Almacenes Exito SA (EXTO) 2017 Q2 法說會逐字稿

Good morning. My name is Karen and I'll be your conference operator today. At this time, I would like to welcome everyone to the Grupo Éxito Second Quarter 2017 Conference Call. (Operator Instructions). Thank you for your attention. Ms. Maria Fernanda Moreno will begin the conference today. Ms. Moreno, you may begin your conference.

Thank you, Karen, and good morning, everyone. We appreciate you joining us today for Grupo Éxito's call. At this time, I'm pleased to present our Chief Executive Officer, Mr. Carlos Mario Giraldo; our Chief Financial Officer, Mr. Manfred Gartz and Mr. Jose Loaiza, VP of International Business. Today's agenda as shown on Slide #3, will cover Grupo Éxito's financial and operating highlights followed by a review of the performance by country and consolidated financial results for the second quarter of 2017. Finally, we will comment on the company's international strategy and outlook to conclude with a Q&A session. Thank you for your attention.

I will now turn the call over to Mr. Carlos Mario Giraldo for his comments.

Thank you, very much to all of you for being here at the conference. I will start at Slide #4 with the financial highlights for the second quarter of this year. It's important to say first that there's a net income recovery coming mainly from the strong performance in our Brazilian operation.

First, at the regional level, we can say that the strong contribution of Grupo Pão de Açúcar ratifies the strategic decision -- long-term decision that the company has taken to diversify its geographies and to go to strong economies as the Brazilian, the Argentinian, Colombian and a very attractive geography as Uruguay.

And the second thing to say is that we have solid consolidated operational performance, despite that we have something which is common to all countries, and it is a lowering inflation, which impacts sales and a low economic dynamism, which we expect is going to recover for next year. We have market share gains in total market in Brazil, Argentina, in the Libertad perimeter, and in Uruguay. And in Colombia at the same-store sales level that is the previous perimeter of Éxito there's also a market share gain.

And finally at the LatAm level, the synergy plan is going very well, and it is going to give results that are beyond the initial expectations.

For Colombia, it is important to say that we have taken recently the decision to dynamite the expansion of our cash and carry format. We said that we were going to open 3 during this year, and finally, we're going to be opening 8 given the very good results that we had from the first store, which is a format that has been very successful in Brazil, and shows a high potential in Colombia.

We see that in Colombia, results are impacted by Food inflation deceleration. We have Food inflation as of June at 1.4% compared with 14.3% last year. And at the same time, we have a clear and notorious weak retail panorama. As of June, Retail is down 0.6%, and Nielsen shows that the baskets for consumer goods are down 3.1% if we compare the 12 rolling months of June-June.

There's a positive revenue, which is consistent coming from our Real Estate business, and the hypermarket stores with the Éxito brand within a difficult retail panorama have shown to be the most resilient of the stores of Éxito, given especially the important performance of electronics and textiles.

As of Brazil, results are very good, as you have seen from the results of GPA. Margins improved, excluding even nonrecurring tax credits, margins improved at a gross level 120 basis points, and our recurrent EBITDA improved 210 basis points. That is, that operationally even after the nonrecurring tax credits, the improvement in the results of GPA is consistent as we had began to see in the first quarter of this year. GPA improved net sales by 9%, and same-store sales by 5.4% at a local currency level, outpacing inflation. Assaí, of course, has a huge contribution, with its increase of 29% in total sales and 13.5% in same-store sales and a clear volume and traffic gain, which has been consistent over many, many quarters. And Extra continues with a very good growth, and the hypermarket format had its best growth in a quarter with a 7.6% same-store sales growth.

Finally, we are going on with the aggressive conversion plan from nonperforming Extra stores into Assaí stores with 16 conversions planned for this year.

At Uruguay, Uruguay continues with healthy profitability and with an EBITDA margin of 8.3%. And gaining the market leadership with a proximity format, which is now Devoto Express, the proximity leader in Uruguay. And Argentina's real estate business continues to be a leader outside of Buenos Aires and contributing in a very positive way to profitability.

If we go to Slide #5, the operational highlights. We see that expansion is on track, that we are having, at the quarter, consolidated CapEx for COP 400,000 million, and that we are having of that CapEx COP 85,000 million in Colombia. With 17 openings, of them, 8 in Colombia and 6 in Brazil for a total store count of 1,563 stores only in Food, with Colombia at 568 stores, Brazil at 884, Uruguay at 81 and Argentina with 30 stores.

Real Estate continues in its planned expansion, with the biggest project that we have done, which is Viva Envigado, with 38% completion and will be opening in the second half of 2018. This is executed by Viva Malls. The same as Tunja near to Bogotá, which is at 13% completion, and we will be opening at the fourth quarter of 2018. Argentina has 2 ongoing projects, Galleries in San Juan in the frontier with Chile and Paseo Rivera Indarte, which is in the Cordoba. Grupo Éxito was awarded also with a very important distinction for sustainable real estate with 2 projects, which have the lead certification, and we are in the ongoing divestment process of Via Varejo to focus in food as it has been announced in various locations.

