Almacenes Exito SA (EXTO) 2018 Q3 法說會逐字稿

Welcome to the Grupo Éxito Third Quarter 2018 Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded. I will now turn the call over to María Fernanda Moreno. You may begin.

Thank you, Richard. And good morning to everyone. Thank you for joining us today in Grupo Éxito's call. At this time, I'm pleased to present Chief Executive Officer, Mr. Carlos Mario Moreno; Chief Financial Officer, Mr. Manfred Gartz; VP of International Businesses, Mr. José Loaiza. Please move to Slide #2 to see the agenda. We will cover Grupo Éxito's financial and operating highlights, followed by a review of the performance by country and consolidated financial results for the third quarter of 2018. The call will conclude with a Q&A session. Thank you for your attention. I will now turn the call to Mr. Carlos Mario Giraldo.

Thank you, María Fernanda, and thank you all of you for being here for the conference for the results of the third quarter. I will start with Slide #3 where we speak about the main highlights of financial and operating results. I would commence begin by saying that our operational margin growth for another quarter is based on top line growth in all the operations and expense efficiencies. Our consolidated net revenue rose by 9.5%. If we exclude the negative foreign exchange effect of 16.4%, highlighting solid net sales of plus 9.3% and strong other revenue growth of 17.6%, most of it coming from complementary businesses. Recurring EBITDA margin gained 40 basis points, arriving at 5.2%. At the net profit, which is a group net profit, improved in the quarter versus the previous quarter comparable of last year, and in the 9 accumulated months is growing 4x versus the accumulated period of the last year. In the operating highlights, I would say that our top line growth in all the operations, the operational efficiencies and the solid margin performance is something that we can see in all the operations of Grupo Éxito in South America that is Brazil, Uruguay, Argentina and Colombia. Puntos Colombia was launched nationally starting August of this year. We opened our first version of the new generation of hypermarket with a big innovation proposition called Éxito WOW in the second most important hypermarket of the company in Envigado, Antioquia. Our Carulla Fresh Market saw the launch of its old version in Castillo Grande, in Cartagena in August of this year. Our Surtimayorista format opened in Chia, arriving to 15 stores of the 18 that we will be opening by the end of this year. And starting October, we opened Viva Envigado, the most important mix commercial and offices project in all Colombia. This -- many of these innovations and news like Puntos Colombia, like the new generation of hypermarket, like the consolidation of Fresh Market, like our cash and carry, and finally, the maturity of our real estate business with this very important project are real game changers looking at the future of our operation and of our company. Synergies continue as planned with very good dynamics, and arriving this year at an annual run rate of $120 million, shared between different operations, the most important of them in order in Brazil and in Colombia. That restructuring reduced the gross debt at holding level by COP 670,000 million, and Grupo Éxito was included again for 6 consecutive years in the Dow Jones Sustainability Emergent Market Index, something that we came a lot of important because we have to be a sustainable company and in a novel aspect corporate governance, but also environmentally for the future.

In Slide #4, we continue with some of these highlights, speaking about expansion. Expansion in real retail and real estate. Our expansion -- investment for the quarter at a consolidated level arrived to COP 682,000 million. Of them COP 1,111,000 (sic) [111,000] million in Colombia, including those invested in our projects of real estate Viva Envigado and Viva Tunja. Of all the investment in the region, 46% went to retail expansion. We opened 14 stores, of them 7 in cash and carry key development area, both in Brazil and Colombia. That innovation was the renovation of some extra supermarket stores in Brazil into a new concept, which we called Mercado Extra, which is designed to compete in a very good way, especially in fresh product proposition to the independent supermarkets in different states of Brazil. Finally, in our real estate expansions, we concluded the construction of Viva Envigado and of Viva Tunja, adding 110,000 additional GLA to the total GLA of Viva Malls and of the organization.

Going to Slide #5. We can see the net sales performance in Colombia. Really we have positive net sales, same-store sale levels showing a consistent and gradual improvement as we have the chance of speaking about in the last call. The quarter saw sales of COP 2.55 billion in Colombia. In an adjusted-calendar basis, it is increasing by 0.5% in same-store sales as compared with the accumulated year figure of minus 1.3%. That is near to 2 point better than the accumulated figure. If you look at the figure and the graph that we have in the bottom part, left bottom, you can see that trend. The trend is very positive. We are coming from minus 6% same-store sales at the last 2 quarters of 2017, when the market was most affected. Then we had a minus 3.1% in the first quarter of this year, minus 1.3% in the second quarter of this year and a positive 0.5% in the third quarter of this year. It is important to highlight that our omni-channel strategies arrived to 3.4%, representation of total sales of the organization growing by 35% in the accumulated year. And that our Surtimayorista cash and carry had a same-store sales growth of 44%, which is absolutely outstanding. These 2 pillars, which are new for the company, which did not exist in a very strong way in the last 3 years, but are today material, are arriving now to 8.5% of total sales of the organization. It is important then to say that they are material and that they are creating an important base for growth in the future.

