Almacenes Exito SA (EXTO) 2014 Q4 法說會逐字稿

Good morning. My name is [Lurdhis] and I will be your conference operator today. At this time, I would like to welcome everyone to the Grupo Exito fourth quarter 2014 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you for your attention.

Mrs. Maria Fernanda Moreno will begin the conference today. Mrs. Moreno you may begin your conference.

Thank you, Lurdhis and good morning everyone.

With us here today, we have Exito's Chief Executive Officer, Mr. Carlos Mario Giraldo and Chief Financial Officer, Mr. Filipe Da Silva.

The agenda for today's conference call is on the slide number 3. We will cover the following topics. The Grupo Exito's operating highlights followed by the consolidated financial results for the fourth quarter and full year 2014. At that point, we will comment on Grupo executed strategies outcome for 2014 and our businesses strategy for 2015 before concluding with a Q&Asession. Complementing these information is a presentation that we have posted on our website as well as on the link that was included in the e-mail distribution. Thank you for your attention.

At this point, I will turn the call over to Mr. Carlos Mario Giraldo for his comment. Please begin, sir.

Thank you, Maria and thank you all for participating in today's fourth quarter and full-year 2014 results conference call. We at Grupo Exito sincerely appreciate your interest in the Company.

During the first part of the presentation, I would like to share with you the fourth quarter 2014 highlights as per slide number 4.

Let me begin with our expansion strategies. First, the Company took an important step within the Colombian discount market with the Super Inter deal. Super Inter as the fifth food market player in the country at that time was what we considered an essential acquisition that would ensure our leadership in the coffee region as well as our leadership market position in Valle del Cauca. Upon approval by the Colombian Superintendence of Industry and Commerce, Grupo Exito completed the integration of 46 stores as well as 3,200 employees. The integration process, which lasted from October to December 20 took place in a rapid and successful manner throughout the entire operation and was a clear example of Grupo Exito's know-how and team experience in ventures such as this.

The transaction of Super Inter represented for Grupo Exito an increase of nearly 3% share of the Colombian retail market as well as annual sales of over COP800,000 million, bringing our total market share to approximately 44%. The acquisition was also key for our organic expansion. The Company opened a total of 10 stores during the fourth quarter of 2014, including two Carulla express store, two Carulla supermarkets and six Exito express stores, all in Colombia. As a result of these stores the Company completed 34 organic openings in 2014 and 46 stores from Super Inter to reach a total of 591 stores.

Down the slide, we can see the fourth quarter 2014 was highlighted by one of the most important promotional activities of the year for the Exito brand, Dias de Precios Especiales or Special Price Days, which represented increase in terms of both average tickets and sales versus last year.

Moving now to financial result for the period, the consolidated figures illustrated in slide number 5 includes Grupo Exito's results in both Colombia and Uruguay. Net revenues rose 11.1% during the fourth quarter and 6.8% for the full year 2014, gross profit rose 6.2% in fourth quarter and was 5.3% higher for the full year while operating income rose 1.9% in the fourth quarter with a full-year increase of 5.4%. Thus net income decreased 2.6% in the quarter, however, it grew 4.7% for the year. These financial results reflected EBITDA growth of 0.3% and a margin of 10% during the fourth quarter of 2014. Full year EBITDA grew 2.6% compared to 2013 and the margin was 8.4%.

On slide number 6, we see that net revenues increased 11.1% during the fourth quarter 2014 to a total of COP3.4 billion versus COP3.07 billion reported for the same quarter 2013. Net revenue growth was derived from a retail sales increase of 9.9% as well as almost 33% growth from complementary businesses.

Sales from Colombia in the fourth quarter benefited from the results at 46 Super Inter stores which represented an increase of nearly 4% in total sales during the period as well as the strong performance of the Dias de Precios Especiales promotional event at Exito stores.

In Uruguay despite stores under the three banners being blocked by union strikes on December 24 and 31, sales from these operation also posted strong growth of nearly 13% in the final quarter of the year.

Net revenue growth during the fourth quarter of 2014 included an overall same-store sales increase of 4.3%. This was derived from 9.5% in Uruguay in local currency and an increase in Colombia of 3.4%. Our discount brand Surtimax was the best performer during the period as it reported middle, single digit same-store sales growth followed by the hypermarket and the supermarket formats.

Full year 2014 net revenues rose 6.8% and reached COP11.4 billion versus the COP10.7 billion reported in 2013. Grupo Exito's net revenues in Colombia in 2014 benefited from retail sales growth of 6.3% due to the strong performance of our three formats, especially the discount format and from the mix of sales and growth of all the promotional events held across the banners. Complementary businesses also contributed with the expansion of net revenues which registered an increase of nearly 16% compared to 2013 result. The Uruguayan operation was also an important contributor of net revenues in 2014 with mid-double digit sales growth driven by internal consumption and a full 2013 expansion effect, despite a decline in tourism and strikes for 2014 holiday season.

Sales mix reflected 31% share in non-food categories with 69% in food categories for the fourth quarter and 29% and 71% share respectively for the full year 2014. Categories such as perishables and electronics performed quite well and increased both in terms of sales and like-for-like levels. Increased sourcing from local producers to improve quality, freshness and price competitiveness heightened fresh food category sales while electronics benefited from the World Cup related activities.

Sales in 2014 represented an overall 2.2% same-store sales growth derived from 9.2% in Uruguay in local currency and an increase of 2% in Colombia. Sales in like-for-like levels performed well and benefited by the classic positive annual hypermarket performance versus the negative growth posted in 2013 as well as the strong positioning of our premium brand Carulla, which was our best brand performer with a mid-single digit same store sales growth during 2014.

On slide number 7, we also see the gross profit posted a margin of 26.6% during the fourth quarter of 2014 and 26.2% for full year 2014 as a percentage of net revenues. The reduction of 40 basis points versus 2013 derived from the expansion on the discount format and activities related to the omni-channel strategy as well as the effect of the mix of sales. The mix of sales showed an increase of revenues from e-commerce, as well as from targeted categories such as perishables and especially coming from electronics which are usually very competitive prices and lower margins than the mix of other type of businesses within the Company.