If we go to Slide #6. For us, customer-centered innovation strategies are key for the organization in the 4 countries. This is a long-term vision that goes beyond the short-term economic difficulties and inflation trends that we have seen in the last years. First, in Colombia, it is important to say that we are very, very excited with the Loyalty Program Coalition that we're going to launch next year, which is in the very important world trend of Big Data, and getting Big Data value out of organizations with a very huge customer base as we have in Éxito in the different countries.

The second thing is that we continue with omnichannelity. And being the omnichannel leader in Colombia with the marketplace, which has increased more than 100% in this quarter, with the digital catalogues and with an e-commerce business that by the end of the year is going to represent near to 3% of the total sales of the company, so we put together every strategy that goes direct to consumer. Finally, in innovation, it is all about experience for our customer with a reduction in lines in hypermarkets giving the people the possibility to be taking all their purchases to their home with a fresh market emphasis at the Carulla level, and with a healthy product leadership that both Éxito and Carulla brands are having in Colombia.

In Brazil, it is highly known and notorious the Meu Desconto strategy, My Discount, which is a way to make direct-focused discounts directly from suppliers to customers through an application that you download in the stores. And the nonfood concepts that, especially in electronics and textiles, are going to make a renovation of between 30 and 40 Extra hypermarkets stores in Brazil.

Uruguay going on with its fresh markets and we are going to open a very important fresh market store in the following month, and with the convenience store leadership. And Argentina with a dual model, in commercial galleries, where we put together the retail traffic and the traffic coming from the commercial partners that go into our real estate galleries.

Going to Slide #7, we speak about the sales performance in Colombia. Sales performance in Colombia impacted by inflation deceleration and by the macroeconomic reality, with sales adjusted by calendar at minus 3.7% and minus 4.2% at same-store sales, accumulated for the year, that is the whole semester at minus 2.2%. Where the hypermarkets continue to be the most resilient, especially because of the contribution of non-food. Where at Carulla, the low food inflation impacted given the mix of food in Carulla, especially of fresh products, which are currently in deflation in Colombia, especially fruit and vegetables. And -- but keeping a very healthy profitability at low double-digit EBITDA margin at Carulla level.

Surtimax and Super Inter, probably one of the few discount and popular stores, which are profitable in Colombia. They keep their good profitability, and they are impacted in sales because of strong inflation deceleration given the fact that for both Surtimax and Super Inter, food represents around 97% of the average total sales.

Good news come from Aliados with an increase in sales of 11.9%, and our SurtiMayorista with an increase in sales of 31.2%, and -- which has given us the base to accelerate the expansion of this very interesting format.

In Colombia, the initiative -- the main initiatives can be summarized as: first, focused-profitable expansion with a cash and carry going up to 8 stores; with Éxito compact stores going to areas of Bogotá and to new intermediate cities, where we are not present, and where there's a very low cannibalization with low-cost supermarkets with Super Inter and Surtimax stores opening profitable stores; with Aliados business model and franchising, which are going to take some time, but that are already on the rollout to give out a strong return on investment proposition as a format.

In price strategies, our unbeatable products more than 104 categories of products having an offering and assuring the customer the lowest price in the neighborhood. With a private label, representing more than 17% of the total sales of the company, and increasing competitive portfolio, which is this percentage, one of the highest in our Latin American countries. And with our textile model of EDLP, so that apparel will be democratized, where we sold more than 21 million units of textile during the first semester, most of it is produced in Colombia with a cost advantage against some competitors who still depend from imports on textile.

And with differentiation strategies through our fresh model, we clearly insist that we are going to be the fresh model, the fresh products leader in Colombia. This gives us a differentiation against other formats. And with reinforcing the customer experience at the Carulla level. And with omnichannel strategy going forward, we are conscious of the importance that omnichannel strategy has today in the U.S., in Europe and in some Asian countries that's going to be the same here in Latin America in some years, and today, Éxito is leader in this omnichannel strategy, and we are going to reinforce and are reinforcing this leadership.

In sales performance in Brazil, going up to Slide #9. Good business, clearly had a very good quarter with increase in sales of 9% and same-store sales 5.4%, with a net sales at Assaí level increasing 29% and same-store sales 13.5%. Now Assaí representing 40% of the total GPA Food business sales and gaining 400 basis points of market share in the segment of cash and carries. That is to say that Assaí, it does not only increase sales against all the retail panorama in Brazil but also gains market share within the dynamic cash and carry portfolio and different brands in Brazil.

Multivarejo with an Extra Hiper same-store sales growth of 7.6% and Aliados Compre Bem, which is a clear synergy with Éxito at the regional level with 236 of the planned 500 Aliados for the rest of the year.

I'm going to pass the word to Manfred to go on through the financials, then Jose Loaiza with the synergies and international panorama, and then I will come to some final remarks.

Thank you, Carlos Mario, and good morning, everyone. Let's start on Slide 10 with the highlights of the operational results in Colombia. During the first quarter, net revenues reached COP 2.6 billion, decreasing 1.9% versus the second quarter of last year. Important to remark all the revenues grew 10.3% versus the 3.6% of the last quarter, mainly driven by the performance of the Real Estate business.

