Companhia Brasileira de Distribuicao (NYSE:CBD) Q1 2023 Results Conference Call May 4, 2023 9:00 AM ET Felipe Cassimiro - Bradesco BBI Operator I will now turn the conference over to Marcelo Pimentel, who will begin the presentation. Please, Mr. Pimentel, you may proceed. I'd like to draw your attention to our same-store sales growth by 6.3% versus Q1 2022, which is excellent news considering the scenario of declining consumer spending and inflation. Pao de Acucar which already accounts And to close this sl ...

Capital Structure and Shareholder Rights - As of December 31, 2021, the company's subscribed and paid-up capital was represented by 269,336,551 common shares, with no par value [389]. - The company is authorized to increase its capital stock up to 400,000,000 common shares, subject to board of directors' resolution [390]. - The mandatory minimum dividend is set at 25% of the adjusted net profit, which is defined as net profit after certain adjustments [394]. - The company must appropriate 5% of its net profit to a legal reserve until it reaches 20% of the share capital [396]. - Dividends must be available to shareholders within 60 days after declaration, and shareholders have a three-year period to claim dividends [399]. - Shareholders representing at least 10% of the voting stock have the right to elect one member of the board of directors, promoting minority shareholder representation [405]. - The company’s bylaws include an indemnity provision for board members and management, ensuring protection against civil liabilities under certain conditions [406]. - The quorum for shareholders' meetings requires at least 25% of total shares with voting rights, ensuring adequate representation for decision-making [414]. - The company is permitted to eliminate preemptive rights for capital increases under specific conditions, facilitating strategic financial maneuvers [415]. - Shareholders have the right to participate equally in profit distributions and residual assets in the event of liquidation, safeguarding their investments [405]. - The company’s fiscal council can be called by shareholders holding a predetermined percentage of shares, ensuring accountability in management [410]. - The company must publish notices of shareholders' meetings at least three times, ensuring transparency and compliance with Brazilian corporate law [411]. - The affirmative vote of shareholders representing more than half of the issued shares is required for significant corporate actions, such as mergers and dissolutions, protecting shareholder interests [414]. Financial Transactions and Obligations - The estimated price for the Real Estate Properties Assignment Transaction involving 70 Extra Hiper stores is R$5,173.0 million, with R$3,973.0 million to be paid by Sendas in installments between December 2021 and January 2024 [427]. - As of December 31, 2021, the company had received R$1.0 billion from Sendas under the Real Estate Properties Assignment Transaction [427]. - The company is required to launch a public tender offer to purchase all minority voting shares at a price equal to at least 80% of the control price upon a sale of control [420]. - Any person acquiring more than 25% of the company's equity interest must commence a public tender offer to purchase all outstanding shares within 30 days [423]. - The purchase price in a tender offer must be at least the greater of the economic value of the company, the highest price paid during the last 12 months, or 125% of the weighted average unit price over the last 120 trading sessions [423]. - The company has provisions to avoid concentration of shares in a small group of investors, promoting widespread ownership [421]. - The right to withdraw shares lapses 30 days after the publication of the minutes of the relevant shareholders' meeting [417]. - Shareholders exercising withdrawal rights are entitled to receive book value for their shares based on the most recent audited balance sheet [417]. - The company must pay 80% of the book value of shares according to the most recent audited balance sheet immediately upon a withdrawal request [417]. Taxation and Regulatory Compliance - The company is subject to Brazilian corporate law and regulations regarding shareholder rights and disputes, including arbitration for controversies [424]. - Dividends paid by Brazilian corporations to Non-Brazilian Holders are currently not subject to withholding income tax if related to profits generated on or after January 1, 1996 [434]. - Excess Dividends paid to Non-Resident Holders may be subject to withholding tax rates of 15.0% or 25.0% depending on the jurisdiction of the beneficiary [434]. - Interest on shareholders' equity payments to Non-Resident Holders are subject to a withholding tax of 15.0% or 25.0% if the holder is in a Low or Nil Tax Jurisdiction [436]. - Capital gains from the sale of common shares on a Brazilian stock exchange are exempt from income tax for Non-Resident Holders registered under Central Bank rules [442]. - Non-Resident Holders not registered under Central Bank rules may face