Companhia Brasileira de Distribuicao SA (CBD) 2013 Q4 法說會逐字稿

(interpreted) Good morning, and thank you for waiting. Welcome to GPA's conference call to discuss the results of the fourth quarter and the year of 2013.

This event is being broadcast via webcast and can be accessed at www.gpa.ir.com/br with the respective presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website. We inform you that the Company's press release is also available at its IR website.

This event is being recorded and all participants will be in listen-only mode during the Company's presentation. After GPA's remarks are completed there will be a question-and-answer session when further instructions will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996.

Forward-looking statements are based on the beliefs and assumptions of GPA's management and information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I would like to turn the floor over to Ms. Daniela Sabbag, Investor Relations Officer of the Company. Ms. Sabbag, you may proceed.

(interpreted) Thank you for participating in our call to discuss the results of the fourth quarter of 2013 and of the year of 2013. I would like to introduce everybody who is with us, Ronaldo Iabrudi, CEO of the Company; Christophe, CFO; Francisco Valim from Via Varejo; Belmiro Gomes from Assai; Quiroga, Nova Pontocom; and representing Retail Food -- unfortunately Tambasco was not able to be with us for personal reasons. We have [Fertland Duzencope] representing Food Retail; besides Alexandre Goncalves de Vasconcellos from GPA malls.

In order to start our presentation, I would like to give the floor to Ronaldo, and afterwards Christophe will be addressing you.

(interpreted) Good morning, everyone. Once again, I would like to thank all of you who are participating in our call, analysts, investors, and the other participants in this call. I would like to thank Daniela and her team, who prepared the material and prepared the meeting so that we could be with you today.

Most of you know that this is my first participation in conference calls of GPA, representing GPA. And I'm very pleased to be here participating with you. I'm very proud of being here. However, I confess that I feel a lot of responsibility upon my shoulders. This is a huge business. We have a very special team. However, the responsibility is very big to be at the head of this business.

But I'm very bullish about it. So the idea is to give you an overview of our figures for 2013, and Christophe will do this with the participation of each one of the business owners. And at the end very quickly, I would like to make a few remarks about how we see 2014, and then we'll be opening to receive your questions.

I would like to make some opening remarks about the year of 2013. For us, it was a rather complex year, a very challenging one. However, the assessment that we have about 2013 is that it was all-in-all a very positive year. If we break down the figures, you can see that our assessment is very positive. Our strategy was implemented and in our view it was the best possible strategy and a true winner.

The focus or the strategy was seeking -- or the aim was to seek competitiveness, and this allowed us to achieve growth in all of our businesses. This competitiveness was funded by the optimization of our processes and also by the rationalization of our expenses, above all, the corporate expenses, in such a way that we were able to deliver price competitiveness and practically maintaining our margin.

Another focus besides competitiveness was the quest for synergies. Each one of our business units worked very hard, exchanging indicators and benchmarks in order to look for the synergies. And we carried out this work together with the Casino Group in such a way that each one of our business unit was able to implement and to benefit from the strategy, be it from the view point of competitiveness or from the view point of synergies.

In a nutshell, we will see that in Food Retail we started the year with a negative flow of clients into our stores and after the middle of the year the flow became positive with market share gains. And thanks to the pricing policy that we implemented and our high competitiveness and everything as I said before, [enhanced] by the optimization our internal processes.

And if we look at e-commerce, which is led by Quiroga and his team -- and he is going to get into details. But we started the half year with an important growth and the second half was even more important in terms of growth. And maybe when we compare this to the market it was a sustainable growth. We didn't have any growth whatsoever without maintaining a minimum level of returns.

At Via Varejo, I think many of you have participated in the conference call of this Company with Valim and his team. So optimization of processes, operating efficiency were the highlights of Via Varejo, and we concluded a very positive year for Via Varejo as well.

Assai, together with commerce, this is where we grew the most, and we achieved a significant organic expansion in this Company. And Belmiro will be making a presentation afterwards and the outlook for this Company is also very bullish.

And finally, regarding GPA Malls, headed by Alexandre and his team, there was an ongoing quest for profitability at GPA Malls and we still have some room for growth in these activities and also expansion of the gross leasable areas.

And before I give the floor to Christophe, I would like to make two remarks because I think they are fundamental in what we call a positive year. One has to do with the team, the team that we have in place at GPA.

I confess that I have been working with part of this team for quite some time already. But now in the last few months, I would say, I must recognize that our team makes all the difference in the world, both the people of top management that are sitting around this table with me and also the people who are at the stores and that deliver services directly to our customers and which is truly a differentiated team.

And another remark I would like to make is about the support that we had from our Board for the implementation of the Company's strategy. And I think these two points, the team and the Board of Directors totally helped the team that is around this table to deliver the results that we were able to deliver.

And two additional points that I would like to mention before I give the floor to Christophe. In 2013, we consolidated our governance committee. This is a committee that was created in mid-2012. However, with a more marked action in 2013. And we also created in late 2013 the audit committee. Two structures that in our opinion are fundamental for us to continue to deliver our sustainable growth.

So these were my initial remarks, and now I would like to give the floor to Christophe and to each one of the business owners. And I will return at the end to tell you how we see 2014. Thank you very much.