Moving down to the P&L. As we mentioned last year, the gross margin of the second quarter 2016 includes the cancellation agreement of -- with Ripley. So it's more meaningful to look at the semester's results, where it gained 30 basis points versus last year, reaching 49 point -- 24.9% margin, mainly due to improved productivity in Retail and the contribution from the Real Estate business. On the SG&A side, the operational expenditures grew 6.3% in the quarter, way below the 13.1% of last year.

Accumulated expenses grew 5.6% in the semester, 530 basis points below the first half of last year. This year, as we've mentioned before, the company started deployment of operational efficiencies strategy to control expenses, something similar to what Brazil did last year and starting to pay off this year. That partially offsets the quarter by base effects like last 12-month expansion, that most of which happened in the fourth quarter last year. VAT increases and other expenses index passed last year's inflation.

Finally, the recurring EBITDA was COP 273,000 million in the semester with a margin of 5.1% and 20.7% below last year, as a consequence of lower sales and the inflationary decoupling between revenues growing at current inflation rate, while expenses grows at last year's inflation.

Please move now to Slide 11 to review Brazil. In COP, net revenues grew 16.7% in the quarter to COP 9.7 billion, confirming the strong and consistent performance of the Assaí brand and the recovery of the Extra Hipers. Nonetheless, it's important to notice that this result in COP includes the Brazilian real's valuation against the Colombian peso. Gross margin reached 27% of sales, growing 28.7%. When excluding tax credits, the gross margin was 22.9% and grew a strong 23.2% versus last year, driven by the faster maturity of Assaí stores opened in the last 2 years, improved shrinkage and successful investment in promotional activities at Multivarejo.

In terms of SG&A. The much disciplined controlled expenses that started last year continued showing its benefits with now 120 basis points reduction and a growth of 10.3%, significantly below the growth in sales. At the level of the recurring EBITDA of the quarter, it ended at COP 887,000 million resulting in a 9.2% margin. When excluding tax credit, recurring EBITDA ended at COP 476,000 million, resulting in a 5% margin, 240 basis points above last year's, and growing strong at 124%. This results show an important improvement versus the previous quarter.

Please move now to Slide 12 to see Uruguay. So first, I would like to introduce saying that the macroeconomic environment in Uruguay continued to stress by unemployment rates that reached its highest in the last 13 years and public deficit affecting consumption. Inflation continued its decline, especially in the Food segment. Despite all this macro situation, net sales in Uruguay grew by 8.2% in local currency, above inflation, and by 14.8% to COP 600,000 million during the quarter. The company continue to gain in market share, 1% in the quarter. Like-for-like growth of 6.2% in local currency, after adjusting by calendar effect, was driven by the performance of the FMCG followed by the fresh category. Going down to the gross margin. It fell during the quarter due to higher logistics cost and higher rate of the up promotional activities in the country.

In terms of expenses, it increased 11.3% in the second quarter, growing below inflation in local currency. Major gains were due to operational efficiency such as reduction in marketing expenditures, stock-based optimization. That helps offsetting the wage increase due to union negotiation that happened last year. Recurring EBITDA reached COP 106,000 million in the semester and a margin of 8.3%, demonstrating a healthy profitability level.

Moving forward to Argentina. The second semester of the year continues to be challenging due to Argentina's macro condition and weak consumption environment. However, we believe that the country is taking the right decisions to move forward. Net revenues in Libertad decreased 1.9% in COP to FX effect and reaching COP 330,000 million. When moving into net sales in local currency and same-store sales, they both increased of 10.2% when adjusted by calendar effect, reflecting the challenging consumption context and the negative trend of the non-food category. However, in this challenging scenario, the food mix in Argentina grew strongly by over 500 basis points in the second quarter versus the same period last year, who's getting market share.

The Real Estate business continues to contribute and protect the results in Argentina offsetting most of the inflationary pressures, and we can see in the expenses line that SG&A rose below inflation under very disciplined expenses control. That offsets expenditures pressure by inflation, especially in lines of labors, utility and marketing expenses. Finally, recurring EBITDA reached COP 8,800,000,000 with a 2.7% margin in the quarter.

Now please look at Slide 14 to have a look on the group's consolidated financial results. Top line consolidated net revenues reached COP 13.3 billion with 11.8% year-over-year growth, coming mainly from the strong performance in Brazil. SG&A decreased by 50 basis points in the quarter, reflecting productivity efforts and other cost-cutting initiatives to offset the change in trend in inflation that caused salary levels, occupancy cost and utility cost to rise. In terms of recurring EBITDA, it finished in COP 1.06 billion growing 52.2% and reaching an 8% margin. In the second quarter, we had 210 basis points improvement. When we exclude the tax rate from Brazil, EBITDA grew 43% to reach a 5% margin maintaining a consistent progress since last year. So finally, after the subtraction of all nonoperational items, the net income attributable to Grupo Éxito is COP 69,300,000,000, that means over COP 117,000 million above the result of the second quarter last year.

Please move forward to the next slide to explain a little further the results. At the operational level, a very strong performance from Brazil more than compensate the results in the other geographies. And on the nonoperational level, I think the highlight is that the company shows a better financial results mainly as a consequence of, one, lowering rates both in Brazil and Colombia and the revenue. And finally, also a positive -- a small but positive result from the discontinued operation contributed to the end of -- result.