capital gains tax rates ranging from 15.0% to 25.0% depending on their jurisdiction [442]. - The Brazilian tax authorities have pending legislation discussing the taxation of dividends, which may impact future distributions [436]. - The New Brazilian Tax Regime introduced in 2014 has replaced the Transitory Tax Regime and includes new provisions regarding Excess Dividends [434]. - Payments of interest on shareholders' equity can be included as part of mandatory dividends, ensuring compliance with Brazilian law [436]. - Non-Resident Holders may register their common shares as foreign portfolio investments to benefit from specific tax treatments [441]. - The definition of Low or Nil Tax Jurisdictions may affect the withholding tax rates applicable to Non-Resident Holders [445]. - The Brazilian tax authorities apply a 15.0% withholding tax (WHT) on payments to beneficiaries in privileged tax regimes, which could increase to 25.0% if deemed applicable to Non-Resident Holders [447]. - There are no federal inheritance, gift, or succession taxes on common shares or ADSs for Non-Resident Holders, but state-level taxes may apply for gifts or inheritances [448]. - The current IOF/Exchange rate for foreign currency transactions is 0.38%, with a 0% rate for inflows and outflows related to foreign investments in Brazil [448]. - The IOF/Bonds tax rate for transactions involving common shares is currently 0%, but may increase to 1.5% per day for future transactions [449]. - Dividends paid on ADSs may qualify as "qualified dividend income" if certain conditions are met, including being readily tradable on a U.S. exchange [455]. - U.S. holders may treat capital gains from the sale of common shares or ADSs as long-term if held for more than one year, subject to preferential tax rates [456]. - Brazilian income tax on capital gains may not be creditable for U.S. holders unless sufficient foreign source income is derived [458]. - Distributions from common shares or ADSs are generally subject to U.S. federal income taxation as ordinary income, with potential implications for foreign tax credits [453]. - The Brazilian government reserves the right to increase the IOF/Exchange rate to a maximum of 25.0% for future transactions [448]. - U.S. holders should consult tax advisors regarding the treatment of foreign currency gains or losses related to dividends received in Brazilian currency [453]. - The company does not expect its common shares or ADSs to be considered common shares of a Passive Foreign Investment Company (PFIC) for the current fiscal year [459]. - U.S. holders may face adverse tax consequences if the common shares or ADSs are classified as PFICs, including potential interest charges on gains or excess distributions [459]. - U.S. holders of common shares or ADSs may be required to file IRS Form 8621 if they exceed certain de minimis amounts during any taxable year in which the company is classified as a PFIC [461]. - The company does not intend to provide the necessary information for U.S. holders to make a Qualified Electing Fund (QEF) election, limiting their options for tax treatment [459]. - Backup withholding may apply to certain payments to U.S. holders unless they provide the correct taxpayer identification number and certify their status [462]. Financial Management and Risk Exposure - The company engages in cross-currency interest rate swaps to manage financial market risk related to U.S. dollar-denominated liabilities, effectively converting them to obligations in reais [468]. - Grupo Éxito uses derivatives to hedge against foreign exchange variations on imports and bank loans, specifically targeting U.S. dollars and euros [470]. - The company is exposed to interest rate volatility regarding cash and cash equivalents, with rates based on the CDI rate, which is the benchmark interest rate in Brazil [471]. - The company manages its debt portfolio by periodically retiring, redeeming, and repurchasing debt, as well as using derivative financial instruments to mitigate risks [471]. - Significant interest rate-sensitive instruments are monitored, with variable interest rate debt reflecting a weighted average rate as of December 31, 2021 [471]. - Total cash and cash equivalents amounted to R$8,274 million, with cash equivalents denominated in reais at R$4,693 million, representing 93.51% of CDI [473]. - Total loans and financing reached R$4,451 million, with a significant portion in floating rates, including R$1,095 million in debentures [478]. - The company reported a net foreign currency exposure of R$7 million in U.S. dollar-denominated debt as of December 31, 2021, down from R$12 million in 2020 [476]. - Sales to customers using credit cards accounted for 47.2% of consolidated net operating revenue in 2021, indicating a strong reliance on credit card transactions [480]. - The company has not experienced difficulties in obtaining financing or refinancing existing debt, ensuring liquidity and capital resources [475]. - The average interest rate for loans and financing was reported at 9.15% as of December 31, 2021, compared to 