrowings and financing | 263 | 1,470 | 2,309 | 3,488 | 1,981 | 1,200 | |
| Non-current borrowings and financing | 1,359 | 7,582 | 6,842 | 10,706 | 3,392 | 3,193 | |
| 2 |
|
As of and for the Year Ended December 31, | |||||||
|
2021(*) |
2021 |
2020 |
2019(**)(1)(2)(3) |
2018(**)(1)(2) |
2017(**)(1)(2) | ||
| (millions of US$, except per share/ADS data) | (millions of R$, except per share/ADS data) | ||||||
| Liabilities related to assets held for sale | 11 | 62 | - | - | 23,545 | 21,947 | |
| Shareholders’ equity | 2,935 | 16,380 | 16,807 | 13,548 | 13,159 | 12,156 | |
| Share capital | 1,050 | 5,859 | 5,434 | 6,857 | 6,825 | 6,822 | |
| Other financial information | |||||||
| Net cash provided by (used in): | |||||||
| Operating activities | 489 | 2,728 | 4,742 | 1,135 | 4,267 | 3,464 | |
| Investing activities | (14) | (77) | (4,291) | (3,266) | (1,897) | (1,592) | |
| Financing activities | (492) | (2,743) | (281) | 1,894 | (1,641) | (3,663) | |
| Capital expenditures(5) | (227) | (1,267) | (2,490) | (2,782) | (2,364) | (1,713) | |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.5805 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2021, as published by the Central Bank. |
| (**) | The statements of operations for the years ended December 31, 2020, 2019, 2018 and 2017, presented in the table related to Sendas were classified in a single line as discontinued operations. For additional information on the Sendas Separation and Sendas Spin-Off, see notes 1.2 and 33 to our audited consolidated financial statements as of and for the year ended December 31, 2021, 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.” |
| (1) | The operations of Via were classified as discontinued operations in the periods from November 2016 through June 2019. For additional information on the sale of our discontinued 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.” Moreover, starting on November 1, 2016, we began recording our investment in Cnova according to IFRS 5. |
| (2) | IFRS 16 became effective on January 1, 2019. We opted for the full retrospective adoption method as if IFRS 16 had been adopted since the date the lease agreements have entered into effect to show the comparative effects for each past period. As a result, we have restated our audited consolidated financial statements, and financial information included in this annual report, as of and for the years ended December 31, 2018 and 2017. |
| (3) | As a result of Grupo Éxito’s acquisition on November 27, 2019, this table includes Grupo Éxito’s financial information solely for the month of December 2019. |
| (4) | Until February 2020, each preferred share received a dividend 10% higher than the dividend paid to each common share. In 2019, we paid dividends in the amount of R$20.6 to our preferred shareholders. See “Item 8. Financial Information—8A. Consolidated Statements and Other Financial Information—Dividend Policy.” As a result of our migration to the Novo Mercado listing segment of B3 on March 2, 2020, we converted all of our preferred shares into common shares and started trading our common shares on the Novo Mercado listing segment of B3. For additional information on our migration to the Novo Mercado listing segment of B3, see “Item 9. The Offer and Listing—9A. Offer and Listing Details.” According to IAS33, for purposes of the presentation of the basic earnings per share and diluted earnings per share we are solely considering our common shares, including for periods from 2017 to the year ended December 31, 2019. We calculate basic earnings per share and diluted earnings per share on a converted basis to accommodate the fact that we no longer have outstanding preferred shares. |
| (5) | Capital expenditures are comprised of cash used in purchases of property, equipment and intangible assets, as reflected in the consolidated statement of cash flows. |
|
As of December 31, | |||||
|
2021(4) |
2020(4) |
2019(4) |
2018 |
2017 | |
| (R$, except as indicated) | |||||
| Operating data* | |||||
| Number of employees at period end(1) |
91,917 |
95,616 |
92,648 |
61,130 |
64,731 |
| Total square meters of selling area at period end |
1,970,128 |
2,164,137 |
2,232,514 |
1,195,089 |
1,237,769 |
| Number of stores at period end(2): | |||||
| Pão de Açúcar | 181 | 182 | 185 | 186 | 186 |
| Extra Hiper(3) | 72 | 103 | 112 | 112 | 117 |
| Mini Extra and Minuto Pão de Açúcar | 240 | 236 | 237 | 235 | 265 |
| Mercado Extra and Compre Bem(4) | 174 | 175 | 181 | 186 | 188 |
| Grupo Éxito(5) |
620 |
629 |
653 |
- |
- |
| Total number of stores at period end |
1,287 |
1,325 |
1,368 |
719 |
756 |
_________________
*The table does not include the operating data from Sendas.
| (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) | Excludes gas stations and drugstores. |
| (3) | We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” |
| (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 December 31, 2020. |
| (5) | Includes Grupo Éxito’s operations in Colombia, Uruguay and Argentina. |
| 3 |
|
As of and for the Year Ended December 31, | ||||||
|
2021(*) |
2021 |
2020 |
2019(1) |
2018 |
2017 | |
| (US$, except as indicated) | (R$, except as indicated) | |||||
| Net operating revenue per employee(2): | ||||||
| Pão de Açúcar | 88,759 | 495,321 | 586,990 | 447,977 | 442,129 | 414,903 |
| Extra Hiper(3) | 155,682 | 868,783 | 838,464 | 622,068 | 609,364 | 570,601 |
| Mini Extra and Minuto Pão de Açúcar(4) | 116,456 | 649,884 | 581,231 | 424,552 | 348,985 | 349,306 |
| Mercado Extra and Compre Bem(4) | 79,812 | 445,392 | 468,733 | 376,005 | 390,024 | 439,678 |
| Grupo Éxito(5) | 116,868 | 652,182 | 585,415 | |||
| CBD average net operating revenue per employee | 100,194 | 559,130 | 544,030 | 311,259 | 433,333 | 404,657 |
| Net operating revenue by store format(6): | ||||||
| Pão de Açúcar | 1,299 | 7,249 | 7,630 | 7,156 | 7,171 | 6,932 |
| Extra Hiper(3) | 2,217 | 12,374 | 14,694 | 13,613 | 13,719 | 13,652 |
| Mini Extra and Minuto Pão de Açúcar(3) | 373 | 2,082 | 1,678 | 1,273 | 1,182 | 1,085 |
| Mercado Extra and Compre Bem(4) | 925 | 5,160 | 5,168 | 4,611 | 4,417 | 4,525 |
| Grupo Éxito(5) | 4,365 | 24,357 | 22,034 | 2,151 | - | - |
| Other(7) |
13 |
70 |
49 |
34 |
- |
- |
| Total net operating revenue |
9,191 |
51,291 |
51,251 |
28,838 |
26,489 |
26,194 |
| Average monthly net operating revenue per square meter(8): | ||||||
| Pão de Açúcar | 452 | 2,522 | 2,638 | 2,448 | 2,451 | 2,385 |
| Extra Hiper(3) | 271 | 1,515 | 1,711 | 1,515 | 1,516 | 1,536 |
| Mini Extra and Minuto Pão de Açúcar(3) | 539 | 3,010 | 2,407 | 1,850 | 1,524 | 1,343 |
| Mercado Extra and Compre Bem(4) | 375 | 2,093 | 2,046 | 1,786 | 1,704 | 1,278 |
| Grupo Éxito(5) |
354 |
1,978 |
1,767 |
|
|
|
| CBD average monthly net operating revenue per square meter |
348 |
1,944 |
1.892 |
1,772 |
1,740 |
1,634 |
| Average ticket amount: | ||||||
| Pão de Açúcar | 16 | 89 | 90 | 67 | 64 | 59 |
| Extra Hiper(3) | 20 | 112 | 116 | 90 | 86 | 80 |
| Mini Extra and Minuto Pão de Açúcar(3) | 9 | 49 | 38 | 25 | 22 | 20 |
| Mercado Extra and Compre Bem(4) | 9 | 53 | 49 | 40 | 38 | 36 |
| Grupo Éxito(5) |
17 |
94 |
90 |
|
|
|
| CBD average ticket amount |
16 |
87 |
85 |
63 |
60 |
56 |
| Average number of tickets per month: | ||||||
| Pão de Açúcar | 6,800,133 | 6,800,133 | 7,060,537 | 8,959,041 | 9,393,488 | 9,770,687 |
| Extra Hiper(3) | 9,167,364 | 9,167,364 | 10,559,155 | 12,669,866 | 13,244,647 | 14,284,209 |
| Mini Extra and Minuto Pão de Açúcar(3) | 3,510,029 | 3,510,029 | 3,634,277 | 4,160,461 | 4,435,348 | 4,425,078 |
| Mercado Extra and Compre Bem(4) | 8,181,570 | 8,181,570 | 8,703,080 | 9,674,130 | 9,710,083 | 10,480,779 |
| Grupo Éxito(5) |
21,655,975 |
21,655,975 |
20,421,095 |
|
|
|
| CBD average number of tickets per month |
49,315,071 |
49,315,071 |
50,378,144 |
35,463,497 |
36,783,565 |
38,960,753 |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.5805 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2021, as published by the Central Bank. |
| (1) | IFRS 16 became effective on January 1, 2019. We opted for the full retrospective adoption method as if IFRS 16 had been adopted since the date the lease agreements have entered into effect to show the comparative effects for each past period. As a result, we have restated our audited consolidated financial statements, and financial information included in this annual report, as of and for the year ended December 31, 2018. |
| (2) | 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. |
| (3) | Includes revenues associated with rentals of commercial spaces. Revenues of gas stations, drugstores, e-commerce food delivery and in-store pick-up are included in the respective banner. We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.” We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” |
| (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) | As a result of Grupo Éxito’s acquisition on November 27, 2019, this table includes Grupo Éxito’s financial information solely for the month of December 2019 onwards. |
| (6) | Net operating revenue of each banner divided by total number of stores of the banner. |
| (7) | Includes the banners 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. |
| 4 |
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.
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; |
| 5 |
| · | 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. Moreover, the business and results of operations of Brazilian companies as well as the trading price of their securities, including ours, may experience heightened volatility due to the Brazilian presidential elections, which will be held in October 2022.
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.
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 addition, any difficulty by the Brazilian government in obtaining a majority in the national congress could result in congressional deadlock, political unrest and demonstrations or strikes, which could adversely affect us. Uncertainties relating to the implementation by the Brazilian government of changes related to monetary, fiscal and social security policies, as well as to related laws may contribute to economic instability. 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 17.1% in 2021, 23.1% in 2020 and 7.31% in 2019. Brazil’s Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or the IPCA, recorded inflation of 10.1%, 4.5% and 4.3% in 2021, 2020 and 2019, respectively, according to IBGE. In 2021, 2020 and 2019, the SELIC rate was 9.25%, 1.90% and 4.90%, 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. In February 2022, the COPOM increased official interest rates from 9.25% to 10.75%. As of the date of this annual report, the official interest rate in Brazil is 11.75%.
| 6 |
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.
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 2018, the real depreciated against the U.S. dollar in comparison to 2017, reaching R$3.875 per US$1.00 as of December 31, 2018. In 2019, the real further 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 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. As of May 13, 2022, the real-U.S. dollar exchange rate was R$5.1075 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.
| 7 |
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. Most recently, Standard Poor’s reaffirmed its rating and outlook in June 2021. 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 most recently reaffirmed in May 2021. Since April 2018, Moody’s has maintained Brazil’s credit rating at Ba2 with a stable outlook, which it most recently reaffirmed in December 2020.
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.
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 outbreak of communicable diseases on a global scale has adversely affected and may continue to adversely affect investment sentiment and result in higher volatility in global capital markets due to increased concerns of the recessionary pressure on the global economy Since December 2019, a novel strain of coronavirus known as COVID-19 has spread in China and other countries. The COVID-19 outbreak has compelled governments around the world to adopt temporary measures to contain the spread of COVID-19 by means such as lockdowns of cities, restrictions on travel and public transportation, business and store closures, and emergency quarantines, among others, all of which have caused significant disruptions to the global economy and ordinary course of business operations across numerous sectors and countries. The measures adopted to combat the COVID-19 outbreak, including new variants, have adversely affected and may continue to adversely affect business confidence and consumer sentiment. They have been, and may continue to be, accompanied by significant volatility in the global capital markets and stock exchanges worldwide.
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 price of our common shares was also adversely affected.
Uncertainties related to the spread of new variants of COVID-19, especially if the measures to curb the spread of the virus lingers, may continue to have broader macroeconomic implications, including reduced levels of economic growth and possibly a global recession, the effects of which could be felt well beyond the time the spread of infection is contained and adversely affect investment sentiment in the global capital markets. We cannot estimate the additional impacts that new variants of COVID-19 may cause on the price and performance of our common shares and ADSs.
| 8 |
Risks Relating to Other Latin American Countries Where We Operate
The political and economic conditions of Colombia, Uruguay and Argentina may adversely our business, results of operations and the trading price of the ADSs and our common shares.
As a result of our acquisition of the Grupo Éxito on November 27, 2019, we started to have operations in Colombia, Uruguay and Argentina, which represented 36.6%, 7.5% and 3.4%, respectively, of our net operating revenue for the year ended December 31, 2021. We are exposed to political and economic crises and declining purchase power of our customers in Colombia, Uruguay and Argentina, which may be prompted by several factors, primarily including:
| · | interference by local governments in economic policies; |
| · | unstable exchange rates and devaluation of local currencies; |
| · | deterioration of economic conditions; |
| · | inflation and interest rates; |
| · | foreign exchange controls and restrictions on remittances abroad, including remittance of dividends; |
| · | fiscal policy and tax regime; |
| · | foreign trade policy, including taxes and tariffs; |
| · | liquidity in the financial, capital and credit markets; |
| · | downgrades in credit ratings of Colombia, Uruguay or Argentina; and |
| · | other diplomatic, political, social, and economic risks that affect those markets. |
Uncertainties related to economic and political conditions in Colombia, Uruguay and Argentina, including changes in government policies and regulations, may adversely affect the business environment in these countries, which could adversely affect our results of operations and the trading price of the ADSs and our common shares.
In particular, the Colombian government has frequently imposed additional taxes and enacted modifications to existing taxes related to financial transactions, income, value added tax, or VAT, and taxes on net worth. More recently, in September 2021, the Colombian government approved the increase in the general corporate income tax to 35%, which became effective in January 2022. New tax laws and regulations as well as changes in tax-related laws and regulations can create significant additional tax burdens on us and our businesses, adversely affecting our results of operations and financial condition. Moreover, our Colombian business and results of operations as well as the trading price of the ADSs and our common shares may experience heightened volatility due to the Colombian presidential elections, which will be held in May 2022.
Historically, Colombia has experienced several periods of violence and instability. Future violence and instability in Colombia may adversely affect the Colombian economy and our operations.
Colombia has experienced several periods of violence over the past six decades, primarily due to the activities of guerrillas, organized crime groups and drug cartels.
While there has been a reduction of guerrilla and criminal activity in Colombia following the peace agreement between the Revolutionary Armed Forces of Colombia, or FARC, and Colombian government in 2016 and the creation of certain programs and policies of the Colombian government, guerrilla and criminal activity persists in Colombia. Any escalation in the violence associated with these activities and effects associated with it could have a negative impact on the Colombian economy and on our business and results of operations.
In addition, the level of dissatisfaction of the Colombian citizens towards the public institutions of that country is increasing and has led to massive protests, acts of violence, vandalism and disturbances to the public order. These events could have a negative effect on the Colombian economy and on us.
| 9 |
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 food retail industry in Brazil and Colombia, including the home appliances segment, which are 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 hypermarket 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 and Colombian economies. 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. In the home appliances sector, we also compete with large multinational chains and large or specialized Brazilian companies. 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, retail sales of food, clothing and home appliances products over the internet have increased significantly in Brazil and in other Latin American countries where we have operations. 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 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 hypermarkets and 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, especially as a result of the COVID-19 pandemic.
Additionally, technology employed in retail sales of food and home appliances 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 food retail and home appliances industries are sensitive to decreases in consumer purchasing power and unfavorable economic cycles.
Historically, the food retail industry in Brazil and other countries where we have operations has experienced periods of economic slowdown that led to declines in consumer spending. The success of operations in the food retail and home appliances sectors 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 or the other countries where we have operations, as well as more stringent credit policies adopted by us and credit card companies may negatively affect our sales, especially for home appliances. Unfavorable economic conditions in Brazil or in other Latin American countries where we operate, or unfavorable economic conditions worldwide reflected in the Brazilian economy and in those other countries where we operate, 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.
| 10 |
These factors are compounded as Brazil emerges from a prolonged recession after a period of slow recovery, followed by the crisis triggered by the COVID-19 pandemic, with only meager GDP. Brazil’s GDP growth rates were 4.6% in 2021, (4.0)% in 2020 and 1.1% in 2019. According to Colombia’s National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística), or DANE, in 2021, the Colombian GDP increased by 10.6%. As of the end of December 31, 2020, the Colombian GDP decreased by 6.8% compared to the same period of 2019, while the Colombian retail and wholesale industry as a whole decreased by 2.8%, mainly as a result of the adverse effects of the COVID-19 pandemic, including restrictions on the circulation of people, lockdowns, closing of commercial spaces, as well as the increased unemployment rate and lower consumer confidence.
Our results of operations and financial condition have been, and will continue to be, affected by the weak GDP of the countries where we operate. Developments in the economy of the Latin American countries where we operate, principally Brazil and Colombia, may affect these countries’ growth rates and, consequently, the sales of our products, which may adversely affect the trading price of our ADSs and common shares.
Because the 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 population in the countries where we operate, especially Brazil and Colombia. 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 increased restriction of credit availability to consumers in Brazil. The unemployment rate in the country reached 11.1% in 2021, compared to 13.9% in 2020 and 11.9% in 2019.
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 privately-owned 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 in Brazil—Financial Services.”
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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 47.2%, 46.5% and 46.4% of the consolidated net operating revenue in 2021, 2020 and 2019 for our Brazilian retail segment. 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, Compre Bem, Éxito, Carulla, Surtimax, Super Inter, Surtimayorista, Devoto, Disco, Geant and Libertad 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.
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.
The outbreak of the COVID-19 pandemic could further disrupt our operations and have an adverse impact on our business, financial condition, results of operations or prospects.
In response to the COVID-19 pandemic, government authorities around the world and in the countries where we operate imposed restrictive measures in 2020 and 2021. In the countries where we operate, state and local governments followed the guidelines issued by the respective Ministry of Health to control the spread of COVID-19 and imposed restrictions related to social distancing and lockdowns requirements, resulting in the closing of restaurants, schools, daycare centers, hotels, shopping malls, and areas with intense foot traffic, including parks and other public spaces.
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As new variants of the COVD-19 virus emerged governments have continued to impose restrictive measures until recently. Most of the governments in Latin America, including in Brazil, Colombia, Uruguay and Argentina, have relaxed the restrictive measures imposed to contain the spread of the COVID-19 virus and variants.
As grocery stores, our activity is considered essential and our business operations in Brazil were not adversely affected by the restrictive measures imposed by Brazilian federal and state governments. On the other hand, our Colombian operations were adversely affected by the restrictive measures imposed by regional and state governments as a result of the COVID-19 pandemic, since the restrictions imposed in Colombia were more stringent than in Brazil and included, among other things, reduced business hours at stores, establishment of purchasing limits, closure of stores, dry law enforcement during certain weekends and curfew in the main Colombian cities. Additionally, certain of our operations were not deemed essential by government authorities, which led to the closure of a significant part of our commercial galleries and centers in Colombia. Even after the re-opening of these commercial galleries and centers, we have experienced a reduced traffic of people at these venues. Consequently, revenue from these operations has decreased significantly, which has adversely affected and may continue to negatively affect us.
Moreover, our administrative office and other facilities were affected as we adopted a remote work policy for our administrative and back-office personnel in the countries we operate. After the decrease in the number of cases and hospitalizations caused by the Omicron variant of COVID-19, we have been gradually returning our employees to the office, on a hybrid model of work. The use of this policy may affect our productivity, result in errors and delays in our operations, divert our management’s attention, increase our operating costs, increase our operating risks, including cyber security and labor litigation. As new variants of the COVID-19 virus continue to spread throughout the world, we may face supply chain risks, such as scrutiny or embargoing of goods produced in infected areas, in addition to failures of third parties, including our suppliers, contract manufacturers, contractors, commercial banks, joint venture partners and external business partners to meet their obligations, or significant disruptions to their ability to do so.
The extent to which the COVID-19 pandemic will continue to affect or further disrupt our operations depends on uncertain factors that cannot be predicted, including whether there will be new waves caused by additional periods of increases or spikes in the number of COVID-19 cases, future mutations or related strains of the virus in areas in which we operate; evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures; unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response; the long-term impact of the pandemic on our business, including changes in consumer behavior. Accordingly, if the COVID-19 pandemic causes further disruption in our operations, our business, financial condition, results of operations or prospects may be adversely affected.
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 most 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 additional information on these transactions, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Via.”
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.
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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.
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.
In our Brazilian retail segment, approximately 65% of our products are distributed through our eleven 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 (such as the May 2018 Brazilian truckers’ strike) 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.
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Our systems and database are subject to violations, breaches and interruptions, which could cause a material adverse effect on our business and reputation. Moreover, failure to protect our database could have an adverse effect on us.
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 are related to the confidentiality, availability and integrity of our systems and database, including our customers’, suppliers’ and employees’ confidential, classified or personal information.
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. In addition, our information systems may suffer interruptions due to factors beyond our control, such as natural disasters, hacking, energy interruptions, failures in telecommunication and computer viruses, among other factors. Any of these types of interruption may adversely affect our business and reputation, thereby adversely affecting our financial condition and results of operations.
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 depend on our information technology systems, and any failure of these systems could adversely affect our business and subject us to risks associated with non-compliance with the applicable data protection laws.
The processing of personal data is regulated in the jurisdictions where we operate by a series of rules enacted in Brazil and Colombia, some of which have just been recently implemented by local authorities.
The general personal data protection regime was established in Colombia in 2012, with the enactment of Law 1581, requiring companies that handle personal data to protect such information and subjecting these companies to fines and penalties such as the suspension of the use of personal databases or the temporary or permanent closure of operations in case of non-compliance with the law or personal data leaks.
In 2018, Law No. 13,709/2018 (Lei Geral de Proteção de Dados), or the Brazilian General Data Protection Law, was enacted to take effect in August 2020 and to change the personal data protection system in Brazil. After a few congressional setbacks, the law entered into force as of September 18, 2020. This law sets forth a new legal framework for the treatment of personal data, including the rights of personal data owners; the legal basis applicable to personal data protection; the requirements to obtain consent; the obligations and requirements related to security incidents, personal data leaks and transfers; and the creation of the Brazilian Data Protection Authority, among others. If we fail to comply with the Brazilian General Data Protection Law, we may be subject to penalties, including warning, obligation to disclose the incident, temporary blocking or deletion of personal data and a fine of up to 2% of our revenue or the revenues of our group or conglomerate in Brazil in the last fiscal year, excluding taxes, up 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 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, failures in protecting personal data processed by us and complying with applicable law may result in significant fines, disclosure of the incident to the market, deletion of personal data from our database and suspension of our operations, which may adversely affect us.
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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 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 as of and for the year ended December 31, 2021, included elsewhere in this annual report, 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. Similarly, in Colombia, Law No. 1,778 of 2016 imposes liability on companies if their controlling shareholders, employees, contractors or administrators or of any of their subsidiaries, carry out foreign bribery offences. The sanctions include significant fines and a prohibition to contract with the Colombian government, among others. Likewise, Colombian law contemplates among its criteria for limiting corporate liability the existence, execution and effectiveness of transparency and business ethics programs or anti-corruption mechanisms within the company.
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 in any of the countries where we have operations and 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.
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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.
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 the New York Stock Exchange, or the 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.
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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.”
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.
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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.”
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.
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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 association with retailers in the home appliances segment and a financial institution, Ítaú 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 further information on our banners, see “—Item 4B. Business Overview—Operations” and “—Item 4B. Business Overview—Operations—Operations in Brazil.”
In addition, we entered into a financial partnership called FIC with Itaú Unibanco to offer credit cards and financial services. For further information on FIC, see “—Item 4. Information on the Company—4B. Business Overview—Operations in Brazil—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 Paseo Libertad Malls in Argentina.
More recently, our strategy in Brazil has been to focus on the 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 Ending December 31, 2022
Extra Hiper Stores
On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the conversion of 70 Extra Hiper stores operated by us and located in several states of Brazil into cash and carry stores to be operated by Sendas, or the Real Estate Properties Assignment Transaction. The total estimated price of the Real Estate Properties Assignment Transaction is R$5,200.0 million, of which R$3,973.0 million will be paid by Sendas to CBD in installments between December 2021 and January 2024. The Real Estate Properties Assignment Transaction was formalized through an assignment agreement between CBD and Sendas for the assignment of the Extra Hiper stores and the sale to Sendas of certain equipment of these stores. The consummation of the transaction is subject to several conditions precedent, including the demobilization of all the assigned stores. As of December 31, 2021, we had received R$1.0 billion from Sendas under the Real Estate Properties Assignment Transaction.
As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022.
Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted into Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners.
Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra. Accordingly, we expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5. Operating and Financial Review and Prospects—Item 5A. Operating Results—Discontinued Operations— Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
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In addition, on February 25, 2022, we also entered into an agreement with Barzel Properties, a Brazilian real estate investment fund, or Barzel, and Sendas, as an intervening and guaranteeing party, to sell to Barzel 17 of the 70 Extra Hiper stores that would initially be assigned to Sendas under the Real Estate Properties Assignment Transaction. The estimated total sale price of these properties is R$1,200.0 million, which will be paid by Barzel to us. After the conclusion of the sale, the 17 properties will be leased by Barzel to Sendas for a period of 20 years, renewable for the same term. On April 13, 2022, the Administrative Council of Economic Defense, or CADE, approved the sale of these 17 properties.
Drugstores
In line with our strategy of optimizing store platform and allocating resources to accelerate the growth of our most profitable banners, we decided to close all our drugstores.
As of the date of this annual report, we had already closed all our drugstores and discontinued 68 of our drugstores.
We expect to classify the results of operations of our drugstores as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022.
Acquisition of Grupo Éxito
In June 2019, our board of directors approved the recommendation of our controlling shareholder, Casino, to carry out a reorganization to simplify its activities and businesses in Latin America. The proposed transaction comprised: an all-cash tender offer by our then wholly owned subsidiary Sendas in which it acquired 96.57% of the shares of Grupo Éxito; a purchase agreement between Casino and Grupo Éxito, pursuant to which Casino acquired all controlling shares issued by us and held indirectly by Grupo Éxito; and our migration to the Novo Mercado listing segment of B3 with the consequent conversion of all of our preferred shares into common shares.
The acquisition was consummated in November 2019 and we have begun to consolidate Grupo Éxito’s results of operations in our financial statements since December 1, 2019. On February 14, 2020, B3 approved our migration from the Level 1 listing segment to the Novo Mercado listing segment of B3, its highest level of corporate governance.
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 Paseo Libertad Malls in Argentina.
Our banners in Colombia include Viva Malls (shopping malls), Éxito (hypermarkets and supermarkets) Éxito Express (convenience stores), Vecino (supermarkets), Carulla (high quality supermarkets) Carulla Express (proximity and neighborhood concept stores), Surtimayorista (cash carry stores), Surtimax (lost-cost convenience stores) and Super Inter (low-cost supermarket).
Our banners in Uruguay include Disco (supermarkets), Devoto (supermarkets), Devoto Express (convenience stores) and Géant (hypermarkets).
Our banners in Argentina include Paseo Liberdad Malls (shopping malls), Libertad (hypermarkets) and Mini Libertad (proximity and neighborhood concept stores).
Spin-off of Cash and Carry Operating Segment
From 2007 to 2009, we acquired a 100% ownership interest in Sendas Distribuidora S.A., which operated cash and carry stores under the Assaí banner.
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In December 2020, our board of directors approved a corporate reorganization to carry out the separation of the cash and carry business through a spin-off of our then wholly owned subsidiary Sendas and the shareholders of CBD and Sendas at extraordinary shareholders’ meetings of both companies approved the Sendas Separation and Sendas Spin-off.
In addition, pursuant to a series of corporate transactions, Sendas underwent a corporate reorganization, the “Sendas Corporate Reorganization,” which consisted of the transfer of certain Sendas’ assets and 96.57% equity interest in Éxito to CBD for certain CBD’s assets, including capital contributions, 50% of the shares of Bellamar Empreendimentos e Participações Ltda., or Bellamar, a holding company that holds an investment in 35.8% of the shares of FIC, and five parcels of real estate assets.
In addition, on December 14, 2020, we entered into a Separation Agreement with Sendas, which provides a framework for our relationship with Sendas following the Sendas Separation and the Sendas Spin-Off. For further information on the Separation Agreement, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Agreements with Sendas.”
Set forth below are simplified structure charts showing CBD and its relevant subsidiaries, including Sendas and Éxito, and equity interests: (1) immediately prior to the Sendas Corporate Reorganization; and (2) immediately following the Sendas Corporate Reorganization.
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Pre- Sendas Corporate Reorganization
Post-Sendas Corporate Reorganization
Set forth below is a structure chart showing CBD and Sendas and their relevant subsidiaries immediately following the Sendas Spin-Off:
Post Sendas Spin-Off
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On February 26, 2021, our shareholders received shares issued by Sendas, in proportion to their respective holdings in the capital stock of CBD, on a pro rata basis for no consideration. 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 common shares on the NYSE. Upon consummation of the Sendas Spin-Off, Sendas has become an independent and publicly traded company. The goal of the Sendas Spin-off was to unlock the full potential of the Company’s cash and carry and traditional retail businesses, allowing them to operate on a standalone basis, with separate management teams, and focusing on their respective business models and market opportunities. Additionally, the Sendas Spin-off is expected to provide each of the businesses with direct access to the capital markets and other sources of funding, hence allowing them to prioritize investments according to each company’s profile, thus creating more value for their respective shareholders.
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 represent 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. As a result, we then owned 52.4% of Via. After Via’s initial public offering in Brazil in the end of 2013, our equity interest in Via was 62.25% of the common shares and 43.35% of the total capital stock.
In November 2016, our board of directors approved the plan to sell our equity interest in Via, in line with our long-term strategy of focusing on the development of the food retail segment. Since then, in accordance with IFRS 5, we reported separately the results of Via as discontinued operations in one single line item in assets, liabilities and income statement.
In December 2018 and February 2019, through total return swap transactions, involving the sale of common shares of Via, we sold an aggregate of 6.95% of Via’s total capital stock on the B3 at a price of R$4.90 per share, totaling R$2,300 million. We recognized a gain on sale in the results of discontinued operations of R$398 million, net of the effect of income taxes of R$199 million and related costs. On June 14, 2019, we sold by means of an auction procedure all of our equity interest in Via on B3 for the price of R$4.90 per share, totaling R$2,300.7 million. Since then, we ceased consolidating Via’s assets, liabilities and operating results that were classified as held for sale. As a result of the sale, we recognized a gain on sale of investment of R$398 million, net of tax.
Since June 14, 2019, we no longer exercise influence over Via’s management.
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 the Pão de Açúcar 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.
For additional information on these transactions, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Via”.
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 and, in 2019, we acquired Cheftime, a Brazilian company focused on ready-to-eat and cook-it-yourself meal kits. Also 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 Banco Itaú as a strategic partner responsible for enabling Banco Itaú’s clients to acquire points under Stix Fidelidade under certain terms and conditions.
For more information on our digital transformation, see “Item 5A. Operating Results—Overview of the Fiscal Year Ended December 31, 2021” and “Item 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.
For more information on our private labels, see “Item 4B. Business Overview—Private Label Products.”
Capital Expenditures and Investment Plan
As part of our capital expenditures and investment plan, we have invested R$6.5 billion in our consolidated operations in the three years ended December 31, 2021. As a result of the discontinuation of the operations of Sendas, we decreased our capital expenditures in our continuing operations by 49.1% from R$2.5 billion in 2020 to R$1.3 billion in 2021.
Our capital expenditures and investment plan in 2021 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, to a lesser extent, funded by third parties. We plan to continue financing our capital expenditures and investments principally with cash flow from our operations and the cash flow from the sale of Extra Hiper stores. For more information on the sale of Extra Hiper stores, see “Changes in Our Business—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
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Our investments in the last three years ended December 31, 2021 have included:
Opening of new stores and store conversions – In the Brazilian retail sector, 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 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, and opened 14 stores, of which 12 were Minuto Pão de Açúcar stores, one was a Pão de Açúcar store and one was a Mini Extra store.