Now on the Slide 16. Net financial debt at holding level closed at approximately COP 3.6 billion, decreasing 11 -- 2.2% (sic) [12.2%] very much aligned with the company's strategy of deleveraging. The gross debt ended at COP 4.5 billion reducing 2.2% versus to the same period last year, and cash and equivalents increased to COP 894,000 million mainly from working capital optimization.

I think, at this point, I will turn the call over to Jose Loaiza for a follow-up on the company's international strategy and the synergies process.

Thank you, Manfred. As far as the integration process is concerned, we are here to tell you that in this year, we will meet and even surpass the USD 50 million target that we gave you at the beginning of the year. This means 2 things, one, that we will more than double the benefits that we got in 2016. And second, the recurring nature of the synergies we are obtaining.

On Slide 18 and on, we will give you some examples of the evolution of some of the initiatives. In Slide 18, in purchasing. So far this year, we have bought together in commodities the equivalent to 95% of the volume we bought together in 2016, which means that for the second half, all the benefits will come on top of it. We are also advancing on the bargaining of the commercial agreements within multinational corporations for the whole region with good benefits. And on the bottom, you may see some of the samples of the products that we get from the roundtables held in the 4 countries. Differentiated products that enhances our value proposition, and also allows us to improve the commercial conditions with those local vendors.

On Slide 19, a word about textiles. At the end of the quarter, we fully deployed the textile model in 11 stores in Libertad, Argentina. We should finish that process of implementation in this 3Q. And on the bottom, the project taking off in Brazil, being part the textile side at the concept of non-food that the country is deploying in the extra hypermarkets respect to finish the year with other 30 stores with this kind of renovation.

On Slide 20, a word about Compre Bem Aliados, Brazil on its way to meet the 500 partner target for year-end. And on the bottom, a reminder of cash and carry being a reality as a format in Colombia with the expectation to finish the year with 8 stores.

Slide #21, what we call the back office synergies, not very evident to the eyes of the customer but very significant to the efficiency of the operations in the region. Shrinkage, as mentioned by the Brazilian team in its call, exchange of best practices contributing to improvement of this KPI, also in Colombia taking learnings from Brazil. Supply chain, amazing work in control of out-of-stocks with reductions as a result of best practices both in Brazil and in Colombia. Indirect purchasing, perhaps the most integrated process with buyers in Brazil and Colombia buying for the whole region depending on their field of expertise. Examples go from shopping carts to cleaning services, getting savings up to 30%. IT costs, implementation of a joint negotiation process of hardware and software, with excellent results, with savings between 30% and 40%.

On Slide #22, a glimpse to our proximity strategy for the region. On top, Libertad in Argentina with its Petit Libertad bearing a bit on a qualitative approach for the recovery of the consumer confidence in the country with excellent results so far. And on the bottom, the ongoing strategy in Uruguay, finishing the quarter with 27 stores, and confirming our leadership in these formats in the country.

All in all, we think that we have set in motion a solid process of integration with a commitment from top to bottom in the 4 organizations with an integration office up and running, managing 18 projects and the involvement of 200 executives, all of this gives us the confidence that we will deliver the results that we have shared with you.

Having said this, I turn it over to Carlos Mario.

I will go up to conclusions starting Slide 23. It's first to say that Éxito consolidates as a regional player -- as a regional South American player, that having our tokens in different countries is paying out, that in moments in which an economy as the Colombian is not going through the best short time period, having a very solid operation in other countries has given us benefits, especially in Brazil even though Brazil is still starting its recovery and still has different -- difficult political scenarios above, beyond.

Second, we see that the quarter is very solid in results at the consolidated level. And that even if we exclude the nonrecurring tax credit from Brazil, we get a growth of, in Brazilian EBITDA of 124%. That we have a consolidated net sales at the positive area, and even if we are facing inflation deceleration in all the countries.

Synergy plan going beyond expectations as Jose explained in a complete way. Market share gains, which were present in the first quarter, they are also present in the second quarter in the different countries. A strong performance in our cash and carry formats in Brazil, obviously much more mature, but also in the start in cash and carry format in Colombia. Innovation in the center of our strategy with the innovative strategies and initiatives, which are not current to other retailers in Latin America as having a leader, a marketplace for third vendors in Colombia. A very strong fresh model with also the premium leaders in the different countries as Carulla, Pão de Açúcar, (inaudible) and Devoto show, with a loyalty coalition as a big upside in Colombia, and with our dual real estate continuity, especially in Colombia and Argentina. Acceleration of cash and carry with the conversions in Brazil, 16 this year and something like 15 for next year, and 7 SurtiMayorista cash and carries to be opened in Colombia.