1.90% in 2020 [478]. - The company has cross-currency interest rate swaps in place to mitigate risks associated with U.S. dollar-denominated debt, totaling US$50 million [479]. - Total liabilities were reported at R$9,080 million, with a notable increase in loans and financing compared to previous years [478]. - The company has implemented investment policies to minimize credit risk, particularly regarding cash and cash equivalents [480]. Depositary and ADR Program - The depositary has agreed to reimburse the Company for expenses related to the establishment and maintenance of the ADS program [485]. - The depositary will cover the Company's annual stock exchange listing fees [485]. - Standard out-of-pocket maintenance costs for the ADRs will be paid by the depositary, including expenses for mailing financial reports and distributing dividend checks [485]. - The depositary will reimburse the Company for certain investor relationship programs and promotional activities annually [485]. - Additional payments may be provided to the Company based on performance indicators related to the ADR facility [485]. - There are limits on the amount of expenses for which the depositary will reimburse the Company [485]. - The reimbursement amount is not necessarily tied to the fees collected from investors by the depositary [485].

Capital Structure and Shareholder Rights - As of December 31, 2020, the company had a subscribed and paid-up capital represented by 268,351,567 common shares[387]. - The company is authorized to increase its capital stock up to 400,000 thousand shares without amending its bylaws[390]. - The mandatory minimum dividend is set at 25% of the adjusted net profit, which must be distributed to shareholders[396]. - The company may allocate 5% of its net profit to a legal reserve until it reaches 20% of the share capital[396]. - The company can pay interest on shareholders' equity, which may be treated as deductible expenses for tax purposes[400]. - Payments of interest on shareholders' equity cannot exceed 50% of net profit for the year[400]. - The company must distribute dividends within 60 days after the declaration date[399]. - Shareholders holding at least 10% of the voting stock can elect one member of the board of directors[404]. - The quorum for shareholders' meetings is at least 25% of issued and outstanding common shares on the first call[415]. - Shareholders have a preemptive right to subscribe for shares in any capital increase, proportional to their shareholding[416]. - The company must allocate net profits and determine dividend distribution at the annual shareholders' meeting[408]. - The company is required to conduct a public tender offer to buy all shares held by remaining shareholders in the event of a sale of control, ensuring equal treatment of all shareholders[422]. - Any person or group acquiring more than 25% of the company's equity interest must commence a public tender offer within 30 days, with the purchase price being at least 125% of the weighted average unit price over the previous 120 trading sessions[425]. - Shareholders exercising withdrawal rights are entitled to receive book value for their shares based on the most recent audited balance sheet, with specific conditions for valuation if the resolution is adopted more than 60 days after the last audited balance sheet[429]. - The right to withdraw shares lapses 30 days after the publication of the minutes of the relevant shareholders' meeting, with the company entitled to reconsider actions that may jeopardize financial stability[429]. - The company’s shares are not redeemable, and dissenting shareholders have specific rights under Brazilian corporate law regarding withdrawal[418]. - The acquisition of a significant equity interest triggers a mandatory public tender offer, promoting widespread ownership and preventing concentration of shares[423]. - The company is subject to Brazilian corporate law, which includes provisions for tender offers and shareholder rights in the event of control changes[421]. Financial Performance and Taxation - Dividends paid by Brazilian corporations to Non-Resident Holders are currently not subject to withholding income tax if related to profits generated on or after January 1, 1996[434]. - Excess Dividends paid to Non-Resident Holders may be subject to a withholding tax of 15.0% or 25.0% depending on the tax jurisdiction of the beneficiary[434]. - Payments of interest on shareholders' equity to Non-Resident Holders are subject to withholding tax at rates of 15.0% or 25.0% based on the tax jurisdiction[437]. - Capital gains from the sale of common shares on a Brazilian stock exchange are exempt from income tax for Non-Resident Holders who are registered under specific regulations[440]. - Non-Resident Holders not registered under the applicable regulations may face capital gains tax rates ranging from 15.0% to 25.0% depending on their tax jurisdiction[443]. - The conversion of ADS into common shares should not subject Non-Resident Holders to Brazilian income tax[439]. - There is pending legislation in Brazil