In addition, as a consequence of the Real Estate Properties Assignment Transaction, we discontinued 31 Extra Hiper stores and concluded the sale of 20 of these stores to Sendas, in 2021.
In the Grupo Éxito segment, 57 stores were inaugurated among openings and conversions, 51 of which were located in Colombia. Of the 51 stores that were inaugurated in Colombia: (i) nine consisted of Éxito; (ii) eight consisted of Éxito WOW hypermarkets, which operate under the Éxito banner; (iii) 15 consisted of Carulla; (iv) eight consisted of Carulla Fresh Market, which operate under the Carulla banner; (v) two consisted of Surtimayorista; (vi) 18 consisted of Super Inter Vecinos; and (vii) seven consisted of Surtimax stores. Another 16 stores were closed in Colombia (five Éxito, two Carulla, two Surtimax and seven Super Inter stores).
Six stores were inaugurated in Uruguay (two new Devoto stores and four Disco and Devoto stores that were reformed to the Fresh Market format).
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.
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$522 million from 2019 through 2021. For more information on our information technology, see “—Item 4B. Business Overview—Information Technology.”
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$929.0 million in our distribution facilities from 2019 through 2021.
The following table provides a summary description of our principal capital expenditures for the periods indicated:
|
Year Ended December 31, | ||||
|
2021 |
2020 |
2019 |
2019-2021 | |
| (in millions of R$) | ||||
| Opening of new stores and store conversions | 79 | 1,054 | 1,200 | 2,333 |
| Renovation of existing stores | 338 | 533 | 689 | 1,560 |
| Information technology | 177 | 179 | 166 | 522 |
| Distribution facilities and other | 195 | 276 | 458 | 929 |
| Financing assets |
(61) |
110 |
(27) |
22 |
| Brazilian retail(1) | 728 | 2,152 | 2,486 | 5,366 |
| Grupo Éxito |
539 |
338 |
80 |
957 |
| Total |
1,267 |
2,490 |
2,782 |
6,539 |
_________________
(1) The total of capital expenditures presented in the table for the years ended December 31, 2020 and 2019 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 totaled R$1,329.0 million and R$1,305.0 million in 2019 and 2020, respectively. The table also includes total capital expenditures made in Via until June 2019 when we completed the sale of all our equity interest in Via, which totaled R$216 million in the year ended December 31, 2019. For additional information on the Sendas Spin-Off and Via sale, see “—Changes in Our Business—Spin-Off of Cash and Carry Operating Segment,” and “—Changes in Our Business—Sale of Home Appliances Operating Segments,” respectively.
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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 the economies of the other Latin American countries where we operate, and our business and operations as well as the conclusion of the Real Estate Properties Assignment Transaction. 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 5B. Liquidity and Capital Resources—Contractual Obligations,” (ii) off-balance sheet arrangements, see “Item 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.
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 7.5% of Brazil’s GDP in 2020, and the food retail industry in Brazil had gross revenues of approximately R$554 billion in 2020, representing a 46.5% nominal increase compared to approximately R$378 billion in 2019.
The Brazilian retail food industry is highly fragmented. According to ABRAS, the five largest supermarket chains that disclosed their revenues to ABRAS represented approximately 30.5% of the retail food industry in 2020, as compared to 38.9% in 2019 and 37.0% in 2018.
According to data published by IBGE, the volume of sales in the food retail sector slightly increased by 0.4% in 2021 compared to 2020.
According to the IBGE, the total population of Brazil was approximately 213.3 million as of December 31, 2021, representing a 0.74% growth compared to December 31, 2020. 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 2021, the city of São Paulo had an estimated population of 12.4 million and the city of Rio de Janeiro had an estimated population of 6.8 million. These are the two largest cities in Brazil. The state of São Paulo has an estimated total population of 46.6 million, representing 21.9% of the Brazilian population and is our largest consumer market in Brazil, with 603 stores as of December 31, 2021. The state of Rio de Janeiro is our second largest consumer market, with 103 stores as of December 31, 2021.
Brazil’s GDP increased 4.6% in 2021 compared to 2020, while household consumption expenditure decreased by 7.9% in relation to 2020, mainly due to the increase in inflation in 2021.
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.”
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The Colombian Retail Industry
Sales in the Colombian retail sector (excluding sales of gas and vehicles) increased by 11.8% in 2021 compared to the decrease of 1.7% in 2020, according to DANE. According to the marketing consulting company Raddar CKG, household consumption in Colombia reached COP$826,000 million in 2021, an increase of 9.0% when compared to 2020.
According to Nielsen, in 2021, the price of the Nielsen basket in Colombia, which is composed by the prices of food and cleaning products, increased by 13.9% in value and 7.7% in volume when compared to 2020. In 2021, the beverages industry presented a 11.9% growth in volume, while the consumption of the home and personal care and the food industries increased by 2.0% and 3.1 % respectively. Also in 2021, the market share of neighborhood stores in the food retail industry in Colombia was 43.4%, compared to 40.2% in 2020. This increase was due to the decision adopted by the Colombian government in the second semester of 2021 to lift the mobility restrictions that had been previously imposed to combat the COVID-19 pandemic outbreak. The lifting of these restrictions increased foot traffic in the vicinity of neighborhood stores resulting in an increase in the market share of neighborhood stores in the Colombian food retail industry and a decrease in the market share of supermarkets. In 2021, the market share of supermarket chains was 32.8% compared to 36.6% in 2020. In the same year, the market share of low-cost supermarkets was 15.7%, representing an increase of 0.6% when compared to 2020, with an 8.1% participation of drugstores and small owner-operated businesses (the so called “mom-and-pop stores”).
Operations
We are the largest traditional retailer in sales in the food segment in Brazil and the largest supermarket chain in Colombia in terms of market share, both according to Nielsen. We also have operations in Uruguay and Argentina.
We operate in the Brazilian retail industry, which consists of sales of food and 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. The Brazilian retail segment also includes 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 11.9% in 2021, according to information published by Nielsen. For the year ended December 31, 2021, our net operating revenue of the Brazilian retail segment, totaled R$26.9 billion. As of December 31, 2021, we operated 667 stores, 74 gas stations and 68 drugstores in 16 Brazilian states and in the Federal District, in addition to a logistics infrastructure supported by 15 distribution centers and warehouses across Brazil.
We expect to classify the results of operations of the Extra Hiper banner and the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner and our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores” and “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.”
In addition, we are also a leading food retailer in Colombia, mainly with hypermarkets and supermarkets and also cash and carry stores, proximity stores, loyalty programs, private label products and financial services business. As of December 31, 2021, the Grupo Éxito operated in Colombia, Uruguay and Argentina, through the following banners: (i) Éxito, Carulla, Surtimayorista, Surtimax, Super Inter and Viva Malls in Colombia, (ii) Devoto, Disco and Géant in Uruguay, and (iii) Libertad, Mini Libertad and Paseo Libertad Malls in Argentina. As of December 31, 2021, the Éxito, Carulla, Surtimax, Super Inter and Surtimayorista banners had a total of 503 stores in Colombia.
According to Nielsen, Grupo Éxito was the largest supermarket chain in Colombia with a market share of 23.4% in 2021. For the year ended December 31, 2021, the net operating revenue of the Grupo Éxito segment totaled R$24.7 billion. As of December 31, 2021, we operated 620 stores and 24 gas stations in Colombia, Uruguay and Argentina, in addition to a logistics infrastructure supported by 18 distribution centers and warehouses across these countries.
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We operate in the retail of food and non-food products. Food products include non-perishables, beverages, fruits, vegetables, meat, bread, cold cuts, dairy products, cleaning products, disposable products and personal care products. We also sell home appliances and other non-food products, which include clothing items, baby items, shoes and accessories, household articles, books, magazines, CDs and DVDs, stationery, toys, sports and camping gear, furniture, mobile phones, mattresses, pet products, gardening equipment and tools and electronics products, such as personal computers, software, computer accessories and sound and image systems. We also offer some of the products listed above under our private label. In addition, we sell our products through our websites.
We also retail the non-food products we sell at our drugstores, such as medications and cosmetics, and non-food products we sell and the services we provide at our gas stations. However, we expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.”
For more information on our operating segments, see note 31 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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, in addition to the Brazilian retail and Grupo Éxito segments, for the year ended December 31, 2021:
|
Year Ended December 31, 2021 | ||||
|
Banners and other operations |
Gross Sales(1) |
Percentage of Total Gross Profit |
Net Operating Revenue |
Percentage of Total Net Operating Revenue |
| (in millions of R$) | (%) | (in millions of R$) | (%) | |
| Extra/Compre Bem(2) | 16,732 | 29.7% | 15,216 | 29.7% |
| Pão de Açúcar | 7,801 | 13.8% | 7,079 | 13.8% |
| Proximity stores(3) | 2,196 | 3.9% | 2,082 | 4.1% |
| Drugstores, gas stations and Delivery(4) |
2,299 |
4.1% |
2,487 |
4.8% |
| Brazilian retail segment |
29,028 |
51.5% |
26,864 |
52.4% |
| Éxito | 14,185 | 25.2% | 12,777 | 24.9% |
| Carulla | 2,872 | 5.1% | 2,638 | 5.1% |
| Surtimax and Super Inter | 1,748 | 3.1% | 1,635 | 3.2% |
| B2B and Others |
1,864 |
3.3% |
1,703 |
3.3% |
| Colombia | 20,669 | 36.7% | 18,752 | 36.6% |
| Uruguay | 4,552 | 8.1% | 3,853 | 7.5% |
| Argentina |
2,044 |
3.6% |
1,752 |
3.4% |
| Grupo Éxito segment(5) |
27,265 |
48.4% |
24,357 |
47.5% |
| Other(6) |
81 |
0.1% |
70 |
0.1% |
| Total |
56,374 |
100% |
51,291 |
100% |
_________________
| (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 as of and for the year ended December 31, 2021, included elsewhere in this annual report. |
| (2) | Includes the banners Extra Hiper, Extra Supermercado, Mercado Extra and Compre Bem. We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper 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. 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 drugstores, gas stations, food delivery and real estate business units. We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.” |
| (5) | Includes our operations in Colombia, Uruguay and Argentina since our acquisition of Grupo Éxito in November 2019. For information on the acquisition of Grupo Éxito, see “—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito”. |
| (6) | Includes the banners Cheftime, James and Stix Fidelidade. |
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The table below shows the breakdown of our consolidated operating income (loss) by reportable segment, taking into account the operating income from Brazilian retail, the Grupo Éxito 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, 2021 | ||
|
Operating Income
(Loss) |
Percentage of | |
| Reportable segment | (in millions of R$) | (%) |
| Brazilian retail(1) | 625 | 65.1% |
| Grupo Éxito(2) | 532 | 55.4% |
| Other(3) |
(197) |
(20.5%) |
| Total |
960 |
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) | Includes our operations in Colombia, Uruguay and Argentina since our acquisition of Grupo Éxito in November 2019, including our real estate business units that operate in Colombia and Argentina. |
| (3) | Includes the banners 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 2021, 2020 and 2019.”
Stores
The following table sets forth the total number of stores in Brazil at the end of the periods indicated per store format:
|
Pão de Açúcar |
Extra Hiper(1) |
Extra Super-mercado(2) |
Mercado Extra |
Compre Bem |
Mini Extra |
Minuto Pão de Açúcar |
Total | |
| As of December 31, 2019(2) |
185 |
112 |
53 |
100 |
28 |
152 |
85 |
715 |
| During 2020 | ||||||||
| Opened | - | - | - | - | - | 1 | 1 | 2 |
| Closed | (3) | (6) | (6) | - | - | (3) | - | (18) |
| Converted (from)/to | - | (3) | (41) | 41 | - | - | - | (3) |
| As of December 31, 2020(3) |
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 |
181 |
72 |
- |
146 |
28 |
141 |
99 |
667 |
_________________
| (1) | We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” |
| (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. |
| (3) | Excludes 74 gas stations and 68 drugstores. We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.” |
As of December 31, 2021, (i) Éxito, Carulla, Surtimax and Super Inter banners had a total of 503 stores in Colombia, (ii) Libertad and Mini Libertad banners had a total of 25 stores in Argentina, and (iii) Devoto, Disco and Géant banners had a total of 92 stores in Uruguay.
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The following table sets forth the total number of stores in Colombia, Uruguay and Argentina at the end of the periods indicated per store format:
|
Éxito |
Carulla |
Surtimax |
Super Inter |
Surtimayorista |
Libertad |
Mini Libertad |
Devoto |
Disco |
Géant |
Total | |
| As of December 31, 2019 |
247 |
98 |
92 |
70 |
30 |
15 |
10 |
60 |
29 |
2 |
653 |
| During 2020 | (6) | (3) | (18) | (1) | 4 | 0 | 0 | 1 | 0 | 0 | (24) |
| Opened | 1 | - | 1 | ||||||||
| Closed | (7) | (3) | (13) | (1) | - | - | - | -1 | - | - | (25) |
| Converted (from)/to | 1 | - | (5) | - | 4 | - | - | - | - | - | 0 |
| As of December 31, 2020 |
241 |
95 |
74 |
69 |
34 |
15 |
10 |
59 |
30 |
2 |
629 |
| During 2021 | (8) | 6 | (2) | (8) | 2 | 0 | 0 | 1 | 0 | 0 | (9) |
| Opened | 2 | 3 | - | - | 1 | - | - | 2 | - | - | 8 |
| Closed | (5) | (2) | (2) | (7) | - | - | - | (1) | - | - | (17) |
| Converted (from)/to |
(5) |
5 |
- |
(1) |
1 |
- |
- |
- |
- |
- |
0 |
| As of December 31, 2021 |
233 |
101 |
72 |
61 |
36 |
15 |
10 |
60 |
30 |
2 |
620 |
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, 2021:
|
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 | 181 | 233,151 | 1,288 | 14,634 | 14.1% |
| Extra Hiper(4) | Hypermarket | 72 | 454,206 | 6,308 | 14,243 | 24.1% |
| Mercado Extra and Compre Bem(5) | Supermarket | 174 | 196,052 | 1,127 | 11,585 | 10.1% |
| Mini Extra and Minuto Pão de Açúcar(6) | Proximity Store | 240 | 58,933 | 246 | 3,204 | 4.1% |
| Grupo Éxito(*) | Various | 620 | 1,027,785 | 1,658 | 37,347 | 47.5% |
| Other Businesses(7) | Various |
- |
- |
- |
55 |
0.1% |
| Total |
1,287 |
1,970,128 |
1,531 |
81,067 |
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 Brazilian retail employees (full- and part-time) and the ratio of the average monthly hours of Brazilian retail employees to the average monthly hours of full-time employees. |
| (4) | We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” |
| (5) | 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. |
| (6) | Excludes 74 gas stations and 68 drugstores. We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.” |
| (7) | Includes the banners Cheftime, James and Stix Fidelidade. |
| (*) | The table below shows the breakdown of the information related to the number of stores, the total selling area, the average selling area per store and total number of employees for each of our store formats in the Grupo Éxito segment as of and for the year December 31, 2021. |
The following table sets forth the number of Grupo Éxito 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, 2021:
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|
Store Format |
Number of Stores |
Total Selling Area |
Average Selling Area Per Store |
Total Number of Full Time Employees | |
| (in square meters)(1) | (in square meters)(2) | ||||
| Éxito | Hypermarket | 91 | 480,836 | 5,284 | 14,205 |
| Éxito Super | Supermarket | 30 | 33,423 | 1,114 | 1,104 |
| Carulla | Supermarket | 82 | 82,783 | 1,010 | 4,122 |
| Éxito Express | Proximity Store | 66 | 11,014 | 167 | 494 |
| Carulla Express | Proximity Store | 19 | 4,501 | 237 | 194 |
| Éxito Vecino | Proximity Store | 46 | 95,191 | 2,069 | 2,798 |
| Surtimax | Low-cost Store | 72 | 30,989 | 430 | 1,007 |
| Super Inter | Low-cost Store | 61 | 58,682 | 962 | 2,471 |
| Surtimayorista | Low-cost Store | 36 | 34,870 | 969 | 778 |
| Disco | Supermarket | 30 | 35,252 | 1,175 | 2,433 |
| Devoto | Supermarket | 24 | 33,714 | 1,405 | 2,169 |
| Géant | Hypermarket | 2 | 16,411 | 8,206 | 849 |
| Devoto Express | Proximity Store | 36 | 6,517 | 181 | 412 |
| Libertad | Hypermarket | 15 | 101,807 | 6,787 | 1,813 |
| Mini Libertad | Proximity Store | 10 | 1,796 | 180 | 97 |
| Other Businesses(3) | Various |
- |
- |
- |
6,458 |
| Total | - |
620 |
1,027,787 |
1,658 |
41,402 |
_________________
| (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) | Includes gas stations, the headquarters of Grupo Éxito, B2B and complementary business, such as, as real estate business, mobile services business, logistics services, the “Turbo Fresh” express delivery service, marketplace and other projects. |
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 2021, 2020 and 2019.”
Geographic Distribution of Stores
Brazil
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 80% of our net operating revenue for the year ended December 31, 2021, while the other Brazilian regions (North, Northeast, Midwest and South), in the aggregate, accounted for 20% of our consolidated net operating revenue for the year ended December 31, 2021. In addition, none of the other Brazilian regions represents individually more than 13% of the consolidated net operating revenue.
The following table sets forth the number of our stores by region as of December 31, 2021:
|
Region |
Supermarket |
Hypermarket |
Proximity |
Total |
| North | 0 | 1 | 0 | 1 |
| Midwest | 16 | 4 | 0 | 20 |
| Southeast | 303 | 53 | 234 | 590 |
| Northeast | 36 | 14 | 6 | 56 |
| South |
0 |
0 |
0 |
0 |
| Total |
355 |
72(1) |
240 |
667 |
_________________
| (1) | On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the Real Estate Properties Assignment Transaction. The Real Estate Properties Assignment Transaction is subject to the fulfillment of certain conditions, including the prior consent of the owners of certain assigned properties and the demobilization by us of all the assigned stores. As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022. Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted into Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners. Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra. Accordingly, we expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. 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 Ending December 31, 2022—Extra Hiper Stores” and “Item 7B. Related Party Transactions—Agreements with Sendas—Real Estate Properties Assignment Transaction.” |
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Colombia, Uruguay and Argentina
We have a total of 620 stores in the other Latin American countries where we have operations, of which 503 stores are in Colombia, 92 stores in Uruguay and 25 stores in Argentina, among supermarkets, hypermarkets, low cost and proximity stores.
The following table sets forth the distribution of our stores in Colombia by region as of December 31, 2021:
|
Region |
Supermarket |
Hypermarket |
Proximity |
Total |
| Bogotá | 59 | 39 | 140 | 238 |
| Cali | 37 | 8 | 6 | 51 |
| Coast region | 18 | 17 | 28 | 63 |
| Coffee region | 34 | 5 | 7 | 46 |
| Medellín | 24 | 17 | 47 | 88 |
| Santanderes and Boyacá |
1 |
5 |
11 |
17 |
| Total |
173 |
91 |
239 |
503 |
Operations in Brazil
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.
Our Brazilian retail segment operates under different formats and banners allowing us to reach customers from all socio-economic backgrounds in Brazil.
Store Formats and Banners
Hypermarkets
Extra Hiper Stores
Net operating revenue of the Extra Hiper banner reached R$10.2 billion in 2021, representing a 13% decrease compared to R$11.7 billion in 2020, due to the measures adopted to terminate the Extra Hiper banner in the last quarter of 2021.
As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022. Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra. Accordingly, we expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the Real Estate Properties Assignment Transaction and the termination of the Extra Hiper banner, see “Item 4A. Changes in our Business—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
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.
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As of December 31, 2021, we had 181 Pão de Açúcar stores in 12 Brazilian states and the Federal District, with an average sales area per store of 1,288 square meters. Food products represented 97% of net operating revenue of Pão de Açúcar stores in 2021 and non-food products represented 3%. In 2021, 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. The renovated stores continue to have higher growth in sales compared to non-renovated stores, representing 31% of Pão de Açúcar banner net operating revenue considering a total of 181 stores.
The Pão de Açúcar banner recorded net operating revenue of R$7.1 billion in 2021 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, 2021, we operated 146 Mercado Extra stores and 28 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. As of December 31, 2021, 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 1,127 square meters, as of December 31, 2021. 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 2021.
Net operating revenue of the Mercado Extra and Compre Bem banners reached R$4.9 billion in 2021, representing a 17.2% increase when compared to 2020, when the net operation revenue of these banners totaled R$4.2 billion.
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, 2021, the Mini Extra, Minuto Pão de Açúcar and Aliados Minimercado stores had an average sales area per store of 244 square meters. The sale of food products and non-food products represented 99% and 1%, respectively, of net operating revenue in proximity stores in 2021. 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 2021 totaled R$2.2 billion, an increase of 22.9% compared to 2020, 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 240 stores as of December 31, 2021, of which 141 were Mini Extra and 99 were Minuto Pão de Açúcar.
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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.
Drugstores
As of December 31, 2021, we operated 68 drugstores.
In line with our strategy of optimizing store platform and allocating resources to accelerate the growth of our most profitable banners, we decided to close all of our drugstores. Accordingly, as of the date of this annual report, we no longer operate drugstores.
We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.”
Gas Stations
As of December 31, 2021, we operated 74 gas stations in Brazil, 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 that are located in the parking areas of Extra Hiper stores, will also be assigned to Sendas under the Real Estate Properties Assignment Transaction. 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 Ending December 31, 2022—Extra Hiper Stores” and “Item 7B. Related Party Transactions—Agreements with Sendas—Real Estate Properties Assignment Transaction.”
We have partnerships with Ipiranga and Shell, two 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, 2021, we offered the “express” and/or “click and collect” concepts at more than 300 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. This acquisition complements the delivery methods that we make available to our customers at our brick-and-mortar stores. In addition, the deliveries through James complements our same day and next day deliveries and provides our customers with one-hour delivery option. We have expanded James operations to 32 cities in Brazil located in the States of São Paulo, Rio de Janeiro, Ceará, Paraná, Tocantins, Pernambuco, Piauí, Sergipe, Minas Gerais, Mato Grosso, Mato Grosso do Sul, Paraíba, Bahia and the Federal District (Distrito Federal).
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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. At the end of 2021, 67% of our net operating revenue in the Brazilian retail segment were related to our loyalty programs. This number corresponds to approximately 58% of the net operating revenue of the Extra banner (Clube Extra) and 86% of the net operating revenue of the Pão de Açúcar banner (Pão de Açúcar Mais) in 2021.
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 formed Stix, the legal entity that operates the Stix Fidelidade loyalty program. The loyalty 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 Banco Itaú as a strategic partner responsible for enabling Banco Itaú’s clients to acquire points under Stix Fidelidade under certain terms and conditions.
Stix Fidelidade was launched in October 2020 as the first retail coalition in Brazil and its opt-in platform reached more than one million customers at the end of that year. The program was developed for us to better adapt to our customers’ demand for delivery and e-commerce services and a wider program that allows the acquisition of fidelity points in exchange of products acquired in retail businesses.
From all the rewards distributed, 80% were activated and 30% of Stix Fidelidade customers have earned points through more than one brand that is part of the program (Pão de Açúcar, Extra, or Raia Drogasil). In February 2020, we announced the approval by CADE of the transaction that created Stix Fidelidade.
We expect to enter into partnership agreements with other retailers to turn Stix Fidelidade into a loyalty program coalition comprising several retailers nationwide in Brazil. Together with Raia Drogasil, we have more than 3,000 stores to promote our loyalty programs.
Financial Services
We extend credit to customers through FIC, our partnership with Itaú Unibanco, one of the largest privately-owned 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, 2021, had a portfolio of 3.5 million credit card accounts from customers, including the portfolio of Cartão Extra, Cartão Pão de Açúcar, Cartão Passaí and Cartão Ponto Frio.
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In 2021 and 2020, FIC’s net profit was R$264.9 million and R$328.8 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 2021, 2020 and 2019:
|
Total number of clients |
2021 |
2020 |
2019 |
| (in thousands) | |||
| Brazilian retail | 1,952 | 1,873 | 2,085 |
| Sendas (1) | 1,010 | 732 | 717 |
| Via (2) |
538 |
631 |
776 |
| Credit cards |
3,499 |
3,236 |
3,578 |
_________________
| (1) | After consummation of the Sendas Separation 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, 2021, GPA Malls was present in 15 Brazilian states and the Federal District and managed approximately 210 commercial galleries in Brazil and two neighborhood commercial centers. As of December 31, 2021, GPA Malls had more than 246,000 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.
Operations in Colombia
The Grupo Éxito is a leading food retailer in Colombia, with a portfolio mainly comprising hypermarkets and supermarkets and also comprising cash and carry stores, proximity stores, loyalty programs, private label products and financial services and real estate businesses.
As of December 31, 2021, the Éxito, Carulla, Surtimax, Super Inter and Surtimayorista banners had a total of 503 stores in Colombia. Grupo Éxito’s operations in Colombia corresponded to 77% and 48% of Grupo Éxito’s and CBD’s total gross revenue in 2021, respectively.
Store Formats and Banners
Hypermarkets
Éxito
Éxito is a hypermarket banner with a food and non-food product offering tailored to the needs of all segments of the Colombian population. Éxito stands out for the quality of its private-label apparel range, which enjoys a good reputation with customers. The stores also provide a variety of services including the “Points Éxito” loyalty program, mobile phones, travel deals, and financial services (credit cards and insurance) and are organized in a department store style, with an average sales area per store of 2,663 square meters as of December 31, 2021. Éxito hypermarket stores target the Colombian middle and middle-high classes.
The banner continued to develop its Éxito WOW hypermarkets, offering an even more digital customer experience in a remodeled store.
As of December 31, 2021, we had 223 Éxito stores. The sale of food products and non-food products represented 54% and 46% of Éxito banner’s net operating revenue in 2021, respectively. Our focus is to continue developing the new generation of Éxito hypermarkets known as “Wow” to link the best of the physical and virtual worlds in one place: a shopping experience connected to the digital world, superior customer service and improved focus on fresh products.
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The net operating revenue of the Éxito banner in 2021, reached R$12.8 billion, representing a 7.1% increase compared to 2020 and approximately 70% of the net operating revenue in Colombia for 2021. The net operating revenue of the Éxito banner increased in almost all regions of Colombia mainly due to the approximately 15% growth of the non-food category and the increase in sales from stores under the innovative Wow format. Éxito Wow stores are digitally connected hypermarkets that integrate the digital channels and physical services offered by the Éxito banner to other services, including banking services, co-working area, gourmet food-court, omnichannel zone, among others. The Éxito Wow model totaled 19 stores in 2021 and is present in the cities of Bogotá, Medellin, Cali, Santander, Boyacá, and Atlantic Coast.
Supermarkets
Éxito Super and Vecino
The Éxito brand also includes two different supermarket banners: 30 Éxito Super stores, offering a range of primarily food products and 46 Éxito Vecino stores, offering a wider assortment of non-food products.
Carulla
Carulla comprises supermarkets and convenience stores predominantly located in main cities such as Bogotá, Medellín, Cali, Barranquilla, Bucaramanga, among others, and is renowned for its high quality. Carulla stores focus mainly on offering imported and premium products, a highly quality assortment of fresh products and are nationwide recognized for having the best bakery in the country.
Carulla had an average sales area per store of 864 square meters as of December 31, 2021. Carulla stores target the Colombian high-end classes and as of December 31, 2021, we had 101 Carulla stores. The sale of food products and non-food products represented 98% and 2% of Carulla’s net operating revenue in 2021, respectively.
In 2021, the banner continued to develop its new Carulla Fresh Market format, offering an expanded offering of fresh produce and more premium service counters. In that year, the Carulla Fresh Market format was implemented at 22 market stores located in the cities of Bogotá, Medellin, Santa Marta, Cali and Cartagena. These Fresh Market stores represented approximately 45.1% of the sales share of the Carulla’s stores.
The net operating revenue of the Carulla banner reached R$2.6 billion in 2021, a 1.1% increase compared to 2020 reflecting the expansion of the Carulla Fresh Market format, the implementation of “Turbo-Fresh”, an express service pursuant to which Rappi delivers products to clients in less than ten minutes from the time the order is made. This innovative model aims at transforming the fresh food category, renovating stores and improving layouts. The model includes digital activities, such as apps, improved customer service experience, strengthening the offer of key items, such as wine, pasta, cheese, coffee, and other commercial events related to the premium banner.
Low-Cost Supermarkets
Super Inter and Surtimax
Super Inter and Surtimax are considered low-cost supermarkets characterized by offering low prices for a complete basic basket of products, good quality meat, fresh fruits and vegetables and a large assortment of bulk grains. These stores have a regional focus, offering products according to the local consumer needs. Super Inter stores operate in approximately 17 cities in the Coffee and Pacific regions of Colombia. Surtimax stores are located in residential areas and offer a wide portfolio of private label products.
Super Inter’s sales of food products and non-food products represented 99% and 1%, respectively, of its stores net operating revenue in 2021. We had 61 Super Inter and 72 Surtimax stores, respectively, and average sales area per store was 964 square meters as of December 31, 2021.
Surtimax’s sales of food products and non-food products represented 99% and 1% respectively of its stores net operating revenue in 2021.
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Cash and Carry Stores
Surtimayorista
Surtimayorista stores have been operating in the cash and carry segment in Colombia for over five years and are focused on the commercialization of products for retail and institutional consumers, such as food retailers (including restaurants, pizzerias and snack bars), conventional retailers (such as grocery and small family-owned stores) and end users (including schools, small businesses, churches and hospitals). It offers more than 2,100 items of grocery, food, perishable, beverage, wrapping, personal care and cleaning products, among others and 500 additional non-food items.
As of December 31, 2021, the Surtimayorista banner totaled 36 stores in eleven Colombian cities. The cash and carry format expanded with two stores opened in the last 12 months from conversions and organic, and the Surtimayorista banner reached 36 stores during the year.
The net operating revenue of the low-cost segment in 2021 (which includes Super Inter, Surtimax, Surtimayorista, B2B and other), reached R$3.3 billion, a 7.6% increase compared to 2020 as a result of the store base optimization, conversions into cash and carry stores, strong commercial actions, implementation of productivity plans, and the increase in the focus towards private label brands to offset the effect of the challenging competitive environment in this market.
Proximity Stores
Éxito Express
Éxito Express is a proximity store which offers fast-moving consumer goods and fresh products, as well as a selection of household cleaning and multimedia products. As of December 31, 2021, we had 66 Éxito Express stores.
Carulla Express
Carulla Express is a proximity store which offers fast-moving high-quality consumer goods and fresh products in the premium segment, as well as take-away products such as sandwiches, fresh fruit, cakes and pastries. As of December 31, 2021, we had 19 Carulla Express stores.
Loyalty Program
Puntos Colombia is a 50/50 joint venture between Grupo Éxito and Bancolombia in Colombia. Puntos Colombia operates a loyalty program pursuant to which its users earn points on purchases made on partners’ websites and at their stores. These points are redeemable for products or services available at Puntos Colombia platform, in addition to discounts and other benefits. As of December 31, 2021, Puntos Colombia had 134 affiliated businesses, including Celio, Pilates and CineColombia and our customers redeemed 28.5 million points under the Puntos Colombia program in 2021.
Other Businesses and Services
Other revenue include income mainly from complementary businesses, such as the real estate, financial, travel, insurance, mobile and money transfer businesses. Net operating revenue from other businesses and services increased by 20.9% in 2021, totaling R$1,703 million, mainly driven by the real estate and the financial businesses.
Financial Services
Tuya is a 50/50 joint venture between Grupo Éxito and Bancolombia. Tuya is a financial company focusing on issuing credit cards mainly for low and middle-income segments and promote access to financial services to segments that the traditional banking system does not approach. By the end of 2021, Tuya was rated AAA, for the 12th year in a row, by Fitch Ratings. As of December 31, 2021, Tuya issued 2.8million credit cards, representing 17% of the credit card market share in Colombia.
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Real Estate Business Units
Viva Malls is our real estate business unit which is responsible for the creation and management of commercial spaces in Colombia.
As of December 31, 2021, Viva Malls was present in eleven Colombian cities and managed around six commercial galleries and 12 shopping centers. As of December 31, 2021, Viva Malls had 567,747 square meters of gross leasable area.