(interpreted) Thank you, Ronaldo, and good morning everyone. I would like to go directly to slide number 2, starting the presentation with the main highlights for the period and for the last period of the year.

As we had already announced, we accelerated our expansion with the opening of 50 new stores in the last quarter. And for the whole year, we opened 128 new stores, scattered throughout the country, and for all our brands, for all our formats.

I would like to highlight the same-stores sales growth, which was 10.8% vis-a-vis Q4 2012 and the sales grew in food and non-food categories as well. In food categories, the growth was 9.8%, exceeding by 4 percentage points the inflation that we observed in the same period. And this was the result of a very good policy for promotions in the food categories.

And the non-food categories grew even more. It grew 11.5% during this period. The highlight being the technology categories and mainly during the Black Friday period that happened at the end of this period. And also we had an impact because of the good level of sales in this quarter. And because of that, the adjusted EBITDA grew almost 24%, reaching [BRL1.605 billion].

Adjusted net income from 72% in Q4 2013. And about the extraordinary adjustments that we had in Q4, we had an impact in operational -- we had the review or revaluation of the labor risks that we have. And the impact was BRL299 million, especially in the fourth quarter because of this review of the situation of the labor risks and the need to adapt our provision to reflect the reality and the risk in our financial results.

And the two other extraordinary adjustments were the provisioning for restructuring. And as Ronaldo has already said, this was a year of restructuring the organization and have the necessary provisions within the BRL299 million.

So this represents 20% and the other 20% corresponds basically to another effect or one-shot effect, which was a write-off of assets and the effect of the implementation of the B2B and the CADE provision as well.

Going now to slide number 3, the consolidated figures for the GPA Group, we see a level of gross sales that reached BRL18.8 billion, with a growth of 14.9%. We had already talked about 10.8% in same-store sales, total sales for the year. The gross sales now exceeded the guidance that we gave at the beginning of the year at BRL64.4 billion, so 12.8% growth.

Regarding the adjusted EBITDA, as we said before, BRL1.6 billion, 9.5% margin in the period, and for the whole year BRL4.5 billion or 7.8% EBITDA margin, which means a growth in the adjusted EBITDA of 20.2%. Adjusted net income impacted by the good behavior of financial expenses reached BRL864 million, 72% growth, 79% in the year and the net margin was 3.2% in the period for the whole year.

The highlight for the year was the deleveraging of the Company as well. And the net debt that represented at the end of 2012 0.91 times the EBITDA was reduced proportionally, representing 0.29 times the EBITDA. That is to say BRL1.1 billion and a very strong deleveraging of BRL2.3 billion.

And we can explain this deleveraging by two effects; a very rigorous control and a very high efficiency in the management of our working capital. And the cash cycle of the Company improved 18 days for the year, which means more than BRL1.7 billion in working capital being released or liberated. And the remainder was originated by the follow-on in Via Varejo and we were able to raise approximately BRL870 million.

Financial expenses, optimization work led us to 1.9% of net income in Q4. And for the year, the behavior was very good as well. And equivalent to -- slightly lower than the guidance that we delivered at the beginning of the year, 2.1% of total sales for the year, a sound financial structure and that allow us to have the necessary flexibility and agility.

Now, let's talk about slide number 4, some details about the highlights for the quarter, more details about expansion. It was a very intensive quarter in terms of expansion in food. We opened 24 stores, 12 Minimercado or mini-markets, continuing with a high growth in this format, six Assai stores.

Of the 14 total stores, nine were opened in five new states, increasing the footprint of this very successful brand in the Brazilian territory. And at the end of the year, we opened also four Extra Super two Pao de Acucar, having at the end of December 1,000 stores and a selling area of 1,670,000 square meters.

In Via Varejo, non-food, the pace of growth was accelerated in Q4, 26 stores were opened, 24 of them Casas Bahia and new states as well. More stores were opened in new areas and we closed the year with 999 stores and a selling area of over 1 million square meters.

GPA Malls, we also see growth aligned with our expectations. In Q4 we add 13,000 square meters of gross leasable area coming from the expansion of the already existing malls and the opening of new ventures as well.

And we highlight the Conviva Minas, which was opened in Belo Horizonte in Q4. 45,000 square meters of gross leasable area were added in 2013 with a total of 288,000 square meters of gross leasable area for the whole Group at the end of the year, slightly higher than our guidance and according to our expectations.

Now, we would like to talk about each one of the operations. So you can see slide number 5, where we show the figures for GPA Food, Retail plus Assai exceeding -- gross sales exceeding BRL10,000 million, 14.8% growth, showing a very strong acceleration vis-a-vis the first quarters of the year. And for the year we had 12% growth.

Adjusted EBITDA, BRL969 million in the period and BRL2.6 billion for the year, EBITDA margin of 8.2% for the year, slightly higher than the one that we saw in the previous year. And as Ronaldo said, this confirmed the assertive investment that we made in pricing competitiveness, totally financed by higher efficiency in our operating expenses, and more specifically the back office expenses. We did not affect the quality of the services delivered to our clients at the stores.

Adjusted net income, BRL570 million in -- adjusted net income BRL1.127 billion in the full-year, 3.5% margin in adjusted net income, net margin.

