Almacenes Exito SA (EXTO) 2018 Q4 法說會逐字稿

Welcome to the Grupo Éxito's Fourth Quarter 2018 Results and Fiscal Year 2018 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'll now turn the call over to María Fernanda Moreno, Investor Relations Manager. You may begin.

Hi, Richard. Thank you, and good morning to everyone. Thank you for joining us today for Grupo Éxito's call.

At this time, I'm pleased to present our Chief Executive Officer, Mr. Carlos Mario Giraldo; Chief Financial Officer, Mr. Manfred Gartz; and VP of International Business, Mr. José Loaiza.

Please move to Slide #2 to see the agenda for today's call. We will cover Grupo Éxito's financial and operating highlights, followed by a review of the performance by country and our consolidated financial results for the fourth quarter and full year 2018. The call will conclude with the outlook for 2019 and the Q&A session.

Thank you for your attention. And please note that the call may last longer than usual.

Thank you very much to all of you for being here today at the conference. I will start with reviewing results in Slide #3. As a big synthesis, we ended with a strong net income growth out of mainly productivity and innovation and the strength coming from Brazil and Colombian operations.

In the financial main highlights, we had a strong consolidated net revenue growth of 10.2% for the fourth quarter and 8.9% for the whole year, excluding the foreign exchange impact. The recurrent EBITDA margin grew at 40 bps to 5.7% for the whole year of 2018. Net result had a very important growth of 28.3%, getting to COP 279,000 million for the whole year. There was a strong performance behind this of Brazil and Colombia that drove consolidated results. This shows again the importance of the balance of the diversification strategy. While Argentina was weak, as everybody knows, for the country, and Uruguay was not as strong as always, we had a very important support from the most important operations that are the Colombian and the Brazilian.

Going to strategic aspects, our store portfolio innovation and our digital transformation are consolidating a big differentiation of Éxito in South America in retail and in complementary businesses. The implementation in Colombia of key concepts in retail, like Éxito WOW, with our stop -- top 2 stores country in Bogotá and in (inaudible) and in Medellín and the Carulla FreshMarket, with 6 big ships of the brand were very important for this renovation, Cash & Carry expansion, up to 28 stores, 10 coming from Colombia and 18 from Assaí in Brazil.

The launch in Brazil of a very important new initiative to give competitivity to our Extra supermarkets, 13 of these top Extra supermarkets were converted to a new brand, CompreBem, a popular brand to compete with independents in the different states of Brazil. And the renovation of the conversion of 23 Mercado Extra, that's another low-CapEx, light-CapEx alternative. And the renovation of 15 Pão de Açúcar into a format very similar to what we know of Carulla FreshMarket and Disco Fresh Market in Uruguay.

We are consistent with the advance in traffic monetization, not only to create loyalty but also to strengthen our profitability. Puntos Colombia will -- is in the way of becoming the largest loyalty program in Colombia with a very good initial launch.

Viva Malls' expansion, with 115,000 square meters of new GLA, getting to 570,000 square meters of GLA. And the outcomes from synergy reached the total expected benefits in advance beyond USD 160 million of recurrent ROC in the whole perimeter of the 4 countries.

Going to the Slide #4, in financial highlights for the fourth quarter, we have a consolidated CapEx investment of COP 1.63 billion for the quarter and COP 3.06 billion for the whole year. CapEx for Colombia exceeded our guidance and it got to COP 411,000 million. In food retail expansion, we opened for the full year in the region, 76 stores. The focus has been in existing stores for -- with the winning format. That is, that even though we're doing openings mostly in Cash & Carry, the most important initiative today is renovating with new winning concepts, the premium stores in other countries and the supermarket -- popular supermarkets in Brazil.

The real estate expansion in Colombia saw the opening of the most important flagship, Viva Envigado and a very important shopping mall near to Bogotá in the Boyacá region with Viva Tunja.

Finally, in sustainability achievements, we're very happy to ratify that Éxito was recognized with the Dow Jones Sustainability Index for Emergent Markets for the sixth consecutive year and that our big endeavor to work with -- for children nutrition got to 63,000 children, 22% more number of children than last year.