Operations in Uruguay and Argentina
Grupo Éxito’s operates in Uruguay and Argentina under the following banners: (i) Devoto (supermarkets and proximity stores), Disco (supermarkets) and Géant (hypermarkets) in Uruguay, and (ii) Libertad (hypermarkets) and Mini Libertad (proximity stores) in Argentina.
As of December 31, 2021, (i) Libertad and Mini Libertad banners had a total of 25 stores in Argentina, and (ii) Devoto, Disco and Géant banners had a total of 92 stores in Uruguay.
Paseo Libertad Malls is our real estate business unit which is responsible for the creation and management of commercial spaces in Argentina. As of December 31, 2021, Paseo Libertad Malls was present in nine Argentinian provinces and managed approximately five commercial galleries and ten shopping centers. As of December 31, 2021, Paseo Libertad Malls operated approximately 170,000 square meters of gross leasable area.
Grupo Éxito’s operations in Uruguay and Argentina corresponds to 16% and 7%, respectively, of Grupo Éxito’s total gross revenue in 2021 and 8% and 4%, respectively, of CBD’s total gross revenue in 2021.
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 better margins. The portfolio underwent a renovation process and new products were launched, representing the entry in new categories.
Our main private labels are Taeq, which focuses on the healthy food segment, and Qualitá, which offers high-quality food products at affordable prices. We also have Casino, Cheftime, Club des Sommeliers, Confraria, Finlandek, Arkitect, Bronzini, Cast, Bambini, Boomy, Frescampo and Custer, among others, in our private label portfolio.
We launched the Taeq products in 2006. Its portfolio comprises healthy food products, including cereals, cereal bars, yogurts, teas, pasta, meats, soups, isotonic, 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 our Taeq products in our stores in Colombia.
We launched the Qualitá banner in 2008. Its portfolio comprises a variety of products, including frozen food, cleaning supplies, dairy products, among others. 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.
Casino is a French brand that offers imported products selected and approved by French chefs. Club des Sommeliers is a wine brand that offers more than 90 wine labels from eleven nationalities. Bambini and Boomy are children clothing brands. Arkitect, Bronzini, Custer and Cast are clothing brands.
In November 2019, we acquired 79.6% of the equity interest in Cheftime, a company that prepares and offers ready-to-eat meal kits, semi-cooked meal kits, and cook-it-yourself meal kits, enabling anyone to prepare their own food and inspiring our consumers to take up cooking as a hobby. In 2019, we started to sell Cheftime products solely in the format of ready-to-cook meal kits, assembled with pre-portioned ingredients paired with the recipes. Today Cheftime products are offered in 300 stores in Brazil.
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Frescampo is a Colombian low-cost brand that offers quality food products at reasonable prices. Frescampo products are offered at our stores in Colombia.
In 2021, the sales of our private label in the food category represented 21% of our total food sales in Brazil and 16% of our total food sales in Colombia.
Seasonality
In Brazil, Colombia, Uruguay and Argentina, 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 non-food products. Food products include non-perishables, beverages, fruits, vegetables, meat, bread, cold cuts, dairy products, cleaning products, disposable products and personal care products. We also sell home appliances and other non-food products, which include clothing items, baby items, shoes and accessories, household articles, books, magazines, CDs and DVDs, stationery, toys, sports and camping gear, furniture, mobile phones, mattresses, pet products, gardening equipment and tools and electronics products, such as personal computers, software, computer accessories and sound and image systems. We also offer some of the products listed above under our private label. In addition, we sell our products in the retail segment through our websites.
We include in the retail segment the non-food products we sell at our drugstores, such as medications and cosmetics, and the non-food products we sell and the services we provide at our gas stations. However, we expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—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.
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Suppliers
In Brazil, the purchasing of food products for all of the banners in the Brazilian retail segment 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.
In Colombia, the purchasing process for 74% of the merchandise for all our banners is centralized through our logistics platform due to the large number of local and international suppliers we use, of which 42% is managed via cross docking, which is a process that involves delivery directly from the suppliers to the stores and does not require warehouse storage. The goods that are supplied to us on a non-centralized basis consists mainly of beverage, bakery, snacks and some frozen products. In 2021, 90% of fruit and vegetables were purchased locally, 90% of apparel was acquired from 80 local workshops with over 9,600 employees (70% women) and 176 farms were monitored to ensure zero levels of deforestation.
In Uruguay, the purchasing of food products for all our banners is mostly decentralized as 62.3% of the products are purchased directly by our stores from different suppliers. These purchases are mostly made on a short-term basis from a large number of unrelated suppliers. Non-food products, including home appliances, are mostly imported due to the lack of a national industry.
In Argentina, the purchasing of food products for all our banners is centralized and purchases are done directly and on a short-term basis from a large number of unrelated suppliers.
The prices of the food products we purchase from our suppliers vary according to inflation.
Distribution and Logistics
In Brazil, in order to efficiently distribute perishable food products, grocery items and general merchandise, we operate eleven distribution centers and warehouses strategically located across the country, with a total storage capacity of approximately 400,479 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.
We organize our logistics and distribution processes in accordance with the products and services sold under our banners in Brazil, Colombia, Uruguay and Argentina. Accordingly, we guide our distribution processes by the procedures described below.
Stores, Supermarkets and Hypermarkets
Brazil
As of December 31, 2021, the logistics process to supply our stores, supermarkets and hypermarkets, excluding drugstores and gas stations, included eleven distribution centers located in the states of São Paulo (including a distribution center specifically focused on our proximity stores), Rio de Janeiro, Ceará, Pernambuco and the Federal District, corresponding to a 400,479 square meter area including both our own and outsourced distribution centers. Our distribution process is performed by an outsourced fleet. As of December 31, 2021, our centralization rate (the percentage of revenue from the products supplied at our stores that comes directly from our distribution centers) was approximately 65%.
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, 2021, approximately 35% of our stores sales corresponded to “Direct Delivery” products, especially ornamental plants, cigarettes, ice cream, yogurt and magazines.
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Colombia, Uruguay and Argentina
As of December 31, 2021, the logistics process to supply our stores, supermarkets and hypermarkets, excluding our cash and carry operation in Colombia, included 18 distribution centers located in Colombia, Argentina and Uruguay, corresponding to a 470,000 square meter area including both our own and outsourced distribution centers. Our distribution process is performed by an outsourced fleet.
In Colombia, we operate ten distribution centers and three nodes located in Bogotá, Medellín, Cali, Santander and the Atlantic Coast with total storage capacity of 272,902 square meters.
In Uruguay, we operate four distribution centers and warehouses strategically located across Montevideo, with a total storage capacity of approximately 40,000 square meters.
In Argentina, our distribution center is located in the center of the country, in the city of Cordoba, with an average distance of 620 km to our stores.
E-commerce Food Delivery
In Brazil, since 2016, we have operated a dedicated distribution center in the city of São Paulo focused on our online and proximity operations. This distribution center is responsible for regular online delivery requests. Additionally, certain of our stores offer express delivery (within four hours) services.
In Colombia, we operate one of the largest e-commerce operations in the country through our direct online and marketplace sales, and the new channels, such as the “Turbo Fresh” express delivery service and other including delivery applications. In order to operate these channels, we have a network of dedicated (i) distribution centers in Bogota serving mainly non-food products, (ii) storages in Medellin for food e-commerce, and (iii) deliveries from stores used mainly to serve delivery applications and websites.
Drugstores
The main Brazilian pharmaceutical distributors and regional distributors supply our drugstores across the country, with whom we have entered into supply agreements for medications and other products, such as cosmetics. The logistics system varies between centralized deliveries through our distribution centers and decentralized deliveries.
We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Drugstores.”
Gas Stations
Our gas stations are supplied by exclusive suppliers in Brazil. In 2021, we used two suppliers. 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 suppliers 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.
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Since 2019, we increased the control of our marketing expenses by means of the use of digital tools and platforms. We also reduced the use of printed advertising and started to use our app more often to promote our clearance items.
In 2021, 2020 and 2019, we spent R$383 million, R$663 million and R$542 million respectively, in advertising, representing 1.42%, 1.29% and 1.88%, 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, 2021, we had business partnerships with 114 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).
In 2021, we maintained our business partnership with Endeavor, the largest solution and entrepreneur developing nonprofit organization in Brazil, through: (i) our sponsorship of the “Retail Tech” and “Operations and Consumer Goods” programs; (ii) our participation in Corporate Hub, a network of leaders in innovation and new businesses; (iii) our participation in Corporate Venture Capital, a program developed for its participants to share experiences, train teams and overcome challenges by connecting with new high-growth companies, or scale-ups; and (iv) our support of scale-up acceleration programs focused on developing new solutions in the retail segment.
Also in 2021, we concluded the third edition of our “Ambassadors of Innovation” program, which had twice the amount of participants when compared to 2020. The participants of the program are entrepreneurs who were divided into squads to work in strategic programs of ours.
Credit Sales
In 2021, 58.1% of our net operating revenue from the Brazilian retail segment was represented by credit sales, principally in the form of credit card sales, installment sales and food vouchers, as compared to 56.2% in 2020, 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 using credit cards accounted for 47.2%, 46.5% and 46.4%% of the consolidated net operating revenue for our Brazilian retail segment in 2021, 2020 and 2019, respectively. Of this total, sales through our FIC co-branded credit cards accounted for 7.0% of our net operating revenue in 2021. 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 11.1%, 9.8% and 8.0% of the consolidated net operating revenue for our Brazilian retail segment in 2021, 2020 and 2019, respectively. The voucher-issuing companies assume the credit risk associated with these sales.
Information Technology
We invested R$177 million, R$179 million and R$166 million in information technology in 2021, 2020 and 2019, respectively. 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.
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In 2019, we implemented an information technology project to enhance our information technology system and develop our digital services. Since then, we have been investing in tax hardware, development of new digital products and implementation of new systems, among other things.
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 (Extra Hiper, Supermercado Extra, Mercado Extra, Mini Extra, Pão de Açúcar, Minuto Pão de Açúcar, Compre Bem, Éxito, Geant, Carulla, Super Inter, Surtimax, Surtimayorista, Libertad, Disco, Devoto and Viva) 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, 2021, our most important trademarks (Pão de Açúcar, Extra, Qualitá, Taeq and Compre Bem, among others) were duly registered with INPI and we had approximately 2,164 trademarks registered or in the process of being registered in Brazil and abroad, of which 1,993 trademarks are in Brazil. We did not have any registered patents as of December 31, 2021.
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.
In Colombia, it is necessary to officially register a trademark with Colombia’s Superintendence of Industry and Commerce (Superintendencia de Industria y Comercia), or SIC, in order to acquire trademark rights. This registration gives the owner the exclusive right to use the trademark throughout Colombia for a specific period of time, which may be renewable.
Grupo Éxito owns a portfolio of more than 1,600 duly registered trademarks, including every trademark class, among 32 countries, of which more than 1,060 are in Colombia, including, among others, the brands Éxito, Carulla, Surtimax, Superinter, Surtimayorista associated to the retail business and Arkitect y Bronzini, associated to the fashion and textile industry. As of December 31, 2021, Grupo Éxito did not have any registered patents. Additionally, Grupo Éxito owns the following domain names, among others: www.grupoexito.com.co, www.exito.com, www.carulla.com, www.surtimax.co and www.arkitect.com.co. 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
Brazil
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. In 1995, the U.S. chain Walmart (currently known as Grupo BIG) also entered the Brazilian market, mostly through the acquisition of domestic retail food chains, increasing competition in the industry. 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 Brazilian retail segment in the state of São Paulo are Carrefour, Futurama, Mambo, Pastorinho, Sonda, Dia and Grupo BIG. 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.
The principal competitor of our Extra hypermarkets is Carrefour, which operates stores in the Southeastern and Southern regions of Brazil, and Grupo Big, which operates through various banners in the Southeastern, Northeastern and Southern regions of Brazil.
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.
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Colombia
In Colombia, the retail industry has undergone a profound transformation in the last ten years, characterized by the entry of foreign companies into the national market, the trend towards greater concentration, the implementation of new technologies and the search for greater efficiency.
Grupo Éxito is the market leader in the Colombian retail market, according to Nielsen. Our main competitors are Supertiendas Olímpica (and its subsidiary Supertiendas Cañaveral), Grupo Cencosud (Jumbo and Metro) and discounters, which have been increasingly gaining market share, such as Koba Colombia S.A. (Tiendas D1), Mercadería Justo Bueno Discount Store and Supermercados Jerónimo Martins (ARA).
According to Nielsen, in 2021, the market share of main players in Colombia, excluding drugstores (48.4%), was Grupo Éxito with a market share of 23.4%, followed by Tiendas D1 and Mercadería Justo Bueno Discount Store, which in the aggregate totaled 22.9%, Supertiendas Olímpica 12.4%, Supermercados Jerónimo Martins, with 9.4% and Grupo Cencosud, which had a 7.2% market share.
Regulatory Matters
Brazil
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.
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. However, 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.
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Additionally, the processing of personal data in Colombia is currently regulated by the Political Constitution of 1991, the Statutory Law No. 1581 of 2012, the Decree No. 1377 of 2013 and its complementary and specific regulations, which establish and develop the rules for the processing of personal data. The conditions for keeping personal data include obtaining consent, implementing safety procedures and complying with the duties of data controllers and data processors. Colombian law established the Industry and Commerce Superintendence as the Colombian data protection authority. The sanctions for non-compliance with its regulations include (i) fines (up to 2,000x the current minimum monthly wage) which can be successive for as long as the non-compliance persists, (ii) the suspension of the operations related to the processing of the involved personal data for up to six months and (iii) the adoption of corrective measures. If such corrective measures are not adopted, the sanctions may include the temporary closure of the operations related to the processing of personal data or even the immediate and definitive closure of the processing of sensitive personal data.
Colombia
Grupo Éxito is subject to governmental regulation relating to commercial establishments and supervision by competent authorities, generally applicable to environmental, health and commercial matters. In order to open and operate our stores, we must register all our stores in the commercial register, obtain the land use permit and the sanitary certification that certifies compliance with matters relating to the safety of the facilities and the level of sanitation of the establishments. Grupo Éxito’s stores must also have a security certificate issued by the respective fire department, which indicates that the establishment has the security mechanisms and tools to attend to an emergency at any time. In respect of environmental matters, we comply with waste management, dumping and noise regulations. We believe that Grupo Éxito complies in all material respects with all applicable regulations and controls with respect to our business.
Grupo Éxito’s Colombian subsidiaries develop their businesses in different industries, including logistics and transportation, travel, mobile telephone, industrial production (food and apparel), and electronic commerce. We believe Grupo Éxito is complying within all material regulations of these industries.
Grupo Éxito is a registered company in the Colombian stock market, and, accordingly, is also subject to regulations issued by the Financial Superintendence, which includes, but is not limited to the disclosure of relevant information, the adoption of corporate governance practices and financial reporting. We believe that Grupo Éxito is complying in all material respects with these regulations.
Environmental and Social Matters
Our sustainability strategy comprises priority topics for planning and strategically developing our business.
In 2021, we reviewed our environmental, social and governance operating pillars, to create a new grouping that reinforces the connection and alignment surrounding our business and sustainability strategy. These pillars also support the Casino Group Corporate Social Responsibility Program, enabling the maximization of the creation of value for our stakeholders throughout the different areas of our operations.
The five pillars are:
| · | 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 |
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| · | 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.
Grupo Éxito is committed to sustainability and seeks, in all its activities, to support Colombia’s growth, the strengthening of Colombian institutions, compliance with applicable laws and regulations, the best governance practices, transparency and equity. These commitments reflect Grupo Éxito’s objective to meet its stakeholders’ expectations, the principles set forth in the United Nations Global Compact and other global sustainability standards.
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.
Proper Working Conditions
In 2021, we published the “Human Rights Policy in the GPA Value Chain” containing guidelines regarding respect for human rights and working conditions which must be followed by our suppliers and business partners. Compliance with these guidelines is a condition for supplying products to the Company and our subsidiaries and for maintaining long-term relationships with the Pão de Açúcar Group.
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 assumed the goal of having 100% of the eggs that are sold in our stores, which include our private labels eggs and eggs from other brands, originated from cage-free hens by 2028.
By the end of 2021, 40.2% of the private label eggs we sold and 30.2% of all the eggs we sold were originated from cage-free hens. In 2021, we launched an animal welfare policy presenting our vision, commitments, and targets regarding animal welfare in the production chains that supply the Pão de Açúcar Group.
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 the date of this annual report, (i) our direct beef suppliers are compliant with our Responsible Beef Sourcing Policy; (ii) our direct slaughterhouses suppliers are equipped with their own geomonitoring system and active traceability; (iii) 9,231 of the farms who are our direct suppliers were analyzed through our social and environmental reassessment process to certify compliance with our Responsible Beef Sourcing Policy.
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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.
Since 2017, we have been found nonconformities of 22 Brazilian suppliers. We have implemented action plans for four of these nonconforming suppliers. The other 18 nonconforming suppliers remain barred from supplying products to the Pão de Açúcar Group.
Supporting Local Producers
Grupo Éxito supports local producers by creating partnerships with local associations and purchasing directly from the local producers. In 2021, more than 80% of the products purchased by Grupo Éxito were acquired from approximately 700 local Colombian suppliers and approximately 90% of the fruits and vegetables sold by Grupo Éxito were originated in Colombia. Grupo Éxito also contributes to the local economic and social development by providing local Colombian producers with a support program, which includes technical assistance, consultancy for productivity improvement and logistics management, and a guarantee of purchase of their products at a price that is reasonable for the suppliers.
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.
To reinforce our strategy and further engage our employees, in 2021, we started linking the variable compensation of eligible leadership positions (which includes our chief executive officer, other executive officers, and the executive officers of Grupo Éxito) to the Pão de Açúcar Group’s environmental goals, specifically, with regards to the reduction of (i) scope 1 carbon dioxide 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 furnaces, generators or own vehicles, and (i) scope 2 carbon dioxide emissions, which are indirect greenhouse emissions that are purchased by a company from an utility provider and released into the atmosphere through electricity consumption.
In 2021, our main initiatives to reduce the environmental impact of our operations included: (i) the monitoring of indicators to avoid refrigerant gas leakage in our stores; (ii) the creation of the “Green Cool Project,” which replace the refrigerated islands in our remodeled and expanded stores using gases with lower GWP (Global Warming Potential) or natural gases; (iii) the intensification of the migration of our stores’ energy consumption to the Brazilian free energy market; (iv) the improvement of the logistics efficiency of our operation, reducing the number of trips by 8.7% when compared to 2020, and the 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); (v) the launch of an internal training program to improve waste separation and support the reduction of solid waste sent to landfills; and (vi) the increase in the volume of donated perishable food (fruits and vegetables unsuitable for sale, but suitable for consumption) to 26.5%, reaching 3,860 tons, in comparison with 2020, thereby reducing food waste.
As a result of these initiatives, an independent third party verified that, in 2021, we achieved a 5.1% reduction in scope 1 and 2 carbon dioxide emissions when compared to 2020. We expect that the pace of reduction in scope 1 and 2 carbon dioxide emissions will allow us to meet the commitment we assumed in 2020 to reduce the carbon dioxide emissions in our operations by at least 30% by 2025, and by 38% by 2030 as compared to our total emissions in 2015.
In line with its goal of reducing its scope 1 and 2 carbon dioxide emissions by at least 35% by 2023, Grupo Éxito committed to equipping 100% of the parking areas charging stations for electric vehicles by 2035 and, in 2021, continued its efforts to (i) renovate its warehouse and store equipment, (ii) promote awareness campaigns and training programs to its employees on eco-gestures, (iii) manage its waste management policy with environmental delegates which reduced more than 29,000 tons of operating waste, (iv) resell recyclable materials and (v) encourage consumers to use or purchase renewable bags in Grupo Éxito’s facilities. In 2021, Grupo Éxito inaugurated a solar power plant which will cover the energy demand from the cooling systems of 27 of Grupo Éxito’s warehouses.
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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 2021, we organized a training event focused on day-to-day ethics in business, corporate communications and training to prevent and combat corruption. Our senior leadership and more than 1,500 employees attended the event. We also organized another internal event in 2021, in which a member of our audit committee shared information and reflections on good practices, combating corruption and the importance of ethics in day-to-day interactions.
In 2021, Grupo Éxito conducted a follow-up evaluation of the risks of fraud, bribery and corruption in the processes that make up its value chain, pursuant to the requirements of the French Anti-corruption Law (Sapin II Law) and the recommendations of the French Anti-Corruption Agency (AFA), to reinforce its commitment to adopting best practices in its ethical relationship with third parties. As a result, Grupo Éxito trained: (i) 4,965 of its employees in the prevention of money laundering and combating the financing of terrorism; (ii) 38,867 employees in the virtual module of “Success Guardians,” an innovative program focused on the appropriate management of risks of fraud, bribery, corruption, personal data processing and compliance with applicable regulations. Grupo Éxito also implemented measures promoted by the Dow Jones Sustainability Index and the Carbon Disclosure Project, with the purpose of aligning its actions with the highest international standards in social, environmental, economic and corporate governance matters.
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 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, 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. Our main diversity and inclusion programs in 2021 are summarized below:
Diversity Census
We conducted a diversity census with our employees for the first time in 2021 to increase our understanding of underrepresented groups within the Pão de Açúcar Group in Brazil. The results of the census have been supporting us in prioritizing strategies to strengthen and increase representation and inclusion.
5th Diversity Week
We held our 5th Diversity Week, with live streaming, lectures and trainings regarding diversity related issues. We registered 6,360 accesses to the transmissions, a 14% increase when compared to the lectures held in 2020.
Grupo Éxito Diversity Initiatives
In 2021, Grupo Éxito promoted the “Diversity Month” with live streaming, lectures and trainings focused on unconscious bias. Grupo Éxito also continues to implement the “Diversity that Unites Us” program, aimed at training its employees on aspects of the Colombian anti-discrimination law, and training courses focused on the gender equality, inclusion and development of people with disabilities and other diversity issues.
Grupo Éxito also renewed the “Mujeres Operational Lines” program in 2021, which aims to promote greater representation of women in management positions and signed the Gender Parity Initiative to increase the share of women in the Colombian labor force, top management positions in Colombian companies and ensure gender pay equity in the country.
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Gender Equality
We expanded our “Women's Leadership Development Program,” which has benefited 835 employees since its inception in 2019, 608 of which were benefited in 2021. In addition, on December 31, 2021, we had 36.9% of our leadership positions occupied by women. We were also recognized in the WEPs - Women's Empowerment Principles Award (UN Women) in the Silver Category and selected to be part of the Bloomberg Gender-Equality Index (GEI) 2022.
Racial Equality
We ended 2021 with 37.9% self-declared black employees in leadership positions, which are positions in our management or above management, and 52% self-declared black in our overall workforce. In 2021, we launched a program dedicated to the development of black employees. This program has 131 participants and aims to develop the careers of our black employees and create opportunities for their inclusion, empowerment, sense of belonging and self-development.
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 2021, our main initiatives towards the reduction of social inequalities and generation of professional opportunities included: (i) the collection of more than 5,000 tons of food in Brazil, together with our customers and employees, for the more than 350 social organizations that are partners of the GPA Institute; (ii) continuing to support a project that promotes technical and financial support for micro and small business ventures led by black women; 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.
Grupo Éxito continued to develop the “Cero Desnutrición” program in Colombia, through the Éxito Foundation, which aims to eradicate chronic child malnutrition by 2030 by providing financial support to guarantee a healthy and balanced diet to children and future mothers from underprivileged areas and raising awareness regarding a better nutrition. In 2021, Grupo Éxito collected approximately 1,430 tons of food in Colombia for the local networks focused on the distribution of food to low-income communities.
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:
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For further information on our subsidiaries, see note 12 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
4D. Property, Plant and Equipment
In Brazil, as of December 31, 2021, we owned 57 stores, one warehouse and a portion of the real estate where our headquarters are located. As of the same date, we leased the remaining 639 stores and 14 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, 2021:
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|
Owned |
Leased |
Total(1) | ||||
|
Number |
Area |
Number |
Area |
Number |
Area | |
| (in square meters) | (in square meters) | (in square meters) | ||||
| Pão de Açúcar | 11 | 13,670 | 170 | 219,481 | 181 | 233,151 |
| Extra Hiper(2) | 11 | 75,431 | 61 | 378,775 | 72 | 454,206 |
| Mercado Extra and Compre Bem(3) | 24 | 33,505 | 150 | 167,914 | 174 | 201,419 |
| Proximity stores(4) |
1 |
117 |
238 |
58,453 |
239 |
58,570 |
| Total Stores | 57 | 170,381 | 639 | 963,038 | 696 | 1,133,419 |
| Warehouses |
1 |
13,198 |
12 |
500,201 |
13 |
513,399 |
| Total |
58 |
183,579 |
651 |
1,463,239 |
709 |
1,646,818 |
_____
| (1) | Excludes gas stations and drugstores. |
| (2) | On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the Real Estate Properties Assignment Transaction. The Real Estate Properties Assignment Transaction is subject to the fulfillment of certain conditions, including the prior consent of the owners of certain assigned properties and the demobilization by us of all the assigned stores. As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022. Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted into Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners. Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra. Accordingly, we expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. For more information on the Real Estate Properties Assignment Transaction, see “Item4A. History and Development of the Company—Changes in Our Business— Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores” and “Item 7B. Related Party Transactions—Agreements with Sendas—Real Estate Properties Assignment Transaction.” For more information on the discontinuance of the Extra Hiper banner, see “Item 5A. Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.” |
| (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. |
| (4) | Includes Mini Extra, Minuto Pão de Açúcar, Pão de Açúcar Adega and Aliados Minimercado. |
As of December 31, 2021, in Colombia, Argentina and Uruguay we owned 192, 16 and 16 stores, respectively, and one warehouse in each country. In Colombia we also lease 395 stores and 12 distribution centers and warehouses, and we also have 26 mixed stores (stores that are partially owned and partially leased by us). In Argentina we lease nine stores, and in Uruguay we lease 76 stores and three distribution centers. The term of our lease agreements in these countries varies from three to 15 years, and payment conditions include a fixed fee and a variable fee, which is calculated according to the percentage of sales.
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, 2021, GPA Malls managed approximately 210 commercial galleries in Brazil and two neighborhood commercial centers. On the same date, GPA Malls had more than 292,759 square meters of gross leasable area.
As of December 31, 2021, Viva Malls managed around six commercial galleries and 12 shopping centers in Colombia. On the same date, Viva Malls had 567,747 square meters of gross leasable area.
As of December 31, 2021, Paseo Libertad Malls managed approximately five commercial galleries and ten shopping centers in Argentina. On the same date, Paseo Libertad Malls operated approximately 170,000 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. Since the acquisition of Grupo Éxito’s in the end of 2019, we started to operate in Colombia, Uruguay and Argentina. Thus, our results of operations are also affected by macroeconomic conditions in these countries, especially Colombia.
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Brazilian Macroeconomic Environment
Brazilian macroeconomic conditions remain unstable. Although the Brazilian economy presented signs of recovery in 2019, the year of 2020 presented challenges and impacts due to the COVID-19 pandemic. These challenges included the increase in inflation, which continued rising in 2021. As of December 31, 2021, inflation in Brazil was 17.1%, according to the IGP-M index, compared to 23.1% and 7.32% as of December 31, 2020 and 2019, respectively. The IPCA also increased, reaching 10.1% as of December 31, 2021, compared to 4.52% and 4.31% as of December 31, 2020 and 2019. 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. 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 increased from US$355,620 million as of December 2020 to US$362,204 million as of December 2021.
The SELIC rate increased in 2021, reaching 9.2% as of December 31, 2021, after having decreased from 4.5% as of December 31, 2019, to 2.0% as of December 31, 2020. In February 2022, the SELIC rate was raised to 10.75%, reaching two digits for the first time since July 2017. Interest rates have been historically used by the Brazilian government as a tool to curb inflationary pressures.
Brazilian GDP increased by 4.6% in 2021, compared to a decrease of 4.1% in 2020 and an increase of 1.4% in 2019. The unemployment rate in Brazil reached 13.2% as of December 31, 2021, 13.9% as of December 31, 2020 and 11.0% as of December 31, 2019. These two indicators directly affect the purchasing power of the Brazilian workforce.
A continuation of the recent trend of increasing 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 have variable interest rates. Furthermore, in case the recent trend of increasing interest rates in Brazil persists, there could be a 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 from the Brazilian retail segment indexed to the CDI rate to partially neutralize the impact on 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, | |||||
|
2021 |
2020 |
2019 |
2018 |
2017 | |
| GDP Growth(1) | 4.6 | (4.1) | 1.4 | 1.8 | 1.3 |
| Inflation (IGP-M) (%)(2) | 17.1 | 23.4 | 7.3 | 7.5 | (0.5) |
| Inflation (IPCA) (%)(3) | 10.1 | 4.5 | 4.3 | 3.7 | 2.9 |
| CDI (%)(4) | 4.4 | 2.8 | 5.9 | 6.4 | 9.9 |
| TJLP (%)(5) | 5.3 | 4.6 | 5.6 | 7.0 | 7.0 |
| SELIC rate (%)(6) | 9.2 | 1.9 | 4.4 | 6.4 | 7.0 |
| Appreciation (depreciation) of real to U.S. dollars (%) | 7.4 | (28.9) | 4.4 | 18.5 | 1.5 |
| Exchange rate (closing) R$ per U.S. dollars 1.00(7) | 5.581 | 5.197 | 4.031 | 3.875 | 3.308 |
| Average exchange rate R$ per U.S. dollars 1.00(8) | 5.395 | 5.1578 | 3.946 | 3.656 | 3.193 |
_________________
| (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) | Exchange rate (for sale) of the last day of the period. Source: Central Bank. |
| (8) | Average of exchange rates (for sale) of the period. Source: Central Bank. |
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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 5% of our total debt as of December 31, 2021. 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.
An economic recession and an increasing unemployment rate in Brazil, including as a result of COVID-19 pandemic, could lead to a decline in household consumption that could adversely affect our results of operations and financial condition.
Macroeconomic Environment in Colombia, Argentina and Uruguay
The Colombian economy showed signs of economic recovery during the first quarter of 2021. This recovery was mitigated during the second quarter of 2021, largely due to significant social demonstrations, strikes and an increase in the number of cases of COVID-19 in the country.
However, in the second semester of 2021, as the vaccination of the Colombian population against COVID-19 advanced and the mobility restrictions in the country started loosening, the Colombian economy showed a quick and solid economic improvement becoming one of the best performing economies in Latin America in 2021. In 2021, the GDP rate in Colombia increased by 10.6%, the unemployment rate decreased from 13.4% in 2020 to 11% in 2021 and the Colombian consumer confidence index increased by 3.4% even if the index having remained at (7%).
Conversely, inflation levels remained high at 5.6% as of December 31, 2021 (1.61% in 2020), having increased mainly due to the 17.2% increase in food prices during 2021. To combat the rise in inflation, the Colombian Central Bank increased the official interest rate by 125 bps to 3.0% by year-end in 2021 (1.75% in 2020). As of the date of this annual report, the official interest rate in Colombia is 4%.
In addition, a continuation of the recent trend of increasing interest rates in the countries in which we operate could have an adverse effect on our results of operations and financial condition, as many of our rental contracts are partially indexed to these countries’ s national inflation indices and the majority of our financial revenues and financial expenses have variable interest rates.
The following table sets forth data on real GDP growth, inflation and interest rates in Colombia, and the Colombian pesos/U.S. dollar exchange rate for the indicated periods:
|
December 31, | |||||
|
2021 |
2020 |
2019 |
2018 |
2017 | |
| GDP Growth | 10.6 | (6.8) | 3.3 | 2.5 | 1.4 |
| Inflation | 5.6 | 1.6 | 3.8 | 3.2 | 4.1 |
| IPP annual variation | 5.6 | (0.9) | 6.1 | 2.3 | 3.3 |
| IPP | 26.6 | 119.7 | 120.8 | 103.9 | 111.3 |
| Unemployment | 13.7 | 15.9 | 10.5 | 9.7 | 9.4 |
| DTF(1) | 3.08 | 1.9 | 4.5 | 4.5 | 5.2 |
| IBR nominal rate – annual period (2) | 2.99 | 1.7 | 4. 1 | 4.1 | 4.5 |
_________________
| (1) | Term Deposit Rate (Depósito a Término Fijo, or DTF). |
| (2) | Colombian Interbank Reference Rate (Interés Bancario de Referencia, or IBR). This reference rate was first calculated and published in 2008. |
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The weak performance of the Uruguayan economy started gradually improving towards the last quarter of 2021, mainly due to the lifting of the COVID-19 related restrictions, which resulted in an increase of tourist activity in Uruguay. The Uruguayan GDP is expected to increase by 4.4% in 2021 reflecting a recovery of the economy during the second half of 2021. The unemployment rate in Uruguay decreased from 10.5% in 2020 to 7.0% in 2021. The inflation rate in Uruguay decreased from 9.4% in 2020 to 8.0% in 2021 and the food inflation reduced from 9.5% in 2020 to 6.5% in 2021.