And before giving the floor to the business owners, I would like to talk a little bit about the next slide and share with you the figures for non-food. And then I will give the floor to each one of the business owners.

On slide number 6, we see the behavior of the main indicators for non-food, Via Varejo and Nova Pontocom. Gross sales, very dynamic, 15% growth in Q4, BRL8.7 billion, close to BRL30 billion for the full-year of 2013, with dynamic growth, almost 14% growth for the full-year.

Adjusted EBITDA, 8.3% of sales margin, and for the year from 36% growth -- well, 36% growth for the full-year and 7.3% adjusted EBITDA margin. The contribution of Via Varejo with an excellent performance, significant improvement in profitability helped us get to this result.

And Nova, satisfactory performance as well, according to our expectations. Adjusted net income for non-food BRL747 million in the 12 months, 40% growth in Q4, net margin 2.9% for the full-year. And the behavior for Q4 was 40% growth and net margin 4.2% and the adjusted net income for the full-year was BRL747 million.

And now I would like to give the floor to the business owners, starting with the operating performances. First [Zuncopac], representing Viva Varejo -- representing Tambasco.

(interpreted) Thank you. In this quarter, food retail with Pao de Acucar, Extra and Minimercado stores had these highlights. The highest sales growth, 10.3% in this quarter, which showed the success of our strategy of commercial competitiveness, the pricing competitiveness. We had an expense reduction of 16.8%, a 2.8 percentage point reduction in the quarter.

As Ronaldo mentioned, we had an important market share gain in the period, 1 percentage point of market share gain in all of the banners. It was the fifth consecutive quarter with market share gains in food retail.

Our EBITDA totaled BRL2.3 billion in the year, a 17% growth, a margin of 9.2% EBITDA margin, higher than in 2012. This reinforces the maintenance of our strategy. We will continue with this strategy, pursuing more efficiency and expense reduction to remain competitive, of course, never losing sight of profitability, which is our main KPI, and customer service.

I will now give the floor to Belmiro, representing Assai business unit.

(interpreted) Good morning, everyone. As mentioned by Christophe and Ronaldo, the fourth quarter for Assai was the very best quarter. It was an extremely strong quarter, sustained by the opening of new stores in the period as well as our same-store sales growth.

We continued expanding organically strongly. We opened six new stores in the last quarter, representing an additional selling area of more than 32,000 square meters, closing 2013 with an additional selling stores of 74,000 square meters or 176,000 square meters of floor area, as mentioned by Christophe.

We were pursuing [to] increase our capability and footprint in Brazil. It is extremely important for our business. It reinforces our role as a supplementary distributor.

As for the sales performance, in the fourth quarter it was 37.7% growth by adding same-store sales and the expansions. We had a number of negotiations, particularly for seasonal products, which brought a positive impact, a margin of 1.7 percentage point increase in the result by [90%] in the first quarter of the year.

With that, Assai closes 2013 with a sales performance of 35.2% and an increase in the net income of 39%. We were able to expand. We were able to overcome a number of challenges related to organic expansion, which are only natural. And we were able to deliver better results with our sales.

As for the expenses, as mentioned by Ronaldo and Christophe, we were focused on lowering expenses. We are a low cost business. Our expenses in 2013 totalled [9.784 and 0.58%] on net sales.

Assai grew more than two-fold, the segment of cash and carry. We had an important market share gain in the business. We started representing in this business more than 10% of GPA revenue, and we represented close to 40% of the real growth for the whole Group in the period. For 2014, Assai remains extremely focused on organic expansion, opening new stores and expanding to new states.

The outlook for 2014 is very positive for this business model. We have some logistics challenges. Well, logistics bottlenecks make it very difficult for small businesses to work and they are our main clients and they are also looking for better prices. So we remain focused on expansion, footprint to deliver very strong results in 2014. Thank you very much.

Now, I give the floor to Valim, Via Varejo.

(interpreted) Thank you. Thank you, Belmiro. As we had an opportunity to present yesterday the Via Varejo results -- showed growth of more than 11% in revenue, margin growth quite significant, exceeding 9% of the EBITDA margin, adjusted profit of more than 4 -- growing more than 4% this year and net income increasing more than four times. As a result of this strategy to gain market share, we had a substantial growth of market share in the specialized market as well as in the generalized market. We were able to maintain our position in market share.

With that, we had a very differentiated result as we reported yesterday.

I now give the floor to Quiroga.

(interpreted) Good morning. In 2013, Nova Pontocom had a competitiveness gain and repositioning. Savings generated helped us be very competitive in pricing. It increased the traffic of clients and conversion rate. Nova Pontocom in 2013 launched extra market place.

In one single site, we can sell products from many stores in various segments. We had significant results. More than 200 retailers registered and thousands and thousands of suppliers. Our business unit was strengthened with the operation of nike.com. With the volume sales and importance of the brand, Nova Pontocom became the first client -- they became the first client of the business unit. We also have Microsoft, HP, and many other clients.

GPA [bet] on integrating e-commerce, promoting multi-channel strategies. And in 2013 we launched a number of new business models; (inaudible), kiosks, services for tablet, ensuring more connectivity in applications for our customers.