Making some more detail about the sales performance in Colombia. We can say that the same-store sales figure improved its trend in all the banners of the company. In Éxito, arriving to positive same-store sales after we have not done that since the fourth quarter of 2016. In Carulla, with the second consecutive quarter with positive sales growth, and with a contribution from the Fresh Market, which in its 4 stores as an average, is growing sales by 11.3% and that is double figure compared against the rest of the Carulla stores. In Surtimax and Super Inter, same-store sales even though they continue in a negative figure, we covered by 200 basis points versus the previous quarter. We continue focus in as we had the opportunity to discuss in the last call in pricing, in strong focused pricing, in loyalty activities, in product assortment and in logistics to be able to increase efficiency in our popular formats, Surtimax and Super Inter. In the business-to-business proposition, which puts together cash and carry and Assaí, it increased its contribution to sales of the total company by 110 basis points, arriving to 5% representation of the total sales. SurtiMayorista Cash & Carry opened 3 stores in the quarter to arrive to 15 stores and it has a positive EBITDA margins and solid returns, which is a novelty if we compare it with the rest of the discount sector in Colombia. And 2x sales after the previous stores that were converted. That is we maintained a multiple of 2x sales per square meter against the brands that were done previously. In the following slides, I'm going to make emphasis on what are the growth levers that have taken us even though there's a strong competitive scenario in Colombia and that consumption is just in a gradual recuperation. What is helping, what is acquiring material importance? And especially looking for the future, what is giving differentiation to Grupo Éxito in Colombia.

The first one in Slide #7, and this is not something that we speak for the first time, because we have been consistent in time, is our omni-channel strategy. I would highlight that our digital catalogs today are present in 149 stores and that they contain not only our own portfolio, but also, all the marketplace portfolio. That our marketplace has now more than 1,000 sellers and is growing by 58% in its gross merchandise value, GMP figure that our home delivery is booming. Booming by 134% as compared against last year, and that we arrived to 1.9 million deliveries this year. The growth year-to-date of total omni-channel strategies is 32%. And clearly, it is leading the digital transformation, not only to the interior of the organization, but especially towards the experience of our customers. We are really committed in eliminating barriers between physical and virtual channels. You will see in the next months, the launch of the absolutely renovated apps -- applications both of Éxito and Carulla, which will bring a lot of novelty to the market. They will be basing the cloud and cloud technologies, and they are going to recollect the best experience through synergies that we have received from the very successful application that we have in Brazil through the Meu Desconto of Extra.

Going to Slide #8. Another of the growth levers is innovation, clear innovation in formats, especially in our value-added formats Éxito and Carulla. In Carulla, it is all about the Fresh Market. We are going to arrive this year to 6 stores. They will now represent 12.4% of total sales share of the organization. I believe that by the end of next year, more than 25% of the total sales of the Carulla brand will be represented by a Fresh Market proposition. And clearly, what we have seen is a double-digit growth at store on average after the model implementation. This quarter, it is very important to highlight that Carulla, Castillo Grande, which probably many of you know, because it's a mandatory visit when you go to Cartagena, where any foreigner arrives to Cartagena, it's a kind of symbol of the Colombian quality, was taken into Fresh Market and it is -- today, the store with the largest sales of fruit, delicatessen and meat in all the Caribbean region.

In Slide #9, we speak about Éxito WOW. It is a very demanding name to say to a store or to a banner, the nickname of WOW. But we do it because really, it has more than 25 propositions of innovation within others, in pet products, in cosmetics, in electro, in textile, in toys, in health, in digital, et cetera. It has been very well-received growth against the past, the time of the Envigado store, which was the first one or more than double-digit in growth. The first 3 days, which opened without any closing hours, it was a novelty in the Colombian market opening at 12 at night. They sold $4 million in 3 days. And clearly, it is a very important model to follow on in the future. We will open the second one in -- at the end of November in Bogotá, which is Éxito Country of the 134 Street. The most important hypermarket in Colombia and it is going to be a big surprise and a big experience for all the Bogotáno consumers, which is the most important market in Colombia.

In slide #10, we continue with this profitable levers, and it is after Éxito WOW. The big news in Colombia was the opening of Viva Envigado shopping mall. It is the largest mixed-use shopping mall in Colombia. 96% commercialization even if we are coming from a period in which it was not easy for tenants in all shopping malls in Colombia, and with a huge opening day of 150,000 visitors. A total investment of COP 660,000 million, adding 104,000 additional GLA, but having a total 138,000 GLA. What happens is that before, we had Éxito stores and we had home center store and we had some offices that were already included in the GLA, 390 shops, and 4,000 parking lots. Really what this shopping mall brings into Colombia as a novelty is that it is the first shopping mall in Colombia that is based in entertainment. The new big trend in the world that we called retail payment. What we have arrived here is to Viva Park where we have 600 square meters of open-air amusement park for children. A Calle Bistró with the high-end boulevard of 35 restaurants, which is clearly different from the traditional food court of more massive kind of food propositions, which we also have within the shopping mall. Viva Sports with a complete sport complex, including the first volley plaza, volley beach court in Colombia. And MUSA, a cultural and art center. All this complemented with a full connectivity proposition.