The Argentinian economy showed gradual signs of recovery in the third quarter of 2021, when the Argentinian GDP increased by 11.9%. However, the inflation rates remained high in Argentina in 2021 having reached 49.5%, with an increase of 54.1% in food prices when compared to 2020. The lifting of the mobility restrictions in Argentina led to the increase of traffic at stores and commercial galleries, resulting in a 14.8% increase in retail sales in the country in 2021, according to the Argentinian Confederation of Medium Size Businesses (Confederación Argentina de la Mediana Empresa – CAME).
COVID-19
In response to the COVID-19 pandemic, government authorities around the world and in the countries where we operate imposed restrictive measures in 2020 and 2021. In the countries where we operate, state and local governments followed the guidelines issued by the respective Ministry of Health to control the spread of COVID-19 and imposed restrictions related to social distancing and lockdowns requirements, resulting in the closing of restaurants, schools, daycare centers, hotels, shopping malls, and areas with intense foot traffic, including parks and other public spaces.
As new variants of the COVD-19 virus emerged, governments have continued to impose restrictive measures until recently. Most of the governments in Latin America, including in Brazil, Colombia, Uruguay and Argentina, have relaxed the restrictive measures previously imposed to contain the spread of the COVID-19 virus and variants.
The restrictive measures have caused significant disruptions to the global economy and normal business operations across numerous sectors and countries. The measures adopted to combat the COVID-19 outbreak have adversely affected and will continue to adversely affect business confidence and consumer sentiment, and have been, and may continue to be, accompanied by significant volatility in financial and commodity markets as well as stock exchanges worldwide, adversely affecting the trading price of securities, including the ADSs and our common shares.
As grocery stores, our activity is considered essential and our business operations in Brazil were not adversely affected by the restrictive measures imposed by Brazilian federal and state governments. On the other hand, our Colombian operations were adversely affected by the restrictive measures imposed by regional and state governments as a result of the COVID-19 pandemic, since the restrictions imposed in Colombia were more stringent than in Brazil and included, among other things, reduced business hours at stores, establishment of purchasing limits, closure of stores, dry law enforcement during certain weekends and curfew in the main Colombian cities. Additionally, certain of our operations were not deemed essential by government authorities, which led to the closure of a significant part of our commercial galleries and centers in Colombia. Even after the re-opening of these commercial galleries and centers, we have experienced a reduced traffic of people at these venues.
In Uruguay, the government established the closure of international borders of the country for foreigners during most of the year in 2021 to control the spread of the COVID-19 pandemic, in addition to imposing restrictions such as the closure of many commercial establishments. Likewise, during the first semester of 2021, the Argentinian government implemented severe restrictions such as capacity reduction at stores, closure of stores, the prohibition to sell non-essential items, and restrictions on foot and car traffic at night.
As a result of the COVID-19 pandemic, we experienced a temporary increase in sales in our stores in Brazil since people were initially stocking food, in addition to the change in consumption pattern of individuals, from restaurants to home meal preparations. The COVID-19 pandemic also resulted in greater adherence to online sales channels as an option of convenience to the consumer in all countries where we operate.
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As of December 31, 2021, 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 lines of our income statement, and we did not need to record any COVID-19 related provisions.
We may face supply chain risks due to the COVID-19 pandemic, such as scrutiny or embargoing of goods produced in infected areas, in addition to failures of third parties, including our suppliers, contract manufacturers, contractors, commercial banks, joint venture partners and external business partners to meet their obligations, or significant disruptions to their ability to do so. As of the date of this annual report, we have not experienced problems in our supply chain, and our suppliers are delivering products on a regular basis to our distribution centers and stores.
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
Sale of Home Appliances Operating Segment
On November 23, 2016, our board of directors approved the disposal of our equity interest in Via, in line with our long-term strategy of focusing on the development of the Brazilian retail segment. Starting on November 1, 2016, we began recording our investment in Via according to IFRS 5. We concluded the sale of our equity interest in Via on June 14, 2019 by means of a public auction on B3.
Until May 31, 2019, we carried out our discontinued operations through Via, which operated in the home appliances segment, including consumer electronics and furniture, and the e-commerce segment through stores under the banners Ponto Frio and Casas Bahia, in addition to the e-commerce platforms Casasbahia.com, Pontofrio.com, Extra.com.br and Barateiro.com, which were operated by Cnova Brazil.
The results (up to May 31, 2019) related to Via were classified in a single line item as “discontinued operations” in our statement of operations and comprehensive income and the assets and liabilities for Via (including Cnova Brazil) are classified as held for sale in our balance sheet as of December 31, 2018 and 2017. The sale of Via resulted in the recognition of a gain on sale of R$398 million, net of the effect of income taxes of R$199 million and related costs. The net effects on discontinued operations were a gain of R$348 million in 2019 compared to R$128 million in 2018. For additional information, see note 33 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Noncurrent assets held for sale were R$26,137 million as of May 31, 2019 compared to R$29,144 million as of December 31, 2018. Noncurrent liabilities held for sale were R$20,859 million as of May 31, 2019 compared to R$23,933 million as of December 31, 2018.
For more information on the sale of our equity interest in Via, see “—4A. History and Development of the Company—Changes in Our Business—Sale of Home Appliances Operating Segments.”
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.
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As disclosed in note 33 to our audited consolidated financial statements, included elsewhere in this annual report, net income for the years ended December 31, 2021, 2020 and 2019 and the results related to Sendas were classified in a single line item as “discontinued operations” in our statement of operations and comprehensive income.
For more information on the spin-off of our cash and carry business, see “—4A. History and Development of the Company—Changes in Our Business—Spin-off of Cash and Carry Operating Segment.”
Discontinued Operations for the Year Ending December 31, 2022
Extra Hiper Stores
On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the conversion of 70 Extra Hiper stores operated by us and located in several states of Brazil into cash and carry stores to be operated by Sendas pursuant to the Real Estate Properties Assignment Transaction.
As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022.
Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted into Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners.
Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra.
We expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. The net gain on disposal of the assets and the results of the hypermarket business will be presented in a single line in the statements of operations as a discontinued operation for the year ending December 31, 2022 and the comparative periods, as required by IFRS5/CPC31.
The assets and liabilities related to 50 Extra Hiper stores, which were substantially property, plant and equipment, right of use and corresponding liabilities and intangible assets, were classified as assets held for sale in our audited consolidated financial statements as of and for the year ended December 31, 2021.
For more information on the Real Estate Properties Assignment Transaction and the discontinuation of the Extra Hiper banner, see “Item 4. “Changes in Our Business—Discontinued Operations for Year Ending December 31, 2022—Extra Hiper Stores” and “Item 7B. Related Party Transactions—Real Estate Properties Assignment Transaction.”
Drugstores
In line with our strategy of optimizing store platform and allocating resources to accelerate the growth of our most profitable banners, we decided to close all our drugstores.
As of the date of this annual report, we had already closed all our drugstores and discontinued 68 of our drugstores.
We expect to classify the results of operations of our drugstores as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. The net gain on disposal of the assets and the results of the drugstore business will be presented in a single line in the statements of operations as a discontinued operation for the year ending December 31, 2022 and the comparative periods, as required by IFRS5/CPC31.
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Acquisition of Grupo Éxito
On November 27, 2019, Sendas acquired 96.57% of Grupo Éxito’s shares by means of an all-cash tender offer. As a result of Grupo Éxito’s acquisition, we started to carry out operations in Colombia, Argentina and Uruguay. For additional information on Grupo Éxito’s acquisition, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
We started to consolidate Grupo Éxito’s results of operations after we assumed its corporate control on November 27, 2019.
Overview of the Fiscal Year Ended December 31, 2021
We believe that 2021 was one of the most important years in our recent history, as we made important decisions and went through material changes, such as the discontinuation of our Extra Hiper stores, in the challenging economic scenario created by the COVID-19 pandemic.
Despite a challenging economic scenario in which consumption was sharply affected by high unemployment rates, and increasing inflation, especially in Brazil where the IPCA increased from 4.5% in 2020 to 10.1% in 2021, our consolidated net operating revenue in the Brazilian retail segment decreased 5.2% in 2021 from 2020, totaling R$26.8 billion.
The net operating revenue of Grupo Éxito increased by 10.5% in 2021 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 Brazilian 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 2021, 58 stores in Brazil were renovated, converted, opened or repositioned.
Our focus on improving our clients’ shopping experience was materialized with the 46 Pão de Açúcar stores renovated following a next-generation concept store, focused on perishables, services and improvement of portfolio, presenting a multi-channel, or sales in different channels, including brick and mortar stores, e-commerce and James delivery, 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 2021, we renovated 28% of the Pão de Açúcar stores, delivering outstanding performance in terms of 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. In the same year, these stores presented significant growth in sales and better performance compared to non-converted stores.
The proximity store business continues to soar, mainly due to its effective value proposition in the neighborhood format and the expansion of the Aliados Compre Bem program, as evidenced by the continuous increase in sales – ten consecutive quarters of growth – and profitability gains throughout the year.
In 2021, we also improved the portfolio of our private label brands, an important part of the loyalty building and profitability of our business, launching more than 100 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 2021 presented an increase of 53% when compared to 2020, mainly due to (i) the expansion of the Express and Click Collect models to more than 300 stores as of December 31, 2021 (compared to 289 stores as of December 31, 2020), (ii) the opening of four new mini distribution centers to support a pervasive delivery system, (iii) the beginning of partnerships with other last milers (iFood, Rappi and Cornershop) that in 2021 represented 23.5% of our total online sales, and (iv) our partnership with Mercado Livre announced in May 2021, which has been growing on a monthly basis, with approximately 4,000 supermarket items from the chains on the platform with the Pão de Açúcar and Extra brands.
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In addition, in 2021, we completed the Sendas Separation and Sendas Spin-Off, and focused our business on the retail sector, with our income statement reflecting the higher level of service and value-added products.
The operations of the Grupo Éxito in the beginning of 2021 were negatively affected by store closures to combat the spread of the COVID-19 pandemic in Colombia and the social protests that occurred throughout the country. Grupo Éxito’s operations were also negatively impacted in the beginning of 2021 in Uruguay, as a result of the decrease of tourist activity in Uruguay due to the closure of the Uruguayan borders for tourists to combat the spread of the COVID-19 pandemic in the country, and in Argentina, as a result of the deterioration of the macroeconomic conditions of the country due to the COVID-19 pandemic.
Nevertheless, Grupo Éxito quickly adapted and managed to take advantage of important opportunities that led to improvements in revenue and profitability mainly due to the strengthening of the omnichannel strategy, consolidation of innovative formats and recovery of its real estate and financial services businesses.
Results of Operations for 2021, 2020 and 2019
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, included elsewhere in this annual report.
|
Year Ended December 31,(1) | ||||||
|
2021 |
% of Net Operating Revenue |
2020 |
% of Net Operating Revenue |
2019(2) |
% of Net Operating Revenue | |
| Results of Operations | (in millions of R$, unless otherwise noted) | |||||
| Net operating revenue | 51,291 | 100.0 | 51,253 | 100.0 | 28,838 | 100.0 |
| Cost of sales |
(38,341) |
(74.8) |
(37,504) |
(73.2) |
(21,225) |
(73.6) |
| Gross profit | 12,950 | 25.2 | 13,749 | 26.8 | 7,613 | 26.4 |
| Selling, general and administrative expenses | (9,353) | (18.2) | (9,343) | (18.2) | (5,698) | (19.8) |
| Depreciation and amortization | (1,853) | (3.6) | (1,804) | (3.5) | (1,028) | (3.6) |
| Other operating expenses, net |
(7) |
(0.0) |
(71) |
(0.1) |
(386) |
(1.3) |
| Operating expenses | (11,213) | (21,9) | (11,218) | (21.9) | (7,112) | (24.7) |
| Profit from operations before financial expenses and share of profit of associates | 1,737 | 3.4 | 2,531 | 4.9 | 501 | 1.7 |
| Financial income | 488 | 1.0 | 909 | 1.8 | 353 | 1.2 |
| Financial expenses |
(1,809) |
(3.5) |
(1,637) |
(3.2) |
(1,224) |
(4.2) |
| Financial expenses, net |
(1,321) |
(2.6) |
(728) |
(1.4) |
(871) |
(3.0) |
| Share of profit of associates |
(47) |
(0.1) |
98 |
0.2 |
2 |
- |
| Profit (loss) before income tax and social contribution |
369 |
0.7 |
1,901 |
3.7 |
(368) |
(1.3) |
| Income tax and social contribution |
594 |
1.2 |
(662) |
(1.3) |
95 |
0.3 |
| Net income (loss) from continuing operations |
963 |
1.9 |
1,239 |
2.4 |
(273) |
(0.9) |
| Net income (loss) from discontinued operations |
(3) |
(0.0) |
1,087 |
2.1 |
1,109 |
3.8 |
| Net income for the year |
960 |
1.9 |
2,326 |
4.5 |
836 |
2.9 |
| Attributed to controlling shareholders from continued operations | 805 | 1.6 | 1,092 | 2.1 | (287) | (1.0) |
| Attributed to controlling shareholders from discontinued operations |
(3) |
(0.0) |
1,087 |
2.1 |
1,077 |
3.7 |
| Total attributed to controlling shareholders |
802 |
1.6 |
2,179 |
4.3 |
790 |
2.7 |
| Attributed to non-controlling shareholders from continued operations | 158 | 0.3 | 147 | 0.3 | 14 | 0.0 |
| Attributed to non-controlling shareholders from discontinued operations |
- |
- |
- |
- |
32 |
0.1 |
| Total attributed to non-controlling shareholders |
158 |
0.3 |
147 |
0.3 |
46 |
0.2 |
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| (1) | The statement of operations for the years ended December 31, 2021, 2020 and 2019 related to Sendas was classified as “discontinued operations.” As discussed in note 33 to our audited consolidated financial statements as of and for the years ended December 31, 2021, included elsewhere in this annual report, the Sendas Spin-off was approved by the general meeting on December 31, 2020, resulting in the deconsolidation of Sendas from the Pão de Açúcar Group on the same date. |
| (2) | Via operations were classified as discontinued operations in the periods from 2016 to 2019 (until May 31, 2019). Starting on November 1, 2016, we began recording our investment in Cnova according to IFRS 5. On June 14, 2019, we consummated the sale of all equity interest we held in Via. Accordingly, our financial statements as of and for the year ended December 31, 2019 include the five months that Via’s results of operations were considered in the line item relating to discontinued operations. The sale of Via resulted in the recognition of a gain on sale of R$398 million, net of the effect of income taxes of R$199 million and related costs. The net effects on discontinued operations were a gain of R$348 million in 2019. |
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In addition, we present the results of our operating segments in the same manner management evaluates the performance of and strategy for the segments listed below. For further information on the segments, see note 30 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
The following tables contain a breakdown of our statement of operations by segment for each of the periods indicated:
|
Statement of operations |
Year Ended December 31, 2021 | |||
| Segments |
Brazilian retail |
Grupo Éxito (1) |
Other businesses(2) |
Total |
| (in millions of R$) | ||||
| Net operating revenue | 26,864 | 24,357 | 70 | 51,291 |
| Operating income | 712 | 1,121 | (96) | 1,737 |
| Financial expenses, net | (1,039) | (279) | (3) | (1,321) |
| Profit (loss) before income tax and social contribution |
(280) | 853 | (204) | 369 |
| Share of profit of associates | 47 | 11 | (105) | (47) |
| Income tax and social contribution | 908 | (321) | 7 | 594 |
| Net income (loss) – continuing operations | 628 | 532 | (197) | 963 |
| Net income (loss) – discontinued operations | (3) | - | - | (3) |
| Net income (loss) for the year | 625 | 532 | (197) | 960 |
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| (1) | Includes our operations in Colombia, Uruguay and Argentina since our acquisition of Grupo Éxito in November 2019. For information on the all-cash tender offer to acquire Grupo Éxito’s shares, see “Item—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.” |
| (2) | Includes equity pickup of the Company in Cnova. It also includes the banners Cheftime, James and Stix Fidelidade. |
|
Statement of operations |
Year Ended December 31, 2020 | ||||
| Segments |
Brazilian retail |
Grupo Éxito(1) |
Other businesses(2) |
Discontinued operations |
Total |
| (in millions of R$) | |||||
| Net operating revenue | 29,170 | 22,034 | 49 | - | 51,253 |
| Operating Income | 2,016 | 652 | (137) | - | 2,531 |
| Financial expenses, net | (386) | (340) | (2) | - | (728) |
| Profit (loss) before income tax and social contribution |
1,748 | 339 | (186) | - | 1,901 |
| Share of profit of associates | 118 | 27 | (47) | - | 98 |
| Income tax and social contribution | (559) | (110) | 7 | - | (662) |
| Net income (loss) – continuing operations |
1,189 |
229 |
(179) |
- |
1,239 |
| Net income (loss) – discontinued operations |
85 |
(1) |
- |
1,003 |
1,087 |
| Net income (loss) for the year |
1,274 |
228 |
(179) |
1,003 |
2,326 |
_________________
| (1) | Includes our operations in Colombia, Uruguay and Argentina since our acquisition of Grupo Éxito in November 2019. For information on the all-cash tender offer to acquire Grupo Éxito’s shares, see “Item—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.” |
| (2) | Includes equity pickup of the Company in Cnova. It also includes the banners Cheftime, James and Stix Fidelidade. |
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|
Statement of operations |
Year Ended December 31, 2019(2) | ||||
| Segments |
Brazilian retail |
Grupo Éxito |
Other businesses(1) |
Discontinued operations(2) |
Total |
| (in millions of R$) | |||||
| Net operating revenue | 26,654 | 2,151 | 33 | - | 28,838 |
| Operating Income | 467 | (56) | - | - | 501 |
| Financial expenses, net | (815) | (57) | 1 | - | (871) |
| Profit (loss) before income tax and social contribution | (241) | 27 | (154) | - | (368) |
| Share of profit of associates | 107 | (6) | (99) | - | 2 |
| Income tax and social contribution | 121 | (28) | 2 | - | 95 |
| Net income (loss) – continuing operations | (120) | (1) | (152) | - | (273) |
| Net (loss) income– discontinued operations | 312 | - | - | 797 | 1,109 |
| Net income (loss) for the year | 192 | (1) | (152) | 797 | 836 |
_________________
| (1) | Includes equity pickup of the Company in Cnova. It also includes the banners Cheftime, James and Stix Fidelidade. |
| (2) | The statement of operations for the years ended December 31, 2021, 2020 and 2019 related to Sendas were classified as “discontinued operations.” Via operations were classified as discontinued operations in the periods from 2016 to 2019 (until June 2019). On June 14, 2019, we consummated the sale of all equity interest we held in Via. Accordingly, our financial statements as of and for the year ended December 31, 2019 include the five months that Via’s results of operations were considered in the line item relating to discontinued operations. The sale of Via resulted in the recognition of a gain on sale of R$398 million, net of the effect of income taxes of R$199 million and related costs. The net effects on discontinued operations were a gain of R$348 million in 2019. Moreover, starting on November 1, 2016, we began recording our investment in Cnova according to IFRS 5. For additional information on the sale on our discontinued operations, see notes 12 and 34 to our audited consolidated financial statements as of and for the years ended December 31, 2019 and 2020, included elsewhere in this annual report. |
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Consolidated
Net operating revenue. Net operating revenue increased by 0.1%, from R$51,253 million in 2020 to R$51,291 million in 2021 due to the increase of sales in Grupo Éxito mainly related to the recovery in consumer confidence in Colombia during the second semester of 2021, which boosted consumption levels in the country and the improvement of the omnichannel performance of the Grupo Éxito, partially offset by the decrease in sales from the Brazilian retail segment due to the beginning of the demobilization of our Extra Hiper stores and our drugstores, which started in the fourth quarter of 2021.
Gross profit. Gross profit decreased by 5.8%, or R$799 million, from R$13,749 million in 2020 to R$12,950 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.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by R$10 million, from R$9,343 million in 2020 to R$9,353 million in 2021, mainly due to the increase in the omnichannel sales of the Grupo Éxito, partially offset by a decrease in the sales in the Brazilian retail segment due to the reduction in marketing expenses and the reduction in personnel expenses caused by the closing of the Extra Hiper stores. Selling, general and administrative expenses represented 18.2% of our net operating revenue in 2020 and 2021.
Depreciation and amortization. Depreciation and amortization increased by 2.7%, or R$49 million, from R$1,804 billion in 2020 to R$1,853 billion 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, decreased by 90.1%, or R$64 million, from R$71 million in 2020 to R$7 million in 2021, mainly as a result of (i) the R$426 million net revenue from the sale of 20 Extra Hiper stores to Sendas pursuant to the Real Estate Properties Assignment Transaction, (ii) the R$224 million decrease in the restructuring and corporate reorganization expenses related to the Sendas Separation, as well as expenses related to the acquisition of the Grupo Éxito, (iii) the gains, in 2020, related to 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, of R$513 million, which did not occur in 2021, (iv) the decrease in expenses incurred as a result of the COVID-19 pandemic of R$134 million, and (v) the decrease in tax contingencies of R$235 million due to a decision of the Brazilian Supreme Court (Supremo Tribunal Federal), or STF, which allowed companies that import products, such as us, not to pay the tax on industrialized products (IPI) on imported goods.
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Financial expenses, net. Financial expenses, net, increased by 35.8%, or R$593 million, from R$728 million in 2020 to R$1,321 billion in 2021, as a result of the (i) decrease in our monetary restatement gain of R$504 million in 2021 caused by the R$613 million revenue, net of costs, 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 decreased to R$109 million in 2021, 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.
Share of profit of associates. Share of profit of associates decreased by 148.1%, or R$145 million, from a gain of R$98 million in 2020 to a loss of R$47 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$1,256 million, from an income tax and social contribution expense of R$662 million in 2020 to an income of R$594 million in 2021, mainly as a result of (i) state tax incentives, pursuant to article 30 of Law No. 12,973/14 and Complementary Law No. 160/17, related to income obtained outside Brazil, and (ii) the increase in our tax credits in 2021 due to a decision issued by the STF, in September 2021, which declared the unconstitutionality of the collection of income tax in interest payments indexed to SELIC rate arising from overpayments of tax.
Net income (loss) from continuing operations. As a result of the foregoing, net income from continuing operations decreased by 22.2%, or R$276 million, from a profit of R$1,239 million in 2020 to a profit of R$963 million in 2021.
Net income (loss) from discontinued operations. Net income (loss) from discontinued operations decreased by R$1,090 million, from an income of R$1,087 million in 2020 to a loss of R$3 million in 2021, mainly due to the classification of the operations of Sendas in the periods from December 31, 2018 through December 31, 2020 as discontinued operations.
Segment Information
Brazilian Retail Segment
Our Brazilian retail segment in 2021 consisted of sales of food and non-food products to individual consumers 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 Brazilian 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.
We expect to classify the results of operations of the Extra Hiper banner and the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022.
We do not consider Grupo Éxito as part of our Brazilian retail segment and consider it as a separate segment since its acquisition at the end of 2019.
Net operating revenue. Net operating revenue decreased by 7.9%, or R$2,306 million, from R$29,170 million in 2020 to R$26,864 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, adversely affected consumers’ purchasing power and, consequently, our sales.
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Profit (loss) from operations before financial income (expenses). Profit from operations before financial income (expenses) decreased by 64.7%, or R$1,304 million, from R$2,016 million in 2020 to R$712 million in 2021, as a result of the decrease of R$2,306 million in our net operating revenue and the decrease of R$111 million in our other operating income, which were partially offset by the decrease of R$687 million in cost of sales and the decrease of R$ 426 million in selling, general and administrative expenses.
Financial income (expenses), net. Financial expenses, net, increased by 169.2%, or R$653 million, from R$386 million in 2020 to R$1,039 million in 2021, mainly as a result of higher cost to service our debt due to higher interest rates in Brazil in 2021 and 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.
Profit (loss) before income tax and social contribution. As a result of the foregoing, profit (loss) before income tax and social contribution decreased by R$2,028 million, from a profit of R$1,748 million in 2020 to a loss of R$280 million in 2021.
Income Tax and Social Contribution. Income tax and social contribution increased by R$1,467 million, from an in expense of R$559 million in 2020 to an income of R$908 million in 2021, mainly as a result of the increase in our tax credits in 2021 due (i) state tax incentives, pursuant to article 30 of Law No. 12,973/14 and Complementary Law No. 160/17, related to income obtained outside Brazil, and (ii) the increase in our tax credits in 2021 due to a decision issued by the STF, in September 2021, which declared the unconstitutionality of the collection of income tax in interest payments indexed to SELIC rate arising from overpayments of tax.
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 a profit of R$1,274 million in 2020 to a profit of R$625 million in 2021.
Grupo Éxito
As a result of our acquisition of Grupo Éxito at the end of 2019, we started to consolidate the 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 Paseo Libertad Malls in Argentina. For additional information on the acquisition of Grupo Éxito, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
Net operating revenue. Net operating revenue increased by R$2,323 million, from R$22,034 million in 2020 to R$24,357 million in 2021, mainly as a result of the strong omnichannel performance in Colombia, Uruguay and Argentina, the increase in revenues from complementary businesses, such as Tuya and the real estate business units and the travel business, which benefitted from the easing of restrictions during the year, the improvement of the macroeconomic conditions in Colombia, Uruguay and Argentina and the return of tourism in these countries in end of 2021. In the same period, our gross margin, calculated by dividing gross profit by net operating revenue, increased from 25.0% in 2020 to 25.8% in 2021.
Profit (loss) from operations before financial income (expenses). As a result of the increase in Éxito’s sales volume caused by the improvement of the macroeconomic conditions in Colombia, Uruguay and Argentina and the return of tourism in these countries in end of 2021, profit from operations before financial income (expenses) increased by R$469 million, from R$652 million in 2020 to R$1,121 million in 2021.
Financial income (expenses), net. Financial expenses, net, decreased by R$61 million, from R$340 million in 2020 to R$279 million in 2021, mainly as a result of a lower cost to service our debt in the period due to lower interest rates in Colombia in 2021.
Profit (loss) before income tax and social contribution. Profit before income tax and social contribution increased by R$514 million, from R$339 million in 2020 to R$853 million in 2021, as a result of the increase of R$783 million in gross profit, partially offset by the increase of R$484 million in selling, general and administrative expenses and depreciation and amortization.
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Income Tax and Social Contribution. Income tax and social contribution increased by R$211 million, from an income tax and social contribution expense of R$110 million in 2020 to an expense of R$321 million in 2021, mainly as a result of the increase in profit before income tax and social contribution.
Net income for the year. As a result of the foregoing, net income for the year increased by 133.3%, or R$304 million, from a profit of R$228 million in 2020 to a profit of R$532 million in 2021.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Consolidated
Net operating revenue. Net operating revenue increased by 77.7%, or R$22,415 million, from R$28,838 million in 2019 to R$51,253 million in 2020, of which R$19,883 million relates to net operating revenue of Grupo Éxito in 2020 which we started to consolidate at the end of 2019. To a lesser extent, the increase was also related to the growth of renovated and remodeled stores in the last two years, as well as digital transformation initiatives, underlining the adoption of our omnichannel strategy. In addition, the restrictions in mobility related to the COVID-19 pandemic had a positive impact on sales.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by 64.0%, or R$3,645 million, from R$5,698 million in 2019 to R$9,343 million in 2020, mainly due to the increase of R$3,498 million generated by the acquisition of Grupo Éxito. Selling, general and administrative expenses represented 19.8% of our net operating revenue in 2019 and 18.2% in 2020. The increase related to the consolidation of Éxito’s results was partially offset by a decrease in the selling, general and administrative expenses of the Brazilian retail segment, mainly due to our initiatives to control expenses.
Depreciation and amortization. Depreciation and amortization increased by 75.5%, or R$776 million, from R$1,028 million in 2019 to R$1,804 million in 2020, mainly due to the depreciation and amortization resulting from the acquisition of Grupo Éxito of R$669 million and, to a lesser extent, the increase was also related to renovation and maintenance of stores, renewal of lease agreements and IT projects.
Other operating income (expenses), net. Other operating expenses, net, decreased by R$315 million, from R$386 million in 2019 to R$71 million in 2020, mainly as a result of (i) gains related to revaluation of our equity participation in Bellamar, net of costs, of R$513 million, (ii) gain on disposal of assets of R$378million. The decrease was partially offset by (i) increase on restructuring costs of R$187 million, (ii) expenses incurred as a result of the COVID-19 pandemic of R$134 million and (iii) increase on tax contingencies of R$216 million.
Financial income (expenses), net. Financial expenses, net, decreased by 16.4%, or R$143 million, from R$871 million in 2019 to R$728 million in 2020, mainly as a result of i) R$413 million of increase in expenses mainly related to monetary restatement and lease liabilities and ii) tax credit of ICMS on the calculation basis of PIS/COFINS of R$622 million that have offset the increase.
Share of profit of associates. Share of profit of associates increased by R$96 million, from a gain of R$2 million in 2019 to R$98 million in 2020, mainly as a result of (i) a decrease in losses in the amount of R$52 million from our share of profit in Cnova, due to a better performance of this investee; (ii) a gain of R$18 million in the share of profit in Tuya and Puntos Colombia as a result of the acquisition of Grupo Éxito at the end of 2019; and (iii) an increase in our share of profit in FIC due to higher profits.
Income tax and social contribution. Income tax and social contribution increased by R$757 million, from an income from an income tax and social contribution of R$95 million in 2019 to an expense of R$662 million in 2020, mainly as a result of the increase in our taxable profits in 2020.
Net income (loss) from continuing operations. As a result of the foregoing, net income from continuing operations increased by 553.8%, or R$1,512 million, from a loss of R$273 million in 2019 to a profit of R$1,239 million in 2020.
Net income (loss) from discontinued operations. Net income from discontinued operations decreased by R$22 million, from R$1,109 million in 2019 to R$1,087 million in 2020, mainly due to the gain on the sale of Via in the amount of R$398 million in 2019, partially offset by an increase in the net income of Sendas in 2020.
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Segment Information
Brazilian Retail Segment
Our Brazilian retail segment in 2020 consisted of sales of food and non-food products to individual consumers 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, and drugstores through the Extra and Pão de Açúcar banners. The Brazilian 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.
We expect to classify the results of operations of the Extra Hiper banner and the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022.
We do not consider Grupo Éxito as part of our Brazilian retail segment and consider it as a separate segment since its acquisition at the end of 2019.
Net operating revenue. Net operating revenue increased by 9.4%, or R$2,516 million, from R$26,654 million in 2019 to R$29,170 million in 2020, mainly as a result of the strengthening of stores that were renovated and remodeled in the previous two years, as well as our digital transformation initiatives, underlining the traction of our omnichannel strategy. In the same period, our gross margin, calculated by dividing gross profit by net operating revenue, increased from 26.3% in 2019 to 28.18% in 2020. Also, in the beginning of the pandemic, we had a significant increase in our sales as customers were stocking food.
Profit (loss) from operations before financial income (expenses). As a result of the foregoing, profit from operations before financial income (expenses) increased by 331.7%, or R$1,549 million, from R$467 million in 2019 to R$2,016 million in 2020.
Financial income (expenses), net. Financial expenses, net, decreased by 52.6%, or R$429 million, from R$815 million in 2019 to R$386 million in 2020, mainly as a result of (i) an increase in expenses principally related to monetary restatement and lease liabilities and (ii) tax credit of ICMS on the calculation basis of PIS/COFINS.
Profit (loss) before income tax and social contribution. As a result of the foregoing, profit (loss) before income tax and social contribution increased by R$1,989 million, from a loss of R$241 million in 2019 to a profit of R$1,748 million in 2020.