In Camacari, we were able to reduce our logistics cost and improve our level of service to customer in the region. In 2013 we achieved practically BRL5 billion in sales growth vis-a-vis 2012. In the second quarter, growth was accelerated. And an all-time sales record was reached in the Black Friday production.

We posted record sales, and in addition the net income in the fourth quarter was a record, ensuring cash generation in the year. Finally, we believe that 2014 will be a very special year for Nova Pontocom. We will continue pursuing our initiative to increase efficiency to raise the bar in competitiveness, enjoying synergies with the Group and with our multi-channel strategy.

I will give the floor to Ronaldo for his --

(interpreted) This is Daniela and I will give the floor to Ronaldo for his final remarks.

(interpreted) Thank you. And after my final remarks, we will open the Q&A session. How do we see 2014? What is the outlook? We have positioned ourselves for a very good year. We are very much focused on growth. The focus is on growth, but with process discipline in optimization and control of expenses.

We will be also very much focused on continuously enjoying more synergies. Another point again that is a very positive result in 2013 and which we want to continue in 2014 is financial discipline, either in working capital or in investment of CapEx.

You probably heard in GPA Day, we will be investing in terms of amounts very close to what we invested in 2013. But our goal is to expand even more than we expanded in the past, which means that we will be optimizing investment. CapEx per square meter should be optimized, so that with the same amount of investment we will be able to grow even more in 2014.

Another important outlook for us in 2014 is improving our working method, basically our methodology. We have a budget, and we have a plan for 2014. We are, as we speak, formalizing the goals for each business unit. And this will be cascading down to all levels of the organization.

Each business unit has to have an action plan and we are going to be strictly disciplined in following these goals, targets and the action plan. That is another very important improvement point that we will be working on throughout 2014.

Last but not least, and this was mentioned here today, is the continuous and ongoing focus on the quality of service and customer service. In other words, we want to have optimization. We want to have financial discipline. We want to optimize processes. But always improving the quality of our services to clients and customers.

In Food Retail, that now we are calling multi-retail, we intend to continue with our competitiveness strategy. We expect to continue to grow our customer traffic at our stores while maintaining the level of profitability.

For Assai, Belmiro mentioned, we expect an important growth as important as the growth that we witnessed in 2013. We are looking at the north and northeastern region. Belmiro has an important logistics challenge ahead of him to make this happen in these new regions.

For Via Varejo, Valim mentioned that our focus is continuous pursuit of efficiency and margin gains and more growth, also pursuing synergies. It is where we are also going to see in e-commerce continuous gains in market share. But not just for the sake of gaining market share. We want to have a balance between sales growth and profitability. Via Varejo will be looking at that full-time while at the same time increasing synergies and multi-channel opportunities.

For Malls, well, Alexandre did not have an opportunity to speak, but the focus remains expansion. We have more than 3,000 leasing contracts and we want to make these contracts profitable. We will continue to invest with the same focus; in other words, have more efficiency per square meter and having more efficiency in gross leasable areas in 2014.

Finally, the whole team is here. We are ready. We are practically in the second month of the year and we are ready to implement what was planned for 2013 and make it all happen. To us, it is really important that we deliver all of these targets with the highest level of governance, highest level of corporate governance. We want to be an example to be followed by Brazilian organizations.

I would like to end thanking you for joining us. And each one of the business unit owners will be here and we are all available to answer your questions. Thank you very much.

(interpreted) We will now open the floor for questions.

(interpreted) (Operator Instructions).

Joao Mamede, Santander.

(interpreted) I actually have two questions, one is related to expense reduction. I believe that this was the major highlight in the results. We were seeing a trend to reduce expenses and adjust pricing, but what surprised us in this quarter was how big the effect was.

Well, stronger sales naturally help that. But my question is, looking forward, how recurrent is this improvement? Rephrasing it, you took the Company to a whole level of profitability, but will you find perhaps a balance where sales will not be that strong? That's my first question.

My second question goes to Belmiro, and has to do with the performance of the gross margin in Assai. We saw a very good performance in the quarter. Actually, this improvement had been happening, but the fact is that this was the very first time that year-on-year this variation was positive. Belmiro mentioned that you're negotiating some seasonal products and so that helped.

So how should we see this looking forward? Are these improvements in line with what I asked in the previous question? Or are these improvements recurrent, expected to be recurrent or at least part of them? So just I would like to get a sense of the dynamics as far as the gross margin for Assai? These are my questions. Thank you.

(interpreted) Thank you, Joao, for the questions. I will answer the first, and then I will give the floor to Belmiro. In terms of the expense reduction, the sustainable recurring characteristic here lies in the origin of the reduction.

And there was no huge movement in expenses, but rather an addition of small efficiencies and rationalizations here and there, which added together, added a -- or helped us have an improvement. Not one specific line.

We implemented a lot of rigor. We started implementing a lot of rigor in 2013. That rigor allowed us, as you can see, to capture improvement, adding to a little more than 140 basis points. This does not represent an annual rhythm, putting it differently. You can expect something more in the periods to come.

So to be very clear in answering the question, all captures in terms of expense dilutions are genuine and they are legitimate. They are perennial and sustainable over time. We can expect that they will continue to remain at this level, expenses to remain at this level.