In Slide #11, we speak about Brazil sales performance. It really was outstanding. I would say this is the best quarter in many quarters when the other quarters have already been very positive. Important thing this quarter is that Assaí continued with a very strong same-store sales growth and total sales growth, but also Multivarejo had a very good performance. Assaí grew by 25.8% sales and same-store sales at 8.2% while Multivarejo grew it's same-store sales at 6%. And this is very outstanding when we see that it's a very -- it is much more -- it is higher growth than the inflation in Brazil. In Assaí, we are -- we opened in the last 12 months, 19 stores, which explains part of this 26% growth in sales and it is the best performance per square meter in the last 5 years in Assaí, that is, this is a brand that every month gains important recognition and top of mind within all kind of Brazilian consumers. And it now represents near to 48% of total food business of our Grupo Pão de Açúcar food business and gained 190 basis points in market share gain. Multivarejo also gained market share against hypermarket. More than 140 basis points, and it is explained by commercial strategies, digital transformation and penetration and the private label repositioning, which has been happening in the last 2 years.

Finally, we continue with Meu Desconto, "My Discount" allowed reaching 6.5 million downloads that is the largest downloads I would say in all Latin America and comparable with the best in the U.S. And it gives us clearly an example of the potential that a good application has for the future communication. And for the future cross selling and up selling with our customer, with our loyal customer not only in Brazil, but also in the other countries. I would hand it now to Manfred Gartz, our CFO to continue with the results of the company, and then I will make some final remarks after José Loaiza speaks about our international synergy performance.

Thank you, Carlos Mario, and good morning, everyone. Please let's move to Slide 12. I think it's important to highlight that Colombia reaffirms its good operational trends with a third consecutive quarter of positive evolution of the top line and second consecutive quarter with expansion of the EBITDA margin. In this quarter, net revenues reached COP 2.7 billion increasing 0.5% versus the previous year, maintaining the recovery trend that we have seen since the beginning of the year. Other revenues grew 29%, mainly driven by the performance of complementary businesses such as real estate and the financial services. Gross margin for the quarter closed at 24.5%, improving 90 basis points versus same quarter last year and in line with historical performance. This result is mainly explained by higher contribution of complementary businesses and lower logistic cost.

On the SG&A side, they increased 3.3% reflecting expansion expenses on a stronger comparison basis created by the good results of our cross-country program, which started to be implemented in the third quarter of last year. However, year-to-date expenses grew 1% way below inflation, thanks for -- to productivity activities that we'll discuss a little later. As a result, the recurring EBITDA for the quarter was COP 123,000 million, with a margin of 4.6%, increasing 7.2% and improving 30 basis points versus the same quarter last year.

Moving forward to the next slide, I would say that productivity programs are now part of the DNA of the company and have allowed us to control expenses in order to support margin expansion even in a challenging competitive environment. Our cost control program is based on 3 main projects. We aim to focus on the organization and continuous improvement, consistent productivity gains and supporting profitability evolution. Those 3 main programs that we have implemented where 5'S, Kaizen and SIX SIGMA. The latter is probably the one that's bringing the most relevant settings to the company and that we have been showing the results in the latest quarters. Moving forward to the next slide to discuss Brazil. I think it's important to mention that the operation continues, delivering operational improvement and consistent margin expansion, even after tax credits. Net revenues grew 12.4% in local currency in the quarter, thanks to the strong performance of Assaí that Carlos Mario just talked about and the consistent performance at Multivarejo. In COP, net revenues reached COP 9.2 billion decreasing 10% after a negative FX effect of 20%. Gross margin reached 22% of sales, decreasing 40 basis points, driven by the stable level of -- at Multivarejo, and the accelerated maturity of the Assaí stores that were opened in the last 2 years. Also, we have the positive impact of the store conversions. In terms of SG&A, expenses diluted 90 basis points, mainly as -- for -- because of productivity initiatives that were implemented at Multivarejo level and as Assaí gains traction from the store maturities that offset the expansion expenses. Bottom line, recurring EBITDA was COP 492,000 million, resulting in a 5.3% margin, 30 basis points higher than the -- before. And in the year-to-date view, our margin closed at 5.3%, progressing 50 basis points when excluding extra -- temporary tax credits.

Please move now to slide 15 to discuss the operating performance of Uruguay. Uruguay remains highly profitable operation with EBITDA margins of 8%, despite the macro difficulties that the country has faced in the last few months. Net sales in local currency grew 4.7% and same-store sales closed at 4% in the quarter. Sales results were driven mainly by convenience formats, and were offset by the macroeconomic turmoil of main commercial neighbors, Brazil and Argentina, and lower consumer confidence in the country. In COP, net revenues reached COP 579,000 million in the quarter and a decrease of 6% due to negative FX of 10%. Gross margin for the quarter closed at 33.1% reflected a good profitability that we have in this country. It's -- that is derived from high quality and differentiated value proposition that formats offer. At the SG&A side, they remain in line with historical figures when compared with the year-to-date numbers. And this is very important achievement for the operation in Uruguay, considering the huge pressure for inflation on relevant cost lines such as labor.