Going to Slide #5, we got -- we get to site sales figure in Colombia for the quarter and for the year. It is important to say that we had the best quarter, with sales increasing 2.2% and same-store sales in adjusted calendar by 1.7%. Total sales for that year were slightly positive at 0.2%. As we said before, we saw a gradual improvement in sales quarter-after-quarter, as you can see in the bottom-right part of the figure, where in the last half of 2017, we had a very negative figure of minus 6%. And then in 2018, we came from the first quarter of minus 3% to the last quarter of a plus 1.7% in same-store sales.

It is important to say that format innovation has had a very important impact; both the WOW concept and the Fresh concept are double digit in increasing sales against the rest of the stores. SurtiMayorista saw an increase of 47%, and our omnichannel growth saw sales growing in omnichannel strategies, 37% in the last quarter and 33% for the whole year, having that complete share in the total sales of the company of 3.4%.

Going to Slide #6, we can see a little detail of sales in Colombia by banners. In the Éxito banner, which is very relevant, it is more than 2/3 of the sales of the company in Colombia. We saw the strongest net sales and same-store sales level posted in the last quarter, with plus 2% coming from a third quarter of plus 0.8%. That is 2 consecutive quarters with positive sales. In Carulla, we saw the best-performing banner of the complete company showing the resilience of the premium formats, especially when they give a magnificent experience to our customers, with a plus 1.3% in the third quarter and a plus 4% for the fourth quarter.

In Surtimax and Super Inter, we are still in the negative region but with some recovery versus past quarters, showing first impact of what's being done and what we told you that we were going to do in the past conference. Remember that in the second quarter, we had a minus 10%, and now in the fourth quarter, we had a minus 7%, around 300 basis points of improvement. What's new in the quarter is the renovation, the complete renovation of the top 10 Super Inter stores in the Cali region and in the coffee region. SurtiMayorista, in the last quarter, saw a very important same-store sales increase of 24.7%, the strongest same-stores sales growth in the [whole] company, which shows that, really, this territory that was explored by Assaí in Brazil is also completely valid for Colombia.

If we go to Slide #7, we're going to begin to analyze some of the growth levers that are being developed at Éxito in Colombia that we have spoken for the last quarters and that are getting to a material point. The first one is the Éxito WOW; we opened the 2 of them, but the 2 most important hypermarkets, it is clearly one of the few places in the world where hypermarket is going through a strong innovation, complete proposition. We call it Éxito WOW, and these 2 stores have seen double -- high double-digit increase against their history. It is something where service, 25 product and category -- renovation propositions both in food and nonfood categories, and omnichannelity facilities for our customers combined to give a very positive experience, as many of you are investors in Colombia have probably seen in the store of 134 in Bogotá country or Envigado in Medellín.

This year, we will be developing between 5 to 7 new WOW stores in the most important stores of the Éxito brand, and that will take us to represent near to 16% of the total sales of the Éxito brand by the end of the year.

In Carulla Fresh Market, which is more mature than the WOW and which gave us like the route that we should also follow with the innovation in hypermarket, we arrived to 6 stores for a total sales share of Carulla of 12%, with double-digit increase against the complete Carulla stores and with a healthy and sustainable proposition all over the store and a fresh product top experience. The Carulla store fresh market has received many international recognitions, probably the most important by the British Institute of Grocery Distribution, IGD, that described Carulla Fresh Market as one of the 16 supermarkets to visit in the world in 2019 and the only one recognized in Latin America. 5 to 7 new Fresh Markets will be developed during the year, and it can arrive to something between 25% to 29% of total sales of the brand.

Going into Slide #8, we come back to our Cash & Carry, SurtiMayorista. It's getting now materiality. It's being developed in 3 years at a very high pace, mostly through conversions of nonproductive and many nonprofitable stores. Today it is concentrating its presence in the capital of Colombia, Bogotá and in the Caribbean coast, mainly in Barranquilla. It is very important that it concentrates so that logistic costs will be driven down.

It is a profitable expansion, probably the only profitable expansion in the kind of discount segment that has happened in Colombia in the last years, and it has been positive since year 1, with an EBITDA margin near to 3%, with very low operating costs near to single digit, which is very material for this format and with clear CapEx optimization. It is the CapEx alternative of less expense per square meter in the complete brand of the company, strong sales growth and in conversions, 2x what it had before under a previous brand. We completed 18 stores, and we will be completing something between 8 and 12 new SurtiMayorista Cash & Carry's during 2019.