(interpreted) Christophe, just a follow-up question if I may. I just want to understand if you started observing that you're capturing synergies and reducing expenses even though a little further than expected, this additional delta, is it going to be reinvested in lowering prices or can you have an increase in margin, even by keeping the prices under control aggressively from now on?

(interpreted) Actually, I have two answers to your question. What we captured in the food segment will be reinvested in pricing competitiveness. The synergies captured in the non-food segment will not necessarily be geared to price competitiveness, because we understand that the level of competitiveness seen in Nova Pontocom and in Via Varejo are already at a very aggressive level in keeping with the scenario for the non-food segment.

(interpreted) Thank you.

(interpreted) As for your question about Assai, Assai is enjoying a special moment. Most of the sales added were added by new stores. Obviously, the new stores have a ramp-up period, a maturation period, a period where you have to invest more in the margin, which is natural in the beginning of the lifecycle of the store.

Now, that factor is not very seen in the end of the year when products are at market price. So you sell a mix of products until month 9 or 10 of the year. And this does not reflect in the margin that you work with in the end of the year.

With the existing stores and with the new stores we were able to negotiate some seasonal products which led to an elevation of the margin. This effect at the end of the year will be recurring in coming years, even with the expansion. But obviously it's important to highlight that we are expanding aggressively. New stores are opening; last year six between November and December. And now in 2014, they will have a ramp-up period.

So what we can expect for the coming quarters is to maintain or raise the margin compared to 2012. And the effect of December is to be expected -- is to be recurrent.

(interpreted) So, Belmiro, when you're looking -- when you're talking about margin you're talking about EBITDA margin?

(interpreted) No.

(interpreted) Ability of the gross margin then?

(interpreted) I mean gross profit.

(interpreted) Okay, it's very clear. Thank you.

(interpreted) Marcel Moraes, Deutsche Bank.

(interpreted) My first question has to do with the food division, if you could elaborate on the pricing environment in the fourth quarter? Did competitors follow Pao de Acucar's price policy or did they maintain their pricing policy constant? What was their strategy? That's my first question.

My second question has to do with the CapEx. If you could perhaps give us a flavor about the initiatives being implemented to rationalize CapEx? Thank you.

(interpreted) Marcel, I'll give the floor to (inaudible), Commercial Officer of Food Retail.

(interpreted) Good morning, Marcel. Thank you for the question. Our strategy in the fourth quarter in terms of prices, in the fourth quarter that's when we started deriving more sales result and customer traffic. Well, it all started in May when we set different strategies for Pao de Acucar and Extra.

Pao de Acucar followed a strategy that we call everyday fair price. We localized the categories and offered specific pricing reductions for those categories that Pao de Acucar customers consider important.

At Extra though -- that's where we have more intense price reduction. We follow three different paths. One, we maintain our policy of high, low promotion. We offer promotions, sales and we are recognized by customers as being very strong in promotion.

Secondly, we significantly reduced what we call basic assortment. We had a significant reduction in prices and that favored the trade-up of categories, particularly consumers of classes B and C start consuming richer mixes of products. One example for example is the Greek yogurt, coffee and Nova meat. These are segments that grew a lot -- beef, primed beef and cuts.

And thirdly, we were able to choose intelligently our media so that we can accelerate the price perception of customers. Well, this was our strategy. As for the competition, they were more aggressive in the fourth quarter of the year, but we were able to position ourselves very well and customers understood that.

(interpreted) Thank you. My second question, well, in addition to -- is GPA Mall.

(interpreted) We are responsible for investing in organic expansion. We have three types of initiatives; one, in the cost of the acquisition of land. We are able to get good negotiations now, bringing the prices of land acquisition to lower levels than historically.

Secondly, a deep and intense discussion with the operations people regarding the concept of the stores. We review all of the concepts, from the selling area to operational and back office areas. When you simplify the concept, you naturally spend less.

And thirdly, construction method. We are adopting new construction techniques which are reducing the civil construction work and the prices of renovations of the stores.

(interpreted) Thank you very much.

(interpreted) Gustavo Oliveira, UBS.

(interpreted) My question goes back to Assai margins and its performance. If I'm not mistaken, you had an EBITDA target between 5% and 7%. You achieved that in the fourth quarter. Were there any negotiations you had for products, those seasonal products which you believe might bring a recurrent effect?

And knowing that some stores haven't paid off yet, do you believe that you can have margins superior to 5% to 7% and do you think that this is sustainable the moment the stores become more mature? Did the profitability for the business change, the profitability model?

(interpreted) Thank you for the question. Obviously, it's not that the stores are not mature. They have a pay-off curve, a [ramp-up] curve. And for each store you have a number of years for the pay-off. Now, the new -- the bulk of new stores of Assai was conceived to generate lower levels of expenses. In other words, the stores have more equipment, more automation, more inventory in the stores. So we expect an improvement in EBITDA derived or stemming from lower expenses. As the [park] of new stores grows, it dilutes the expenses for the whole Assai [park] of stores.

(interpreted) But is the new stores a lot more profitable than the old stores? I guess you said that. But the model itself should have to reach margins close to 10% or am I overdoing it a little?