Finally, recurring EBITDA for the last 9 months of the year reached COP 150,000 million, with a margin of 8% gaining 30 basis points versus last year and growing 2.7% in COP, even after the FX.

Please move forward to the next slide on Argentina. As you know, our stringent approach in Argentina has allowed us to over perform our competitors while defending our profitability levels. Net sales grew 23.5% in local terms and at the same-store sale level grew 24%. Net sales in COP closed at COP 234,000 million, decreasing 31% due to a negative FX of over 44%. Sales results were driven by commercial activities and an economic context market by a short-term reduction in our customer's disposable income. On the gross margin sides, it gained 110 basis points, mainly from real estate contribution, which continues to be an important hedging for our operations -- with the operation. And under rapid commercial valorization of our inventories in an hyperinflationary context. On the SG&A side, they decreased 36% in COP, and reflects as in all other countries, the important efforts in all levels to increase productivity. Saving projects and in Argentina especially, the contribution of the real estate business that helped in the dilution of the expenses.

Recurring EBITDA reached almost COP 12,000 million, with a 4.7% margin in the quarter. Obviously, it has been impacted by this hyperinflationary context, we expect in the next few quarters, the margins will return to its normal levels.

Please look now at Slide 17 to look at the consolidated financial results. Year-to-date, bottom line reflects the improved operational performance of the company in all countries, and delivering 4x the net income as of last year. Consolidated net revenues reached COP 12.7 billion, decreasing 8.4%. However, if we exclude the aggregate negative FX effect of 16.4%, net revenues grew actually 9.5% year-over-year basis. Gross profit delivered 10 basis points, this is mainly because of the changes of mixed sales in Brazil due to the substantial growth of the Assaí brand. Whereas SG&A diluted 90 basis points. Once again, reflecting all these productivity efforts on cost cutting initiatives that has been implemented in the all company's footprint. Finally -- I think, finally it's high to -- to highlight is that the recurring EBITDA closed at -- margin closed at 5.2% versus 4.8% of -- that of last year, increasing almost 40 basis points. And the net income, group share net income finished at minus COP 9,700 million versus minus COP 31,000 million of that of last year. I will fully explain the results in the next slide. When you see at the operational level, all countries delivered positive cash contribution at the ROI level, despite -- even despite the FX effect. And on the nonoperational levels, I think, there are 3 main aspects to highlight. The first is the consistent reduction of nonrecurring expenses driven mainly by the Brazilian operation. Second, better financial results because of the lower interest rates both in Brazil and Colombia, and the execution of the deleveraging process. And finally, income taxes and the elimination of minority interest, increasing as consequence of better result across all companies.

Finally, on slide 19, to discuss debt and cash at the holding level. Net financial debt at the holding level closed approximately at COP 3.2 billion, decreasing 17% versus the last year, while gross debt ended at COP 3.8 billion, reducing 15.4% versus the same period last year. And cash and accumulate remaining somehow stable.

At this point, I will return the call to Mr. José Loaiza for a follow up on the company's international strategies and synergies processes.

Thank you, Manfred. Good morning to all of you. Concerning the synergy process, we will like to highlight that the guidance that we gave you at the beginning of the year of USD 120 million is going to be met with no doubt. We will like to share also some practical examples that are leveraging the result on the bottom left, as Carlos Mario mentioned, you may see what we call a successful business model replication taking into account the learnings from Brazil to Colombia of our cash and carry business, which is now a reality. In the right, you may see our current footprint in the supermarket premium format, a concept born in Montevideo that now has 31 stores across the region and no other retailer in LatAm has this kind of footprint for a premium format.

Going to the next slide, the slide 21. To the left, you may see the ongoing successful implementation of the textile business model. We would like to highlight on the bottom left, the kind of synergy and communication that we have among all countries. Where you can see the world's fashion all around with some local adaptations now they implemented. To the right, we are pleased to tell that our Éxito and Carulla apps are going soon to be launched, taking into account their very successful implementation and learnings from the Meu Desconto app, which now has close to 6.5 million downloads.

On page 22, joint purchases. This is a growing power that we are developing this year in commodities. We have increased our volumes more than 40%, more than 600 containers, more than $20 million, more than $2.5 million in savings. As usual, here, we bring some practical example just in fresh fish and salmon, we're about close to 100 containers getting savings between 2% and 11%, which are very material for this kind of product category. Also during this quarter, we signed a deal for extended warranty covering Colombia, Uruguay and Argentina with our partner ZURICH with very good improved condition compared to the previous one. And our next step is one -- once the Brazil contract expire, go for a full regional negotiation. All in, we would say that we are on track to meet our guidance, hopefully exceeded. And all these, thanks to the integrated work of more than 300 executives throughout the region. Now, I'll turn it over to our CEO, Mr. Carlos Giraldo.