Grupo Éxito
As a result of Grupo Éxito’s acquisition at the end of 2019, we started to consolidate its 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 Paseo Libertad Malls in Argentina. For additional information on Grupo Éxito’s acquisition, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
Net operating revenue. Net operating revenue increased by R$19,883 million, from R$2,151 million in 2019 to R$22,034 million in 2020, mainly as a result of the solid progress made in our omnichannel strategy in all countries, the strong performance of the Colombia retail operation and a solid contribution from innovative formats (Wow and Fresh Market). In the same period, our gross margin, calculated by dividing gross profit by net operating revenue, decreased from 28.3% in 2019 to 25.0% in 2020. This decrease was mainly related to lower revenues of complementary businesses due to the pandemic, especially the lower distribution of royalties in Tuya, despite the improvement in its retail operation performance. Éxito was consolidated in the statements of operations of our consolidated financial statements for 12 months in 2020, compared to only one month in 2019.
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Depreciation and amortization. Depreciation and amortization increased by R$669 million, from R$60 million in 2019 to R$729 million in 2020, mainly as a result of the acquisition of Grupo Éxito at the end of 2019.
Profit (loss) from operations before financial income (expenses). As a result of the foregoing, profit from operations before financial income (expenses) increased by R$562 million, from R$90 million in 2019 to R$652 million in 2020.
Financial income (expenses), net. Financial expenses, net, increased by R$283 million, from R$57 million in 2019 to R$340 million in 2020, mainly as a result of the acquisition of Grupo Éxito at the end of 2019.
Profit (loss) before income tax and social contribution. As a result of the foregoing, profit before income tax and social contribution increased by R$312 million, from R$27 million in 2019 to R$339 million in 2020.
5B. Liquidity and Capital Resources
Cash Flows
The following table sets forth information related to our cash flows as of and for the periods presented:
|
As of and for the Year Ended December 31, | ||||||
|
2021(*) |
2021 |
2020(**) |
2019(**)(1)(3) |
2018(**)(1)(2) |
2017(**)(1)(2) | |
| (millions of US$) | (millions of R$) | |||||
| Other financial information | ||||||
| Net cash provided by (used in): | ||||||
| Operating activities | 489 | 2,728 | 4,742 | 1,135 | 4,267 | 3,464 |
| Investing activities | (14) | (77) | (4,291) | (3,266) | (1,897) | (1,592) |
| Financing activities | (492) | (2,743) | (281) | 1,894 | (1,641) | (3,663) |
| Capital expenditures(4) | (227) | (1,267) | (2,490) | (2,782) | (2,364) | (1,713) |
_________________
| (*) | Solely for the convenience of the reader, we have translated certain real amounts at a rate of R$5.5805 to US$1.00, the closing commercial U.S. dollar selling rate as of December 31, 2021, as published by the Central Bank. |
| (**) | The statements of operations for the years ended December 31, 2020, 2019, 2018 and 2017, presented in the table related to Sendas were classified in a single line as discontinued operations. For additional information on the Sendas Separation and Sendas Spin-Off, see notes 1.2 and 33 to our audited consolidated financial statements as of and for the year ended December 31, 2021, 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.” |
| (1) | The operations of Via were classified as discontinued operations in the periods from November 2016 through June 2019. For additional information on the sale of our discontinued 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.” Moreover, starting on November 1, 2016, we began recording our investment in Cnova according to IFRS 5. |
| (2) | IFRS 16 became effective on January 1, 2019. We opted for the full retrospective adoption method as if IFRS 16 had been adopted since the date the lease agreements have entered into effect to show the comparative effects for each past period. As a result, we have restated our audited consolidated financial statements, and financial information included in this annual report, as of and for the years ended December 31, 2018 and 2017. |
| (3) | As a result of Grupo Éxito’s acquisition on November 27, 2019, this table includes Grupo Éxito’s financial information as of and for the year ended December 31, 2019 solely for the month of December 2019. |
| (4) | 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 2021, 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 further information on the discount on receivables, see note 7.1 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report. We believe that our sources of funds are suitable to our debt profile and sufficient to meet our working capital and investment needs.
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Our primary sources of liquidity have historically been cash flows provided by our operating activities. Net cash provided by operating activities, including continuing and discontinued operations, was R$2,728 million, R$4,742 million and R$1,135 million in 2021, 2020 and 2019, respectively. From 2020 to 2021, the decrease of R$2,014 million in net cash provided from operating activities was mainly due to a decrease of R$1,366 million in net income, R$480 million in interest and monetary variations, R$447 million in depreciation and amortization and R$306 million in provision for contingencies, R$745 million in deferred income tax, R$564 million in losses on disposals of property and equipment, R$324 million in lease liabilities write-off, partially offset by an increase of R$2,131 million in inventories. From 2019 to 2020, the increase in net cash provided from operating activities was primarily due to an increase of R$1,490.0 million and R$1,941.0 million in trade payables and R$1,005.0 million in depreciation and amortization.
Net cash used in investment activities was R$77 million, R$4,291 million and R$3,266 million for the years ended December 31, 2021, 2020 and 2019, respectively. In 2021, 2020 and 2019 our net cash used in investment activities was mainly related to store renovations, purchases of equipment and intangible assets, in 2021, and in 2020 to the cash of de-consolidation of Sendas. In addition, in 2021, 2020 and 2019, we used net cash provided by operating activities primarily for investments in our capital expenditures program, totaling R$1,267.0 million, R$2,490.0 million and R$2,782.0 million, respectively. Proceeds from sales of property and equipment in 2021 generated a cash flow of R$1,315 million mainly due to the sale of Extra Hiper stores to Sendas in 2021.
Net cash provided by (used in) financing activities, was net cash used of R$2,743 million, net cash used of R$281 million and net cash provided of R$1,894 million for the years ended December 31, 2021, 2020 and 2019, respectively. 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 decreased by 1.0%, or R$89 million, from R$9,140 million as of December 31, 2020 to R$9,051 million as of December 31, 2021, and consisted of:
| · | R$7,349 million in real-denominated loans; |
| · | R$455 million in U.S. dollar-denominated debt, swapped to real-denominated loans; and |
| · | R$1,246 million related to Grupo Éxito’s loans and financing agreements. |
From 2019 to 2020, the decrease was mainly due to the de-consolidation of results from Sendas. Our year-end current and noncurrent borrowings and financing decreased by 35.2%, or R$4,968 million, from R$14,108 million as of December 31, 2019 to R$9,140 million as of December 31, 2020, and consisted of:
| · | R$7,285 million in real-denominated loans; |
| · | R$282 million in U.S. dollar-denominated debt, swapped to real-denominated loans; and |
| · | R$1,573 million related to Grupo Éxito’s loans and financing agreements. |
Our interest expense was R$516 million in 2021, R$387 million in 2020 and R$337 million in 2019, excluding our discontinued operations.
Our year-end total cash position decreased by 5.0%, or R$437 million, from R$8,711 million as of December 31, 2020 to R$8,274 million as of December 31, 2021, of which R$3,492 million were related to the conversion of cash and cash equivalents of foreign subsidiaries.
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 “—Item 5A. Operating Results—Macroeconomic Environment and Factors Affecting Our Results of Operations.”
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Contractual Obligations
Our estimated future contractual obligations were R$18,299 million as of December 31, 2021, and include current and long-term debt, debentures, accrued interest related to debentures, lease liabilities and taxes payable (other than income taxes).
During the fiscal year of 2022, we have a total long-term obligation to repay R$346 million of long-term debt, as well as R$22 million of accrued interest related to long-term debt. After the fiscal year of 2022, our long-term debt obligation is R$3.992 billion and accrued interest related to long-term debt of R$67 million.
During the fiscal year of 2022, we have a current obligation to repay R$992 million related to the payment of the principal amount of debentures, as well as R$96 million of accrued interest related to debentures. After the fiscal year of 2022, our obligation related to the payment of the principal amount is R$3.491 billion and accrued interest related to debentures of R$34 million.
For lease liabilities, we have a current and long-term obligation of R$922 million and R$5.196 million, respectively. For additional information on our long-term debt and lease liabilities, see note 18 to our audited consolidated financial statements, included elsewhere in this annual report.
FINAME Financings
We have credit lines outstanding with financial institutions that are associated with BNDES by means of the Equipment and Machinery Financing (Financiamento de Máquinas e Equipamentos), or FINAME, program, which are used in the ordinary course of our business for the purchase of machinery and equipment financing. We make payments of principal amounts in monthly installments after a grace period. BNDES has historically been one of our sources of financing for new stores and the acquisition of supermarket chains as well as machinery and equipment acquisitions. For further information on our lines of credit with BNDES, see note 17 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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, 2021, the total outstanding amount under this issuance was R$1,034 million.
Non-Convertible Debentures
In January 2020, we issued non-convertible debentures in Brazil in the total principal amount of R$2.0 billion, maturing on January 6, 2023, and accruing interest at 1.45% per year plus the average CDI rate. As of December 31, 2021, the total outstanding amount under this issuance was R$2,075 million.
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, 2021, the total outstanding amount under this issuance was R$1,521 million.
We are required to comply with certain covenants under our debt instruments. The financial ratios are calculated based on our 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 further information on our non-convertible debentures, see note 17.4 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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Borrowings in Foreign Currencies
As of December 31, 2021, 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, 2021, the total outstanding amount (corresponding to principal and interest) under these agreements was R$1,702 million.
On October 13, 2020, we entered into a financing agreement with Bank of Nova Scotia, or Scotiabank, in the aggregate amount of US$50 million, or R$448 million, accruing interest at USD plus 2.12% per year (R$271 million as of December 31, 2020).
Grupo Éxito has borrowings in Colombian pesos. As of December 31, 2021, the total outstanding amount (corresponding to principal and interest) under these agreements was R$1,246 million, accruing interest at IBR 3M plus 1.6% per year and IBR 1M plus 1.45%.
For additional information on our borrowings in foreign currency, see note 17.1 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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, included elsewhere in this annual report.
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, included elsewhere in this annual report. 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 income statement for the year.
As Argentina has been considered a hyperinflationary economy since September 2018, we started to adjust the amounts of non-monetary assets and liabilities, equity and operating results of our indirect subsidiary Libertad, which is headquartered in Argentina, to disclose the measurement monetary unit at the end of the year. The measure monetary unit considers the effects measured by the Consumer Price Index in Argentina as from January 1, 2017 and the Domestic Retail Price Index in Argentina until December 31, 2016. For more information on the effects of the hyperinflation in Argentina in our business, see note 3.5 to our audited consolidated financial statements, included elsewhere in this annual report.
Off-Balance Sheet Arrangements
Except as disclosed in “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Via—Guarantees,” 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 further 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 2022 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, neighborhood supermarkets and the food e-commerce business. In 2022, 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 expect great volatility in the Brazilian market in 2022, due to the presidential elections. However, we believe that we are prepared to face the effects of this volatility and other challenges that might arise in 2022, with flexibility, agility, and resilience, supported by the execution capacity of our management team and employees.
As new variants of the COVD-19 virus emerged, governments have continued to impose restrictive measures until recently. In the second semester of 2021, most of the governments in Latin America, including in Brazil, Colombia, Uruguay and Argentina, have relaxed the restrictive measures previously imposed to contain the spread of the COVID-19 virus and variants.
As grocery stores, our activity is considered essential and our business operations in Brazil were not adversely affected by the restrictive measures imposed by Brazilian federal and state governments in 2021. On the other hand, our Colombian operations were adversely affected by the restrictive measures imposed by regional and state governments as a result of the COVID-19 pandemic, since the restrictions imposed in Colombia were more stringent than in Brazil.
The lifting of the COVID-19 related restrictions and the advance of the vaccination against COVID-19 in Colombia, Uruguay and Argentina, during the second semester of 2021, increased the foot traffic in stores and malls and tourist activity in these countries, resulting in an increase in the sales and net operating revenue of the Grupo Éxito in 2021, when compared to 2020. For more information on the effects of the COVID-19 in the Grupo Éxito’s operations, see “—Item 5A. Operating Results—Macroeconomic Environment and Factors Affecting our Results of Operations—COVID-19.”
As of December 31, 2021, 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 lines of our income statement, and we did not need to record any COVID-19 related provisions.
On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the Real Estate Properties Assignment Transaction. As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022. Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted into Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners. For more information on the discontinuance of the Extra Hiper banner, see “—Item 5A. Operating Results—Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
Also, in line with our strategy of optimizing store platform and allocating resources to accelerate the growth of our most profitable banners, we decided to close all our drugstores. We expect to classify the results of operations of our drugstores as discontinued operations in our audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of our drugstores, see “—Item 5A. Operating Results—Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—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.”
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The Grupo Éxito will continue to implement technological solutions that use contactless technologies, customer service, data analysis, logistics, and supply chain as well as the Grupo Éxito’s human resources management strategy for the period 2021-2024. Therefore, we are increasingly multi-format, multi-channel, and multi-region, in all countries, especially with our store conversions in Brazil and in Colombia.
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.
5E. Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements, in accordance with IFRS as issued by the IASB, requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, as well as the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
We discuss below key assumptions and judgments concerning the future and other key sources of uncertain estimates at the reporting date that have a significant risk of causing a material impact to the carrying amounts of assets or liabilities within the next financial year.
For further details on critical accounting policies and our adoption of new accounting standards, such as IFRS 16, see notes 3 and 4 of our consolidated financial statements, included elsewhere in this annual report.
Annual Impairment Test of Goodwill and Intangibles
We test annually whether goodwill is impaired, in accordance with the accounting policy stated in note 14, 15 and 15.1 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report and international accounting standards, or IAS, IAS 36 – Impairment of Assets. Other intangible assets, the useful lives of which are indefinite, such as brands and commercial rights, are submitted to impairment tests on the same basis as goodwill.
As of December 31, 2021, we calculated the recoverable amount of goodwill arising from past acquisitions, for the purpose of evaluating its recoverability and potential impairment resulting from events or changes in economic, operating and technological conditions that might indicate impairment.
For impairment testing purposes, 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 valid. Otherwise, the useful life is changed prospectively from indefinite to definite.
The recoverable amount allocated to each segment was defined by means of a calculation based on the value in use of the assets based on cash flow projections arising from financial budgets approved by senior management for the next three years. The discount rate applied to cash flow projections was 10.6% each year and cash flows exceeding three years are extrapolated by the expected long-term growth rate of 4.8% for our Brazilian retail segment. Based on this analysis, no impairment loss was identified. The Grupo Éxito discount rate applied to cash flow projections is 7.4% (and cash flows exceeding the three-year period are extrapolated using a growth rate of 3%). Based on this analysis, we recognized a loss of R$22 million in tradename.
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Commercial rights are intangible assets which are amounts paid to former owners of commercial locations. To test for impairment of these assets, we allocated the amounts of identifiable commercial rights by store and we test them together with the fixed assets of the store as described in notes 15.1 and 15.2 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Income Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the nature and complexity of our business, differences arising between the actual results and the assumptions made, or future changes to those assumptions, could require future adjustments to tax income and expenses already recorded. We recognize provisions, based on reasonable estimates, for consequences of audits by the tax authorities of the respective jurisdictions in which we operate. The amount of these provisions is based on various factors, such as our experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective entity’s jurisdiction.
Deferred income tax and social contribution assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax-planning strategies.
We have recognized deferred tax assets related to tax loss carry forwards amounting to R$1,145 million as of December 31, 2021, R$514 million as of December 31, 2020 and R$453 million as of December 31, 2019. These losses do not expire and relate to subsidiaries that have tax-planning opportunities available to support these balances. The use of tax loss carry forwards is limited by law to 30% of taxable income in a single fiscal-year.
Fair Value of Derivatives and Other Financial Instruments
When the fair value of financial assets and liabilities recorded in the financial statements cannot be observed in active markets, it is determined according to the hierarchy set forth by IFRS 13, which sets certain valuation techniques including the discounted cash-flow model. The inputs to these models are taken from observable markets where possible or from information on comparable operations and transactions in the market. The judgments include analyses of data, such as liquidity risk, credit risk and volatility. Changes in assumptions regarding these factors may affect the reported fair value of financial instruments.
The fair value of financial instruments that are actively traded on organized markets is determined based on market quotes, at the end of the reporting period. For financial instruments that are not actively traded, the fair value is based on valuation techniques defined by us and compatible with usual market practices. These techniques include the use of recent market arm’s length transactions, benchmarking of the fair value of similar financial instruments, analyses of discounted cash flows or other valuation models.
Share-based Payments
The cost of transactions with employees eligible for share-based compensation is measured based on the fair value of the equity instruments on the grant date. Estimating the fair value of share-based payment transactions requires determining the most appropriate valuation model, which depends on the terms and conditions of the specific grant. This estimate also requires determining the most appropriate inputs 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 assumptions and models used to estimate the fair value of share-based payment transactions are disclosed in note 24 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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Provision for Contingencies
We are a party to several proceedings at the judicial and administrative levels in the ordinary course of its business. Provisions for legal claims are recognized for all cases representing reasonably estimated probable losses. The assessment of the likelihood of loss takes into account available evidence, the hierarchy of laws, former court decisions and their legal significance, as well as legal counsel’s opinion. For details on legal proceedings, see note 21 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Impairment of Financial Asset
On January 1, 2018, we started to adopt IFRS 9. 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 fair value through other comprehensive income, but does not apply to investments in equity instruments (shares) or financial assets measured at fair value through profit or loss.
We measure provisions for losses from accounts receivable and other receivables and contractual assets at an amount that equals the credit loss expected for the full lifetime of the same receivable or contractual asset. We use the same measurement for trade accounts receivable, whose portfolio of receivables is fragmented, rents receivable and wholesale accounts receivable. The practical expedient was applied through the adoption of a matrix of losses for each maturity range.
When determining whether the credit risk of a financial asset increased significantly since its initial recognition and while estimating the expected credit losses, we take into account reasonable and sustainable information that is relevant and available free of cost or excessive effort. This includes quantitative and qualitative information and analysis, based on our historical experience, during credit appraisal and considering information about projections. We consider that the credit risk of a financial asset increased significantly if the asset is overdue for more than 90 days. For additional information, see note 3 to our audited consolidated financial statements, included elsewhere in this annual report.
Recoverable Taxes
We pay tax on services and sales (Imposto Sobre Circulação de Mercadorias e Serviços), or ICMS, which is a state level value-added tax levied on the sale of goods and the provision of services at each phase of production and sales. In the Brazilian states where we operate, and for most of the products in our sales mix, the ICMS tax substitution regime applies. Under the tax substitution regime, the responsibility for paying upfront taxes due on the entire production and sales chain for certain products is primarily that of the manufacturers and, in some cases (depending on the tax system applicable in each state and for each product) can be our responsibility. In the tax substitution regime, the tax is collected on the sale of the products and transferred to the government. We record the taxes paid upfront under the tax substitution regime in accordance with the accrual basis in our cost of goods resold.
We also have recoverable tax credits related to social security contribution (Contribuição para o Financiamento da Seguridade Social), or COFINS, and social integration (Programa de Integração Social), or PIS, taxes.
The estimate of future recoverability of these tax credits is made based on growth projections, operational matters, the consumption of the credits by the companies of the Pão de Açúcar Group and the special tax regime. For details of credits and compensation, see note 10 to our audited consolidated financial statements, included elsewhere in this annual report.
Business Combination and Goodwill
According to IFRS 3, business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, measured at fair value on the acquisition date, and the remaining amount of non-controlling interest in the acquired company. For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value or by the proportionate share in the acquiree’s identifiable net assets, according to our accounting policy. The acquisition costs incurred are treated as an expense and included in administrative expenses.
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Goodwill is initially measured at cost and is the excess between the consideration transferred and the fair value of assets acquired and assumed liabilities, including any non-controlling interests. If the consideration transferred is lower than the fair value of the acquirer’s net assets, we recognized a gain on bargain purchase in profit or loss.
Lease
According to IFRS 16, we assess the agreements we enter into to evaluate whether it is or contain a lease provision. We understand that an agreement is, or contains, a lease when it transfers the right to control the use of a given asset for a specified period in exchange for consideration.
We lease equipment and commercial spaces, including stores and distribution centers, under cancellable and non-cancellable lease agreements. The terms of the lease agreements to support these transactions varies between five and 25 years.
Lessee
When we act as lessees in the lease agreements we entered into, we assess our lease agreements in order to identify the term of the lease agreement according to the term the lessee has the control of the use of a given asset, considering extension and termination options. According to IFRS 16, we do not consider in our assessment agreements with a term lower than twelve months and with an individual asset value below US$5,000.
The agreements are recorded as of the date they were entered into and when the related asset is ready to be used, through the recognition of a lease liability and a corresponding right of use asset. The lease liability is calculated at the present value of the minimum lease payments, using the incremental borrowing rate for similar assets.
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 a given period.
The right-of-use assets are amortized over the lease agreement term. Capitalizations for improvements, improvements and renovations carried out in stores are amortized over their estimated useful life or the expected term of use of the asset, which might be 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.
Lessor
When we act as lessors in the lease agreements we entered into, we assess the transfer of risks and benefits to the lessees. Leases in which we do not substantially transfer all the risks and benefits of the 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 agreement, on the same basis as rental income.
Variable rents are recognized as income in the years in which they are earned.
| 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:
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|
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 |
| Ronaldo Iabrudi dos Santos Pereira | Co-Vice Chairman | 2016(3) | May 14, 1955 |
| Hervé Daudin | Director | 2019 | May 12, 1967 |
| Christophe José Hidalgo | Director | 2020 | October 25, 1967 |
| Rafael Sirotsky Russowsky | Director | 2020 | December 10, 1977 |
| 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. |
| (3) | Ronaldo Iabrudi dos Santos Pereira has been a member of our board of directors since 2016 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. Ronaldo Iabrudi has been the co-vice chairman of our board of directors since April 2018 and has been a member of our board of directors since 2016. He is also vice chairman of the board of directors of CNova. From January 2014 to April 2018, Mr. Iabrudi served as our chief executive officer. Previously, he was the chairman of the boards of directors of Lupatech, Contax and Telemar, and a member of the board of directors of Estácio, Magnesita Refratários S.A., or Magnesita, Cemar, Oi/Telemar, RM Engenharia and Ispamar. He was also chief executive officer of Magnesita from 2007 to 2011 and from 1999 to 2006 he worked for Grupo Telemar, where he held several positions, including chief executive officer of Oi/Telemar and Contax. From 1997 to 1999, Mr. Iabrudi was chief executive officer of FCA (Ferrovia Centro-Atlântica) and from 1984 to 1997, he was chief financial and administrative officer and chief human resources officer at the Gerdau group. Mr. Iabrudi earned a degree in psychology from Pontifícia Universidade Católica de Minas Gerais, a master’s degree in organizational development from Université Panthéon Sorbonne and a master’s degree in change management from Université Paris Dauphine.
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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. 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.
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 MA 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. 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 is a senior advisor to the Rhone Group. He was a member of the board of directors of Rampak of Columbus, Ohio, USA, SLC Participações, FCC Campo Bom - RS, CCRR, Terphane Holdings LLC of Delaware, Almatis B.V. and UTEX of Houston TX. 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 |
| Guillaume Marie Didier Gras | Chief Financial Officer and Investor Relations Officer | 2021 | August 22, 1978 |
| Luiz Henrique Rodrigues Costa | Chief Operation Officer | 2021 | December 26, 1968 |
| Fréderic Garcia | Chief Business’ Operations Officer | 2021 | March 24, 1970 |
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. Guillaume Marie Didier Gras holds a bachelor’s degree in business from EDHEC Business School. He has also worked at Ernest Young and at IECD (European Institute for Cooperation and Development) in Lebanon. Mr. Gras has been working at the Casino Group for more than 16 years and, in the last seven years, he has developed several international roles: serving as chief financial officer of BIG-C Vietnam for almost two years and in the Company since 2016, when he joined as head of financial control. Since March 2021, he serves as our chief financial officer and investor relations officer.
Mr. Luiz Henrique Rodrigues Costa holds a bachelor’s degree in mechanical engineering from the Federal Center for Technological Education of Minas Gerais (Centro Federal de Educação Tecnológica de Minas Gerais – CEFET-MG), a postgraduate degree in the areas of work safety, quality and administration, an MBA in business from Fundação Dom Cabral and a post-MBA from Northwestern University - Kellogg School of Management. He has been working for the Company since 2014 and, before joining the Company, he worked for more than 20 years in executive roles in telecommunications, steel and industry segments, in companies such as Oi/Telemar and Grupo Gerdau. Mr. Costa is currently our chief operating 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).
6B. Compensation
For the year ended December 31, 2021, the aggregate compensation expense of our directors, executive officers and members of committees was R$62.4 million, of which R$49.0 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, 2021, amounted to R$0.5 million and employees’ contributions amounted to R$0.5 million with four participants.
Our board of directs established and approved a profit-sharing plan for our management, including our executive officers. Under the terms of the plan, each beneficiary of the plan is entitled to receive an annual payment based on (i) the consolidated results of the Company, (ii) the results of the business segment or the department, as the case may be and to which the individual belongs, and (iii) the individual’s performance. The final amount to be received by each beneficiary under the profit-sharing plan is determined by multiplying the individual amount by an index which is applicable to all beneficiaries and defined according to our operating performance.
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Compensation of the Board of Directors, Executive Officers and Fiscal Council of CBD for 2020, 2021 and 2022 (expected)
The table below indicates the compensation of the members of our board of directors and members of the committees of the board of directors, executive officers and fiscal council for 2020:
|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (In R$, when applicable) | ||||
| Number of members | 12.50 | 4.58 | 2.00 | 19.08 |
| Number of compensated members | 11.50 | 4.58 | 2.00 | 18.08 |
| Fixed annual compensation | 62,670,831 | 33,921,016 | 276,000 | 96,867,847 |
| Benefits | 3,063,027 | 1,211,912 | - | 4,274,939 |
| Variable compensation | ||||
| Profit sharing | - | 11,175,170 | - | 11,175,170 |
| Participation in meetings | - | - | - | - |
| Others (invitees’ compensation, contributions and taxes) | 1,981,794 | 1,735,557 | 55,200 | 3,772,552 |
| Post-employment benefit | - | - | - | - |
| Benefits on ceasing to exercise the position | - | - | - | - |
| Share-based compensation |
4,056,475 |
10,905,968 |
- |
14,962,443 |
| Total compensation |
71,772,126 |
58,949,624 |
331,200 |
131,052,950 |
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 2021:
|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (In R$, when applicable) | ||||
| Number of members | 9.67 | 2.83 | 2.58 | 15.08 |
| Number of compensated members | 8.67 | 2.83 | 2.58 | 14.08 |
| Fixed annual compensation | 24,233,299 | 17,360,181 | 432,000 | 42,025,480 |
| Benefits | 2,650,518 | 655,727 | - | 3,306,246 |
| Variable compensation | 6,994,532 | - | 6,994,532 | |
| Profit sharing | - | - | - | - |
| Participation in meetings | ||||
| Others (invitees’ compensation, contributions and taxes) | - | - | - | - |
| Post-employment benefit | ||||
| Benefits on ceasing to exercise the position | ||||
| Share-based compensation |
6,907,644 |
3,201,608 |
- |
10,109,252 |
| Total compensation |
33,791,461 |
28,212,048 |
432,000 |
62,435,510 |
The table below indicates the expected compensation for members of the board of directors and members of the committees of the board of directors, executive officers and fiscal council for 2022 (expected):
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|
Board of directors and members of the committees of the board of directors |
Executive officers |
Fiscal council |
Total | |
| (In R$, when applicable) | ||||
| Number of members | 13.00 | 4.00 | 3.00 | 20.00 |
| Number of compensated members | 12.00 | 4.00 | 3.00 | 19.00 |
| Fixed annual compensation | 11,042,438 | 7,696,667 | 432,00 | 19,171,105 |
| Benefits | 4,624,779 | 3,162,980 | - | 7,787,760 |
| Variable compensation | ||||
| Profit sharing | 20,026,273 | 7,235,000 | - | 33,261,273 |
| Participation in meetings | - | - | - | - |
| Others (invitees’ compensation, contributions and taxes) | - | 20,000,000 | - | - |
| Post-employment benefit | - | - | - | - |
| Benefits on ceasing to exercise the position | - | - | - | - |
| Share-based compensation |
4,750,000 |
3,424,267 |
- |
8,174,267 |
| Total compensation |
46,443,491 |
50,149,592 |
432,000 |
97,025,083 |
Variable Compensation for 2020, 2021 and 2022 (expected)
Below we present the variable compensation of our executive officers paid in 2020, 2021 and 2022 (expected):
|
2020 |
Executive officers |
| (In R$, when applicable) | |
| Number of members | 4.58 |
| Number of compensated members | 4.58 |
| Profit sharing | |
| Minimum expected amount | 0 |
| Maximum expected amount | 28,981,131 |
| Expected amount – goals achieved | 14,490,566 |
| Amount actually recognized | 11,175,170 |
|
2021 |
Executive officers |
| (In R$, when applicable) | |
| Number of members | 2.83 |
| Number of compensated members | 2.83 |
| Profit sharing | |
| Minimum expected amount | 0 |
| Maximum expected amount | 28,981,131 |
| Expected amount – goals achieved | 14,490,565 |
| Amount actually recognized | 6,994,532 |
|
2022 (expected) |
Executive officers |
| (In R$, when applicable) | |
| Number of members | 4.00 |
| Number of compensated members | 4.00 |
| Profit sharing | |
| Minimum expected amount | 0 |
| Maximum expected amount | 17,261,355 |
| Expected amount – goals achieved | 8,630,678 |
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, 2020, 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 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 Stock Option Plan is designated with a serial number beginning with the letter “C.” As of December 31, 2021, the outstanding series of stock options under our Stock Option Plan were C6 and C7.
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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, 2021, the outstanding series of stock options under our Compensation Plan were Series B6 and B7.
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, 2021.
|
As of December 31, 2021 | ||||
|
Number of options (in thousands) | ||||
| In relation to each option grant: |
Series B6 |
Series C6 |
Series B7 |
Series C7 |
| Grant date | 05/31/2019 | 05/31/2019 | 01/31/2021 | 01/31/2021 |
| Number of options granted (in number of shares) | 232,409 | 129,305 | 223,018 | 47,127 |
| Deadline for the options to become exercisable | 05/31/2022 | 05/31/2022 | 05/01/2023 | 05/01/2023 |
| Deadline for the exercise of the options | 11/30/2022 | 11/30/2022 | 11/30/2023 | 11/30/2023 |
| 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 | 70.62 | 0.01 | 51.18 |
| Lost during the year (R$ per share) | n.a. | n.a. | n.a. | n.a. |
| Exercised during the year (R$ per share) | 0.01 | 70.62 | 0.01 | 51.18 |
| 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) |
82.39 | 31.50 | 72.68 | 31.15 |
| Potential dilution in case of exercise of the options | 0.09% | 0.05% | 0.08% | 0.02% |
Stock Options Exercised and Shares Delivered
In 2021, 137,204 stock options were exercised by certain members of our senior management and 118,339 shares were delivered to certain members of our senior management.
We recognized share-based payment expenses of R$10,110 million, R$14,962 million and R$17,962 million in our consolidated financial statements in 2021, 2020 and 2019, respectively. These amounts included the amounts related to accelerated vesting of certain stock options.
Maximum, Minimum and Average Compensation of the Board of Directors, Statutory Board of Executive Officers and Fiscal Council
The tables below contain the highest, lowest and average individual compensation of our directors, executive officers and members of the fiscal council for the years ended December 31, 2019, 2020 and 2021.
Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2019
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council(3) | |
| Number of members | 12.50 | 4.67 | 0.00 |
| Number of compensated members | 11.50 | 4.67 | 0.00 |
| Highest compensation (R$)(1) | 33,222,859 | 19,668,197 | - |
| Lowest compensation (R$)(2) | 176,400 | 10,512,518 | - |
| Average compensation | 3,120,992 | 10,138,507 | 97,877 |
_________________
| (1) | The highest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council was received by members who provided services to our Company for 12 months. |
| (2) | The calculation of the lowest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council excludes members who provided services to our Company for less than 12 months. |
| (3) | In 2019, we did not install the fiscal council. |
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Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2020
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council | |
| Number of members | 12.50 | 4.58 | 2.00 |
| Number of compensated members | 11.50 | 4.59 | 2.00 |
| Highest compensation (R$)(1) | 65,944,593 | 14,329,313 | n/a |
| Lowest compensation (R$)(2) | 216,000 | 819,045 | n/a |
| Average compensation | 5,520,932 | 11,682,744 | 97,877 |
_________________
| (1) | The highest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council was received by members who provided services to our Company for 12 months. |
| (2) | The calculation of the lowest annual individual compensation for each of the board of directors, statutory board of executive officers and fiscal council excludes members who provided services to our Company for less than 12 months in the year. |
Highest, Lowest and Average Individual Compensation for the Year Ended December 31, 2021
|
Board of Directors |
Statutory Board of Executive Officers |
Fiscal Council | |
| (in thousands of R$, when applicable) | |||
| Number of members | 9.67 | 2.83 | 2.0 |
| Number of compensated members | 8.67 | 2.83 | 2.0 |
| Highest compensation (R$)(1) | 25,722,978 | 9,329,083 | 156,000 |
| Lowest compensation (R$)(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. |
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 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, 2021, 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 related party transactions entered into by us, 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 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.