When we go to Slide 24. For the outlook for 2017, we will be, I would say, confirming the outlook that we have given in previous quarters, that is, that LatAm platform, our synergies will exceed an impact of $50 million in recurrent operational profit, that we will be decreasing our interest rates in Colombia and in Brazil with lowering financial expenses, but also, and more importantly, with driving consumption up in the medium-term, which is very important for this retail business and for its long-term vision. In the midterm, we are seeing economic recovery, not in the short term but in the midterm in Colombia and in Argentina as we have seen some solid signs in Brazil. A focus in all countries in cost and expense control activities as Manfred said, we are facing a past year high inflation, while we have in our income low inflations in prices. So this reaffirms the importance of productivity at all levels as we are seeing the results from Brazil, and we are setting the basis so that we will see this trend going forward in the Colombian operation. High potential from store conversions and from renovations in premium stores. The good part of this is that these are low CapEx initiatives with a very good return on investment.

In Colombia, consistent profitable activities to face competition. We cannot do everything the competition is doing by opening nonprofitable stores. And we have selected to have a profitable expansion, which keeps a good return on investment for our investors, and that is attractive for our consumers in the medium and long-term basis.

Puntos Colombia loyalty coalition launched in 2018. Retail expansion between 25 and 30 stores this year. And as I have said, the rollout of cash and carry in a very dynamic way, not only this year but going forward in next years. Viva Malls with 120,000 square meters of GLA to 2018. And CapEx in Colombia going to around something like COP 300,000 million this year.

In Brazil, ongoing optimization of store portfolio, focusing on Assaí, with 6 to 8 openings and 16 conversions. A focus on Food segment with investment in high-return formats like Assaí and Pão de Açúcar. The Colombian textile business being taken to all the region to the hypermarkets with a format that also promotes private brand. And also a high level of attractivity in fashion at the hypermarket, with Aliados Compre Bem reaching 500 by the end of the year. And continued market share gains at Multivarejo and Assaí level. Recurring EBITDA margin around 5.5 in the Food segment and CapEx arriving at COP 1.2 billion.

Uruguay maintaining its healthy margin levels and getting to open between 10 and 15 Devoto Express by the end of the year.

And in Argentina, our real estate business expansion consistent at 35,000 square meters of GLA during the following 3 years.

Finally, I will go to Slide #26 to say that as we have seen in the previous quarters, there's a value -- valorization of the different shares within Grupo Éxito that we have seen in the last 12 months. Éxito share increasing its value 6.1%. But still with an important gap and an important upside, if we look the valuation that we have seen in the GPA share at 41.7% and the Via Varejo share at 121% in the last 12 months.

I would say, these are our initial remarks and conclusions. We think that even though there's a reduction in inflation that the economic trend is not the best in the region. Going towards the modern formats, promoting our omni-channel strategy, working in things as trendy as our premium stores and our cash and carry and working on the cost of the organization while promoting the synergies and the integration is giving this organization a very interesting medium- and long-term vision for investors and, of course, for our customers.

So this would end this part of the conference, and we will be opening to a Q&A session.

(Operator Instructions) And our first question comes from Antonio Gonzalez from Crédit Suisse.

I've just got 2 quick ones. The first one is on leverage. I'm looking at the numbers, excluding Brazil, right? And I see, for example, if I look at the last 12 months' figures that you provide for EBITDA in Colombia and the net debt that you have in Colombia at the moment, I see a leverage of roughly 4.8x, non-net debt-to-EBITDA. Or if I include Argentina and Uruguay, it goes down somewhere around 3.9x or so. Again, I'm just excluding the Brazil figures, no? And I remember that you've previously shared that you had a target of around 3x. I obviously understand that in absolute terms they have come down, but perhaps a declining EBITDA in Colombia has been more pronounced. So I wanted to ask in light of this leverage level, would you have any other strategy that you can share with us to lower leverage more rapidly or really you're just waiting for the Colombian EBITDA to turn around to naturally lower leverage over the next few quarters? So that's number one. Number two, very quickly, if I may. You mentioned in the press release that you're expecting a gradual recovery of consumer dynamics in Colombia in the second semester. So I was just wondering if you can elaborate a little more on that comment and what kind of recovery would you expect where you would feel comfortable with positive same-store sales in the next semester? So any incremental comments on that would be very helpful.

Antonio, thank you. This is Carlos. Manfred is going to take the first question on leverage, and then I'll come back to the consumer situation in Colombia.

Antonio, regarding leverage, I think 2 things need to be taken into account. As we have previously shared with the market is that the indicator that we follow as per the loan agreement that we have is the adjusted EBITDA over the net financial debt. What is adjusted EBITDA? It's the EBITDA that is generated through the common subsidiaries plus all dividends that we receive from all subsidiaries and all international operations. So at the end, the calculation that we follow and the ones that we use as a benchmark, it's related to the adjusted EBITDA as per the loan contract. In terms of what we are -- so the number that you're seeing, the 4.8x is not the one that we saw. It's way below that. Our current numbers are aligned with all the covenants and restrictions that are (inaudible) for the loan agreements. Regarding the leverage plan moving forward, what we're seeing is the plan is focused on: first, long-term improvement of cost of debt; I would say, second, the operational excellence programs, as you have seen that it's paid off in Brazil, it's paid off in Uruguay and in Argentina. Unfortunately in Colombia, I'd say the strong decoupling and the inflation has brought us to show results in that sense. But once things get normalized, that results are going to show up. Also, a third, I would say, working capital optimization also come from disposal of non-strategic assets. Also, from controlling of balance sheet liabilities and managing the dividend inflow from subsidiaries. So I think at the end, this is part of the overall structure. And also, optimizing the capital structure of the company.