I would now go to Slide #23 with the main conclusions for the quarter. Regardless of a challenging macroeconomic realities in some of our countries, and of challenge also competitive scenario, we are very satisfied with what happened in the quarter, and look forward to be able to confirm this kind of trend in the future. The first thing is that our net revenue growth in all international operations in local currency was positive. The recurrent operating margin and EBITDA margin grew by 40 basis points at a consolidated level. Operational performance is clearly leveraged on productivity efforts with some kind of positivity initiatives like Kaizen and SIX SIGMA, which are in the bottom of these results. Net income improved trend in the third quarter, and in the complete year in the 9 months, net profit growing by 4x versus the same period. Clear action plans and cost control activities implemented in every one of the countries, synergy plan on track according with the analysis that José just made and ongoing traffic monetization activities to benefit further from -- in Colombia from Puntos Colombia, and also some asset monetization through our shopping centers with the very -- I would, say flagship of Viva Envigado, but also another flagship of Viva Tunja to the Boyacá department becoming the most important shopping mall in that region of Colombia. And finally, a diversified and consistent value proposal added activities in Colombia with Fresh Market model, premium market, the WOW hypermarket next generation, the cash and carry format and the omni-channel at all segments. Of course, this same time of differentiation goes in all the countries through synergies. It goes in Brazil through our cash and carry and through our digital transformation and penetration, and in other countries, especially in Uruguay, where we have obtained the leadership not only in the mailing center part of the market, but also in the proximity segment. So this would be the most important conclusion. This ends the initial presentation of our Q3 results, and we open it now to Q&A session.

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

I have 2 quick questions. First one on Surtimax and Super Inter. I think it's been a couple of quarters now that you mentioned on the press release that we have some strategies focused on pricing and loyalty activities. So I wanted to know -- understand that summer players in Colombia might have strategies that perhaps are not that profitable, et cetera. But I just wanted to understand from your perspective, how much are you lowering prices in certain categories only or achieved across the board? What do you think is a price gap that you have at the moment against these competitors and by how much do you want to close it? Just sort of some qualitative comments on whether you are at the margin investing more in prices in those 2 formats. That's my first question, and then secondly, I wanted to ask about -- you mentioned a lot during your prepared remarks the new formats, right? The fresh market for Carulla, WOW for Éxito, obviously cash and carry. So I just wanted to get your thoughts on -- if you look at the CapEx today, how much do you think in Colombia, for example, is going to be allocated to new projects versus just conversions to all of these formats? It's a mix between remodeling and conversions and genuine new stores changing significantly for the foreseeable future or is that not the case?

Thank you for your questions. I'll go first to Surtimax and Super Inter. If you look at the recent trend in the Colombian market, it is mostly affected at mom-and-pops and also at the independent supermarket segment. That is when you saw the expansion of discounters in the last 5 years, they first expanded in the most, I would say, economically important parts of Colombia in the main cities. And then their expansion went to the popular segments. And that's what we are seeing and it impacts more this kind of segment. So independent supermarkets are today, as of Nielsen, the most impacted segment. Here is where most of our Surtimax and Super Inter stores are located. And of course, only automatically by expansion, you lose sales. But what we think is that we have to be very careful in what we do in these popular segments. So our formula is the following: First, we reinforce a lot the fresh product categories, which is a differentiator against the competitors. Here, our price comparison is not against discounters, because they don't have this type of assortment, but against independent supermarkets, and here, I would say, this is a focus part of our differentiation. The second part is in the PGC, in the general consumption, industrial food product and home products, here our comparison in the most important categories is against the discounters. And I would say that we have a portfolio of products that you can go and check because it's there that we called (inaudible) And they at the same price as the most, I would say, as the most comparable discounter stores. Of course, we are doing some adjustments also to assortment because we believe today that we have to have a shorter assortment in order to be more efficient not as short as many of our competitors, we have to have a complete market proposition but not as a wide assortment as we used to have. The good thing is that we are seeing results and that 200 basis points improvement is a first result from this type of strategy. As of our new formats of innovation, your second question, our WOW hypermarket, our Fresh Market in Carulla, the cash and carry, et cetera and the CapEx focus, I would say that retail is changing a lot in the world. Today, you have to think twice before opening a new store and I want to be clear in this. We will continue opening new stores, but we will be very much focused in stores that add values in sections of the country that not -- that are not highly concentrated with retail stores. Why is this? It is because the retail in the world has changed in a very important way. Today, the supermarkets, and I am speaking about the supermarkets, in the U.S., in the U.K., in France or in Asia. They have 2 components. First, an experience center, and that is the main area for the customer in the supermarket has to become entertainment, has to become high-end value, has to add value at a very competitive price. And that's what we are doing with Fresh Market and that's what we're doing with WOW. And here, that's what happening also is that the back office part of the stores are becoming store delivery centers, logistic nodes in the world. And here, we have a very interesting competitive edge against any other competitor, because in the main cities, we have very important locations from which we can deliver or by e-commerce or telephone calls or any kind of home deliveries. And that explains why we are getting to a near to 2 million deliveries this year. So the answer would be, looking forward in the CapEx, the emphasis on CapEx is going to change. It is going to be less new stores, less investments in bricks and mortars, more investment in innovation proposition to the most important stores that we have today to -- so that they will become entertainment centers and that is Fresh and WOW. More investment in cash and carries, which go to the base of the pyramid and to professional customers. And it's a new market for this organization and where we will arrive at 18 and between 8 and 12 per year looking forward, which is working in a profitable way from the beginning -- from the starting point and a lot more invest in cloud technology, in very flexible technologies to be able to foster our digital penetration and the digital experience of our customers. That is, Éxito will be leading all these trends that we are already seeing in Central Paris, for example, with the alliance of Amazon and Monoprix, which we are seeing also in China with the work that Alibaba is doing with its own supermarkets, that we are seeing in the U.K. with what Ocado is doing with many of the other players to delivery centers. And clearly, you will see that Éxito will be leading all these trends.