Grupo Exito continued expanding in the discount market with Surtimax, Aliados and integrated Super Inter, this operation with a retail margin of approximately 16% and also invested on new activities such as mobile. Nonetheless, the resilience of the Company's business model allowed the margin diversification from complementary businesses to permit Grupo Exito to develop its omni-channel strategies while maintaining competitiveness in the retail business.

The Company has advanced in covering strategic fronts to capture most of the future map of the Colombian retail business. First, Grupo Exito assures leadership in discount with Super Inter and Surtimax, complementary brands that allow the Company to penetrate informal markets, now representing near to 40% of the total consumer goods market in Colombia. The second one is accelerating our presence on e-commerce to anticipate to what is an undeniable global trend. In this regard, Grupo Exito is leading innovation and brand presence in Colombia with exito.com, carulla.com and Cdiscount. It is clear that development -- this developing discount and developing the early stages of e-commerce may have an effect on gross margins. However, it will broaden our space for growth and strengthen our defensive strategies within the market. The Company also made targeted price and promotional investments in regions with increasing competition, investments that are within our budget and can be assumed within current margin levels.

Moving down the slide, selling, general and administrative expenses decreased 50 basis points from 19.8% to 19.3% as a percentage of net revenues.

During fourth quarter compared with the same period of 2013, SG&A levels reflected the acceleration of the Company's action plan to lower costs and expenses and the favorable effect of Super Inter's integration.

Full year SG&A declined by 30 basis points from 21.3% to 21.2% as a percentage of net revenues through the Company's continuous efforts to increase productivity. For instance, we are redefining the administrative structures at stores, optimizing energy consumption levels through technology and leveraging the platform in order to maximize the value of marketing campaigns, all of this within a permanent focus on cash, on customer service and innovation which are real differentiators for this organization.

At Colombia level, all these efforts permitted to mitigate increases in operating taxes regarding the valuation of assets and other regional taxes, higher utility bills and increases in VAT of store rents from 10% to 16%. In Uruguay, expenses increased due to wages inflation by nearly 13%. Expenses optimization allowed the Company to continue investing in omni-channel activities through strengthening of e-commerce and real estate development. All of these required investment in specialized human resources.

Moving down to slide number 8, operating income rose 1.9% during the fourth quarter compared to the same period of 2013 and was 7.3% as a percentage of net revenues. Full-year operating income grew 5.4% compared to 2013 and was 5% as a percentage of net revenues and was mostly benefited by the outcome of the operation in Colombia derived from the increased performance of Carulla and Exito's brand hypermarkets. The result was partially offset by a mix format expansion, the unnecessary investment in omni-channel activities and that inflationary cost pressures in Uruguay.

Colombia had a very positive year regarding its operational profit performance as it increased above 9%. In comparison, Uruguay negatively affected the consolidated margin given higher wage increases and exchange rate impact when expressing results in Colombian pesos.

As shown down the slide, EBITDA grew 0.3% in the fourth quarter compared to the same period of 2013 to COP341,706 million for a 10% EBITDA margin as a percentage of net revenues. Full-year EBITDA grew by 2.6% and posted a margin of 8.4% in 2014 as a percentage of net revenues to COP956,447 million. The margin reduction in 2014 versus results in 2013 derived from the lower EBITDA margin of our operation in Uruguay and the recently integrated discounter Super Inter, as well as reflected the Company's efforts to efficiently operate in an increasingly competitive environment.

In 2014, there was a higher net finance income of COP83,000 million derived from a higher financial base and a higher repo rate versus last year. Grupo Exito invested in Casino Group's cash centralization subsidiary Polka in a short-term bond of $100 million with a yield of 4.5% last December. The investment was done accordingly with the Company's cash management guidelines and complying with the strict financial and governance standards set by the General Shareholders' Assembly. As of today, the Company has no investment in the aforementioned entity.

Moving to slide number nine, we see a 2.6% net income reduction during the fourth quarter 2014 compared to the same period 2013 which represented a 5.2% net income margin as a percentage of net revenues. Nonetheless, full-year net income grew 4.7% and reflected a net income margin of 4% as a percentage of net revenues. Net income outcome included higher non-operational expenses stemming from labor provisions and a flattish full year effective tax rate of 21%.

I would like to comment now on Company's progress and achievements in developing its strategic objectives throughout 2014, the execution of its retail expansion, it's omni-channel activities and other complementary businesses.

Slide number 10 shows Grupo Exito's overall capital expenditure levels which reached COP518,000 million. The Company invested [nearly] 85% of CapEx to finance its expansion plan, strengthening complementary businesses and deploy its omni-channel strategies. The remaining CapEx was allocated to maintain and support the operational structures in Colombia and Uruguay, updating IT systems and logistics.

The Company's retail expansion comprised the opening of 34 stores and one gas station, the integration of 46 commercial establishments from Super Inter as well as the remodeling of one Carulla and four Exito stores. Moreover, omni-channel development included the creation of one drive-in store, 246 click and collect sites, placing virtual catalogs throughout 86 stores and totaling 721 Aliados Surtimax all of these [last] creations are undisputed innovations for the Colombian market, leading trends as should be done by the market leader.

In line with its 2014 retail expansion strategy, the Company focused on financially viable openings to maintain its market share. Accordingly, Grupo Exito concluded 2014 with a total of 591 stores, geographically represented by 538 stores in Colombia and 54 in Uruguay. The Company's consolidated retail growth in 2014 represented an additional 9.2% in gross sales area for a total selling area of 898,000 square meters. Even though, the Colombian market was quite dynamic in adding retail areas, Grupo Exito overall expansion surpassed any major competitor when one add our organic expansion to the acquisition of the Super Inter commercial establishments.

Various promotional activities were held during the year including (inaudible) and Megaprima. Moreover, the Company hosted the fourth annual Carulla es Cafe, Salon del Queso and Cumbre de la Pasta, as well as the ninth annual wine event, Expovinos. It also held its second annual Super Bingo event.