Thank you, Antonio. As for consumption, I'm not expecting a short-term improvement in consumption, which is material. The reason being, we've seen that our Nielsen baskets for consumer goods continued depressed at minus 3.1 as of June. In July, we got a Food inflation of 0.20 for the last rolling 12 months. This is very near to deflation, and this has an impact also in sales in the Food segment. Having said this, I do believe that for the medium term, that is last Q, but especially next year, we have reasons to be optimists. First, we're not seeing a fiscal destabilization in Colombia. We are having a very important reduction in interest rates from a peak of an intervention repo interest rate of 7.75% to 5.25%. This clearly is going to improve the real income of Colombians in salary base, and to promote consumption. We are seeing very solid tourism into Colombia, as the figures of the first semester confirmed. And also, some acceleration in infrastructure. I think that the very important factor to consolidate these expectations has to be also an improvement in the economic situation in Bogotá, which unfortunately, we have not seen. Bogotá remains around a 40% of the economic activity of the country and is highly depressed at this very moment. So to summarize, I would say I don't think that in the short run we're going to see a material improvement, but I believe that Colombia is going through a temporal situation, but that structurally the country will come back to growth levels in consumption probably when we have an impact of the interest rates and of the improvement in income, real income on people coming from lower inflation rates.

And just, if I may, Manfred, thanks for the clarification on EBITDA. I obviously appreciate that our numbers from the press release are a very imperfect proxy of leverage. But would you be able to share on your numbers what's a trailing 12-month leverage for you?

We do not disclose that information. We just maintain the guidance that we gave in the first quarter.

And we have our next question from Marcel Moraes from Deutsche Bank.

I would like just to come back to the Colombian business, and I remember you guys saying that what you're saying last quarter that you would try to defend the EBITDA margin, to protect the EBITDA margin this year. And you thought that by managing SG&A and probably gross margin, you'd be able to do so. But that in my view was incorporated a more favorable outlook for the second half of the year. Do you still think that this is the case, that you're going to maintain the EBITDA margin relatively flat in Colombia this year?

It's important to note that in a retailer like us, we have 3 important costs, which are the first one is labor cost, which is increasing in our case. If we do nothing at a 7%, which is the increasing salaries in Colombia, occupation costs reaching -- are also indexed by the past year inflation. And utilities, which in Colombia have increased in an important way in the last 2 years. So when you see the figures going from SG&As of double-digits last year to mid-single digit this year, I think we're going in the right trend. Of course, it is not something that we are going to do immediately, but I do believe that we will gradually show an improvement in SG&A. Having said that, if you don't have a top line increase and we are not seeing that, as you can see, in the second quarter, and SG&A is going down, but still not below mid-single digits, I do believe that we're going to have some impact in our margin by the end of the year. And that even though there's a gradual recuperation in that and that we are doing everything to have profitable expansion and not doing a margin investment that is beyond reasonable, as you can see in the first semester figures, SG&A continue to have a toll when you are having a negative sales.

Perfect. And just a final question on the cash and carry stores. So you're going to be opening, or adding 8 stores. Are all of these stores kind of converter stores or are they new? And are they concentrated in any specific regions? And I think last quarter you also mentioned key differences between the Colombian and the Brazilian version of the cash and carry. Can you remind me of the main differences between these 2 formats?

Yes, this is a very good question, and it gives me the opportunity to get a little deeper into the cash and carry. Our cash and carries this year are going to be conversions. Most of them from Surtimax stores of around between 1,100, 1,500 square meters into a cash and carry same area. The first results that we had with our first store was a multiple of 2.7x sales, while keeping profitability, and we expect to see something like this in our next stores. What we have seen is that the big difference with Brazil is that the Brazilian stores are more between 3,000 to 4,000 square meters. They have a higher portfolio of products, so we have a finer portfolio of products; that the share of sales is very similar to the Brazilian, that is between 50% and 60% going to end consumer and between 45% to 50% going to professional customer; and that the cost that we are seeing, and this is something that encourages us a lot, is very similar to the Brazilian, that is something between 8% and 10% of total sales. Today our first cash and carry is positive in both in operational profit and EBITDA. And the good thing about these conversions is that they permit us to do velocity, to be rapidly in the market and to do it with a very low CapEx per square meter, improving a lot the expectation of return on investment capital. About geographies, I would say that we are starting first with Bogotá, and then with the North Coast, Cartagena and Barranquilla, understanding that these are the most important markets in Colombia for the mom and pops, and that we obviously want to do it in a very good, excellent operational way with low distribution and logistic costs.

And we have our next question from Miguel Moreno from LarrainVial.