(interpreted) You are overdoing it a little. It is impossible to have an EBITDA margin of 10%. One of the things we need to consider in the GPA mix is that we are the only Group that does not offer term sales. Assai only sells cash sales and our level of depreciation is also lower. So in wholesale it's better to look at the net income than the EBITDA. Since we do not have financial expenses and we are so geared to prices, I always advise you to look at the net income.

(interpreted) So you can reinvest in competitiveness, right? It wouldn't really be a focus on the operating margin?

(interpreted) Oh, okay, okay.

(interpreted) Okay. And my second question goes to Quiroga. Quiroga, do you -- which is the best metric to measure the level of service for the e-commerce business?

(interpreted) For 2013, we see a greater deterioration in the metrics and in the complaints of Reclame Aqui complain here.

(interpreted) What is the adequate metrics (inaudible) your business and how do you see the evolution in the level of service of Nova Pontocom now, last year, and looking forward?

(interpreted) Thank you, Gustavo. Excellent question because it will give me an opportunity to clarify some things. Talking about Reclame Aqui, well, I'll talk about that specifically. But before that, I have to mention something important. In the second half of the year, in the last period we had initial problem in Rio disaster, our DC in Rio in Iraja which is responsible for 40% of our revenue, was flooded. The whole DC was under water. It led to a lot of losses of goods. And you can imagine the problems in terms of our clients receiving the products.

We were able to renegotiate a lot with our clients, but there was a big impact in the volume of orders and in the number of complaints. We practically doubled our rate of complaints because of that problem.

Since then we've been working on that and the Pao de Acucar Group helped us. Our DC went back to operating normally quickly. We're building another DC in Rio because our operations now want to avoid this kind of national disaster. So that's one point.

There is another relevant point before I talk about Reclame Aqui -- even doubling our levels of complaints. And unfortunately with the competition improving a lot, when we look at the rate of complaints per revenue, we are the same level of the market.

We are not pleased. We want to go back to having a better level of service than the competition in the market. Our expectation is that by the end of this quarter, our level of service will be better than that of the competition, as has been the case since the beginning of our operation. So thank you for the question.

Now as for Reclame Aqui, it is a channel that we have been focusing on. We want to work on our ombudsman service. And I believe that this is a merit, because consumers needed a digital channel to complain and to speak their mind and they found Reclame Aqui, complain here. And we will be improving and hopefully our complaints will be reduced and we will be in line with the market.

(interpreted) What happened in the Iraja distribution center? What happened there?

(interpreted) Well, we were close to Black Friday promotions. We had a record sales day, and the DC was flooded. This was in the media, in the news. It was the Iraja DC, it used to be the old Ponto Frio DC. We handled all the Ponto Frio operations in Rio and we took over it in full. In terms of the production, it's very good, but it has some issues and the main one being that it is the area subject to flooding.

(interpreted) Okay, thank you very much.

(interpreted) Fabio Monteiro, BTG Pactual.

(interpreted) I would like to know about returns. You have been highlighting in terms of margin of returns due to the improvement that you have delivered in SG&A. You have already talked about CapEx. We see a high figure for that. You have already talked about investment in gross leasable area. But overall, the consolidated CapEx is 1.85 or more than that. So you have a higher return than the average in retail.

But I would like to know if you expect your CapEx figure to go down and to be further optimized? Could we expect a contribution of your CapEx reduction to improve your returns, your margin of returns?

(interpreted) Thank you, Fabio. Regarding returns, we have three sources of leverage. And supposedly the best source of returns is the use of the return per square meter and one that we have already captured significantly in 2013 was the release of working capital. In our economic model, the working capital was being released, as I said before, and the ongoing reduction of G&A, as we have already shown you. And that is already giving a contribution to increase our returns. The format had accelerated growth such as Assai, Minimercado, minimarket and Pao de Acucar as well.

These are formats that give us returns that in most of the cases are higher than 20% given the 3% of sales CapEx, as you said yourself. There should be a significant contribution to the overall returns for the Company. If the CapEx level will go down, yes, in a way, but due to efficiency gains and not because we are going to open less units, for instance, because our focus on expansion of which was one of our highlights in 2013 will continue for the foreseeable future.

(interpreted) In e-commerce, I would like to know how much of the CapEx went to e-commerce, and looking ahead, do you foresee any investments in new platform or technology in general or logistics for the next few years?

(interpreted) Before giving the floor to Quiroga, I would like to add to what Christophe said. You mentioned in your question CapEx investment for the creation of gross leasable area. I would like to mention that this initiative consumes CapEx. However, it aims at generating a much higher margin. In our result, it is under food. But here we are talking about the shopping mall industry that works with a 70% EBITDA margin. We closed the year around 40% and we are ramping up. So this investment is being made in order to generate a higher profitability for the Group as a whole.

Now, I would like to give the floor to Quiroga.

(interpreted) Fabio, thank you for the question. Our CapEx was 1% of gross sales last year. Vis-a-vis competition, it is low. I would like to apologize for the way I'm speaking. However, I have a problem on my tongue. My tongue is hurt, you understand? This is why I'm talking like that. So I don't know whether you understand me or not.