discussing the taxation of dividends, which may impact future distributions[434]. - The average price per common share on the B3 on the day of deposit may determine capital gains tax implications for Non-Resident Holders converting common shares into ADS[444]. - Brazilian tax authorities have established that profits calculated under IFRS may differ from those calculated under previous accounting methods, affecting dividend distributions[434]. - The distribution of interest on shareholders' equity must be proposed by the board of directors and ratified by shareholders[437]. - The Brazilian tax authorities have established a minimum withholding tax rate of 15.0% for payments to beneficiaries in privileged tax regimes, which could increase to 25.0% if deemed applicable to Non-Resident Holders[447]. - The IOF/Exchange tax rate for foreign currency exchange transactions is currently set at 0.38%, with a 0% rate applicable for inflows related to investments in the Brazilian financial market[450]. - The IOF/Bonds tax rate for transactions involving common shares is currently 0%, but the government may increase it up to 1.5% per day for future transactions[451]. - There are no federal inheritance, gift, or succession taxes applicable to Non-Resident Holders for the ownership or transfer of common shares or ADSs[448]. - Dividends paid to U.S. holders will generally be subject to U.S. federal income taxation as ordinary income, with potential for reduced tax rates if classified as qualified dividend income[455]. - The Brazilian government reserves the right to increase the IOF/Exchange tax rate to a maximum of 25.0% at any time for future transactions[450]. - The current understanding is that the withholding tax applicable to payments made to Non-Resident Holders could be assessed at a rate up to 25.0% if classified under a privileged tax regime[447]. - Distributions paid in Brazilian currency will be included in the gross income of U.S. holders based on the exchange rate at the time of receipt[455]. - The Brazilian tax authorities have not yet amended the list of Low or Nil Tax Jurisdictions to reflect the reduced 17.0% threshold established by Ordinance No. 488[447]. - U.S. holders should consult tax advisors regarding the treatment of foreign currency gain or loss related to dividends received in Brazilian currency[457]. - The company does not expect its common shares or ADSs to be classified as a Passive Foreign Investment Company (PFIC) for the current fiscal year, based on projected income and assets[459]. - U.S. holders may face adverse tax consequences if the company is deemed a PFIC, including potential interest charges on gains or excess distributions[461]. Financial Management and Risk - The company employs a treasury policy to manage financial market risk, particularly by swapping a substantial portion of U.S. dollar-denominated liabilities to obligations in reais[470]. - Cross-currency interest rate swaps are utilized to hedge against U.S. dollar currency exposure and interest rate fluctuations[470]. - The company is exposed to interest rate volatility regarding cash and cash equivalents, which are generally swapped to floating rates based on the CDI rate[471]. - Significant interest rate-sensitive instruments are managed through periodic debt retirement and the use of derivative financial instruments[473]. - The company uses bank loans, typically denominated in U.S. dollars and swapped to reais, to meet financing requirements[471]. - Éxito Group employs derivatives to hedge against foreign exchange variations on imports and bank loans[470]. - Credit risks related to accounts receivable are minimized by selling receivables to banks and credit card companies, enhancing working capital[480]. - The company has established investment policies at financial institutions to minimize credit risk, regularly updated by the Financial Committee[478]. - Total cash and cash equivalents amounted to R$8,711 million in 2021, with a significant increase in cash and banks denominated in reais to R$4,943 million in 2022[474]. - Total liabilities increased to R$9,163 million in 2022, with total loans and financing reaching R$4,556 million, reflecting a rise from R$2,373 million in 2021[474]. - The company reported that sales to customers using credit cards accounted for 46.5% of consolidated net operating revenue in 2020, indicating a stable reliance on credit card transactions[480]. - The net foreign currency exposure to U.S. dollars was a credit of R$12 million as of December 31, 2020, down from R$15 million in 2019, showing improved management of foreign currency risks[477]. - The average interest rate for loans denominated in reais was 9.80% per year, while loans in U.S. dollars had an average rate of USD + 2.27% per year[474]. - The company has not experienced difficulties in obtaining financing or refinancing existing debt, indicating strong liquidity and capital resources[474]. - The total amount of debentures and promissory notes in reais was R$4,607 million in 2022, with a notable increase from R$2,383 million in 2021[474].