Among other important exclusives offered to our customers during the year were the launch of albums by Grammy Award winning artists, one is in Carlos Vives as well as the exclusive launch of Bronzini Black, clothing collection in partnership with the renowned Colombian soccer player James Rodriguez. Moreover, Grupo Exito also successfully launched for the first time in Colombia, Cuponmania, distributing 2 million coupons to all clients in discounted prices and in targeted categories in (inaudible) one to many strategy. The Company also was chosen by FIFA as the official World Cup store in the country.

Through the Company's efforts in deploying accurate expansion and commercial activities, Grupo Exito consolidated its leadership in the three segments of the food retail business through its presence in 96 cities in Colombia. In the mid-market, Exito brand continued to be the leading one in the country and was recognized in terms of greatest top of mind, spontaneous top of mind with nearly 40% brand awareness. Exito's brand is the only one in Colombia with a complete multi-format approach through its hypermarkets, supermarkets and convenience stores in addition to having a leading position in e-commerce business.

In the premium market, Carulla was the leading supermarket and demonstrated it by having the strongest like-for-like growth in the Company in last year. Carulla brand also scored the highest grades in terms of customer experience and service as well as benefited clients with the launch of premium website carulla.com to enhance their Internet experience. Additionally, Grupo Exito achieved a leadership position within the proximity format with its 103 convenience stores, both under the Carulla Express and the Exito Express brands.

Finally, with Super Inter's deal, Grupo Exito also established itself as a market leader in the discount format in the country with over 1.5 million customers. Surtimax and Super Inter together represent annual sales similar to Carulla brand. There were other noteworthy activities at Grupo Exito during 2014 that helped consolidate the Company's omni-channel strategy and its position as leader in the online business. Grupo Exito joined the list global e-commerce player Cnova to further develop its online business. Accordingly, Grupo Exito consolidated its 49% ownership in Cdiscount Colombia, 30% in Cdiscount Latin America and 0.16% in Cnova, while keeping a 100% ownership in exito.com and carulla.com.

The successful launch of Cdiscount Colombia in partnership with Casino Group started to position Grupo Exito in the discount online market. This site specializes in non-food products and aims to becoming Colombia's Internet non-food leader, both in price and in online traffic.

Moreover, sales from exito.com and carulla.com, home deliveries and interactive kiosks increased by nearly 35% their sales and represented nearly 2% of Grupo Exito's total domestic retail sales. The launch of the first click and collect service in Colombia in 246 stores allowed customers to order by phone or online and pick up their products, no freight charge in any selected store creating a clear competitive advantage over other online players.

The performance and market penetration of Aliados Surtimax demonstrated there is a feasible and sustainable activity for the long run as these units represented almost 7% of total 2014 Surtimax sales. In 18 months, Grupo Exito reached 721 commercial alliances with independent grocery stores and current footprint covers Antioquia and Atlantic Coast, Bogota and its surroundings. Our complementary activities continued consolidating their position and were strong contributors to the Company's results. Real estate business developed nearly 70,000 square meters of gross leasable areas in 2014 with the opening of the third stage of San Pedro Neiva of Viva Fontibon, Viva Caucasia and important shopping mall Viva Villavicencio, as well as other small commercial galleries and concessionaires at stores. Thus, the Viva brand emerges as one of the most important ones amongst shopping center operators.

As of 2014, Grupo Exito added around 270,000 square meters of gross leasable areas in 11 shopping malls and commercial galleries holding over 4,500 tenants.

The financial retail business Tarjeta, the joint venture with one of the leading Colombian banks, Bancolombia reached approximately 1.8 million customers and continued as the third credit card issuer in the country after Visa and MasterCard. The total sales paid via this credit card were 15% of the Company's total sales. Non-performing loans maintained adequate risk profile levels and were provisioned at more than 100% as has been usual.

The insurance business in partnership with Grupo Suramericana reached 750,000 customers and increased its revenues by 25% versus 2013.

The alliance with Avianca Airline has positioned Viajes Exito as the main market player in tour packages to domestic destinations with increases in revenues by near 50% in 2014. The Company is positioned as a stronger mobile virtual operator with Movil Exito with more than 360,000 users as we reached 13 million financial transactions also and remittances in our money transfer services.

In other note, regarding sustainability activities the Company held its fifth annual event Proveedores de Exito and awarded suppliers' efforts for being key stakeholders in the Company's differentiating and competitiveness. Moreover, Grupo Exito was named the only Colombian retail company included in the Dow Jones Sustainability Index Survey for Emerging Markets as recognition for its commitment to best practices and sustainable development. The Colombian Stock Exchange also recognized Grupo Exito's Investors Relations department for voluntarily adopting Investor Relation Best Practices. Finally, Fitch Ratings Colombia maintained Grupo Exito's AAA rating and stabled outlook for its ordinary bonds.

Before moving to the next part of the agenda, I would like to comment on the dividend proposal decided last Tuesday by the Board of Directors, subject to approval by the General Shareholders' Meeting to be held on March 17, 2015. Grupo Exito posted a solid performance in terms of cash generation in 2014 as it grew by 9.4%. As a result, the proposal aims to increase dividends at the same growth level, which doubles the net income growth registered in 2014. Accordingly, this warranted the distribution of 56.7% payout ratio to shareholders from a previous 54.2% which corresponds to a dividend payout of COP580.9 per share to be paid on a quarterly basis. This dividend proposal will increase the dividend yield from 1.77% to 2.0% considering the closing stock price of COP29,200 as of December 31, 2014.

This part of the presentation concludes with the Company's guidance for 2015 as per slide number 11.

From a macro perspective, in 2014, the lowest unemployment rate for the last 10 years at 9.1%, inflation under control at 3.66% and GDP growth over 4% showed that Colombia continued being one of the best performing countries in the region.

Retail consumption levels in Colombia, excluding gas and vehicles were also strong, has increased by 7.4% year to November 2014 compared to the previous year. Nonetheless, the downward trend of oil prices puts pressure on the market and devaluation rose by 24% creating a gap on the country's income budget. The situation prompted the government to include a further tax reform approved last December that will imply important changes to Company tax structures in Colombia. The tax reform includes a wealth tax of 1.15%, 1% and 0.4% to be paid respectively in 2015, 2016 and 2017 over the liquid equity held by the Company at the beginning of each year.