It's relatively low, around 1%, ever since Nova was started. And historically, we went from 250 to 5. If you take the consolidated on the bottom line, you'll see in the period it is positive to BRL5 billion in sales, with cash generation -- strong cash generation, even stronger now with this level of investment. So it is relatively low vis-a-vis our competition, but we believe it is adequate investment in people, in logistics and technology, okay.

(interpreted) Thank you very much.

(interpreted) Pedro Leduc, JPMorgan.

(interpreted) My question has to do with provisions that we saw in this quarter, mainly if you give us more details about the BRL140 million in labor and -- reserves or provisions and also for restructuring? Could we expect something similar to this for Q1 2014 because we have this change in the management of the Company?

(interpreted) Thank you, Pedro, for the question. As we said before, this one-shot adjustment represented BRL299 million. Half, BRL140 million more or less, related to labor themes; that is to say provisions and core deposits basically. And the ongoing work that we do in terms of re-assessing GPA's exposure to risk was carried out focusing on labor themes.

And I would like to remind you that we are talking about labor contingencies here given the claims ratio that we saw in the last few periods. We saw that our provisions were not enough vis-a-vis the more realistic view and the situation that we will have to face. And during the next few periods, if necessary, this will have to reflect the potential impact.

But nothing represents a very deep change in the scenario. What we are talking is about a more realistic view of the potential future impact having to do with labor contingencies and after carrying out this re-assessment, we understand that now we are fully adapted to the needs that we foresee for the future.

Regarding the second part of your question, restructuring expenses, expenses dilution represented a 140 basis points during the year. And most of that does not come from the mix of our businesses. It has to do with genuine capture of efficiencies. Only for this year, we are talking about something higher than BRL100 million in fact. And in order to capture all this amount of course we have to make decisions in many different sectors, management and contract issues.

And we had to reflect the effect of this restructure on our balance sheet and give the necessary steps in order to further capture all the effects that we expect for the next year or this current year. Of course we have already started to reflect this in 2013. So there is nothing bigger that may draw the attention to this restructuring CapEx. It's just business as usual, nothing extraordinary here.

(interpreted) For the first quarter, we had some changes in the top management. So could we expect some other restructuring expenses in this regard?

(interpreted) Well, most of it has already been reflected. If we do have any impact in the future it will be just a small impact.

(interpreted) Now talking about operations. We see in Brazil floods and sometimes we have problems regarding supply. So how do you see this? Do you see any significant effect of the climate or weather conditions mainly on food?

(interpreted) Belmiro from Assai. In fact this has an impact at the beginning of this year because consumption of beverages is higher. And of course we track with concern the issue of supply and energy, but we do not really feel an impact on our operations in retail because we will have our own generation.

So the Company is fully prepared to face this kind of situation. We need rain of course to fill the reservoirs and mainly -- but we have a high consumption of mineral water and beer.

(interpreted) The question is in English so it's not going to be translated into Portuguese.

(interpreted) Richard Cathcart, Banco Espirito.

I just want to go back to the margin on Assai, and I'm just trying to understand the balance between more investments and more new space on the one hand and then increasing maturity and increasing scale on the other hand.

Can we expect to see a higher EBITDA margin in 2014 and over the next 3 years do you think you can go for an EBITDA margin of 4% to 5%? That's the first question.

The second question just comes to the price investment at the Extra hypermarkets and supermarkets. On basic products do you think Extra is now the cheapest in the market? And how much cheaper than the competition if that's the case? Thank you.

(interpreted) I'm going to answer in Portuguese, says Mr. Belmiro.

(interpreted) As our stores mature and they hit the pay-off curve we have an expectation of better margins. But specifically Assai, it is like a wholesale where the price issue is very relevant and in order to offer low prices we have to focus on our low operating expenses so that we may have a more competitive selling price.

So price competitiveness is the main focus for this cash and carry business like Assai, which is very similar to Costco in the United States, with limited number of categories, but our pricing category is really what is the major point in cash and carry operations.

Especially at Assai in basic products we have to look at each one of the areas where our stores are located and we have to be the cheapest in the area, the cheapest retailer vis-a-vis each one of the local competitors. We believe that we are the cheapest in each one of the categories within this channel, which is hypermarket and self-service. That is to say we compete with hypermarkets, which means that our prices are lower in each one of the areas where we have our stores vis-a-vis our competitors. I hope I have answered your question. Thank you.

Thanks very much.

(interpreted) Tobias Stingelin, Credit Suisse.

(interpreted) Quiroga, anything you can tell us about negotiations for Via Varejo in terms of synergies? In other words, are you procuring together, since when? I would like to understand where we stand in that process? Are you benefitting from these advantages, if it is being reflected in prices? Perhaps you can be selling at more affordable prices to gain volume. Could you please elaborate? It would be really helpful.

(interpreted) Thank you, Tobias, for the question, great question. We are at a very good stage of capturing synergies with the arrival of Valim and his team and with the agreement that we signed last year to control expenses. We are now in a position to capture more synergies more clearly.