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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(3) | 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. |
| (3) | Mr. Hidalgo joined the statutory audit committee only after leaving his previous position as chief financial officer, given that both positions are incompatible under our bylaws. |
Mr. Eleazar de Carvalho Filho. Please see “—6A. Directors and Senior Management—Board of Directors” for Mr. Carvalho’s biography.
Ms. Gisélia da Silva is the founding partner of GIS DS, a consulting firm specialized in integrity culture and corporate governance models. She is a lawyer specialized in corporate law and capital markets. She 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/SP and a Post-MBA in Advanced Boardroom Program for Women from Saint Paul Business School/SP and the Columbia University of New York. She worked for more than 18 years for the CPFL Energia group, having held the positions of Institutional Relations Advisor, Corporate Law Manager and Advisor of Corporate Governance. She is a member of the board of directors and law committees of the Brazilian Institute of Corporate Governance (IBGC), as well as an independent member of the Management Committee of the Integra Rating of Governance in Sports. She is also an independent member of the Board of Directors of Eletronorte and CGT Eletrosul (Eletrobras Group).
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.
As of the date of this annual report, our human resources and corporate governance committee is composed of Arnaud Daniel Charles Walter Joachim Strasser, Luiz Augusto de Castro Neves, Rafael Sirotsky Russowsky and Ronaldo Iabrudi dos Santos Pereira.
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 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.
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As of the date of this annual report, our financial committee is composed of Eleazar de Carvalho Filho, Arnaud Daniel Charles Walter Joachim Strasser, Christophe José Hidalgo, 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 Ronaldo Iabrudi dos Santos Pereira.
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 Ronaldo Iabrudi dos Santos Pereira, Christophe Hidalgo, Cristina Palmaka and Rafael Sirotsky Russowsky.
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.
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.
On April 27, 2022, we installed a fiscal council for the 2022 fiscal year at our shareholders’ meeting held on the same date to serve a term of office that lasted until the 2023 annual shareholders’ meeting. Our shareholders elected three members and their respective alternate members. One of the members and his alternate member were elected by our minority shareholders.
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The following table sets forth the name, position, year of election and date of birth of each of the members of our fiscal council as of the date of this annual report, who were elected at our 2022 annual shareholders’ meeting:
|
Name |
Position |
First Year Elected |
Date of Birth |
| Eric Aversari Martins | Effective member | 2020 | October 19, 1973 |
| Líbano Miranda Barroso | Effective member | 2020 | July 6, 1969 |
| Doris Beatriz França Wilhelm | Effective member | 2021 | December 17, 1954 |
| Michelle Squeff | Alternate | 2021 | November 27, 1978 |
| Marcelo Amorim | Alternate | 2022 | March 4, 1964 |
| João Paulo Seibel de Faria | Alternate | 2022 | May 20, 1975 |
6D. Employees
As of December 31, 2021, we had 50,515 employees (calculated on a full-time employee equivalent basis) located in Brazil and 41,402 full-time employees located in Colombia, Uruguay and Argentina. In Brazil, in 2021, over 37% of leadership positions were occupied by women and we experienced an 18% increase in the percentage of persons with disabilities, when compared to 2020.
Virtually all of our employees, including Grupo Éxito’s 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 as of December 31, 2021, 2020 and 2019:
|
As of December 31,(1) | |||
|
2021 |
2020 |
2019(2) | |
| Operational | 87,638 | 82,663 | 92,648 |
| Administrative |
4,279 |
5,471 |
8,427 |
| Total |
91,917 |
88,134 |
101,075 |
_________________
| (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 2021, 2020 and 2019. |
| (2) | On November 27, 2019, Sendas acquired 96.57% of Grupo Éxito’s shares by means of an all-cash tender offer. As a result of Grupo Éxito’s acquisition, we started to carry out operations in Colombia, Argentina and Uruguay. For additional information on Grupo Éxito’s acquisition, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.” |
6E. Share Ownership
As of December 31, 2021, members of our board of executive officers directly owned an aggregate amount of 160,883 common shares while the members of our board of directors directly held an aggregate amount of 855,286 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, 2021, our management and some of our employees also owned options to purchase an aggregate amount of 1,411,955 common shares at a per-share weighted average purchase price of R$5.71. 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, 2021, 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. For additional information on our migration to the Novo Mercado listing segment, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
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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 April 30, 2022, 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 |
% | |
| Wilkes Participações S.A.(1) | 94,019,178 | 34.89 |
| Segisor S.A.S.(1) | 5,600,050 | 2.08 |
| Casino(1) | 2 | 0.00 |
| King LLC(1) | 852,000 | 0.32 |
| Geant International B.V.(1) | 9,423,742 | 3.50 |
| Helicco Participações Ltda.(1) | 581,600 | 0.22 |
| BTG Pactual | 19,139,936 | 7.10 |
| Jean-Charles Naouri | 1 | 0.00 |
| Directors and Officers(2) | 927,292 | 0.34 |
| Treasury shares | 160,342 | 0.06 |
| Others |
139,243,300 |
51.69 |
| Total |
269,455,303 |
100 |
_________________
| (1) | 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 April 30, 2022, we had 74,769 record holders in Brazil. On April 30, 2022, 33,660,211 of our common shares were held in the form of ADSs, representing 12.49% of the total of our common shares.
In 2015, our controlling shareholder, the Casino Group, carried out a reorganization of its activities and businesses in Latin America to consolidate its platform in the region and capture synergies. Pursuant to the reorganization, the Casino Group transferred 50% of our common shares to Grupo Éxito, which corresponded to approximately 18.8% of our total capital stock. Grupo Éxito was also controlled by the Casino Group and, therefore, after consummation of the transaction, the Casino Group remained as our controlling shareholder.
In connection with this reorganization, Segisor S.A.S. shareholders’ agreement, the Holding Company shareholders’ agreement and CBD shareholders’ agreement were executed on August 20, 2015 with the purpose of setting forth the rules pursuant to which the Casino Group and Grupo Éxito would exercise control of CBD. As a result of the Holding Company shareholders’ agreement and CBD shareholders’ agreement, representatives of the Casino Group and Grupo Éxito on our board of directors used to vote in the same manner and our board had nine members, of whom three were representatives of the Casino Group and three were representatives of Grupo Éxito.
On June 26, 2019, our board of directors approved the acquisition of Grupo Éxito. The proposed transaction comprised (i) the launch of an all-cash tender offer by us to acquire up to all of the shares of Éxito; (ii) the acquisition by Casino of all controlling shares issued by us and held indirectly by Grupo Éxito for a fair price; and (iii) our migration from Level 1 to the Novo Mercado listing segment of B3 and, consequently, the conversion of all of our preferred shares into common shares. For more information on the corporate reorganization, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
On September 12, 2019, Casino entered into a purchase agreement with Grupo Éxito to acquire all shares issued by us and indirectly held by Grupo Éxito for R$113.00 for each share, corresponding to a total amount, net of debt, of US$1,161 million. The shareholders agreement entered into by and among Grupo Éxito, Casino and their subsidiaries governing their relationship as our shareholders was terminated and our board members appointed by Grupo Éxito resigned.
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As of April 30, 2022, the Casino Group was the beneficial owner of 41.01% 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 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 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, 2021, we paid R$46.5 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.
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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 Grupo Éxito
Commercial Agreement and Copyright License Agreement
On July 27, 2016, we and Grupo Éxito entered into an agreement for the implementation of synergy processes for the operations of CBD and Grupo Éxito. The agreement provided for the granting of trademark and copyright licenses by Distribuidora de Textiles y Confecciones S.A., a company of the Grupo Éxito, to us. On July 13, 2017, we and Distribuidora de Textiles y Confecciones S.A. entered into a copyright license agreement, which sets forth the royalty payments to be made to Distribuidora de Textiles y Confecciones S.A. This agreement was terminated by a mutual agreement between us and Éxito, on November 25, 2021.
Cost Reimbursement Agreement
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. This agreement has an indefinite period of duration.
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.
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 controlled by Casino, 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.
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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, 2021, we had paid R$68 million in penalties to GY and R$112 million remained outstanding.
For more information on the Real Estate Properties Assignment Transaction 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 Year Ending December 31, 2022—Extra Hiper Stores” and “—Real Estate Properties Assignment Transaction.”
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:
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 Separation that are either transactional in nature, at arm’s length or depend on a transitional period due to its complexity.
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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 Separation, 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 Separation 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.
Real Estate Properties Assignment Transaction
On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the Real Estate Properties Assignment Transaction. The total estimated price of the Real Estate Properties Assignment Transaction is R$5,173.0 million, of which R$3,973.0 million shall be paid by Sendas to CBD, in installments, between December 2021 and January 2024. The Real Estate Properties Assignment Transaction is subject to the fulfillment of certain conditions, including the prior consent of the owners of certain assigned properties and the demobilization by us of all the assigned stores.
As of the date of this annual report, we had concluded the assignment of 60 Extra Hiper stores to Sendas. We expect to assign all the stores to Sendas under the Real Estate Properties Assignment Transaction by the end of May 2022.
Of the 33 Extra Hiper stores that were not assigned to Sendas, up to 29 will be converted to Pão de Açúcar or Mercado Extra stores. We are analyzing whether the remaining four Extra Hiper stores will be closed or converted into other banners.
Starting in the second semester of 2022, we will no longer operate under the Extra Hiper banner and will focus on the premium and proximity segments, notably under the banners Pão de Açúcar, Minuto, Compre Bem and Mercado Extra. Accordingly, we expect to classify the results of operations of the Extra Hiper banner as discontinued operations in our statements of operations in the audited consolidated financial statements for the year ending December 31, 2022. For more information on the discontinuance of the Extra Hiper banner, see “Item 5. Operating and Financial Review and Prospects—Item 5A. Operating Results—Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
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In addition, on February 25, 2022, we also entered into an agreement with Barzel and Sendas, as an intervening and guaranteeing party, to sell to Barzel 17 of the 70 Extra Hiper stores that would initially be assigned to Sendas under the Real Estate Properties Assignment Transaction. The estimated total sale price of these properties is R$1,200.0 million, which will be paid by Barzel to the Pão de Açúcar Group. After the conclusion of the sale, the 17 properties will be leased by Barzel to Sendas for a period of 20 years, renewable for the same term. On April 13, 2022, CADE approved the sale of these 17 properties.
Via
On June 14, 2019, we completed the sale of all of our equity interest in Via by means of a block trade over the B3. For additional information on the sale of our equity interest in Via, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Sale of Home Appliances Operating Segments.”
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 a related party of the Company. 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 the Pão de Açúcar 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.
Guarantees
From 2016 through 2018, we entered into guarantee agreements with Via and its subsidiaries, collectively referred to as the Guarantee Framework Agreements. The agreements provided for a fee based on market terms to be paid by Via and/or its subsidiaries, as the case may be, to us for having granted the guarantee. We provided guarantees for obligations of Cnova Brazil under financial agreements, lease agreements and commercial agreements. We also provided guarantees for obligations of Via under lease agreements, commercial agreements, insurance policies and agreements with financial institutions pursuant to which the financial institutions granted a surety to Via and its subsidiaries. Moreover, we granted guarantees for obligations of Via under operational agreements with maturities and performance terms to be complied by Via.
We have reached an agreement with 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
On December 4, 2009, we entered into an association agreement with Via, the Klein Family and Casa Bahia Comercial, which was later amended on July 1, 2010. Under the association agreement, (i) Via had indemnity rights against us and Casa Bahia Comercial for certain claims existing as of July 1, 2010 and (ii) the parties undertook to ascertain the balance of indemnity rights to be paid by one party to another, among other related expenses on November 8, 2016 (i.e., six years after the closing of the transaction).
On July 4, 2017, we entered into an agreement with the original counterparties to the association agreement to (i) ascertain the liabilities for losses and damages incurred by Via and the Klein Family until July 1, 2010; (ii) consolidate the procedures for indemnification of potential losses and damages of Via and the Klein Family before and after July 1, 2010; and (iii) adjust the guarantees provided by the Pão de Açúcar Group on the lease agreements entered into between Via and the Klein Family. Pursuant to the terms of that agreement, it was established that (i) Casa Bahia Comercial would pay R$70.2 million to Via in installments during 2017, adjusted for the SELIC rate, as indemnifying losses incurred until November 8, 2016. This amount was paid in full in 2017; and (ii) Via would pay a fee to us on an arm’s length basis in connection with corporate guarantees provided by us in respect of the lease agreements entered into by Via and Casa Bahia Comercial. The parties also agreed on the proceedings to be followed to determinate the liability of each party regarding claims occurred on and after November 8, 2016. 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.
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The reimbursement obligations of CBD related to contingencies arising from facts that occurred prior to the acquisition of Globex in 2010 will remain in effect for as long as the legal proceeding that are subject to the reimbursement obligations have not terminated. Regarding this matter, Via obtained a favorable decision in May 2020, which includes the amount for which CBD is entitled to be reimbursed, under the terms of the association agreement. The period to which CBD is entitled to be reimbursed refer to the subsidiary Globex (which was incorporated in the formation of Via) for the years 2003 to 2010. The favorable decision obtained by Via refers to the refund of the ICMS exclusion benefit from the PIS and COFINS basis of its former subsidiary Globex for the period of 2007 and 2010. The exact reimbursed value shall be disclosed after we and Via agree on the amount due.
For further information, see note 21.9 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Operating Agreement
In August 2016, Via and Cnova entered into the Cnova Reorganization Agreement related to the reorganization of Cnova Brazil within Via. After the Cnova Corporate Reorganization in October 2016, Via became the sole shareholder of Cnova Brazil, which operates Extra.com.br, Pontofrio.com and Casasbahia.com.br websites, and ceased to be a shareholder of Cnova. For further information on the Cnova Corporate Reorganization, see “Item 4. Information on the Company—4A. History and Development of the Company––Changes in Our Business.”
On August 8, 2016, CBD and Via entered into an operating agreement, pursuant to which both parties agreed to integrate the e-commerce and physical stores of the Extra banner, among other terms and conditions, including the use of the Extra.com brand by Via free of charge.
After the consummation of the sale of all of our equity interest in Via, the only section of the Operating Agreement that remained effective was Via’s exclusive right to operate the e-commerce of electronic products. However, considering that the Operating Agreement expired on October 21, 2021, Via shall still operate the website Extra.com, but has no exclusive rights to operate the e-commerce of electronic products through other websites and digital platforms.
Cheftime
Umbrella Agreement
On March 1, 2021, we and Cheftime entered into an umbrella agreement pursuant to which we agreed on the general terms and conditions of a loan from CBD to Cheftime in the total amount of up to R$ 44 million. The loans must be granted according to Cheftime’s needs and our cash availability. The terms, interest rate and other conditions of each loan must be agreed upon on an individual basis.
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.
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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 further information regarding our related party transactions, see note 11 to our audited consolidated financial statements, included elsewhere in this annual report.
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:
|
As of December 31, | |||
|
2021 |
2020 |
2019 | |
| (in millions of R$) | |||
| Tax claims(1) | 845 | 937 | 841 |
| Labor claims | 361 | 303 | 319 |
| Civil and other claims |
236 |
145 |
145 |
| Total accrued liabilities for legal proceedings |
1,442 |
1,385 |
1,305 |
_________________
| (1) | Includes tax claims related PIS and COFINS. |
For further information on our legal proceedings, see note 21 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Tax-Related Claims
Tax-related claims are indexed to the SELIC rate, which in annual terms was 4.50% on December 31, 2019, 2.00% on December 31, 2020, and 9.15% on December 31, 2021, 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, 2021, was R$437 million (R$497 million as of December 31, 2020).
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Additionally, we are party to some proceedings before the São Paulo state tax authorities which discuss accessory 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$292 million as of December 31, 2021 (R$292 million as of December 31, 2020), 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, 2021, the amount involved in this proceeding was R$51 million (R$60 million as of December 31, 2020).
Grupo Éxito and its subsidiaries are parties to legal proceedings relating to value added tax, property tax and taxes related to our operations. As of December 31, 2021, the amount under discussion totaled R$65 million (R$88 million as of December 31, 2020).
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.
We and our legal counsel expect that the decision in regard to this appeal will not limit our claim; however, the proceeding is still pending judgment and we are unable to recognize the asset related to the credits to be obtained since we filed this lawsuit in 2003. 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, resulting 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, 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). We made calculations based on the opinion of our legal counsel. 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.
Similarly, Via obtained a favorable decision in May 2020, which includes an amount to which we are entitled to be reimbursed for, according to the terms of the association agreement signed between us and the Klein family in the transaction that created Via. The periods for which we are entitled to be reimbursed relate to the subsidiary Globex (that was merged in the formation of Via) for the years between 2003 and 2010. We have already recognized in fiscal year 2020, R$231 million of receivables from Via. The related gain is recognized in the net result of discontinued operations. In addition, we believe we are entitled to an outstanding amount of R$277 million, which is subject to be confirmed by documents to be provided by Via.
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, 2021, we recorded a provision of R$361 million (R$303 million as of December 31, 2020) 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.
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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, 2021, the provision for these lawsuits was R$100 million (R$34 million as of December 31, 2020) 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, 2021, we had provisions for these lawsuits in the amount R$56 million (R$40 million as of December 31, 2020). |
| · | Grupo Éxito is a party to civil lawsuits relating to challenges to lease agreements, among others. As of December 31, 2021, the amount under discussion was R$30 million (R$35 million as of December 31, 2020). |
| · | The amount provisioned for the remaining civil jurisdiction matters as of December 31, 2021, was R$50 million (R$36 million as of December 31, 2020). |
As of December 31, 2021, including the civil lawsuits mentioned above, we had provisions for civil, regulatory and other claims in the amount of R$236 million (R$145 million as of December 31, 2020).
Other Contingent Liabilities for Which There Are No Provisions
As of December 31, 2021, 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 as of and for the year ended December 31, 2021, included elsewhere in this annual report, 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, social contribution on net profits (Contribuição Social Sobre o Lucro Líquido), or CSLL, COFINS, PIS, credits related to taxes on industrialized products (Imposto Sobre Produtos Industrializados), or IPI, contribution tax on financial transactions (IOF), ICMS, municipal service tax (Imposto Sobre Serviços), or ISS, and IPTU. As of December 31, 2021, the aggregate amount of the possible loss regarding these tax-related legal proceedings was R$12,123 million (R$10,081 million as of December 31, 2020).
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 additional information on the transactions with Via that remained in effect, see “Item 7. Major Shareholders and Related Party Transactions—7B. Related Party Transactions—Via.” As of December 31, 2021, the amount under discussion in this tax proceeding was R$474 million (R$456 million as of December 31, 2020).
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, 2021, we estimated to be in the amount of R$1,467 million (R$1,432 million as of December 31, 2020).
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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, 2021, the estimated amount that will be paid in all lawsuits is approximately R$157 million (R$174 million as of December 31, 2020).
Legal Proceedings Related to Sendas Compensation Liability
We are liable for Sendas legal proceedings prior to the Sendas Spin-off. As of December 31, 2021, the total amount provisioned under these legal proceedings was R$96 million, of which R$69 million consisted in tax proceedings, R$14 million consisted of labor proceedings and R$13 million consisted in civil proceedings.
For further information on our tax-related claims, see note 21 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
Arbitration
Península
On September 12, 2017, we announced that we received a notice from the Brazil Canada Chamber of Commerce regarding a request for arbitration filed by Banco Ourinvest S.A., a financial institution, in its capacity as fund manager and acting in the exclusive interest of the quotaholders of Península.
The arbitration proceeding aimed at discussing the calculation of rental fees and other operational matters related to lease agreements and contracts which we entered into with Península, during 2005, regarding stores owned by Península. These agreements entitled us to the commercial use of the referred real estate for a period of 20 years, which may be extended for an additional 20-year term, at our exclusive criteria.
On July 7, 2021, we entered into an agreement to settle the arbitration proceeding. Pursuant to the settlement agreement, certain terms of the lease agreements were adapted to the prevailing market conditions, allowing us to optimize the use of properties of the lease agreements. The continuity and the term of the leases were not affected. As a result of the execution of this settlement agreement, we recorded an expense of R$17 million under other operating expenses in our audited consolidated financial statements as of and for the year ended December 31, 2021.
For further information on the arbitration proceeding related to Península, see note 21.8 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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 usually held during the first quarter of each 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.
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In 2019, 2020 and 2021, 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 Brazilian corporate law and our bylaws, we must pay declared dividends within 60 days after the approval of the distribution of dividends at the shareholders’ meeting.
For further 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 27, 2022, an annual shareholders’ meeting took place and approved the payment of interest on shareholders’ equity in the amount of R$0.301301 per common share. The following table sets forth the distributions paid or to be paid to holders of our common shares and preferred shares at the time:
|
Period |
Description |
First payment date |
R$ 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 | August 16, 2019 | 0.142512451 | 0.129556774 | 36(2) |
| 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. For additional information on the conversion of our preferred shares, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Éxito Group.” |
| (1) | 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 additional 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 additional 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.”
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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. For additional information on the conversion of our preferred shares, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
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.
9B. Plan of Distribution
Not applicable.
9C. Markets
Trading on the B3
The B3, formerly BMFBOVESPA, 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.
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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.
Corporate Governance Practices
In 2000, the BMFBOVESPA, 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 BMFBOVESPA, 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. For additional information on our enrollment in the Novo Mercado, see “Item 4. Information on the Company—4A. History and Development of the Company—Changes in Our Business—Acquisition of Grupo Éxito.”
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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 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 |
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| · | 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, 2021, our subscribed and paid-up capital was represented by 269.336.551 (two hundred and sixty-nine million, three hundred and thirty-six thousand, five hundred and fifty-one) 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 additional 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.
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.
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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:
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.
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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.
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. |
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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.
Under Brazilian corporate law and our bylaws, dividends must be available to the shareholders within 60 days after the date the dividends were declared. 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 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.
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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 of whom one must always be the chief executive officer; and the attorney-in-fact duly appointed by two executive officers of whom one must be the chief executive officer.
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 Instruction No. 165, of December 11, 1991, as amended by 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.
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:
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| · | 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; |
| · | 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; |
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| · | 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 27, 2022. 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, 2021; (ii) resolve on the proposal for allocation of profit for the fiscal year ended December 31, 2021; (iii) election of 9 members for our board of directors; (iv) appointment of the chairman and co-vice-chairman of our board of directors; (v) 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; (vi) resolve on the proposal for the reallocation of R$1.8 billion resulting from tax incentives granted to us from the years of 2013 to 2017, initially destined for the statutory reserve provided in our bylaws, to the tax incentives reserve in accordance with Article 195-A of the Brazilian corporate law; (vii) approve the proposal of amendment and restatement of our bylaws to reflect the capital increases resulting from the exercise of stock options under our stock options plan, within the limits of the authorized capital, as approved in certain meetings of our board of directors that were held after the last extraordinary shareholders’ meeting held in 2021; and (viii) re-ratification of the annual compensation of the Board of Executive Officers for the year 2021.
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 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.
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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 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.”
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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.
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.
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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 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:
| · | direct or indirect ownership more than 25% of our equity interest (excluding treasury shares); or |
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| · | 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.”
Real Estate Properties Assignment Transaction Related to Extra Hiper Stores
On October 14, 2021 and December 16, 2021, the directors of CBD and Sendas at meetings of the board of directors of both companies approved the conversion of 70 Extra Hiper stores operated by us and located in several states of Brazil into cash and carry stores to be operated by Sendas, or the Real Estate Properties Assignment Transaction. The total estimated price of the Real Estate Properties Assignment Transaction is R$5,173.0 million, of which R$3,973.0 million will be paid by Sendas to CBD in installments between December 2021 and January 2024. The Real Estate Properties Assignment Transaction was formalized through an assignment agreement between CBD and Sendas for the assignment of the Extra Hiper stores and the sale to Sendas of certain equipment of these stores. The consummation of the transaction is subject to several conditions precedent, including the demobilization of all the assigned stores. As of December 31, 2021, we had received R$1.0 billion from Sendas under the Real Estate Properties Assignment Transaction.
For more information on the Real Estate Properties Assignment Transaction and the discontinuation of the Extra Hiper banner, see “Item 4. Information on the Company—4A. Changes in Our Business— Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores” and “Item 5. Operating and Financial Review and Prospects—5A. Operating Results—Discontinued Operations—Discontinued Operations for the Year Ending December 31, 2022—Extra Hiper Stores.”
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. 1,548 of February 13, 2015, and RFB Normative Instruction No. 1,863 of December 28, 2018.
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.
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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); |
| 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 March 4, 2020, 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.
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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.
The tax consequences described below do not take into account 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 of Brazil, except if otherwise stated herein.
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 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 caw 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 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.
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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.
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 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.
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Upon receipt of the underlying common shares upon the cancellation of ADSs, a Non-Resident Holder may also elect to register with the Central Bank the U.S. dollar value of 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 the U.S. dollar value of such common shares as a foreign direct investment under Law No. 4,131/62, 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 the Central Bank and CVM in accordance with the Central Bank Resolution No. 4,373, as described below.
Sale of Common Shares
Capital gains assessed on 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 CMN 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 |
| · | subject to income tax at a rate of up to 25.0% in the case of gains realized by a Non-Resident Holder that: (1) is not 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. |
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. 4,131/62 (a 4,131 Holder; and (B) is not resident or domiciled in a Low Tax Jurisdiction; and (2) income tax at a rate of 25.0% when realized by a 4,131 Holder that is domiciled or resident in a Low 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 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.
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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 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. There is a controversy regarding the currency that should be considered for purposes of determining the capital gain realized by a 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.
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 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.
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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%.
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.
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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.
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 and (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.
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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 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 2021, 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, will 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, all 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, recent 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.
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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 recent 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 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 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.
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, 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.
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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 (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.
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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 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 additional information regarding derivative financial instruments and our foreign exchange and interest rate risk, see note 18 to our audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this annual report.
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.”
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Grupo Éxito uses derivatives to hedge against foreign exchange (U.S. dollars and euros) variations on imports, as well as to hedge against foreign exchange (U.S. dollars) variations on bank loans.
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.
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.
Grupo Éxito also uses bank loans to meet their financing requirements, usually denominated in Colombian pesos accruing interested based on the reference bank index in Colombia, or IBR.
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, 2021.
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|
Expected Maturity Date | |||||||||
|
As of December 31, 2021 | |||||||||
|
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(1) | 3,581 | - | - | - | - | 3,581 | - | 3,581 | |
| Cash equivalents denominated in reais(2) |
4,693 |
- |
- |
- |
- |
4,693 |
- |
4,693 |
93.51% of CDI |
| Total cash and cash equivalents |
8,274 |
- |
- |
- |
- |
8,274 |
- |
8,274 |
|
| Liabilities: | |||||||||
| Loans and financing | |||||||||
| Floating rate, denominated in U.S. dollars(3) | 2 | 287 | 167 | - | - | 456 | - | 456 | (USD+ 2.12% per year) + (CDI + 1.70% per year) |
| Floating rate, denominated in Colombian pesos(4) | 228 | 268 | 438 | 159 | 154 | 1,247 | - | 1,246 | (IBR 3M+1.6%) |
| Floating rate, denominated in reais |
156 |
1,169 |
1,085 |
168 |
170 |
2,748 |
(11) |
2,737 |
(CDI+ 1.89%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 |
1,095 |
1,000 |
- |
1,007 |
1,527 |
4,629 |
(17) |
4,612 |
(CDI + 1.59% per year) |
| Total liabilities |
1,481 |
2,724 |
1,690 |
1,334 |
1,851 |
9,080 |
(28) |
9,051 |
|
_________________
| (1) | Cash and banks include Grupo Éxito’s facilities in Colombia, Uruguay and Argentina the amount of (i) R$2,905 million, (ii) R$366 million and (iii) 126 million, respectively, as well as our funds invested in the United States in U.S. dollars in the amount of R$84 million. |
| (2) | Cash equivalents include Grupo Éxito’s cash equivalents in Colombia and Uruguay in the amount of (i) R$94 million and (ii) R$1 million, respectively |
| (3) | Originally U.S. dollar-denominated and swapped to CDI. |
| (4) | Refers to Grupo Éxito loans and financing. |
The following table presents historical data for interest rates relevant to our financial instrument in the last three years:
|
As of December 31, | |||
|
2021 |
2020 |
2019 | |
| CDI(1) | 9.15% | 1.90% | 4.40% |
_________________
| (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 and the Colombian pesos. 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.”
Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the U.S. dollar and the Colombian pesos. Foreign currency-denominated liabilities as of December 31, 2021, included debt denominated mainly in U.S. dollars and Colombian pesos. 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$7 million as of December 31, 2021, compared to debt of R$12 million as of December 31, 2020 and credit of R$15 million as of December 31, 2019. Our net foreign currency exposure is represented by the debt due to import financing. Our cross-currency interest rate swaps partially hedge our exposure arising from our U.S. dollar-denominated debt. We do not use cross-currency interest rate swaps to hedge our exposure arising from our Colombian pesos-denominated debt.
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Grupo Éxito uses derivatives to hedge against foreign exchange (U.S. dollars and euros) variations on imports, as well as to hedge against foreign exchange variations (U.S. dollars) on bank loans.
The table below provides information on our debt outstanding as of December 31, 2021:
|
Expected Maturity Date | |||||||
|
2022 |
2023 |
2024 |
2025 |
Thereafter |
Total |
Fair Value | |
| (in millions of R$) | |||||||
| Loans and financing | |||||||
| U.S. dollars(1) | 2 | 287 | 167 | - | - | 456 | 456 |
| Colombian pesos(2) | 228 | 268 | 438 | 159 | 154 | 1,247 | 1,246 |
| Reais |
156 |
1,169 |
1,085 |
168 |
170 |
2,748 |
2,737 |
| Total loans and financing |
386 |
1,724 |
1,690 |
327 |
324 |
4,451 |
4,439 |
| Debentures and promissory note in reais |
1,095 |
1,000 |
- |
1,007 |
1,527 |
4,629 |
4,612 |
| Total Debentures |
1,095 |
1,000 |
- |
1,007 |
1,527 |
94,629 |
4,612 |
_________________
| (1) | Originally U.S. dollar-denominated and swapped to CDI. |
| (2) | Refers to Grupo Éxito loans and financing. |
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 additional information regarding derivative financial instruments and our foreign exchange and interest rate risk, see note 18 to our audited consolidated financial statements as of and for the year ended December 31, 2021. As of December 31, 2021, 2020 and 2019, the originally U.S. dollar-denominated debt totaled R$459 million, R$283 million and R$831 million, which were covered by floating rate swaps in reais, based on the CDI rate, has been treated on a combined basis as if these loans had been originally denominated in reais and accrued CDI. In addition, the swap agreements do not provide for collateral.
The table below provides information about our cross-currency interest rate swaps:
|
Notional |
Expected |
2021 |
2020 | |
| Debt | (in millions) | |||
| U.S. dollars to reais | US$ 50 | 2023 | (7) | (12) |
| Lease Liability | ||||
| U.S. dollars to COP$ | US$ 1 | 2022 | - | 1 |
| Trade Payables | ||||
| Euros to COP$ | EUR 3 | 2021 | - | (2) |
| U.S. dollars to COP$ | US$ 35 | 2021 | - | (23) |
| U.S. dollars to COP$ | US$ 105 | 2022 |
15 |
- |
| Total |
(8) |
(36) |
For more information on our cross-currency interest rate swaps, see note 18.4 to our audited consolidated financial statements as of and for the year ended December 31, 2021.
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 47.2%, 46.5% and 46.4% of the consolidated net operating revenue in 2021, 2020 and 2019 for our Brazilian 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 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.
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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 Since January 1, 2021
From January 1, 2021, until December 31, 2021, 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$1.6 million 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 |
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness, as of December 31, 2021, of the Company’s “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, due to material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2021. We completed additional procedures prior to filing this annual report, which have allowed us to conclude that, notwithstanding these material weaknesses, our consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with the International Financial and Reporting Standards – IFRS, as issued by the International Accounting Standards Board – IASB.
| (b) | Management’s Report on Internal Control over Financial Reporting |
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15-d15(f) under the Exchange Act. 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.