Moreover, the income tax regarded as (inaudible) currently at 9% will increase an additional rate of 5%, 6%, 8% and 9% for the years 2015 to 2018 respectively. Total effect of that tax reform on Grupo Exito from 2015 to 2018 will be of an effective tax rate range of between 33% and 37%. Expected additional tax payment in 2015 will be up near COP90 billion which has an effect on net income below 15%.

All in all, we remain cautious and expect consumption in 2015 to continue being positive as evaluation levels might have a further inflationary effect. The dynamism in the labor market to maintain a favorable performance of domestic demand will depend on the sustained recovery of tradable sectors just as industry and also by job creation in the [service] sector, mining and energy activities to offset the external pressures to the Colombian economy that have taken place in recent months.

Also, the execution of the first year of aggressive $23 billion investment in fourth generation roads will have a positive effect on employment and consumption. All the above considered, we at Grupo Exito foresee 2015 total year similar to last year with regards to the Company's overall sales performance.

According to the Company's business plan for 2015, Grupo Exito forecasts a near to double-digit growth of the top line over the IFRS base, same-store sales levels between 1% and 2% and margin similar to the one of 2014.

Retail expansion includes the opening of between 30 and 40 stores and expected near 3% growth in terms of sales areas. Grupo Exito shall continue focusing its local expansion plan on penetrating small towns and mid-size cities that represent high market potentials with discounters Surtimax and Super Inter stores and with compact hypermarkets. Moreover, opportunities seen in big cities include the opening of as many as possible premium Carulla stores and convenience stores under both the Exito and Carulla express brands.

Regarding Super Inter and accordingly to the three years business plan developed for this unit, Grupo Exito will focus on obtaining synergies, especially from improving purchasing conditions, centralization of back office, logistics and distribution. The goal is to take advantage of Super Inter's expertise in handling fresh products and overall practices to run a discounter to further develop and strengthen our business model for discount format.

As stated last quarter, leveraging synergies and best practices are expected to represent an EBITDA margin increase for Super Inter at between 200 and 300 basis points over the three-year period, derived mostly from improvement in its gross margins. The Company's efforts in gaining efficiencies through the operational excellence program will continue with the deployment of its third phase from 2015 to 2017.

Regarding general expenses, in Colombia and Uruguay the goal remains to increase efficiency at both the store and corporate levels and continue reducing total expenses weight as a proportion of sales. Expansion in real estate division is also expected to advance in 2015 with the construction of between 30,000 to 40,000 square meters of gross leasable areas. Viva Barranquilla will continue construction to become the most important shopping center in the city by 2016 as we'll add nearly 50,000 square meters of additional gross leasable area. As I said, Viva Barranquilla will open in mid-2016. With all of these developments and other major projects in the pipeline, the Company expects to complete near 400,000 square meters of gross leasable area space by 2017.

Grupo Exito's expected capital expenditure for the execution of its business plan both in Colombia and Uruguay in 2015 is between COP550,000 million and COP650,000 million approximately. 60% of CapEx will be allocated to retail expansion, complementary businesses and omni-channel activities, 25% to real estate and 15% to maintenance, IT and logistics systems upgrades.

To conclude, we consider that Grupo Exito's 2014 results demonstrated the consistency of the Company's strategy as the achievement of its objectives was in line with initial guidance provided to the market. Top line was 80 basis points over the forecasted range between 4% to 6% as well as same-store sales levels surpassed by 20 basis points the expected range originally provided of between 0% and 2%.

Like-for-like growth in Colombia of 2% reflected the strong positioning of Grupo Exito locally as the Company grew sales areas by nearly 3% versus a total retail market expansion of sales area of over 10%. Our business model based on prioritizing expansion in profitable and quickly maturing areas has minimized the impact of cannibalization from our diverse formats and brands. It has also proved to be a responsible approach to reliable profitable growth. The Company continued deploying focused activities to increase operating efficiency and to reach labor cost efficiency.

Grupo Exito also positioned itself in the e-commerce segment and rolled out its omni-channel strategy through the launch of Cdiscount and alliance with Cnova. Complementary businesses also improved market penetration and real estate developed 40% more areas than our initial guidance provided to the market at the beginning of the year.

In 2015, Grupo Exito will continue investing in real estate and physical and virtual retail expansion while at the same time increasing operational efficiencies. We also will see important growth opportunities in Colombia coming from expansion on intermediate cities, proximity formats in big cities, further penetration of informal markets and on e-commerce development. Accordingly, we intend to continue defending our market positions as we have done in the past years when the Company managed to gain over six market share points through the combination of organic growth and accretive acquisitions such as (inaudible) and Super Inter store space.

Margins from other income will continue protecting profitability while Company remains competitive in price. This is a competitive advantage that our proven multi-business strategy grants [brand us] above any other player in our arena.

This concludes the presentation of the conference call. And before we begin the Q&A session, I would like to once again thank you for your kind attention and interest in Grupo Exito. Operator, may we please move to the Q&A session?

(Operator Instructions) Andrea Teixeira, JP Morgan.

Thanks for taking the question and Carlos and also for your -- Carlos Mario for your guidance. And I understand obviously it's a challenging year and you're coming off of a stronger comparison, but I was just wondering in the context of your competitive environment, relatively you had a strong -- hello? Sorry, I heard some voice on the background. But just in the context of your competitive environment, if you're seeing and the push that you had in the margin this quarter when you say flat margins, you're basically translating the gains that you're having on the omni-channel and all the other initiatives that you have outside retail kind of reinvesting to pricing. It seems to me kind of conservative to assume flat margins given that you have seen a lot of reinvestment already in the fourth quarters -- in the full year of 2014, if you're not -- if you're seeing a much harder competitive environment, that's my question?

Thank you, Andrea. Really I think that the competitive environment is going to continue very similar during the year. We will continue seeing discounters opening stores as they have done in the last two years. We will continue seeing a club membership after opening some stores. And some department stores coming from Chile, pure players in e-commerce and that's what's going to be driving the expansion.