Our next question online comes from Federico Pérez from Bancolombia.

I have 2 questions. The first one will be, can you give us a little bit of color of how much will be the weight of the real estate business in Colombia in the next quarters after opening the Vivo Envigado Mall and then this may be in terms of revenues and EBITDA?

Yes, yes. I would say that it adds in the GLA of the company around 20%. And I would say that total real estate business will be having a weight -- a total weight in the EBITDA of the organization between 20% and 25%.

Perfect, thank you. And my second question will be after seeing the positive behavior of the same-store sales here in Colombia, which in this quarter return to positive. Can you give us a little bit of color on what are you guys expecting for the next quarter, taking the special account with the tax reform, the Colombian government proposes the Congress, which could have a significant impact in the VAT tax. What are you guys expecting for the consumption here in Colombia that it may be -- could be affected with this tax reform?

Yes. What we are seeing is, as we said in the last call, gradual improvement in consumption as of today. And especially a gradual consumption -- improvement in consumption coming in the massive consumption categories, in food categories. However, I do believe, you say that the end discussion on the tax reform is going to be very important, is going to be very material. For the moment, the tax reform has very interesting and positive aspects for company like ours, like the reduction in income tax and also like the reduction in presumptive income tax, which is very material for the retail especially, which is so -- has big weight in assets. But clearly, there could be an impact, not only on consumption, but also on inflation if we have a big increase in VAT to 18 or to 19 points to most of the categories of the basic basket of the Colombians. We are actively participating in the debate in a discrete way, but we are making all the regulators and the government know what the impact could be. And I believe that today, as we speak, there is an active search for alternatives to what was initially proposed. I don't know where it will fall, but these alternatives are being searched. Having said this, when the similar thing happened in 2016, which impacted a lot 2017, that was something clearly new and it had a larger impact than the one that we expected. The difference today is that you always learn from the past. We're much better prepared to deal with it. Today, our cost structure is completely different to the one that we had ending 2016, where we were growing our expenses above inflation. Today, we are going clearly below inflation, as you can see. We have the productivity initiatives going on and we have a lot of propositions of innovation to the market that makes us much more competitive to what we were 1st of January of 2017. So to make the answer complete, I would say, yes, it would have an impact. Second, it is an ongoing discussion, and I think that it's going to be or attenuated, it's going to be more -- it's going to be reduced as an increase in VAT to general consumption basic products or it will be eliminated. But anything that is approved, we are much better in a competitive way and in a productivity way to deal with it in the future.

Our next question online comes from Ron Dadina from MUFG.

My question mainly is with regard to the dividend payout and expected dividend payout ratio. Can you give me an idea of the total expected dividend for 2018? And roughly, what is it as a -- what is the payout ratio? And do you expect any change in the payout ratio next year, especially since the parent company casino is not doing so well?

What I would say, it's too soon in time to speak about payout ratio. And what we have traditionally had in the past, is a payout ratio, which has been around 50% of total net profit of the organization. I cannot say for the future, because it is something to be decided by our shareholders. But it has to be a decision that has to balance not only their interest of the shareholders, but the ongoing CapEx needs of the organizations, the growth opportunities. And really we think that we have growth opportunities in the innovation targets and in the innovation propositions that we are taking to the market.

So can you just follow up so far, 2018, what was the total dividend and the payout ratio? Can you give an idea, please?

Yes. For 2018, general assembly, it approved under the results of 2017, a payout ratio of around 50% of total net profits of the company.

Our next question online comes from Carlos Rodríguez from Ultraserfinco.

I got 3 questions. In terms of value, I would like to know your thoughts of the Argentinian operation and what should we expect going forward with the current environment in that country? My second question is related to Via Varejo. And if you could give us some detail of the sales process? And my last question is given the recovery in Colombia what should you expect in terms of EBITDA margin and gross margin going forward for the Colombian operations?