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 financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the 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.
Management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2021, considering the material weaknesses described below.
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 in our annual financial statements will not be prevented or detected on a timely basis.
(1) Company’s inadequate entity level controls over reviewing and monitoring effectiveness of IT general controls and business processes controls of Almacenes Exito S.A. and its subsidiaries in Colombia.
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Management monitoring controls were insufficient in relation to Almacenes Exito S.A. and its subsidiaries in Colombia to (i) timely detect and remediate deficiencies on the operation of IT general controls and (ii) timely and effectively execute the plan for testing operating effectiveness of internal controls related to certain business processes, especially in regard to the sufficiency and appropriateness of evidences and review of information produced by entity used in the controls. The deficiencies did not result in actual misstatements but could have had pervasive impacts to the financial statements. There were no impacts in the consolidated financial statements as of and for the year ended December 31, 2021 and comparative periods.
(2) Ineffective general information technology controls to support the information technology operating systems, database, and IT applications of Almacenes Exito S.A. and its subsidiaries in Colombia.
Management failure to maintain effective internal controls on the review of users access on IT applications and segregation of duties of Almacenes Exito S.A. and its subsidiaries in Colombia, to support the information technology operating systems, database, and IT applications, which in the aggregate resulted in a material weakness. These deficiencies also affected the effectiveness of business process automated controls, manual controls with an automated component, and the database and logic of the reports that were used to execute certain automated and manual controls. The deficiencies did not result in actual misstatements but could have had pervasive impacts to the financial statements. There were no impacts in the consolidated financial statements as of and for the year ended December 31, 2021 and comparative periods.
| (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 Form 20-F, has issued a report on the Company’s 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 discussed below in the remedial actions for the year ended December 31, 2021, occurring 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 other than those resulting from the implementation of the plan to remediate the material weaknesses described above and that will continue to be implemented throughout 2022.
Remedial actions over the material weakness evaluated as of December 31, 2020
As of December 31, 2020, material weaknesses were identified related to internal controls in Almacenes Exito S.A. and its subsidiaries in Colombia and inadequate controls over IT general controls related to the subsidiaries in Brazil and Colombia. Management took actions in relation to design and implementation of controls, fully addressing the deficiencies that gave rise the material weaknesses on IT general controls related to the subsidiaries in Brazil. Management also designed and implemented controls during 2021 to address the control deficiencies in relation to IT general controls of Almacenes Exito S.A. and its subsidiaries in Colombia. However, deficiencies on the operation of IT general and business processes controls remained as of December 31, 2021.
Remedial actions over the material weaknesses evaluated as of December 31, 2021
The Company is in the process of designing and implementing the appropriate remedial actions to address the material weaknesses described above, with the support of external advisors and the oversight of the audit committee.
Management substantially addressed the deficiencies during 2021 related to design and implementation; however, the deficiencies related to operation of controls still remained, which management believes that it will be able to further implement the remediation actions and completely address the deficiencies in the course of 2022. These remedial actions will start with a strengthening of our monitoring of planning and execution of controls in earlier stages in the process, especially within IT general controls.
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| 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.
A copy of our Code of Ethics and Conduct has been filed as Exhibit 11.1 to this annual report.
16C. Principal Accountant Fees and Services
Deloitte
Touche Tohmatsu Auditores Independentes Ltda (PCAOB ID:
|
2021 |
2020 | |
| (in millions of R$) | ||
| Audit Fees | 14.5 | 15.7 |
| Audit–Related Fees | - | 4.2 |
| Tax Fees | - | - |
| All Other Fees |
- |
0.8 |
| Total |
14.5 |
20.7 |
Audit Fees
Audit fees are fees for the audit of our consolidated financial statements for the years of 2021 and 2020, the reviews of our quarterly financial information for the year with corresponding audit of our internal control over financial reporting for 2021 and 2020.
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.”
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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 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 additional 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. 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.
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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.
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 further 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 further 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.
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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.
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.
| 138 |
PART III
| ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of responding to this item.
| ITEM 18. | FINANCIAL STATEMENTS |
The 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) |
| 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.* |
| 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.(5) |
| 4.(b).5 | Separation Agreement, dated as of December 14, 2020, between Companhia Brasileira de Distribuição and Sendas Distribuidora S.A. (English translation)(1) |
| 8.1 | List of Subsidiaries. For information on our subsidiaries, see note 12 to our audited consolidated financial statements. |
| 11.1 | Code of Ethics, dated February 6, 2020.(6) |
| 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 from our annual report on Form 20-F filed on April 30, 2021. |
| (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 (SEC file No. 333-207667) 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 furnished on August 28, 2015 |
| (6) | Incorporated herein by reference to our annual report on Form 20-F filed on December 1, 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/Guillaume Marie Didier Gras |
Name: Guillaume Marie Didier Gras
Title: Chief Financial Officer and Investor Relations Officer
| 140 |
Companhia
Brasileira
Consolidated Financial Statements as of December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019 and Reports of Independent Registered Public Accounting Firms
|
| F-1 |
Companhia Brasileira de Distribuição
Consolidated Financial Statements as of December 31, 2021 and 2020 and for the
years ended December 31, 2021, 2020 and 2019
Table of contents
| Reports of Independent Registered Public Accounting Firm | F-3 |
| Consolidated financial statements | |
| Consolidated Statement of income | F-9 |
| Consolidated Statement of comprehensive income | F-10 |
| Consolidated Balance Sheet | F-11 |
| Consolidated Statement of changes in shareholders’ equity | F-13 |
| Consolidated Statement of cash flows | F-16 |
| Notes to the consolidated financial statements | F-18 |
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Brasileira de Distribuição
São Paulo - SP
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, 2021, and the related consolidated statements of income, of comprehensive income, of changes in shareholders’ equity and of cash flows for the year ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and of its cash flows for the year ended December 31, 2021, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
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, 2021, 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 May 16, 2022, expressed an adverse opinion on the Company’s internal control over financial reporting because of material weaknesses.
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 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 - SEC 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.
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.
| F-3 |
Discontinuation of Hypermarket Format and Sale and transfer of Store Locations to Assaí - Refer to notes 1.1 and 32 to the financial statements
Critical audit matter description
As disclosed in notes 1.1 and 32 to the consolidated financial statements, on October 14, 2021, the Company approved a plan for the discontinuation of its hypermarket format that contemplates the closure, sale or conversion of 103 store locations operating under the Extra Hiper banner. In connection therewith, on December 16, 2021, the Company signed an agreement with Sendas Distribuidora S.A. (“Assaí”), a related party, for the transfer and sale of 70 store locations. The plan also considers the conversion of 29 stores to the Pão de Açúcar and Mercado Extra banners and the closure of four stores. As of December 31, 2021, the Company had ceased operations in a total of 31 store locations and had completed the sale and transfer of 20 of those store locations to Assaí. For the year ended December 31, 2021, the Company recorded a pre-tax net gain of R$426 million related to the plan, and at December 31, 2021 had recorded R$1,117 million of assets and R$62 million of liabilities as held-for-sale related to the remaining 50 store locations to be transferred to Assaí in 2022.
We identified the discontinuation of the hypermarket format, including the transfer and sale of store locations to Assaí, as a critical audit matter because of the complexity and significance of the amounts involved, the significant judgments made by Management in determining the appropriate accounting treatment for the transaction as held-for-sale and timing to recognize discontinued operations, including timing of effective abandonment, 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. 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 consolidated financial statements.
How the critical audit matter was addressed in the audit
Our audit procedures included, among others:
| • | We tested the effectiveness of controls over the identification, accounting and reporting for significant unusual transactions |
| • | We read minutes of the Board of Directors that evidenced proper authorization and approval of the plan for discontinuation. |
| • | We gained an understanding of the nature and terms of the Company’s plans and related transactions, including reading and evaluating the related agreements and assessing the significant terms and provisions for the appropriate accounting treatment, including the effective timing of wind-down operations and transfer and sale of store locations to Assaí. |
| • | We evaluated Management’s conclusions regarding held-for-sale and discontinued operations treatment, including timing of effective abandonment and presentation in the consolidated financial statements. |
| • | We tested the completeness and accuracy of Management’s identification of assets and liabilities included in the transaction as defined in the agreements and the underlying data supporting the measurement of held-for-sale assets at the lower of carrying amount or fair value less cost to sell. |
| • | We tested the components of the recorded net gain by comparing the selling price less costs to sell to the carrying value of assets transferred and sold. |
| • | We tested the measurement, completeness and accuracy of costs and expenses related to the transaction. |
| • | We evaluated the completeness and accuracy of the presentation and disclosure in the financial statements. |
| F-4 |
Recoverable Tax Credits - Refer to notes 10 and 20.1 to the financial statements
Critical audit matter description
The Company records tax credits, mainly related to State VAT (ICMS) and taxes on revenue (PIS and COFINS), whenever it has legal right and factual evidence about these credits that allow for their recognition, as well assessment of uncertain tax treatment with respect to corporate income tax (IRPJ), due to complex and potential new applicable tax legislation. As disclosed in notes 10 and 20.1 to the financial statements, for the year ended December 31, 2021, the Company recorded tax credits of R$1,075 million related to PIS and COFINS (R$280 million) and IRPJ (R$795 million) related to its operations in Brazil.
This matter was considered a critical audit matter in our audit because of the significance of the respective amounts and the high degree of complexity involved in the Brazilian indirect tax legislation (both state and federal) and the uncertainties as to whether related state ICMS tax incentives are subject to Brazilian income taxes. This requires a high degree of judgment applied by Management in assessing the case law for each of the matters, supported by the opinion of the outside legal counsel and requires a high level of effort to prepare the calculations used to measure and record these credits. This also involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists, when performing audit procedures to evaluate the rationale and challenge Management’s assumptions and judgment.
How the critical audit matter was addressed in the audit
Our audit procedures included, among others:
| • | We tested internal controls over the Company’s process to identify and assess the assumptions and technical merits of tax positions, including Management's process to measure and record related tax credits. |
| • | With the assistance of our tax specialists, we obtained an understanding of and assessed Management’s judgements, the technical merits and documentation of the relevant tax positions, including reading and evaluating tax opinions obtained by the Company. |
| • | We used our knowledge of and experience with the application of tax laws and evaluated developments in the applicable regulatory and tax environments to assess potential impacts on the Company’s positions. |
| • | We analyzed the Company’s assumptions used to determine the amounts of the recorded tax credits. |
| • | We tested the data used by the Company in determining these amounts by comparing inputs to internal data and testing the accuracy of the calculations. |
| • | We also evaluated the related disclosures in the consolidated financial statements. |
May 16, 2022
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.
We have served as the Company’s auditor since 2021
| F-5 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Brasileira de Distribuição
São Paulo SP, Brazil
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, 2021, 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, because of the effect of the material weaknesses 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, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also 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, 2021 of the Company and our report, dated May 16, 2022, expressed an unqualified opinion on those financial statements.
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 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 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 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.
| F-6 |
Material weakness
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: (1) Company’s inadequate entity level controls over reviewing and monitoring effectiveness of IT general and business processes controls in Almacenes Exito S.A. and its subsidiaries in Colombia; (2) Ineffective general information technology controls to support the information technology operating systems, database, and IT applications of Almacenes Exito S.A. and its subsidiaries in Colombia.
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, 2021, of the Company, and this report does not affect our report on such financial statements.
/s/ DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.
São Paulo, Brazil
May 16, 2022
| F-7 |
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 balance sheet of Companhia Brasileira de Distribuição (the Company) as of December 31, 2020, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
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 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 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 provide a reasonable basis for our opinion.
/s/
Auditores Independentes S.S.
We have served as the Company's auditor since 2017.
April 29, 2021
| F-8 |
Companhia Brasileira de Distribuição
Consolidated Statements of Income
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais, except earnings per share)
| For the year ended December 31, | |||||||
| Note | 2021 | 2020 | 2019 | ||||
| Continued 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 | ( |
( |
( | |||
| ( |
( |
( | |||||
| Profit from continued operations before net financial expenses and share of profit of associates | |||||||
| 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 (loss) for the year from discontinued operations | 33 | ( |
|||||
| Net income 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 | |||||||
| |||||||
| 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 per share – total | |||||||
| Diluted | |||||||
| Diluted earnings (loss) per share – continuing operations | ( | ||||||
| Diluted earnings (loss) per share – discontinued operations | ( |
||||||
| Diluted earnings per share – total | |||||||
The accompanying notes are integral part of these consolidated financial statements.
| F-9 |
Companhia Brasileira de Distribuição
Consolidated Statements of Comprehensive Income
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| For the year ended December 31, | |||||||
| 2021 | 2020 | 2019 | |||||
| Net income 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 | ( |
||||||
| Fair value of trade receivable | ( |
( | |||||
| Derivatives | |||||||
| Income taxes related to other comprehensive income | ( |
||||||
| -Items that will not be reclassified to the Statements of Income in subsequent periods: | |||||||
| Other comprehensive income | ( |
( | |||||
| Other comprehensive income (loss) for the year, net of income tax | ( |
||||||
| Total comprehensive income for the year | ( |
||||||
| Total comprehensive income attributable to: | |||||||
| Controlling shareholders | ( |
||||||
| Non-controlling shareholders | ( |
||||||
| ( |
||||||
The accompanying notes are integral part of these consolidated financial statements.
| F-10 |
Companhia Brasileira de Distribuição
Consolidated Balance Sheets
December 31, 2021 and 2020
(In millions of Brazilian Reais)
| As of December 31, | |||||
| Note | 2021 | 2020 | |||
| 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 | |||||
| Assets held for sale | 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-11 |
Companhia Brasileira de Distribuição
Consolidated Balance Sheets
December 31, 2021 and 2020
(In millions of Brazilian Reais)
| As of December 31, | |||||
| Note | 2021 | 2020 | |||
| Current liabilities | |||||
| Trade payable, net | 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 | |||||
| Liabilities related to assets held for sale | 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 contingencies | 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 | |||||
| Other comprehensive income | |||||
| |||||
| Non-controlling interest | |||||
| Total shareholders’ equity | |||||
| Total liabilities and shareholders’ equity | |||||
The accompanying notes are integral part of these consolidated financial statements.
| F-12 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| Controlling Shareholders | |||||||||||||||||||||||||
| Capital reserves | Earnings reserves | Total | |||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Legal | Business growth reserve |
Treasury Shares | Retained earnings | Govern- mental subsidy reserve |
Appropriated earnings | Other comprehensive income | Total | Non- controlling interest |
||||||||||||||
| At December 31, 2018 | ( |
( |
( |
||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||
| Net income for the year | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Fair value of trade receivable | ( |
( |
( |
( | |||||||||||||||||||||
| Income taxes related to other comprehensive income | |||||||||||||||||||||||||
| Cash flow hedge | |||||||||||||||||||||||||
| Other comprehensive income | ( |
( |
( | ||||||||||||||||||||||
| Comprehensive income for the year | |||||||||||||||||||||||||
| Capital increase (Note 25) | |||||||||||||||||||||||||
| Share-based expenses (Note 25) | |||||||||||||||||||||||||
| Share-based expenses – subsidiaries (Note 25) | |||||||||||||||||||||||||
| Appropriation of net income to legal reserve (Note 25) | ( |
||||||||||||||||||||||||
| Interest on own capital (Note 25) | ( |
( |
( |
( | |||||||||||||||||||||
| Transfer to expansion reserve (Note 25) | ( |
||||||||||||||||||||||||
| Proposed dividends (note 25.3) | ( |
( |
( |
( | |||||||||||||||||||||
| Hyperinflation adjustment on foreign investments | |||||||||||||||||||||||||
| Transactions with non-controlling interests | ( |
( |
( |
||||||||||||||||||||||
| Non-controlling interest on Éxito (Note 13) | |||||||||||||||||||||||||
| Sale of Via Varejo (Note12.4) | ( |
( |
( | ||||||||||||||||||||||
| Balance at December 31, 2019 | ( |
||||||||||||||||||||||||
The accompanying notes are integral part of these financial statements.
| F-13 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| Controlling Shareholders | |||||||||||||||||||||||||
| Capital reserves | Earnings reserves | ||||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Legal | Business growth reserve |
Treasury Shares | Retained earnings | Governmental subsidy reserve | Appropriated earnings | Other comprehensive results | Total | Non- controlling interest |
Total | |||||||||||||
| Balance at December 31, 2019 | ( |
||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||
| Net income for the year | |||||||||||||||||||||||||
| Foreign currency translation | ( |
||||||||||||||||||||||||
| Fair value of trade receivable | |||||||||||||||||||||||||
| Income taxes related to other comprehensive income | |||||||||||||||||||||||||
| Cash flow hedge | |||||||||||||||||||||||||
| Other comprehensive income | ( |
( |
( |
||||||||||||||||||||||
| 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-14 |
Companhia Brasileira de Distribuição
Statements of Changes in Shareholders' Equity
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| Controlling Shareholders | ||||||||||||||||||||||||||||
| Capital reserves | Earnings reserves | |||||||||||||||||||||||||||
| Share Capital | Other Reserves | Stock Options | Legal | Business growth reserve |
Treasury Shares | Retained earnings | Govern- mental subsidy reserve |
Others reserves | Appropria- ted earnings |
Other compre- hensive income |
Total | Non- controlling interest |
Total | |||||||||||||||
| At December 31, 2020 | ( |
|||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||
| Net income for the year | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( |
( |
( |
( | |||||||||||||||||||||||
| Fair value of trade receivable | - | ( |
( |
( | ||||||||||||||||||||||||
| Income taxes related to other comprehensive income | - | ( |
( |
( | ||||||||||||||||||||||||
| Cash flow hedge | - | ( |
||||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| 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-15 |
Companhia Brasileira de Distribuição
Consolidated Statement of Cash Flows
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| For the year ended 31, | ||||||
| 2021 | 2020 | 2019 | ||||
| Cash flow provided by operating activities | ||||||
| Net income 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) | ( |
|||||
| 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 | ||||||
| ( | ||||||
| Net cash provided by operating activities | ||||||
| (*) |
The accompanying notes are integral part of these consolidated financial statements.
| F-16 |
Companhia Brasileira de Distribuição
Consolidated Statement of Cash Flows
Years ended December 31, 2021, 2020 and 2019
(In millions of Brazilian Reais)
| For the year ended December 31, | ||||||
| 2021 | 2020 | 2019 | ||||
| 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 | ||||||
| Acquisition of Éxito, net of cash acquired | ( | |||||
| Cash of deconsolidation of Sendas (Note 1.1) | ( |
|||||
| Proceeds from the sale of subsidiary, Via Varejo (Note 12.4) | ||||||
| Acquisition of investment property (Note 13) | ( |
( |
( | |||
| Others | ( |
|||||
| Net cash 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 provided by (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 | ||||||
Interest paid in
the amount of R$
The main non-cash transactions are disclosed in note 31.
The accompanying notes are integral part of these consolidated financial statements.
| F-17 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 the neighborhood shopping mall brand “Conviva”. Related to the operations of the Extra Hiper brand, see 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 by 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.
In June 2019, the Company disposed of all of its interest in Via Varejo S.A. (“Via Varejo”), a controlled subsidiary engaged in retail activities in the electronics and e-commerce segments operating the brands “Ponto Frio” and “Casas Bahia", as well as the e-commerce platforms “CasasBahia.com,”, “Pontofrio.com” and “Barateiro.com”. Prior to the disposal, Via Varejo was presented as a discontinued operation (see note 12.4).
The Company’s shares are listed on the São Paulo Stock Exchange (B3 - Brasil, Bolsa, Balcão) called “Novo Mercado”, which requires the highest level of Corporate Governance under, the ticker symbol “PCAR3” and in the New York Stock Exchange (ADR level III), under the ticker symbol “CBD”.
The Company is controlled by Wilkes Participações S.A. (“Wilkes”), and its parent company is Casino, a French company listed in the Paris Stock Exchange.
| 1.1 | Discontinuation of the business of Extra Hiper stores and sale of assets with 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.
According to material facts disclosed on October 14, 2021 and December 16, 2021, it was approved by the Board of Directors of the Company and Sendas Distribuidora S.A. (“Assai” or “Sendas” - a former subsidiary and that its spin-off is described in note 1.2), considering only the vote of independent directors, 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 leased from third parties.
The transaction includes the transfer
of 70 stores and is being carried out as follows: (i) transfer of
Also, as part of the plan to discontinue the hypermarket format, out of the 33 remaining Extra Hiper stores, the Company decided to convert 29 to other banners (Pão de Açúcar and Mercado Extra) and to discontinue 4 stores. This plan will be implemented during 2022 and may be subsequently reviewed.
The transaction was partially implemented
by December 31st, 2021, by the definitive closure of 31 stores and transfer of the rights of use to Assai of 20 of these stores,
including
| F-18 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
For
the transfer of 20 commercial points and 6 owned properties, on December 31, 2021, the Company recorded revenue in the amount of R$
The operations of the other Extra Hiper stores representing the remaining 50 commercial points including 11 owned properties, will be discontinued and the properties and rights of use delivered to Sendas during the 1st half of 2022. As of December 31st, 2021, the assets and liabilities related to these stores (substantially property, plant and equipment, right of use and corresponding liabilities and intangible assets) were classified as assets held for sale.
Management evaluated the transaction as per IFRS5 - "Non-Current Assets Held for Sale and Discontinued Operation" 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 (
The net gain on disposal of the assets and the result of operations of the hypermarket business line will be presented in 2022, when the transaction will be substantially implemented, as a discontinued operation (Extra Hiper business line), as well as comparative periods, in a single line in the income statement, as provided for in IFRS5.
Net revenue from this business line in 2021 was R$ (R$ in 2020).
| 1.2 | Corporate reorganization and Sendas Spin-Off |
On December 31, 2020, an extraordinary general shareholders’ meeting of CBD and Sendas Distribuidora S.A. 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 |
| F-19 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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. |
| • | 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
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:
| F-20 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Sendas | |
| 31.12.2020 | |
| Cash and cash equivalents | |
| Trade receivable, net | |
| Other receivable | |
| 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 installment and contributions 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 | |
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 S.A. – Brasil, Bolsa, Balcão was approved.
| F-21 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
On February 12, 2021, the request for listing of American Depositary Securities (“ADSs”) issued by Sendas on the New York Stock Exchange (“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 (“Cut-off Date”), shares issued by the Sendas, in proportion to their respective holdings in GPA’s share capital.
| 1.3. | Effects of COVID-19 on the consolidated financial statements |
The Group has been monitoring the progress of the pandemic of COVID-19 (Coronavirus) and its impacts on its operations. Several actions were taken by Management, among which we highlight the creation of a crisis committee formed by the Senior Management, which takes decisions in line with the recommendations of Ministry of Health and local authorities and professional associations.
The Company has adopted all possible measures to mitigate the transmission of the virus in stores, distribution centers and offices, such as: frequent cleaning, safety / protection items for employees, flexible working hours, adoption of home office, among other decisions.
Since the beginning of the COVID-19 outbreak, our stores have remained open, in addition to the significant increase of our e-commerce formats. The Company has an important commitment to society to continue taking products to our consumers. We had no material problems in our supply chain, and our suppliers continued to deliver its products in our distribution centers and stores.
The Company carried out a complete analysis of the consolidated financial statements, in addition to concluding about its operational continuity. The main aspects evaluated were:
| • | The Company prepared its strategic planning for the next three years that were used to estimate the recoverability of store assets and intangible assets, according to the methodology and assumptions described in notes 7.2, 8.1, 14.1, 15.1 and 15.2; |
| • | We assessed the recoverability of receivables from credit card companies, customers, galleries in our stores, real estate rentals and there is no need to record additional provisions to those already registered; |
| • | During the first months of 2021, there were restrictions in some cities where the Company operates, such as obligatory closures during few days, or restrictions of sale of certain products in determined periods. These restrictions, whatsoever, represent a very small portion of our stores and sales; |
| • | We evaluate qualitative and quantitative aspects of inventories and do not expect any additional provision for adjustment to realizable amount; |
| • | Financial instruments already reflect the market assumptions in their valuation, and there are no additional exposures not disclosed in these consolidated financial statements. The Company is not exposed to significant financing denominated in US dollars; |
Finally, the costs necessary to adapt our stores to serve the public are disclosed in Note 27 - Other operating expenses, net. In summary, according to management's estimates and monitoring of the impacts of the pandemic, there are no effects that should be recorded in the consolidated financial statements, nor are there any effects on the Company’s capacity to continue as a going concern and its estimates that would require changes or additional provisions to be recorded, in addition to those already recognized and disclosed. Company will continue to monitor and assess the impacts and, if necessary, make the disclosures.
| F-22 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 1.4. | Sale and Leaseback |
On
December 23, 2019, the
On
March 5, 2020, the Group entered into a Sale and Leaseback transaction with investment funds administered by BRL Trust Distribuidora
de Títulos e Valores Mobiliários S.A. and managed by TRX Gestora de Recursos Ltda. (“TRX”), pursuant to the
signing of a “Private Instrument of Commitment of Purchase and Sale of Real Estate Properties and Real Surface Law Institution”
(“Instrument”). The Instrument initially foresaw the sale of
| • | On
May 29, 2020, the Group concluded the sale of |
| • | On
June 29, 2020, the Group concluded the sale of |
| • | On
July 22, 2020, the Group concluded the sale of another |
| • | On
July 30, 2020, the Group concluded the sale of the remaining |
The
Group completed the sale of
On
December 23, 2020, the Group entered into an agreement to sell 4 properties, in a Sale and Leaseback transaction, to Rio Bravo for a
total amount of R$
The
gain on sale and leaseback transactions was R$ The right of use increased in R$
| 1.5. | 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, even in the face of the COVID- 19 pandemic (see note nº1.3). 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.
| F-23 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 May 16, 2022.
In June 2019, the Company disposed of all of its interest in its subsidiary Via Varejo (see note 12.4), which prior to the disposal was classified as a discontinued operation in accordance with 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
| F-24 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 3. | Significant accounting policies |
The main 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.
| F-25 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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. |
| F-26 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| F-27 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The positions within each group were segmented based on common credit risk characteristics, such as:
| • | 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.
| F-28 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| (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:
| • | 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
| F-29 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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.
| (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. |
| F-30 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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.
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.
| F-31 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| F-32 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 |
In 2021, 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, 2021. The main new standards adopted are as follows:
| Statement | Description | Impact |
| Amendments to IAS 1 and IAS 8 - Definition of materiality | ||
| Changes in IFRS 9: Reform of the reference interest rate | ||
| Changes in IFRS 16: Benefits provided to lessees in connection with the COVID-19 pandemic |
| F-33 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 4.2. | New and amended standards and interpretations applied since 2019 |
| i. | IFRS 16 - Leases |
The Group adopted IFRS 16 using the full retrospective method of adoption, with the date of application of January 1, 2019. In accordance with the full retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets).
| ii. | IFRIC 23 – Uncertainty over income tax treatments |
IFRIC 23 clarifies how to apply the recognition and measurement requirements of IFRIC 23 when there is uncertainty about the income tax treatments. The interpretation was approved on December 21, 2018 and became effective on January 1, 2019. In the assessment of the Company's management, there were no significant impacts as a result of the interpretation.
| F-34 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 4.3. | 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 | |||
| IAS16 - Fixed Assets – Resources Before Intended Use | ||||
| Amendments to IFRS 3 Reference to the Conceptual Structure |
The Group does not expect a significant impact on the Group's consolidated financial statements.
| F-35 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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:
| • | 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 contingencies: 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 |
| • | Share-based payments: Estimated fair value of transactions based on a valuation model - Note 24 |
| • | Lease: determination of the lease term and the incremental borrowing rate - Note 22. |
| • | Discontinued of Operations – Nota 1.1 |
| F-36 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 | 2021 | 2020 | ||
| 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.
| F-37 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 2021 | 2020 | ||
| 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 |
| 2021 | 2020 | 2019 | ||
| At the beginning of the year | ( |
( |
( | |
| Allowance booked for the year | ( |
( |
( | |
| Write-offs of receivables | ||||
| Deconsolidation Sendas | ( | |||
| Assets held for sale and discontinued operations | ||||
| Business combination | ( | |||
| 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 | |
| 12.31.2021 | ||||||
| 12.31.2020 | ||||||
| F-38 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 8. | Other receivables |
| 2021 | 2020 | ||
| Accounts receivable from insurers | | ||
| Receivable from sale of subsidiaries (note 8.2) | |
| |
| Lease receivables | |
| |
| Accounts receivable - Via Varejo (*) | |
| |
| Receivables from sale of property and equipment (**) | |
| |
| Other | |
| |
| Allowance for doubtful accounts on other receivables (note 8.1) | ( |
( | |
| Current | |||
| Non-current |
| (*) |
| (**) |
| 8.1. | Allowance for doubtful accounts on other receivables |
| 2021 | 2020 | 2019 | ||
| At the beginning of the year | ( |
( |
( | |
| Allowance booked for the year | ( |
|||
| Write-off of other receivables | ||||
| Deconsolidation Sendas | ( | |||
| At the end of the year | ( |
( |
( |
| 8.2. | Receivables from the sale of subsidiaries |
Receivables
related to the exercise of an option to buy gas stations by a third party. The original amount of this receivable was R$
| F-39 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 9. | Inventories |
Inventories are accounted for at cost or net realizable value, whichever is lower. 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.
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:
| 2021 | 2020 | ||
| Stores | |||
| Distribution centers | |||
| Inventories – Éxito Group | |||
| Real Estate Inventory – Éxito Group | |||
| Allowance for losses on inventory obsolescence and damages (note nº9.2) | ( |
( | |
| 9.1. | Unrealized bonuses |
On December 31, 2021, unrealized bonuses, which are presented as reducing the inventory balance, amounted to R$ (R$ on December 31, 2020).
| 9.2. | Allowance for losses on inventory obsolescence and damages |
| 2021 | 2020 | 2019 | ||
| At the beginning of the year | ( |
( |
( | |
| Additions | ( |
( |
( | |
| Business combination | ( | |||
| Write-offs / reversal | ||||
| Foreign currency translation adjustment | ( |
|||
| Deconsolidation of Sendas | ||||
| At the end of the year | ( |
( |
( |
| F-40 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| 2021 | 2020 | ||
| 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.
| F-41 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 | ||
| 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.
The PIS and COFINS credits presented in the balance sheet for the period ended December 31, 2021 refer, in particular, to amounts arising from a final and unappealable lawsuit on October 29, 2020, in which the Company discussed the exclusion of ICMS from the PIS and COFINS calculation basis.