Exito itself is planning to have a much more dynamic organic expansion in 2015 as compared to 2014 if, obviously, we discount the acquisition of Super Inter. We feel that we have a very clear targeted response to competitors according with the segment of competition. If we speak about discounters, we don't answer with all our brands, but our answer will come through Surtimax, Super Inter, Aliados stores and the Encono first price private brand, which means that it's a focused price investment only in certain regions and with certain formats.

Number two, in e-commerce, we believe that we are the only actor in the market that can offer a three-tier segmented e-commerce strategy because we have Cdiscount, which does not consolidate in Exito, but which is an actor, in which we have a 49% participation and which will be investing in the price market that is the low-price segment. Then we have exito.com which has been in line with the positioning of Exito. We will invest in the value market, that's value for money.

And third, we have the Carulla, which we will be investing in the premium market with premium prices and more of a service kind. Finally, in this competitive environment, we have the non-food market, which is an important part of our sales. Here, I think we are going to have an interesting year because we're going to expand into intermediate cities which is an opportunity to expand non-food to places of the country where we have not -- no non-food important offer. Second, because we are strengthening a lot our private brands, brands like Arkitect, in clothing for women or Bronzini, in underwear today with our star James Rodriguez and Finaldek in home products.

And finally what I think is very interesting is that something that might not be good for the country as a whole which is devaluation and some inflation coming from it, is going to give a competitive advantage to Exito because our supply chain 92% comes from products sourced in Colombia and that makes a huge difference against most of our competitors in some food segment and most of our competitors in the non-food segments. So, this is about competition.

Now about margins. What we believe is that, we will have a natural margin impact of the higher mix of integration of Super Inter, that's a fact. But at the same time, Super Inter brings a lower cost structure. So, I think that as a whole, it creates a very similar operational profit combination when you go down. Secondly, we also have an additional margin impact of e-commerce increase in sales which is many times the increase in our normal sales, which is normal but we are taking that share.

What is important is that we cover these markets. We don't cover these markets, it's going to be the other players who are going to cover them and they will be hitting the competitive position of the Company. And we think that what we have done in 2014, we clearly have assured leadership in discount which is a huge move considering that 40% of the market is still a market open to discount and secondly that we assured being the most dynamic actor in the e-commerce market.

We feel that our big challenge is to keep operational margins stable and to keep obviously an increase in profitability that is going to be proportional to increase in sales and as you saw both from our same-store sales objective and also our expansions to Super Inter and organic expansion gives us a comfort to speak about our guidance of double-digit increase in sales.

Antonio Gonzalez, Credit Suisse.

Good morning, Carlos Mario. Thank you. My questions have been answered already. Thank you so much.

Thank you, Antonio.

Benjamin Theurer, Barclays.

I have actually just one follow-up on the guidance for 2015. So clearly you explained very well how to get to the, well, round about double-digit growth top line and margins et cetera. But just quickly, so nonetheless through the tax increases and basically the tax rate being more at the 33% to compare where we had in the past in the low 20%s, you do forecasted net income is going to decline by, again, I think you said it's something like 10%, 15%, but it's just a clarification, if you could repeat that number?

And then one other question in terms of the guidance for the sales growth. So you're targeting basically 3% of sales flow, that excludes basically the Super Inter or does it include or how to think of it? Is it basically 3% above the prior of the acquisition existing portfolio or is it including the asset base with Super Inter? Thanks.

Okay. Thank you for your question. It's an opportunity to make a lot of clarity around these things which are important for you. First, taxes. As you know, we have a tax impact which is going to affect all Colombian corporations and obviously corporations which invest a lot like ours, have especially impact. It's going to have an impact of around COP90 billion for Exito, COP60 billion coming from wealth tax, and COP30 billion coming from the additional income tax that is going to be the impact on year number one, which will take us to something around a 33% effective tax rate, obviously, considering that we have still some tax benefits, which we take care of.

Number two, it's important to consider that we are reporting fully under IFRS this year. So that means that most of this tax impact plus a full tax impact of local taxes is going to be stated in the first quarter according with the rules which is different from what happened before when we had them all around the year, month after month. So it's going to have a special impact on the quarter but that does not affect the full year visibility.

In the full year visibility we will have a reduction that we calculate around 15% in total income, net income for the Company. I think that the good picture is that the Company has a very good cash generation. I think that today we're giving a very positive message to our shareholders with the increase in dividends of 9.4% for this year even if the increase in profit was less. And I hope obviously, this is not -- I cannot speak for the Shareholder Assembly but I hope that the strong cash position of the Company will permit it to be, I would say, sensible to the dividend of our shareholders.

Finally, you asked about sales.

The sales floor, so the sales floor expansion of 3%, how that works together with the different stores and of which you're going off, including the 46 Super Inter as of 4Q or excluding and that was the question?

Okay. That excludes Super Inter. Super Inter sales floor, we take it not like something that took us to a [9.-something] last year and this 3% or a little above 3% store creation -- store floor creation will be only organic excluding any acquisition or any other possibility of acquiring other competitors, both in Colombia and outside of Colombia.

Christopher DiSalvatore, Credicorp Capital.

I just want to follow up on the margin question real quickly. If you could just maybe provide a little bit more detail. I am trying to understand likely this year I am assuming we'll have more cost dilution from Super Inter. But on the margin side, you mentioned something stable. So can you just sort of walk me through gross versus SG&A and how you expect those to kind of roll out through the year? I mean, maybe some of the things that you are implementing now and if you could just remind me again for the Super Inter and maybe Surtimax where those margin ranges are and maybe what you're targeting for those specific segments for the year and how maybe those will roll out, I guess, over maybe the medium term. And again, just the dynamic between maybe gross and SG&A, how much you can bring dilution down you think this year versus how stable or it seems to me there might be some more deterioration in gross based on your full-year guidance? I just wanted to understand a little bit more. Thanks.