Financial Risk Management - The company is exposed to market risks from changes in foreign currency and interest rates, with a net foreign currency exposure to U.S. dollars of R$15 million as of December 31, 2019, down from R$76 million in 2018[345]. - The company has a treasury policy to manage financial market risk, primarily by swapping a substantial part of U.S. dollar-denominated liabilities to obligations denominated in reais[339]. - The company uses cross-currency interest rate swaps to mitigate risks from fluctuating U.S. dollar currency and interest rates, with realized and unrealized gains and losses included in financial income and expense[339]. - The company engages in derivatives to hedge against foreign exchange variations on imports and bank loans, particularly in U.S. dollars and euros[345]. - The company has a strategy to mitigate U.S. dollar currency risks through the use of derivative financial instruments, specifically cross-currency interest rate swaps[346]. Financial Position and Performance - As of December 31, 2019, total cash and cash equivalents amounted to R$4,596 million, with 89.94% of CDI as the average interest rate[342]. - Total loans and financing as of December 31, 2019, were R$2,268 million, with significant portions in floating rates[342]. - The company reported that sales to customers using credit cards accounted for 39.9% of consolidated net operating revenue in 2019, indicating a stable reliance on credit card transactions[348]. - Net operating revenue for 2019 was R$56,635 million, an increase from R$49,388 million in 2018, representing a growth of 14.5%[394]. - Gross profit for 2019 reached R$12,190 million, up from R$11,609 million in 2018, indicating a growth of 5.0%[394]. - Net income for the year from continuing operations was R$488 million, a decrease from R$1,156 million in 2018, reflecting a decline of 57.8%[394]. - Total current assets as of December 31, 2019, were R$19,968 million, a decrease from R$40,518 million in 2018[395]. - Total assets decreased to R$58,475 million in 2019 from R$61,657 million in 2018, a decline of 5.5%[395]. - The company reported a net income for the year of R$836 million, down from R$1,284 million in 2018, a decline of 34.8%[394]. Internal Controls and Governance - The company has implemented remedial actions to address a material weakness in internal control over financial reporting, particularly in monitoring financial information from subsidiaries[355]. - The independent registered accounting firm, Ernst & Young, audited the company's consolidated financial statements, confirming the effectiveness of internal controls[356]. - The company plans to continue implementing remedial actions through the end of 2020 to address previously identified weaknesses in financial reporting[357]. - The audit committee is composed of independent directors, with Luiz Nelson Guedes de Carvalho identified as a financial expert[358]. - The company has adopted a code of ethics, last amended on February 6, 2020, to comply with Novo Mercado listing requirements[359]. Tax and Legal Matters - As of December 31, 2019, the Company reported ICMS tax credits amounting to R$ 2,621 million, with recoverability dependent on future ICMS tax payable generation[378]. - The Company is involved in tax claims totaling R$ 10,829 million, assessed as possible losses, with no provisions recorded as of December 31, 2019[381]. - Total taxes payable increased from R$841 million in 2018 to R$907 million in 2019[534]. - Current taxes payable rose from R$370 million in 2018 to R$531 million in 2019, while noncurrent taxes payable decreased from R$471 million to R$376 million[534]. Acquisitions and Investments - On November 27, 2019, the Company completed the acquisition of Almacenes Éxito S.A. for a net consideration of R$ 9,371 million, resulting in R$ 165 million goodwill recognized[385]. - Almacenes Éxito S.A. constituted 38% of total and net assets as of December 31, 2019, and contributed 4% and 17% to revenues and net income, respectively, for the year then ended[388]. - The company disposed of its interest in Via Varejo S.A. in June 2019, which was previously classified as a discontinued operation[410]. - The company reported a loss of R$385 million on the investment in associate Cnova N.V. as of December 31, 2019[482]. Debt and Financing - Total borrowings and financing amounted to R$2,546 million, with noncurrent borrowings at