I've got 2 questions regarding in Colombia, evolution of current performance. The first question is regarding in center sales and the difference between Food and Non Food. It surprised me that textiles and electronics are overperforming against Food even though the economy is weak. Can you give us more color about this? Why Colombians -- if this means that people are buying food or it means that they are not buying less food but they are buying food in the informal markets? So why is that the people are buying more discreteable products rather than food? And the second question is regarding the -- to make a follow-up on the cash and carry format. The CapEx per store, if you can give us color about that. And if this is a short-term strategy like with -- the cash and carry format is a way of taking advantage of the low economy because you are decreasing prices. But in 2 years more, if the economy goes -- or improves, does the cash and carry can be reconverted? Or it has to be like a cash and carry? Like looking in the medium and long-term effect of converting stores to cash and carry.

First, same-store sales. Clearly, Non Food has been better in the first half of the year. Non Food is very near to 0. That is not negative, not positive. Being textiles and electronics at a very similar level. I would say, for 2 different reasons. Electronics, it is a promotional reason. The market has been promoted. There has been deflation in electronics and that has enabled many consumers to get into some aspirational products. And secondly, because there's a huge trend towards mobility, towards mobile, cellphones, which has become the most important categories in the entertainment electronic category. And the second thing, in textiles. Clearly, it is because of market share gains. As you can see, textile business in Colombia is very negative. We have heard a lot from the textile business in the last days in Colombia in many of the textile producers. The good thing that we have seen in Éxito is that I think that we are substituting with the national production and with the competitivity of our private brands, a lot of imported products. So many of these volumes and the positivity of this business even though it is negative in Colombia, comes from this factor. We have been also in a very important EDLP strategy in textiles. And that shows that, while we are very near to 0 in increasing sales in textile this year after having a very good last year, we are increasing our sales in units by 8%, which shows clearly that competitivity that Éxito has gained in this business. As for cash and carry. I would say that our CapEx per square meter is something between USD 500 and USD 700 per square meter, which is clearly below the average CapEx that we have in any other format of the company. And this is a very interesting question, the one that you make about what will happen with cash and carry when the economy improves. Because it's a question that we have had to answer in Brazil with the Brazilian investors after seeing such important advance and expansion in Assaí. What we have found in Brazil, which is much more advanced, is that when things improve, people are keeping -- purchasing at the cash and carry because the cash and carry environment has improved so that it will be attractive for people. And we're trying to do it this way. And secondly, that you might slightly see a change between end consumer and professional consumer. But when the economy improves, that also means an improvement in food transformers, in restaurants, in cafeterias, in hotels and mom and pops. And as they improve, they also improve their purchasing capacity. So you will see probably that you won't see so many popular end consumers, but you will see a higher increase in the share of professional customers.

And we have our next question from [Christina] from (inaudible).

I just have one question. Can you please give me more details about the nonrecurring tax rate effects in Brazil?

Okay. So those tax credits come from the normal operation of trading in Brazil. It has to be somehow just to keep it simple and to avoid all the technicalities of that, first, in the simplest way is that somehow, the fiscal authority in Brazil, it assumes -- the fiscal authority in Brazil assumes that certain goods yield certain level of margin. So once your company sells that at a lower margin that the fiscal authority assumes, you have the right to ask for that additional tax estate in the upcoming periods. So I think that will be the most simplistic way to understand those tax credits that happens in Brazil.

I would add also -- this is Carlos, that you can see that by the fact that we also have in the last quarter tax credits, and that even when you exclude those tax credits, the increase in the operational profit and in the EBITDA recurrent in GPA is very, very positive.

And we have our next question from Andrea Atuesta from Bancolombia.

I have 2 questions. The first is how do you see now the Colombian market considering how it was the end of the quarter? Did you see some improvement? And the second question is regarding how is the process of disinvestment of Via Varejo in Brazil? Is there any estimated time for this process to end?

Yes, as of the improvement, I will go back to some remarks that I made previously, and it is that in the short run, we're not seeing a material improvement that we expect that it will be happening as the interest rates reduction picks up and the reduction in inflation creates a real improvement in the income of Colombia, and we see some economic improvement in Bogotá, which are the most important factors. But we still think that, that will take some time. And number two, about Via Varejo. It's an ongoing process. It's an M&A process, so I have to be very cautious about it. But I will say what's public, and it is that we still continue with the strategy of disinvestment in Via Varejo and focusing our business in the Food segment. What's interesting to see is that even though we are deconsolidating Via Varejo, the year for Via Varejo has been very positive, and it has been improving in its sales and in its margins.

And we have our next question from Marcel Moraes from Deutsche Bank.

Just to follow up on that question about the Colombian market. In the second quarter, the gross margin going down in Colombia, and it was exactly the opposite from what we saw in the first quarter. So my question is, what should we expect for the second half? Are you intensifying -- as from what I understand, you're intensifying some pricing activities. So should we expect the same margin -- gross margin pressure in the second half of the year?

Marcel, this is Manfred. Regarding your question. The first part would be, as we mentioned 1 year ago, we're quite explicit saying that the gross margin of the second quarter of 2016 was impacted by the cancellation of the agreement with Ripley. That was quite big. And your second question is once we -- once you take that away, what you're seeing pretty much in terms of gross margin is some degree of maintenance of that. And the other thing is we are not heavily investing in margin. So I think that's important because -- and your question, I kind of read between lines, and there's this suspicion that we are somehow transferring price investment into the market, and that's not our current case.