First, I'll give a general answer and then I hand it to Filipe Da Silva, our CFO so that he advances a little more. What we foresee is that there will be a diminishing in percentage of gross margin because of the mix of channels, especially coming from the discounters which is an important part of that increasing sales.

Given the fact that we only had a very partial integration of Super Inter during the fourth quarter and we will have full integration during three quarters and partial during the fourth quarter of 2015. But at the same time this is a format that brings a structure of lower costs. So that will balance the deterioration in margin. And what we believe is that complementary income will continue contributing positively to the margins of the Company. But I would let Filipe go in larger detail.

Yes, basically, if we take the last quarter 2014, we have seen that our SG&A have decreased significantly. And we believe that this one will continue for the, I would say, so many [extension] that's provided by Carlos Mario. First one is, the mix of format. So definitely the discount format with the Surtimax and the integration of Super Inter are over, our SG&A should decrease.

The second part will be definitely the action plan that we are continuing to develop in terms of productivity and in terms of general expenses that we are optimizing at store and corporate level. So I would say these two factors will contribute to a decrease in SG&A of the Company. That will be compensative, I would say mitigated by the deterioration and decrease of the gross margin. Here we have basically also two effects. The first one is -- three effects, so two negative ones, is the investment on e-commerce, here we know -- we all know that margin will be impacted by that. And the second is the mix of format with the discount.

But on the other hand, we'll have, I would say, one positive impact, is all what we are, I would say developing regarding a price brand in textile, in groceries, and also I would say with the expansion and the strong development that we are taking from Carulla that will help us to mitigate the impact of both e-commerce and discount format.

And finally the big positive, I would say, impact on incomes that will allow us to stabilize our EBITDA margin is the complementary businesses. Here I'm referring to financial services after all 2014 was a very positive year. We are thinking that 2015 will be -- also continuing in the same trend. And also we are talking about insurance and travel that are contributing more and more on the EBITDA of the Company and not forgetting, of course, real estate.

So to provide you, I would say, precise figures on SG&A decrease today, I think it's too early considering on top of that that you know that this year we will move to IFRS. So I think that we could give you more insight in the first quarter communication. But I would say that what you will see decreasing in gross margin basically you will see as a composition at distribution cost at the SG&A level. So it will allow us like that to have a stabilized EBITDA and operating margin at the end of the year.

Could you give us an idea of how much e-commerce now? We've been talking about it for a while, so how much this is representing maybe of sales or how important it is as a piece of your income statement today?

Yes. The figure is between e-commerce exito.com and carulla.com, virtual catalogs and home delivery, which is what we call direct to consumer. We sold something around COP200,000 million that is near to 2% or a little above 2% of total sales in Colombia, which really now for the first time after an effort of four or five years creates a very interesting base. And the good thing is that it's going to be a contribution for future increase.

Little by little we are approaching the moment in which our e-commerce business is going to be a breakeven business and that's going to be good news because after a while, it's going to begin to create increasing sales which will be accretive also to the profitability of the Company.

Juan Serrato, Porvenir.

I want to understand better what is the reason of the increase in financial expenses and the increase in taxes in the quarter? And also I want to know if you can tell us what will be the growth in revenues and EBITDA excluding the consolidation of Super Inter? Thank you.

Regarding the increase of financial expenses on the top bottom, actually if you look at the net financial income and financial expenses, you see that you are rather at the same amount as last year. Actually, the explanation is due to reclassification. Previously we were all related to hedging and it generate hedging coverage. We were netting it on the financial income, so now we have opened it and put out the negative impact of the hedging on the financial expenses. That is the first explanation for the increase of the financial expenses line.

And the second one is related to Uruguay, okay, the devaluation. As you know we have a cash [remission] in Uruguay and with the devaluation both for Uruguayan pesos (inaudible) Colombian pesos, we had a negative impact on our financial expenses on the fourth quarter.

On the tax, basically here you have also an impact coming from the Uruguay. Here we have to book the loss of fiscal credit that we had since many years and that we couldn't make use of. And so we had to book it as a loss this year at the end of 2014. But I would say on the [year-on-year] I would say the performance on the income tax we see that we are already in line in terms of effective rates. We are 21% compared to 20% last year.

Okay. Thank you very much. And in respect with the growth in revenues and EBITDA without the integration of Super Inter, what constitute that?

Sorry. Could you repeat your question please?

Okay, I want to know if you can tell us the growth in revenues and EBITDA in the quarter excluding the consolidation of Super Inter?

Regarding sales, as we mentioned previously from the -- I would say the total [9.10%] growth of sales, a little bit more than 4% is coming from Super Inter integration, okay. And regarding profitability, here we are not providing the detail. But what we can tell you is that you know the EBITDA margin of Super Inter is below, I would say, the average of the country of the overall operations. So the participation of the EBITDA of Super Inter in the total EBITDA of the Company is below 2%.

Rafael Espana, Serfinco.

Hello. Good morning, Carlos Mario, Filipe and Fernanda Moreno thank you for your presentation. My first question regards with the investments that you called in in price and target categories such as perishables and electronics, market expansion, Surtimax and Aliados and even Super Inter. Those investments affected the gross margin. So why do you spend them as cost of goods sold instead of reporting them as CapEx or investments in intangibles? And will those investments hard to gain the margins of future investments? I mean, are they going to be accounted as CapEx?

And with regard to the operating agreement or license agreement of Super Inter's brands will then represent additional costs and which line of financial statements will then be report? There will be operating, non-operating activities, or will them be treated as acquired assets (inaudible) already accounted in today's COP600 million CapEx guidance that you said? Thank you.

I will answer the first part and I will leave Filipe the second part. Regarding our investments in different businesses that is perishables, electronics et cetera, probably I created a confusion. It's not a CapEx investment, it's a price investment. That means that in the fourth quarter we had a very dynamic electronics market. And so, when you have a very dynamic electronic market and your mix of sales takes more of that product then it has an impact on your margins going down. And that's what's valid for most of the year because of the World Cup situation.

What we think is going to happen this year is that this year we're going to have a much more dynamic food market, both industrialized and perishable food and a less dynamic non-food market given the impact that a special devaluation is going to have on the costs of these types of goods and probably on the elasticity of these types of goods. And that might have even a favorable impact on margins if food had a much more participation. Given that we are in good position with our fixed [health] sales which are also the most important and most profitable part of the business.