I start with Argentina. So long so good. I think the performance of our Argentina operation has been outstanding regarding the local circumstances. I do think that it's going to be much more challenging for the future for 2 reasons. First, we are going -- for the moment we're having the favorable impact of inflation in the valorization of inventories. But we are still not having the full impact of inflation in the cost side of salaries and utilities. So we're going to have this additional pressure. Having said this, we do believe that our operation has a very special circumstance that may highlight it from other operations and it is the high level of a mix that we have coming from the real estate business. The very good occupation rates that we continue having real estate especially because we are in regions where our 15 galleries are within the -- or are the leader or the number 2 commercial gallery in the medium size city. And that protects us not only commercially, but also because the rent normally go with inflation and also because the real estate also protects us and has done in the past in a hedging way against the devaluation. But of course, it will depend a lot on what happens to the country. And of course, we are not isolated from the circumstances that go on in Argentina. In Via Varejo, what I can tell you about, Via Varejo is that we keep clear and we have been very vocal on the strategic decision to sell Via Varejo, to focus exclusively in the food business in Brazil. Number 2, that it is an ongoing process that has taken longer than we thought in the beginning, but it's a clear ongoing process and that we will keep the market informed when any relevant information comes out of this current ongoing process. And finally, as of the EBITDA trends in Colombia, we have had for the second consecutive quarter, an expansion in EBITDA. And what I would say is that, of course, we still have to see what happens in the last quarter. But all the go that inside we have is to continue with this trend of keeping a balance of our EBITDA and even a reinforcement of the margin of EBITDA of the organization.

Our next question online comes from Germán Cristancho from Davivienda.

I have 2 question. One is regarding Viva Malls business and it's taken into account that the new relation with customers implies higher investments in special entertainment zones and special areas. How this is impacting your cap rates? What's the average cap rate of the Viva Envigado, for example. This is the first one. And the second one is related to the stock price. And we think, the stock is having a high discount from its fundamental value. But what is the company, what are you doing with this matter working with new investors, making NDRs? Or what are you doing to recover the investor base and the stock price in the market?

Yes. First, about Viva malls, our cap rate is a very good cap rate as we saw when we did the operation even in the most difficult moment of the economy. We got a good cap rate, and we believe that looking forward, any other asset contributions done to Viva Malls or the projects develops on the inside will have even better cap rate, not only given the importance that the brand has gained, but also the good occupation rates and the good EBITDA margin that it has maintained. We don't think that there will be a substantial change in cap rate given this investment in entertainment and in sports and in differentiated areas. What it would do is protect the value proposition of our shopping malls and keep the value -- the cap rates that we have today. But clearly, what Viva Malls is doing is introducing a novelty in the Colombian market. And I really -- I would really encourage all of you not only those who work in Medellín, but those who work in Bogotá or those who are in other countries and come to Colombia to visit our Éxito WOW, the Éxito country would be a good example to see. Then to visit a fresh market we will have 3 fresh markets in Bogotá, Saint-Lacroix, Pepe Sierra and the [Plato] building shopping mall. And to owe in Medellín, we are going to have San Lucas, which is going to open December 6, or in Santa Marta or in Cartagena, Castillo Grande. And also to visit the shopping malls and to see how the shopping malls really highlight something different from what is being highlighted today. And the concept is very clear. It is a shopping mall designed for the family. So that the family can go there and they can go to the IMAX cinema or they can go buying obviously in the shops, and to have their groceries at an Éxito, or they can take their children to the entertainment part, or they can go to the gym and have sports all around or they could go to the cultural activities. Our goal is that the family can get there at 11:00 a.m. on Saturday and stay there for the complete day. And as of the stock, I would say that management works for the shareholders and that we work to enhance the value of shareholders. And that what we can do are 2 things. First, work for the results of the company for consistent results for good return on our investments, to be capturing the trends in the world, to be on top of those trends, to answer in a profitable way to the competitive challenges that we have, to be in front of the economic trends of each of the markets. And that's what we are doing and to capture the synergies, that we said that we were going to capture which are today becoming evident. And the second one is to tell the story, to tell the story of what's being done, the story behind the numbers and the story looking forward. And we'll do in an active way in that. Many of you know that we have done specific meetings with different institutional investors and retail investors in Colombia. We have been having a permanent contact with the pension funds in Colombia, which are important. Investors in the company and we are doing important road shows, non-deal road shows, not only in London but also in New York and in Latin America. And we will continue doing that. We're going to do at least 2 more in the rest of the year until the (inaudible) doesn't permit to do more road shows.

Our next question online comes from (inaudible) from Macquarie.

Just really 1 quick question for me please. If -- in Argentina, if you exclude the inventory valorization real estate impact, what was the organic gross margin improvement? And also perhaps, if you can give an idea -- you talked about the challenges that are coming in terms of wage inflation, cost inflation, when do you think you will start to see them?

It's very difficult to make the calculation. What I would say is that today, our margins in retail are not negative. They are positive. They are very near to 0, while the rest of the market is negative. And all the margins that we're receiving comes mostly from the real estate. But I would say that to keep a retail margin in a positive figure. Given the pressure that we're receiving is a very, very important task. It's very difficult to exclude the valorization of inventories because it's an ongoing business. This is all about purchasing and selling, and we always lose or gain money from purchasing and selling well.

Our next question comes from Nicolas Larrain from JP Morgan.