And we have our next question from [Herman]from Davivienda.

My question is just focused on debt. And I would like to know what is the company doing or planning to do regarding the debt profile and the maturity profile of debt taking into account that the company is improving in its EBITDA numbers, in its operating numbers as a consolidated picture. That taking into account the high interest and financial expenses the company has, what is the company trying to do? And also taking into account the maturity in 2018?

This is Manfred again. Regarding that, I think it's part of the day-to-day activities of the financial team to review all the financing and capital structure of the company. So this is part of our day-to-day activities, and we are pretty much aware of the situation, and we're planning currently to assess the best that we can to update and to optimize our capital structure.

Okay. And maybe just one last question, and it's regarding the other competitors in Colombia. And I would like, what else is the company thinking in terms of loyalty programs or strategies to protect customers and protect volumes, taking into account that in Colombia, some stores like Ara and some hard discounters are just deploying on increasing strategy and on increasing presence, mainly in Bogotá and the main areas where Grupo Éxito is focused. So how is the company trying to protect the market and protect volumes because it's a difficult economic environment with a highly competitive environmentals?

Yes, I'm going to go into that way and to that question and to that issue. The first thing is that we are working very much on our same-store sales, on our most important stores with the renovation of stores and with always strengthening the experience to our customers. We believe also that the oncoming loyalty coalition is going to be a very important reason to increase the loyalty of customers, so they are going to have an increasing number of partners in all types of business where there are Puntos Éxito and there are Puntos Carulla, which are going to be translated into Puntos Colombia can be widely used. The third thing is that in basic product categories, our pricing is very strict. And in the more than 100 most important categories like milk, like soap, like rice, sugar, oil, tuna fish, toilet paper, et cetera, we are always assuring that we have the price at the same level or below the nearest store that we have in a competitor, being whatever kind of store it is. And this, we are assuring to our customers. The other thing is that we are expanding in the right way and that is first, the cash and carries, I think it is going to be a rapid way to get to the market because the good thing about cash and carries is that they drive purchases, not only from the neighborhood but also from other areas of the cities that go there to get the profit of the good prices. And the good things about the cash and carry is that from its own definition, it is a low operating store with operation cost between 8% to 10%, as we have learned from the synergy with Brazil. And the other thing is that we have to understand that when you see other stores, for example, in a city like Bogotá, it is very notorious and visible. But for example, in Bogotá, we have opened 3 very strong stores in the last month, Calima at Avenida 30, Soacha, and lastly, [Siar] at [Boyaca] . And these 3 sum up 12,000 square meters, which is the same as 40 other stores. The only difference is that they are profitable from the first month. And I think that, that's very important to look at the medium and long term. Of course, we cannot take the decisions from third parties of what they want to do in the market and how they are doing, looking at their objectives and profitability, but what we can do is control our own future and what we are doing with our own store formats and brands.

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

Yes. Thank you. I will say that Éxito today is starting to perceive the benefits of our diversification of geographies. That's the name of the game, I mean. When you have some economic problems in some markets, you have the benefit from other markets. The good thing is that in Brazil, we still have a huge upside because clearly, the Brazilian economy is only going to grow 0 or slightly this year. But it's coming from a decrease of 7 points in the last 2 years. And we're also seeing the benefits of integration, which is a very disciplined and consistent work that is being done at the 4 countries left.

The second of my remarks is that Brazil impacts today the consolidated results. But this is not out of luck. This is out of our very consistent work on costs and on taking the right moves during the crisis. And what were the right moves? First, selecting the right formats, cash and carry and premium; second, doing the conversions from nonprofitable stores into highly attractive stores; and third, working on cost efficiency. Uruguay and Argentina are going to the -- in the right track, Uruguay with a lot of stability; and Argentina with its real estate component, facing the best possible way an economy, which is still going through a transition period. In Colombia, we are having clearly a challenging scenario, but our expansion is kicking in to be profitable. Our price investment is a price investment that we get back from our productivity initiatives, from reduction in shrinkage and from our negotiation with our commercial partners. Having the critical mass in negotiation that we have, we continue to promote the complementary businesses, which is a clear differentiation that Éxito has, and we never forget that at the end, it is keeping the loyalty of your customers, which counts.

And my final remark will be that when we look at the medium and long term, it's always important to look at the upside levers that the company has and that we have had levers, which are a reality, not only a promise: the real estate business, which continues to be strong with future potential; the loyalty coalition with 10 million customers beginning from minute 1 next year, putting together other partners; and that we also have the e-commerce and omni-channel reality. I think that many people do not give the importance that this has. I think that we are doing what others should have done in the U.S. and in Europe 10 years ago. And we are preparing so that when this reality comes in 5, 6 years, we will be on the top of the curve. And also, we are investing in the trending formats today at our premium and cash and carry. Finally, I think that when you see the value in the share of Éxito, the share value, there's a potential for valuation, and if we only look at what's happening with the shares of GPA even starting the curve of improvement and of Via Varejo.

So I want lastly to thank you again for being here for your questions, and we will be in the following months when we have new results to reveal to the market. Thank you very much.

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