R$2,060 million[484]. - The company reported cash and cash equivalents of R$ 7,954 million, an increase from R$ 4,369 million in 2018[518]. - The total financial liabilities, including debentures and promissory notes, amounted to R$ 11,863 million, up from R$ 4,146 million in 2018[518]. - The company maintained a consolidated net debt/EBITDA ratio lower than or equal to 3.25, complying with financial covenants[516]. - The company utilized swap contracts for 100% of its US dollar borrowings to mitigate interest rate risk, converting obligations to floating rates linked to CDI[516]. Assets and Liabilities - The company’s total equity rose to R$12,666 million in 2019, up from R$10,263 million in 2018, reflecting a growth of 23.4%[494]. - Total liabilities increased to R$11,624 million in 2019 from R$8,789 million in 2018, indicating a rise in financial obligations[496]. - The company’s total shareholders' equity decreased to R$11,487 million from R$12,417 million, a decline of about 7.5%[444]. - The company reported additions to property and equipment of R$3,268 million in 2019, up from R$2,236 million in 2018, representing a 46.2% increase[497]. Cash Flow and Financial Performance - Cash flow provided by operating activities in 2019 was BRL 1,135 million, down from BRL 4,267 million in 2018[403]. - The company reported a significant increase in borrowings and financing, which rose to $10,706 million from $3,392 million, an increase of 215.5%[398]. - The company’s comprehensive income for the year was BRL 945 million, compared to BRL 790 million in 2018[402]. - The company’s financial performance is supported by its strategic partnerships and investments in various sectors, including logistics and e-commerce[477].

Market Risk Management - The company is exposed to market risks from changes in foreign currency and interest rates, with a net foreign currency exposure of R$76 million as of December 31, 2018, compared to R$7 million in 2017 and R$177 million in 2016 [543]. - The company has a treasury policy that includes cross-currency interest rate swaps to manage financial market risk, effectively converting U.S. dollar-denominated liabilities to obligations in reais [538]. - The company engages in derivative financial instruments to mitigate risks from fluctuating currency and interest rates, with realized and unrealized gains and losses included in financial income and expenses [538]. - The company’s foreign currency exposure is primarily related to U.S. dollar-denominated debt, with cross-currency interest rate swaps partially hedging this exposure [543]. Interest Rate Management - The company utilizes interest rate swap agreements to manage interest costs, with floating rate debt primarily based on the CDI rate, which was 6.4% as of December 31, 2018 [540]. - The company’s interest rate risk management includes periodically retiring, redeeming, and repurchasing debt in response to market changes [540]. - The average paying rate for cross-currency interest rate swaps is 102.59% over CDI, with an average receiving rate of USD + 3.26% per year [545]. Financial Position - Total cash and cash equivalents amounted to R$4,369 million, with cash in banks and cash equivalents in reais representing 85.78% of the CDI [542]. - Total liabilities were R$5,450 million, with floating rate loans and financing denominated in U.S. dollars and reais [542]. - As of December 31, 2018, total loans and financing amounted to R$1,292 million, with R$767 million in U.S. dollars and R$525 million in euros [545]. - The company has a total of R$4,146 million in debentures, with expected maturities of R$500 million in 2022 [545]. - The company has not experienced difficulties in obtaining financing or refinancing existing debt, indicating strong liquidity and capital resources [543]. Regulatory Compliance - The company is required to disclose material acts or events that may influence the price of its publicly traded securities, including changes in shareholder participation [436]. Agreements and Fees - The company received US$3.33 million from J.P. Morgan Chase Bank N.A. for annual stock exchange listing fees and maintenance costs related to the ADR program from January 1, 2018, to December 31, 2018 [550]. - The company has established a reimbursement agreement with JPMorgan Chase Bank for expenses related to the ADS program, including annual stock exchange listing fees and maintenance costs [550].