Nova Pontocom and Via Varejo are working together. A good deal of the suppliers are being approached from one single point of contact through Via Varejo and we are able to capture this commercial synergy. We feel that orders are being placed in this scheme since January, so this is not yet reflected in our margin. But along the first half of the year we will be able to capture more and more of this commercial synergy.

There is also synergy and logistics both at Nova and Via Varejo. We are working together making a number of opportunities, sharing DCs, working together, sharing freight costs, et cetera. And we expect that the synergy that we have always dreamed of is closer and closer.

I would like to publicly thank Via Varejo and the opportunity that the Group gave us. And also with Extra we are enjoying synergies commercially, logistically as well. Thank you, Tobias, for the question.

(interpreted) Quiroga, I have a follow-up question. You were buying at cheaper prices. We can't see that in the margin yet, but we are going to start seeing it as of February. Does this mean that you are going to try to maintain the margin or grow your margin? Will you keep the price to consumers that buy at cheaper prices or will you adopt a different strategy -- well, I can maintain my margin, keep -- or increase the volume, not reduce the price to customers. So I know that it varies from product to product, but could you give us a gist of it?

(interpreted) Again, thank you for the question. I like to remind you that for e-commerce the strategy is to grow as much as possible in keeping with the breakeven. Our bottom line is trying to grow as much as possible, not having [loss]. We have managed that and the idea is to continue. We have done a number of works to prepare for a new competitive landscape.

But the goal is that the benefit in the procurement power now with Via Varejo can be replicated particularly to other categories and in the long tail. We have a number of opportunities, a number of categories.

In some categories where we have a strong brand, for example, the Extra brand -- [still] the benefit that we will enjoy by buying together with Via Varejo will be re-invested in these other categories and in the long tail categories where we do not have today.

(interpreted) Thank you.

(interpreted) This will be our last question.

Alencar Costa, Goldman Sachs.

(interpreted) I have two specific questions. Christophe explained the other expenses that occurred in the quarter adding to BRL190 million at the consolidated level. But specifically for Food Retail we had some non-recurring expenses around BRL365 million. With a breakdown BRL299 million, it seems that only BRL170 million came from union and labor contingencies, and plus BRL62 million that came from the restructuring effort.

So there is still about BRL120 million that were not explained. So could you please explain? And then I'll ask my second question. Thank you.

(interpreted) Thank you for the question. For the breakdown of the BRL299 million, this is in the consolidated approach of the main effects. When we break it down by business unit -- if we break the number down by business units, the reasons are basically the same. In other words, we have three key sources of non-recurring adjustments; labor risks, the restructuring, write-off of assets, implementation of CADE in the order of magnitude changes. In some business units there were some positive effects, which I didn't mention during the presentation that had a significant positive effect.

When we took over control of Bartira by Via Varejo, we were able to -- we were not able to break it down by business unit in this call, but the significant and relevant topics to be clarified here were mentioned here. And then other elements -- when we take the labor risks, for example, in Food Retail, they are higher than the BRL140 million that I mentioned.

But on the other hand, there are some other positive effects. If the numbers are broken down by business unit -- well, I haven't got the figures here, but I have a comment in other opportunity -- I can comment and then give you the figures in another opportunity. But there will be no surprises. The reasons are the same.

(interpreted) Thank you. If we can call you -- I have a second question regarding Food Retail. In this quarter could you explain what happened? I think there was perhaps cumulative losses of some subsidiaries. It was a relevant effect that you could see in the financial statement.

(interpreted) We didn't mention it in detail here because the effect was merely an accounting one. I will explain. When we contracted the call option that the GPA Group had over Bartira, the moment it was recorded in the asset, the fair value -- we had that fair value according to accounting standards.

But this was just a call option at the moment that we contracted that generated a deferred tax, and that was the tax benefit. I think it was in 2010 a deferred tax. That deferred tax, when we decided to exercise the call option, Via Varejo decided to exercise a 75% call option of Bartira.

That provision for deferred tax no longer needed to exist. It didn't make any sense and that explains this level of tax which is apparently low. That's basically the explanation for the tax line item. Basically, the reversal of the deferred tax provision that we had made in 2010 for the possible call option of Bartira. Okay? Thank you very much.

(interpreted) Robert Ford, Merrill Lynch.

(interpreted) We apologize because we cannot hear what the person is asking. The reason why the question is not being translated is because we cannot hear what the person is saying.

(interpreted) This is Daniela speaking. We apologize, Daniela Sabbag is -- Daniela Sabbag is apologizing because she cannot hear what the person is asking either, neither Daniela Sabbag nor us nor the interpreters.

(interpreted) Working capital -- you are looking at similar opportunities --

(interpreted) We apologize because we cannot understand what the person is asking.

Daniela Sabbag apologizes because she cannot hear either. Could you try -- could you try to ask your question again Daniela Sabbag says.

(interpreted) Now the Q&A session is closed. We would like to give the floor back to GPA for the closing remarks.

(interpreted) Now we are closing this conference call. And once again I would like to thank you all very much for participating, investors, analysts and our team. We'll remain available to answer any questions that you might have. Thank you very much and see you during the next quarter.

(interpreter) GPA's results conference call is closed. The Investor Relations department of the Group will remain available to answer any remaining questions that you might have. Thank you very much for your participation and we wish you all a very good day. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.