This
decision resulted in the recording of tax credits in the amount of R$
During
the 2021 calendar year, due to decisions held in 2021 (see note 21.7) the Company reassessed this tax credit, reversing the
provisions previously constituted, which resulted in a supplement of R$
In
relation to PIS and COFINS assets, the Company assessed recent procedural progress in certain cases and proceeded to write off PIS/COFINS
assets in the amount of R$
The realization of the PIS and COFINS balance is shown below:
| 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 | ||
| More than 5 years | ||
| F-42 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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, 2021, 2020 and 2019, were as follows:
(In thousands of Brazilian Reais)
| Base salary | Variable compensation | Stock option plan – Note 24 | Total compensation | ||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||
| Board of directors (*) | |||||||||||||||
| Executive officers | |||||||||||||||
| Fiscal Council | |||||||||||||||
| % share-based payment over the total compensation | % | % | % | ||||||||||||
| (*) |
| F-43 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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) | ||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2019 | ||||||
| Controlling shareholders | ||||||||||||||||
| Casino (i) | ( |
( |
( | |||||||||||||
| Foncière Euris (i) | ( |
( |
( | |||||||||||||
| Helicco Participações (i) | ( | |||||||||||||||
| Geant international | ( | |||||||||||||||
| Wilkes | ( |
|||||||||||||||
| Associates | ||||||||||||||||
| FIC (iii) | ||||||||||||||||
| Puntos Colombia (v) | ( |
( |
( | |||||||||||||
| Tuya (vi) | ||||||||||||||||
| Other related parties | ||||||||||||||||
| Greenyellow (iv) | ( |
( |
( | |||||||||||||
| Sendas Distribuidora (viii) | ||||||||||||||||
| Casino Group (vii) | ( |
( |
( | |||||||||||||
| Others | ||||||||||||||||
| Total | ( |
( | ||||||||||||||
| F-44 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The Company's main transactions with related parties are:
| (i) |
| (ii) |
| (iii) | Greenyellow:
execution of (a) agreement with the |
| (iv) | Puntos
Colombia: Éxito's customer loyalty program. |
| (v) |
| (vi) |
| (vii) |
| F-45 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 - % | |||||
| 2021 | 2020 | ||||
| Companies | |||||
| Subsidiaries | |||||
| CBD | |||||
| - | |||||
| Éxito | |||||
| - | |||||
| F-46 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| (*) |
| (**) |
| (***) |
| (****) |
| F-47 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 - % | |||||
| 2021 | 2020 | ||||
| Companies | |||||
| 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.
| F-48 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The summarized financial statements are as follows:
| FIC | Cnova N.V. | Tuya | ||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||
| 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: | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||
| Revenues | |||||||||||
| Operating income | ( |
||||||||||
| Net income (loss) for the year | ( |
( |
( |
( | |||||||
In
applying the equity method in FIC, a special goodwill reserve of R$
The
investments in Tuya and Cnova N.V. including the goodwill acquired in the business combination (IFRS 3) with Éxito totals R$
| 12.3. | Breakdown of investments and rollfoward: |
FIC Note 1.1 |
Bellamar Note 1.1 |
Tuya | Puntos Colombia |
Other (*) | Total | |
| Balances at 12.31.2019 | ( |
|||||
| Share of profit (loss) of associates – continuing operation | |
- | ( |
| ||
| Dividends and interest on own capital - continuing operation | ( |
- | - | - | - | ( |
| Share of other comprehensive income | - | - | ( |
( | ||
| Capital increase | - | - | - | - | | |
| Deconsolidation | ( |
- | - | - | - | ( |
| Spin off – Sendas | - | - | - | - | ||
| Fair value adjustment | - | - | - | - | ||
| 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 | |
|
( |
| (*) |
| F-49 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 12.4. | Sale of investment in Via Varejo: |
In
June 2019, the Company concluded the sale of its subsidiary Via Varejo, through an auction held at B3 SA - Brasil, Bolsa, Balcão,
at a price of R$ Reais per share, totaling R$
The Company ceased to exercise corporate control over Via Varejo in June 2019. In the 2nd quarter of 2021, Via Varejo 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 Varejo still uses the Extra brand for the sale of products sold by it under the Extra Brand Usage License Agreement, which allows Via Varejo 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 Varejo 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 Varejo 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, a company that, in the merger process with Casas Bahia SA, had its name changed to Via Varejo and currently renamed to Via.
| F-50 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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, 2021. Based on the tests carried out, it was necessary to record a loss in the amount of R$
| Balance at 12.31.2020 | Additions | Impairment | Depre- ciation |
Write-off | Exchange rate | Transfers (*) | Balance at 12.31.2021 | |
| Land | ( |
( |
||||||
| Buildings | ( |
( |
( |
( |
||||
| Construction in progress | ( |
( |
||||||
| Total | ( |
( |
(230) | ( |
| (*) |
| Balance at 12.31.2019 | Additions | Impairment | Depreciation | Exchange rate | Transfers | Balance at 12.31.2020 | |
| Land | - | ( |
- | ( |
|||
| Buildings | ( |
( |
( |
||||
| Construction in progress | - | - | ( |
||||
| Total | ( |
( |
708 | ( |
| Balance at 12.31.2021 | Balance at 12.31.2020 | ||||||||||
| Cost | Accumulated depreciation | Net | Cost | Accumulated depreciation | Net | ||||||
| Land | - | ||||||||||
| Buildings | ( |
( |
|||||||||
| Construction in progress | |||||||||||
| Total | ( |
( |
|||||||||
| F-51 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The net result generated by investment properties is as follows:
| 2021 | 2020 | |
| 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 |
As
of December 31, 2021, the fair value of investment properties in use was R$
| Range | ||
| Discount rate | ||
| Vacancy rate | ||
| Terminal capitalization rate | ||
| F-52 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 14. | Property and equipment |
Property and equipment is 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 | to |
| Leasehold improvements | to |
| Machinery and equipment | to |
| Facilities | |
| Furniture and fixtures | to |
| Others | to |
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 2021 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.
| F-53 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 4.8% (4.6% in 2020) for periods exceeding the next five years and a discount rate of 10.6% (7.9% in 2020) 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 a loss amounting to R$5 in the consolidated financial statements. See considerations regarding the effects of the pandemic in note 1.3.
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.
| F-54 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2020 | Additions | Remea- surement (*) |
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 | ( |
( |
( |
( |
( |
( |
( |
| (*) |
| (**) |
| (***) |
| F-55 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2019 | Additions | Remea- surement |
Impairment | Depreciation | Write-offs | Merger | Transfers (*) | Exchange rate changes | Deconsolidation | Balance at 12.31.2020 | |
| Land | - | - | - | ( |
( |
( |
|||||
| Buildings | |
- | ( |
( |
( |
- | ( |
( |
|||
| Leasehold improvements | |
- | - | ( |
( |
- | ( |
||||
| Machinery and equipment | |
- | - | ( |
( |
- | ( |
||||
| Facilities | |
- | - | ( |
( |
- | ( |
( |
|||
| Furniture and fixtures | |
- | - | ( |
( |
- | ( |
||||
| Construction in progress | |
- | - | - | ( |
- | ( |
( |
|||
| Other | |
- | - | ( |
- | - | ( |
||||
| Total | - | ( |
( |
( |
( |
( |
|||||
| Lease – right of use: | |||||||||||
| Buildings | - | ( |
( |
- | ( |
( |
|||||
| Equipment | ( |
- | ( |
( |
- | - | ( |
||||
| Land | - | - | - | - | - | - | - | - | - | ||
| - | ( |
( |
- | ( |
( |
||||||
| Total | ( |
( |
( |
( |
( |
| (*) |
| F-56 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2021 | Balance at 12.31.2020 | ||||||||||
| 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, 2021 and 2020, 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, 2021 were R$
| 14.4. | Additions to property and equipment for cash flow presentation purposes are as follows: |
| 2021 | 2020 | ||
| Additions (i) | | ||
| Lease | ( |
( | |
| Capitalized borrowing costs | ( |
( | |
| Property and equipment financing - Additions (ii) | ( |
( | |
| Property and equipment financing - Payments (ii) | | ||
| Total |
| (i) |
| (ii) |
| F-57 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 14.5. | Other information |
At
December 31, 2021, 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 ( to years). The weighted average amortization rate
is
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.
| F-58 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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 | ( |
( |
( |
( |
( |
| (*) |
| (**) |
| Balance at 12.31.2019 | Additions | Amortization | Write-off | Remeasurement | Exchange rate changes | Transfer | Deconsolidation Sendas | Balance at 12.31.2020 | |
| Goodwill | - | - | - | ( |
|||||
| Tradename | - | - | - | - | ( |
||||
| Commercial rights (note 15.2) | - | - | - | - | - | ( |
|||
| Contractual rights | - | ( |
- | - | ( |
- | |||
| Software | ( |
( |
- | ( |
|||||
| ( |
( |
- | ( |
||||||
| Lease-right of use: | |||||||||
Right of use Paes Mendonça (*) |
- | ( |
- | - | - | ( |
|||
| Software | ( |
- | - | - | - | - | |||
| ( |
- | - | - | ( |
|||||
| Total | ( |
( |
( |
| (*) |
| F-59 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Balance at 12.31.2021 | Balance at 12.31.2020 | ||||||||||
| 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. They are 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
| F-60 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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: |
| 2021 | 2020 | ||
| Additions | |||
| Intangible assets financing - Addition | ( | ||
| Intangible assets financing - Payments | |||
| Total |
| 16. | Trade payables, net |
| 2021 | 2020 | ||
| Product suppliers | | ||
| Service suppliers | | ||
| Bonuses from suppliers (note 16.2) | ( |
( | |
| 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.
The Group also has commercial transactions increasing payment terms, as part of its commercial activities, without financial charges.
| 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.
| F-61 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 17. | Borrowings and financing |
| 17.1. | Debt breakdown |
| Weighted average rate | 2021 | 2020 | |||
| Debentures and promissory note | |||||
| Debentures, certificate of agribusiness receivables and promissory notes (note 17.4) |
|
||||
| Borrowings and financing | |||||
| Local currency | |||||
| BNDES | - | - | |||
| Working capital | |||||
| Working capital | |||||
| Swap contracts (note 17.7) | ( |
( | |||
| Unamortized borrowing costs | ( |
( | |||
| Foreign currency (note 17.5) | |||||
| Working capital | |||||
| Working capital | - | ||||
| Working capital | |||||
| Working capital Argentina | - | ||||
| Credit letter | |||||
| Swap contracts (note 17.7) | |||||
| Swap contracts (note 17.7) | - | ||||
| Unamortized borrowing costs | - | ( | |||
| Total | |||||
| Current assets | - | - | |||
| Non-current assets | |||||
| Current liabilities | |||||
| Non-current liabilities |
| F-62 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 17.2. | Changes in borrowings |
| 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 |
| At December 31, 2019 | ||
| Additions | ||
| Accrued interest | | |
| Accrued swap | ( | |
| Mark-to-market | | |
| Adjustment to present value | ||
| Monetary and exchange rate changes | | |
| Borrowing cost | | |
| Interest paid | ( | |
| Payments | ( | |
| Swap paid | | |
| Foreign currency translation adjustment | | |
| Deconsolidation Sendas | ( | |
| At December 31, 2020 | ||
| 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 |
| F-63 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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) | 12.31.2021 | 12.31.2020 | |
| 15th Issue of Debentures – CBD | No preference | - | - | - | - | ||||
| 16th Issue of Debentures – CBD (1st series) | No preference | - | - | - | - | ||||
| 16th Issue of Debentures – CBD (2nd series) | No preference | - | - | - | - | ||||
| 17th Issue of Debentures - CDB | No preference | ||||||||
| 4th Issue of Promissory Notes – CBD | 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 | |||||||||
| F-64 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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
January 17, 2018, CBD performed the 15th issuance of simple debentures, non-convertible into shares, unsecured, in a single series.
The resources are used to increase working capital and to extend the indebtedness profile. The amount of R$
On
September 11, 2018, CBD launched the 16th issuance of simple debentures, non-convertible to shares, unsecured, in two series.
The proceeds were used to increase working capital and extend the indebtedness profile. The total amount of R$
On December 17, 2018, CBD approved the
4th issue of promissory notes in a single series. The resources were used to increase working capital and extend the indebtedness profile.
The total amount was R$
On
January 6, 2020, CBD launched the 17th issuance of simple debentures, non-convertible to shares, unsecured, in single series.
The resources are used to increase working capital and to extend the indebtedness profile. The total amount of R$
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 and years, in the amount of R$
On July 20, 2021, the Company's Board of Directors approved its 5th issue of commercial promissory notes, in 2 series, with maturity between and years, in the total amount of R$1,000 for public distribution with efforts placement restrictions.
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, 2021 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.
| F-65 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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 2021 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, 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, 2021, GPA complied with these ratios.
| F-66 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 | |||
| 2021 | 2020 | ||
| 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. |
| F-67 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| • | 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. |
| • | 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.
The Group capital structure is as follows:
| 2021 | 2020 | ||
| Cash and cash equivalents | |||
| Financial instruments – Fair value hedge | ( | ||
| Borrowings, financing and debentures | ( |
( | |
| Other liabilities with related parties (*) | ( |
( | |
| Net financial debt | ( |
( | |
| Shareholders’ equity | ( |
( | |
| Net debt to equity ratio |
| (*) |
| F-68 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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, 2021.
| 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, 2021 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, 2021 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 | ||||
| 2021 | 2020 | 2021 | 2020 | ||
| Fair value hedge | |||||
| Hedge object (debt) | |||||
| Long position (buy) | |||||
| Prefixed rate | TR + 9.80% per year | ||||
| US$ + fixed | USD + 1.70% per year | ||||
| Short position (sell) | |||||
| CDI + 1.66% 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, 2021 are recorded as financial income or expenses
and the balance payable at fair value is R$
| F-69 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The
effects of the fair value hedge recorded in the Statements of Income for the year ended December 31, 2021 resulted in a gain of R$
| 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$ on the reporting date, and the interest rate weighted was
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.
| F-70 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 2021 | 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 | ( |
( |
( |
( | ||||||
| (*) |
The Éxito Group's sensitivity analysis considers the economic environment in which this company operates. In scenario I, the observable rates are used. In scenario II it is considered an increase of 10% and in scenario III it is a decrease of 10%.
Scenario I: Reference Bank Index in Colombia (IBR) available 3.4180%.
Scenario II: 0.34180% increase in IBR
Scenario III: 0.34180% decrease in IBR
| Market projection | ||||||||
| Transactions | Balance 2021 |
Scenario I | Scenario II | Scenario III | ||||
| Bank loans and swap | ( |
( | ||||||
| 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.
| F-71 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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:
| Carrying amount | Fair value | ||
| 12.31.2021 | 12.31.2021 | Level | |
| Financial assets and liabilities | |||
| Trade receivables with credit card companies and sales vouchers | 2 | ||
| Cross-currency interest rate swap | ( |
( |
2 |
| Interest rate swaps | 2 | ||
| Forward between Currencies | 2 | ||
| Borrowings and financing (FVPL) | ( |
( |
2 |
| Borrowings and financing and debentures (amortized cost) | ( |
( |
2 |
| Disco Group put option (*) | ( |
( |
3 |
| Total | ( |
( |
| (*) |
There were no changes between the fair value measurements hierarchy levels during the year ended December 31, 2021.
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.
| F-72 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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 | 2021 | 2020 |
| Debt | ||||
| USD - BRL | US$
|
( |
( | |
| Interest rate - BRL | R$
|
|||
| Derivatives - Fair value hedge - Brazil | ( |
( | ||
| Lease liability | ||||
| USD - COP | US$
|
|||
| Debt | ||||
| Interest rate - COP | COP
|
( | ||
| Interest rate - COP | COP
|
( | ||
| Interest rate - COP | COP
|
- | ||
| Interest rate - COP | COP
|
- | ||
| ( | ||||
| Trade payables | ||||
| EUR - COP | EUR
|
( | ||
| USD - COP | USD
|
( | ||
| USD - COP | USD
|
- | ||
| ( | ||||
| Derivatives – Éxito Group | ( | |||
| F-73 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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:
| 2021 | 2020 | ||
| Taxes payable in installments - Law 11,941/09 (ii) | | ||
| Taxes payable in installments – PERT(i) | | ||
| ICMS | | ||
| PIS and COFINS | | ||
| Provision for income tax and social contribution | |||
| Withholding Income Tax | | ||
| INSS | | ||
| Other | | ||
| Taxes payable – Éxito Group | | ||
| Current | | ||
| Non-current | | ||
| (i) |
| (ii) |
| F-74 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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 | |
| From 4 to 5 years | |
| 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.
| F-75 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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.
| 20.1 | Income tax and social contribution effective rate reconciliation |
| 2021 | 2020 | 2019 | ||
| 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 (***) | ( |
|||
| 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 | - |
| (*) |
| (**) |
| (***) |
| (****) |
| F-76 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 20.2 | Breakdown of deferred income tax and social contribution |
| 2021 | 2020 | ||||||
| Asset | Liability | Net | Asset | Liability | Net | ||
| Tax losses and negative basis of social contribution | - | - | |||||
| Provision for contingencies | - | - | |||||
| 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 |
| 2021 | 2020 | 2019 | ||
| Opening balance | ( |
( |
( | |
| Credit (expense) for the year – Continuing operations | ( |
( | ||
| Credit (expense) for the year - Discontinued operations | ( | |||
| Tax on discontinued operations | ||||
| Income tax related to OCI - Continuing operations | ||||
| Income tax related to OCI - Discontinued operations | ( | |||
| Business combination | ( | |||
| Exchange rate changes | ( |
( | ||
| Assets held for sale and discontinued operations | ||||
| Deconsolidation - Sendas | ||||
| Other | ( |
( |
( | |
| At the end of the period | ( |
( |
( |
| F-77 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 21. | Provision for contingencies |
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 contingencies 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, 2020 | ||||
| Additions | ||||
| Payments | ( |
( |
( |
( |
| Reversals | ( |
( |
( |
( |
| Monetary adjustment | ||||
| Exchange rate changes | ( |
( |
( |
( |
| Balance at December 31, 2021 |
| Tax | Social security and labor |
Civil and Regulatory |
Total | |
| Balance at December 31, 2019 | ||||
| Additions | ||||
| Payments | ( |
( |
( |
( |
| Reversals | ( |
( |
( |
( |
| Monetary adjustment | ( |
|||
| Exchange rate changes | ||||
| Deconsolidation Sendas (*) | ( |
( |
( |
( |
| Balance at December 31, 2020 |
| (*) |
| F-78 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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:
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, 2021 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, 2021 was R$437 (R$497 as of December 31, 2020).
Indemnification with Sendas
The
Company is responsible for the legal proceedings of Sendas Distribuidora prior to Assai's activity. At December 31, 2021, the accrued
amount of tax lawsuits is R$
Éxito Group
Éxito
and its subsidiaries have tax claims related to value added tax, property tax and industry and commerce taxes in the accrued amount
of R$
| F-79 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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, 2021,
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, 2021, 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, 2021 the amount accrued for this provision is R$ |
| • | The subsidiary Éxito
and its subsidiaries respond to certain lawsuits related to civil liability claims, lawsuits for rental conditions and other matters
in the accrued amount of R$ |
| • | In relation to the
provisioned amounts remaining for other civil jurisdiction claims on December 31, 2021, it is an accrual of R$ |
Total
civil lawsuits and other claims as of December 31, 2021 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$
| F-80 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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
subsidiary Éxito and its subsidiaries have an amount of 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$
| F-81 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The
Company is responsible for the legal proceedings of Sendas Distribuidora prior to the Assai activity. At December 31, 2021, 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, 2021 the estimated amount,
in case of success in all lawsuits, is approximately R$
| 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.
| 2021 | 2020 | ||
| Tax | | ||
| Labor | | ||
| Civil and other | | ||
| Total |
| 21.6 | Guarantees |
| Lawsuits | Property and equipment | Letter of Guarantee | Total | |||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||
| Tax | ||||||||
| Labor | ||||||||
| Civil and other | ||||||||
| Total | ||||||||
The cost of letter of guarantees is approximately 0.46% 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), in turn, appealed against this decision, with the aim of modulating its effects and clarifying which ICMS value should, after all, be object of suppression from the PIS and COFINS bases.
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.
| F-82 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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 Varejo 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 Varejo. The periods which GPA is entitled to be reimbursed relate to the subsidiary Globex (that was merged in the formation of Via Varejo) for the years between 2003 and 2010. CBD has already recognized in fiscal year 2020, R$231 of a receivable with Via Varejo. The related gain was recognized in the net result of discontinued operations. In addition, the Company believes it is entitled to an outstanding amount of R$277, to be confirmed by documents to be provided by Via Varejo.
| 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 result the amount of R$17 in other operating expenses, in addition to the remeasurement related to contractual changes in accordance with IFRS 16.
| 22 | Leases |
| 22.1 | Lease obligations |
When entering into a contract, the Company assesses whether the contract is, or contains, a lease. The contract is, or contains, a lease if it transfers the right to control the use of the identified asset for a specified period in exchange for consideration.
The Company leases equipment and commercial spaces, including stores and distribution centers, under cancellable and non-cancellable lease agreements. The terms of the contracts vary substantially between and years.
| F-83 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The Group as lessee
The
Group evaluates its lease agreements in order to identify lease terms for a right to use, using the exemptions provided for contracts
with a term of less than twelve months and an individual asset value below US$
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$6,118 as of December 31, 2021 (R$8,374 as of December 31, 2020), as presented in the following table:
| 2021 | 2020 | ||
| 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
| F-84 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 22.2 | Movement of lease liabilities |
| 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 | ||
| At December 31, 2019 | ||
| Additions | | |
| Remeasurement | | |
| Accrued interest | | |
| Payments | ( | |
| Anticipated lease contract termination | ( | |
| Exchange rate changes | | |
| Deconsolidation of Sendas | ( | |
| At December 31, 2020 | ||
| Current | ||
| Non-current | ||
| (*) |
| 22.3 | Lease expense on variable rents, low value assets and short-term agreements |
| 2021 | 2020 | 2019 | |
| Expenses (income) for the year: | |||
| Variable (0.1% to 4.5% of sales) | |||
| Sublease rentals (*) | ( |
( |
( |
| (*) |
| F-85 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| 2021 | 2020 | ||
| 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 |
On December 30, 2019, the Company's shareholders at the Extraordinary General Meeting approved the Company’s share to be traded in the Novo Mercado of B3 S.A. - Brasil, Bolsa, Balcão (“B3”), and the conversion of all preferred shares into common shares, in the ratio of one common share for each preferred share. On February 14, 2020, B3 approved the admission of the Company to the special listing segment “Novo Mercado”. On March 02, 2020 the conversion process of the preferred shares into common shares was completed and GPA started trading on the Novo Mercado.
The
subscribed and paid-up capital as of December 31, 2021 is represented by (as of December 31, 2020) in thousands of registered shares with
no par value. At December 31, 2021, capital is R$
The Company is authorized to increase its capital stock up to the limit of shares, regardless of any amendment to the Company’s Bylaws, upon resolution of the Board of Directors.
At the Board of Directors’ Meetings held on June 1, 2021, July 28, 2021, November 3, 2021 and December 9, 2021, it was approved a capital increase totaling R$ through the issuance of thousand shares. At the Board of Directors’ Meetings held on February 19, 2020, March 24, 2020, May 13, 2020, July 29, 2020 and October 28, 2020, it was approved a capital increase totaling R$ through the issuance of thousands of shares.
| F-86 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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 |
| (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 |
| (iii) | Governmental subsidy reserve: see Note 24.2 |
| (iv) | Retained earnings: correspond to reserve is composed of transactions with non-controlling shareholders and translation adjustments in foreign subsidiaries with hyperinflationary economies. |
| 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.
| F-87 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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, 2021.
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. For the year ended December 31, 2021, the B6 and B7 Series of the Compensation Plan were granted.
Options
granted to a participant vest on a period of (thirty six) months from the date of grant ("Grace Period"), except with formal
authorization by the Company, and
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.
| F-88 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
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 (thirty six) months from the Grant Date ("Grace Period"), and
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:
| 2021 | |||||||||
| Number of options (in thousands) | |||||||||
| Series granted | Grant date | 1st date of exercise | Exercise price at the grant date |
Granted |
Exercised | Cancelled | Expired | Outstanding | |
| B5 | ( |
( |
( |
- | |||||
| C5 | ( |
( |
( |
- | |||||
| B6 | ( |
( |
- | ||||||
| C6 | ( |
( |
- | ||||||
| B7 | ( |
( |
- | ||||||
| C7 | ( |
( |
- | ||||||
| ( |
( |
( |
|||||||
According to the terms of the plans, including B6 and C6 series, each option offers the participant the right to acquire ordinary share. . The series are different, exclusively, in the exercise price of the options and in the existence or not of a restriction of selling after vesting.
According to the plans, the options granted in each of the series may represent maximum % of the total shares issued by the Company.
| F-89 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
At December 31, 2021 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:
| 2021 | 2020 | |
| 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 B5 and C5 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 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 1.61%, (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, 2021 is year ( year at December 31, 2020). The weighted average fair value of options granted at December 31, 2021 was R$ (R$ at December 31, 2020).
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:
| F-90 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Shares in thousands | Weighted average of exercise price | Weighted average of remaining contractual term | |
| At December 31, 2020 | |||
| 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, 2020 | |
|
|
| 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 |
The amounts recorded in the Statements of Income, for the year ended December 31, 2021 were R$ (R$ as of December 31, 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$1,
| 24.2. | Governmental subsidy reserve |
As mentioned in note 20.1, many of the tax incentives granted by the States started to be characterized as subsidies for investments, not achieved by the taxation of income tax and social contribution.
The respective amounts of these incentives must be allocated, in shareholders' equity, in a tax incentive reserve account. As provided for in article 30 of Law No. 12,973/14, said reserve may be used to absorb losses, provided that the other profit reserves have already been fully absorbed, with the exception of the legal reserve, or to increase capital.
This same legal provision provides that the amounts computed in the tax incentive reserve should not form the basis for calculating the minimum mandatory dividend, and the Company must submit amounts that may be allocated to partners or shareholders for taxation by the IRPJ and CSLL.
On
June 29, 2018, and in December 2018, an extraordinary shareholders’ meeting approved Management’s proposal to transfer a
total R$
| F-91 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
In
December 2020 the Management’s proposal an additional R$
In
December 2021, the Company allocated another 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 | |||
| 2021 | 2020 | 2019 | |
| Net income for the year | |||
| Legal reserve | ( |
( |
( |
| Governmental subsidy reserve | ( |
( |
|
| Calculation basis of dividends | |||
| Mandatory minimum dividends – 25% | |||
| Payment of interim dividends as interest on own capital, net of withholding taxes | ( |
||
| Dividends payable | |||
| 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, 2021 dividends in the amount of R$
| F-92 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 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.
| 2021 | 2020 | 2019 | ||
| Gross sales | ||||
| Goods | ||||
| Services rendered | ||||
| Sales returns and cancellations | ( |
( |
( | |
| Taxes on sales | ( |
( |
( | |
| Net operating revenue |
| F-93 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| 2021 | 2020 | 2019 | ||
| Cost of inventories | ( |
( |
( | |
| Personnel expenses | ( |
( |
( | |
| Outsourced services | ( |
( |
( | |
| Overhead expenses | ( |
( |
( | |
| Commercial expenses | ( |
( |
( | |
| Other expenses | ( |
( |
( | |
| ( |
( |
( | ||
| Cost of sales | ||||
| Selling expenses | ||||
| General and administrative expenses | ||||
| ( |
( |
( |
| F-94 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| 2021 | 2020 | 2019 | ||
| Tax installments and other tax risks | ( |
( |
( | |
| Restructuring expenses (i) | ( |
( |
( | |
| Gain on disposal of property and equipment(ii) | ( |
| ||
| Extra Hiper stores transaction (iii) | - | - | ||
| Corporate reorganization (iv) | - | |||
| Prevention spending – Covid-19 (v) | ( |
- | ||
| Others | - | - | ||
| ( |
( |
( |
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| F-95 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
| 2021 | 2020 | 2019 | ||
| 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.
| F-96 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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.
As mentioned in note 1.5, the migration process to “Novo Mercado” was concluded and, therefore, the Company started to present earnings per share considering a single class of shares for 2019
| 2021 | 2020 | 2019 | |||
| 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 |
| F-97 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (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 the following business segments:
| • | Brazilian retail – includes the banners “Pão de Açúcar”, “Extra Hiper”, “Extra Supermercado” / “Mercado Extra”, “Minimercado Extra”, “Minuto Pão de Açúcar”, “Comprebem”, “Posto Extra, “Drogaria Extra” and “GPA Malls Properties”. |
| • | Grupo Éxito - includes the company Éxito (Colômbia) and its subsidiaries Libertad (Argentina) and Disco (Uruguay). Éxito also operates the brands Surtimax, Super Inter and CarullaHome, consequence of the business combination of Éxito in November 2019. |
| • | Other businesses - is composed of the results of James Delivery, Cheftime, Stix and the results of our investment in associate Cnova N.V. |
Appliances and e-commerce segments were sold and are presented as Discontinued Operations on December 31, 2019 (note 12.4). The cash and carry segment, Assai, has been contributed to the Company’s shareholders and is also presented as a discontinued operation as of December 31, 2020 and 2019 (note 1.2). Those segments are maintained in this note for reconciliation purposes.
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 in 2019.
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:
| F-98 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| Description | |||||||||||||||||||
| Brazilian retail | Grupo Éxito | Other Business | Discontinued operations | Total | |||||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||
| Net operating revenue | |
|
|
|
|
- | - | - | | ||||||||||
| Operating income | ( |
( |
( |
- | - | - | |
| |||||||||||
| Net financial expenses | ( |
( |
( |
( |
( |
( |
( |
( |
- | - | - | ( |
( |
( | |||||
| Profit(loss) before income tax and social contribution | ( |
|
( |
|
( |
( |
( |
- | - | - | |
( | |||||||
| Share of profit of associates | |
|
( |
( |
( |
( |
- | - | - | ( |
| ||||||||
| 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 | ( |
- | - |
| F-99 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
The Group operates primarily as a retailer of food, clothing, home appliances and other products. Total revenues by geographic region is showed below:
| 2021 | 2020 | 2019 | |||
| Brazil | |||||
| Retail | |||||
| Other businesses | |||||
| Éxito Group | |||||
| Colombia | | ||||
| Uruguay | |||||
| Argentina | | ||||
| 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.
| 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 | 2021 | 2020 | |
| Properties / lands held for sale | |||
| Extra Hiper Stores (Note 1.1) (*) | |||
| Real estate developments held for sale - Éxito | |||
| Assets held for sale | |||
| Extra Hiper Stores / Lease liability (Note 1.1) | |||
| Liabilities held for sale |
| (*) |
| F-100 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 33. | Discontinued operations |
| a) | Via Varejo |
As disclosed in notes 2 and 12.4, on June 14, 2019, the sale of Via Varejo S.A. (“VV”) was concluded, the date on which control of the subsidiary was exercised by its new controlling shareholders.
Following are the balance sheet and consolidated statements of Via Varejo's cash flows before eliminations, including effects of purchase price allocation on the acquisitions of Globex and Casa Bahia:
Balance sheet (*):
| 05.31.2019 | |
| 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: | 05.31.2019 | |
| Cash flow provided by (used in) operating activities | ( | |
| Net cash provided by (used in) investing activities | ( | |
| Net cash provided by (used in) financing activities | ( | |
| Cash variation in the period | ( |
Income statement:
The breakdown of profit from discontinued operations presented in the consolidated income statement of the Company is as follows:
| 05.31.2019 | ||
| Net operating revenue | ||
| Net income before income tax and social contribution | ||
| Income tax and social contribution | ( | |
| Net income for the period |
| F-101 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| b) | Sendas |
On December 31, 2020, the Company lost control of the subsidiary Sendas (note 1.1), as a result of the spin off, Sendas' net result is presented as a discontinued operation. Below is the summary cash flow statement and income statement:
| Cash flow: | 12.31.2020 | 12.31.2019 |
| Cash flow provided by operating activities | ( | |
| Net cash used in investing activities | ( |
( |
| Net cash used in financing activities | ( |
|
| Cash variation in the year |
| Income statement | 12.31.2020 | 12.31.2019 |
| Net operating revenue | ||
| Net income before income tax and social contribution | ||
| Income tax and social contribution | ( |
( |
| Net income for the period |
| c) | Composition of discontinued operations |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Net income Via Varejo | - | ||
| Net income - Sendas | |||
| Other results from discontinued operations | ( |
( | |
| Gain on the sale of discontinued operations (note 12.4) | - | ||
| Net income from discontinued operations presented in the consolidated income statement of the Company | ( |
||
| Attributable: | |||
| Controlling shareholders of the Company | ( |
||
| Participation of non-controlling shareholders | - |
In
2020, the amount of R$
| F-102 |
Companhia Brasileira de Distribuição
Notes to the consolidated financial statements December 31, 2021, 2020 and 2019 (In millions of Brazilian Reais, unless otherwise stated) |
| 34. | Insurance coverage |
The insurance coverage as of December 31, 2021 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 |
35.1 Discontinuation of the business of Extra Hiper stores and sale of assets with Sendas
On April 4; 2022, Company and Sendas (Assaí) informed their shareholders and the market in general that the assignment of the exploration rights of over 40 commercial points to Assaí has been concluded, adding to the 20 carried out in Q4 2021, we ended Q1 22 with 60 commercial points assigned, 86% of the total, in line with the material facts already disclosed on October 14th and December 16th, 2021 related to the transaction involving the conversion of stores under the “Extra Hiper” banner operated by GPA in cash carry stores, which will be operated by Assaí. The other 10 remaining commercial points are expected to be concluded until the end of May 2022, date that can be postponed depending on administrative procedures.
In the first quarter of 2022, for the sale of these 40 commercial points, Company recorded revenue in the amount of R$3,685, in addition to write-offs of assets corresponding to the amount of R$954, and expenses of R$494 (R$136 of which related to dismissal of employees, R$94 cancellation of contracts, and R$264 other expenses related to the transaction) generating the net gain in the amount of R$2,237.
Of the 33 Extra Hiper stores that were not assigned to Sendas a portion will be converted into other banners and a portion will be closed, this plan is being currently reviewed.
35.2 Distribution of interest on equity (“EI”)
| F-103 |