So this is the first part and I hand this to Filipe.

Regarding Super Inter and the fee the we have to pay for the usage of the ground, I [confirm you] that this fee will impact directly the operating income, okay. And this fee -- the amount of this fee is roughly COP10 million a year. And actually we already started since October, so since the beginning of the integration of 46 stores to book this fee in our P&L.

The last one. Could you repeat that, please? It was already booked on October's number?

It was proportionally because as I mentioned to you, it's a fee that we're paying on the four year, and so on the multi basis we are booking out the part of the proportional tax of it every month.

Okay. In the non-operating income statement, the non-operated part?

In operating part.

In operating?

Yes, operation.

In which part, in SG&A or --?

SG&A.

Thank you. Another question is about the -- I don't know if you can explain this a little bit, the impact on Exito's financial statements that the exercise of the put option that minority stockholders are doing (inaudible) made. I don't know if that's going to be reported in the future. And to what extent we are going to see it in the financial -- in profit and lose? Thank you.

This is Carlos. This is a minority shareholder position that they held in Devoto. With this we will be holding 100% property of Devoto and that will have no impact on expenses. It simply has an impact in consolidation. It will be treated -- if you are referring to the put of Devoto, for example, for 2015 it will be treated as a purchase of shares or as a remaining share that they will ask us to buy during the year. But I would say no impact on operating incomes coming from that.

Okay, thank you. I would like to ask a last question, and it regards to the CREE tax. I saw that to the CREE tax seems to be reduced, but earnings before tax has increased. Why did that happen in 2014 or am I right?

Sorry, could you repeat the question please?

Yes. In regards to the CREE tax, I see that it -- I mean, it's less than it was before even though earnings before tax increased. Why did that happen? And am I right in what I'm saying?

The CREE tax we have in 2013, Rafael, was around 9% as well. It doesn't change in 2014, it remains still at 9%, the change will apply from 2015 onwards.

No, I'm talking about the amount in pesos. Actually in 2013 it was like COP33 billion and in 2014 it was like COP27 billion. So bearing in mind that the CREE tax is going up, I didn't see why that happened or how was it consolidated? It's okay that maybe we could talk it by phone later.

If you want, Rafael, we can have another con call and we will explain to you clearly how we have been booked as a CREE tax, okay.

Okay. No problem. Thank you so much.

You're welcome.

Miguel Moreno, Larrain Vial.

Hi, everyone. Thank you for taking my question. And my question is regarding the (inaudible) asked that there were some resignations in the organizational structure and can you give us more detail on when this redefinition of the structure was implemented and how much time do kind of expected (technical difficulty) and some guidance of basis points of if there will be a need that can be reduced [with the dividend]? And I have a second question maybe regarding the large bank that you have the mix of own stores versus leased stores that you expect for new openings. Are more of these going to be leased or more leases are going to be owned and already own them or you want to acquire? Thank you.

Okay. Miguel this is Carlos. I will take the second part of your question and leave the first one to Filipe. Land back and owned versus leased, the trend is that we will have medium big stores in intermediate cities and commercial galleries will be owned and we will buy the locks for them to assure the ownership of the shopping malls or commercial galleries. And for example, we will be doing this year a shopping mall in [Reoacha] in the extreme Caribbean coast to the north of Colombia and this is going to be around 20,000 square meters where the hypermarket will take something like 4,000 to 5,000. This will be owned.

And similar things will be in some galleries and hypermarkets that we're planning in other intermediate cities of Colombia.

When we go to proximity that is Exito Express, Carulla Express we will be leasing all of them. When we speak about expansion for Super Inter and Surtimax, they will be leased and afterwards when we speak about new Carulla of between 600 to 1,200 square meters there will be a mix between owned and leased according with the opportunities that we find. Normally you find opportunities in shopping malls of third parties which want to own that shopping malls, so you have to lease.

But if we can find Carulla spots which we can own, we will do so. When we speak about what that means for the complete year, I would say that considering our expansion plans between owned and leased it will be half and half. And probably a little more in lease but that it would be nothing more than 55% of the total combination. I give the word to the Filipe.

So regarding SG&A, actually we are working, I would say, on two main topics. The first one is labor cost, so gaining productivity. So on this part we have already started this year since the beginning of the second semester. Here we are neutralizing the back-office operation for all the smart format and convenience stores and discount formats in order to be lower in terms of labor cost for these formats.

And we continue to work on the labor cost regarding the hypermarket structure on the first semester of 2015. A year or so, trying to focus on the back office and not, I would say, to be much more productive on the product that customer is not seeing, the [non-digital] part of the store operations and we work on it during all of the first semester, trying also to neutralize overall maintenance. For example, maintenance HR operations on the hypermarket side. So that is what we are trying to do on the labor cost.

On the general expenses, we have launched a big selling program also in the second semester of 2014. Carlos Mario mentioned some of the action regarding energy, packing also, regarding also maintenance, logistic. Here, we are being advised and helped by [a management] consultancy. And we are expecting to -- we have already -- we already got some results and you have seen it on the fourth quarter. And we are expecting also to have the full benefits of all the sections on the SG&A, I would say, on the second part of the year.

Jairo Agudelo, Bancolombia.

Hello, Carlos Mario, Filipe and Maria. Thank you for having my questions. I have three questions, the first one is regarding Uruguay. You said during the fourth quarter that consolidated margins were affected by the increase in wages in Uruguay and the impact it has in the financial results. But you are talking about 2015 flat margins. Are you expecting the productivity or the margins in Uruguay to recover, or are you expecting to keeping the negative impact from the increasing wages during 2015?

My second question would be regarding Super Inter. During the transaction, you said that you have an option to acquire the remaining stake in Super Inter and the option is remaining only for 2015. Do you have any timeline for that option to be expire, and maybe are you thinking of executing that option? And how much will that option represents for you for the cash you have available in your balance sheet? Those will be my two questions mainly. Thank you.