I have a -- most of my questions have been already answered. I wanted to ask also a bit about the Puntos Colombia. If you have like any -- if you can give any notion on how you can monetize that initiative? And how much it can bring to exit in the longer-term, if you can give us just a sense of how much the business it could be?

It's too soon to give a prediction or looking forward of margins. What I would say is the following: first, we are very enthusiastic about the coalition in Puntos Colombia. That transition part, which was very challenging, that is to take all the Puntos from our Assaí and from Puntos Éxito and convert into Puntos Colombia went well. The technology is working well, which is very important to create a big database. We have a big challenge for the short run, and it is that every customer gives us Allys data. That means that they have to give an express authorization so that Puntos Colombia, which is a separate entity from Éxito and from Bancolombia, which are the shareholders, can use this data not only in the stores, but also for other goals. And so now, we are arriving to near to 1.5 million customers that have already given us the Ally's data that is, the most important customers, but our goal is to increase that a lot in the following months. The second thing is that the customers will be not only issuing points, but redeeming points massively in the system, not only up in Colombia and Éxito part of all the other Allys, the 17 Allys that we have. And this is working very well in the last month, we saw for the first time in the history of Éxito, that we were having higher redemption than issuance of points. That normally you issue a 100 points, and people would be redeeming 60 or 70, and you would have a shrinkage of around 30 points that were never redeemed. Today, what we are seeing is that we issue a 100 points, and you'll have, for the moment, around 150 points redeemed in Éxito. What does that mean really? That the coalition is working. That is the different points that are around the coalition are finding alternatives of massive consumption and also travel points by products. Because we're giving a very important proposition of travel products through Viajes Éxito for the redemption of points. It's very difficult to give a figure today, but what I can tell you is that we are very enthusiastic and satisfied with what we are seeing, and that this a long-term value added proposition. It will have at some point a second stage and it is to make an intelligent way -- use to artificial intelligence of the big data that we are going to have. We are going to have probably and I said with probably, I want to say more than almost certain, the most important database of high quality in Colombia where the most important income brackets of the country are concentrated. So what I can tell you is that, if you ask me, this is probably the highest potential value-added monetization initiative that we have in the organization.

And our final question comes from Julian Felipe Amaya from Davivienda Corredores.

I have one question related to CapEx. I would like to know or maybe you can give us some kind of guidance between the CapEx to total revenue for the incoming years given the increasing CapEx you are having for the real estate.

Yes, what I would say is that -- and I will speak specifically for Colombia at this moment. We are going to maintain our CapEx levels. Simply that the mix is going to be different. Less new source and more real estate projects for shopping malls, and more investment in technology and more investment in innovation in our current formats, which we see more investment in cash and carry stores through conversions. And in the rest of the level, it's too soon to see -- to speak about the CapEx in Brazil. It will be spoken about in the next conference that the Brazilian team will be holding.

Our next question comes from (inaudible) from (inaudible).

I wanted to know regarding the operation in Colombia. Could you explain us the same-store sales figure for the food business and the non-food business, please?

We do not disclose the same-store sales by business, but I can give you a general figure to tell you that the best performance in same-store sales is being held by the electronics business, even after the World Cup, not at the level that we saw before because there was a big boom before the World Cup. But there is a trend around cell phones and certain other modern products that continue to be positive. Second that our textile business continues to have a very favorable same-store sales. And third, that even in our food business, we still have a challenge with same-store sales, but it is very much improved versus the last quarters.

And at this time, we have no further question. I'd now like to turn the call over to Carlos Mario Giraldo for closing remarks.

Thanks a lot. I would say, as my final remarks for this quarter results that we concluded a very positive third quarter with consistent progression in our sales in each market, margins and productivity. As shown in the operational and net profit figures, our strategy of integration and of innovation is paying out very well. Premium and innovation formats as Éxito WOW and Carulla Fresh Market are becoming a key part of our differentiation, and will increasingly become an important part as they gain more materiality. The dynamic expansion in our cash and carry in Brazil and Colombia grants us a long-term edge in this development -- the developing market, which is becoming a central part of the scenario, clearly in Brazil and we aspired to make it a central part also of the commercial proposition in Colombia. While in most sophisticated retail market as the U.S., or Europe, or Asia, the name of the game is guarantying profitable growth in omni-channel strategy and a friction-less experience for customers, we are perfectly in line with this trend. The difference is that we are anticipating it in Colombia before it gets. Because it's going to get, there is no question about it. And it all depends where you are going to be located at that moment. Éxito is leading the market with market place with last mile, with e-commerce, and Grupo Pão de Açúcar is impacting the market with its massive application with multiple solutions for customers and suppliers, something that we will also bring to Colombia. We have shown the ability to sort adequately with competitive environment, and changing macroeconomics, consolidating our regional leadership, enacting rigorous productivity schemes. And implementing cross boundary synergies. Finally, our traffic in asset monetization strategy becomes key differentiator and profit protection as evidence shows with credit expansion with new Viva shopping malls and with the recently launched loyalty coalition, Puntos Colombia. I would really like to thank you again for the attention, and looking forward for you to have a good and a very nice Christmas, and to speak with you early next year. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.