Yes. First one, Uruguay, we expect the budget in Uruguay to remain with a stable margin this year that is that through productivity we can counterbalance any additional wage increases that we have. And number two, we have until end April to exert the option on Super Inter and it will be done at market value and we think it will be something around [$100 million].

Ignacio Ochoa, Credit Suisse.

Thank you for taking my question. First, a clarification, the 15% reduction on net income that you spoke about is on full year 2014 net income, right, as compared to that number -- to the fourth quarter?

Yes, Ignacio it's for full year.

Okay, perfect. And also given the lower oil prices, do you think there is a possibility of another fiscal reform this year maybe increasing VAT or do you think the government has done with the fiscal reform they just implemented? And if they do increase VAT, do you have a scenario where you're preparing for that or your best scenario is that there is no other fiscal reform? Thank you.

What we believe is that there is a very small possibility that we have another fiscal reform that affects effective tax levels for corporations because we are at the top. Regarding VAT, I believe this is a personal belief that there's going to be a space for something like this for this year or next year and our experience is that as long as it's not a huge increase, it doesn't have an important impact on consumption. And I think it would be not many points of VAT and probably it would be general all across the product reporting the country.

There are no further question at this time. Mr. Giraldo, do you have any closing remarks?

Yes, I want to make some remarks and it is I think that Grupo Exito in the long run and in the medium run has shown always sustainable, consistent and profitable growth with a clear and consistent strategy, which we have always been clear with all the publics and that has taken us to obtain leadership in the most important market segments in Colombia.

You can always take a decision and it is only to invest in Exito's and Carulla but that would mean to hand over half of the market and to be absent of the most important trend in the world which is e-commerce. Personally and the Board and top management we think that would be a tremendous historic waiver for the Company. So we chose to go on with Super Inter and we're very happy with that and we have chosen to leave e-commerce and not today because today it's easy to know that you have to do that. But we started five years ago when it was not that evident. And I think that today it is going to pay off very clearly because we have a leading position in the moment in which it becomes -- it begins to explode in Colombia.

Number two, when we look at the most important global trends in retail, which we always do, and we try to believe in those which can change the map of retail in Colombia and we feel confident that we are doing our job there.

First, proximity. It's a trend in every part of the world and more in Europe and in Asia, but it's going to become a very important trend in such busy cities like Bogota, Medellin, Barranquilla, Cali, et cetera. And here, Exito both in the popular with Surtimax, with Aliados, with Super Inter or in the medium segment with Exito Express and in the top segment with Carulla Express is today leading the trend, even if we have very important world-class competitors in our market.

In e-commerce the same. We have fewer players which are best in class and we are leading this trend in Colombia. The third one is omni-channel that is putting together the physical with the virtual through click and collect, drive-ins and technological solutions for customers. And there is a big investment in technology and also commercial investment by Exito in which we feel comfortable with what we're doing there.

And finally, what we see in the world is that, in the world, the most dynamic segments in the markets are the premium segments and the discount segments. And in both Exito group as a group is leading them. One with Carulla and the other one with Surtimax, Super Inter and Aliados.

The other thing is that, this company has historically leveraged on the customer traffic. Today we have more than 7 million customers and we'll continue to do so and that has proven to be a very important factor to balance our profit and our margins and it keeps us in an 8.4% EBITDA margin which is top in Colombia and also an international benchmark.

And finally, it is all today about innovation. You cannot repeat yourself because if not, you will be selling the same. And the Company has shown that even though it's a big leader, it keeps itself innovating and driving the trend in the market. And we do it with models, not only with products, it's not only [an utility], or a new private brand SKU, that's normal we have to do it. But it's the models which will change these scenarios, the map. And Aliados is going to change it. I think that today we are more than 700. Two years and a half ago we had [zero]. Today it represents more than 7% of sales of Surtimax, before it was [zero]. And today it permits us to get into the scenario which was not accessible for exit.

Second, the virtual catalogs, they are still low in sales, but they are going to increase a lot because what they have been is the possibility to get inside medium sized stores and increase the product offer of those medium-sized stores.

And the third one is click and collect and drive-ins which exists in Europe and in the US and which we have the first -- are being the first one to launch in Colombia. As a whole and as a summary, I would say that we fight with the short-term and quarter results, but we don't lose focus about the long-term competitivity, turns and decisions that the Company has to take and the investments that have to be done there that we fight for two things which is value creation and competitivity and comparative competitivity against the market. This year we have the challenge to continue fighting for margins and costs and we will do so. And so, these are my words and to thank you all for your very good questions and for the confidence that you have set on the Company.

And I would only hand a word finally to Filipe that he has some remark that he wants to add.

Yes. Actually it's regarding the tax reform impact on 2015. I just wanted to clarify what we are expecting in terms of net income evolution compared to 2014. As mentioned by Carlos Mario, I would say COP90 billion tax reform impact will represent roughly 15% impact on the net income 2015 expected. It doesn't mean that our net income will decrease by 15% compared to 2014, okay.

I would say to give a rough guidance as we are expecting a stable margin and EBITDA level without the tax reform impact, we are expecting to have a stabilized net income margin also for 2015, of course under COLGAAP accounting standards and in Colombian pesos, okay. So just to summarize, 15% is the impact, okay.

On 2015, net income, we've a net income evolution without tax impact, I would say, margins stable compared to 2014, okay. And just to end also on the tax reform, just to confirm you that under IFRS standards, the equity tax will be booked on [January]. So it means that the first quarter net income will be impacted so by this one short book registration regarding the equity tax, okay.

And finally just to precise also we will communicate in the next coming days date for a conference call that we would like to organize regarding the IFRS, Colombian IFRS that will start to apply on 1 January. And so we invite you to a conference call in order for you to have better visibility on how will theses, I would say, the change between COLGAAP and IFRS in Colombia and the impact for Exito.

Thank you very much.

Okay. So, this is Carlos, and I want finally to thank you all for being in this con call. Our team and the financial team and Investor Relations is open to any other questions that you might have. And we will see you in the following con call. Thanks a lot.

This concludes today's conference call. You may now disconnect.