Net sales accounted for near to $100 million, increasing 47%, and it has now a sales share before all Grupo Éxito in Colombia of 3.1%.

If we go to Slide #9, this is a very important slide because it shows what we have been working for the last 5 years in a very strong way, and it is the materiality, the leadership and the dynamics that Éxito has given to the omnichannel strategy, combining e-commerce and marketplace, where we arrived to more than 1,000 vendors and with an increase of near to 55% and -- of GMV and in the last mile, where we have been meeting this trend in Colombia in the food and consumer goods segment, with more than doubling during the year and keeping our digital catalogs as a very innovative alternative in which our customers can find in the stores all the portfolio that all the stores carry, even the big stores and also the portfolio coming from vendors in the marketplace.

As a synthesis, we increased the share of omnichannel's alternatives by 80 bps to 3.4%. This is very similar to what leading retails in the U.S. are achieving after a very important investment. And we grew our sales in omnichannelity by 33%, arriving to COP 367,000 million and to a total deliveries to last-mile, e-commerce, marketplace and digital catalogs of 2.7 million, more than doubling the deliveries that we had 1 year before and something that makes us really, very positive on what is being achieved.

Going to Slide #10, we speak about the monetization strategies. We had many monetization strategies in the past, like credit, insurance and travel, which are doing very well. But the new things that are acquiring a lot of importance is our real estate business through Viva Malls, the first real estate commercial operator today in Colombia.

In our real estate business that contributed around 1/3 of other operating revenues, we got to a total gross leasing area of 735,000 square meters. Of those, 570,000 square meters are included within Viva Malls, and the rest, 165,000, are in the rest of the perimeter of the company.

The asset contribution, additional, that we said we were going to do was concluded in the last quarter. It was made a contribution to Viva Malls of 4 assets -- 4 shopping malls and with an annualized EBITDA of COP 170,000 million and a commercial value for the total Viva Malls after this contribution of near to COP 2.2 billion, which gives us -- which gives it an important size.

Viva Envigado was opened in the last part of the year, the biggest mixed project between commercial and offices in Colombia. And it really is an innovation proposition where more than half of the shopping mall is dedicated to entertainment, and it is a clear destination for the family. This is another innovation proposition from the organization. And we opened, also, Viva Tunja with 35 square meters of GLA.

Going to Slide #11, we speak about Puntos Colombia, our loyalty program, that coalition that was launched nationally in August in conjunction with Bancolombia. Altogether, between Bancolombia and Éxito customers, we are monitoring 15 million customers. 30 other top brands are, today, allies of the coalition, offering different offers, different services so that our customers, in some years, will find that in -- within Puntos Colombia, they can find alternatives to redeem their points and to issue their points in many services and products in Colombia, being probably the most expensive alternative of services for any Colombian consumer.

Puntos Colombia is all about loyalty but also of getting margin out of point issuance and redemption and in a further stage of data monetization, that is why we are obtaining, in this first phase, the (inaudible) data express authorization from our customers. Redemption has increased over 80%, and Grupo Éxito is, today, within the coalition, the ally of redemption for around 86% of the total points that are being redeemed to date.

There will -- there were, in this first year, 90 million transactions made with Puntos Colombia, which is very positive.

Going to Slide #12, we turn to Brazil, which, as you have seen from the information given by GPA Foods to the public some days ago, has very positive results, with sales growth of 10.7% in reals for the year. And in the fourth quarter, the highest sales growth in many, many quarters of 12.3%, which is very positive if we see that inflation today in Brazil is around -- is a little below 4%.

Same-store sales for the year grew 5.5%, that is, above inflation. Assaí in the full year saw net sales growing by 24% and same-store sales by 8.1%. It had 18 openings of Assaí stores and having now present in 18 out of 27 states in the country. It's one of the most valuable Brazilian brands in the last surveys, this is the first cash and carry retailer that gets into this category.

Multivarejo had also very positive results, with a growth of same-store sales for the year of 3.6%. The focus today in Brazil is growing in the cash and carry, reconversion of Pão de Açúcars and the new popular supermarket propositions and very important, our digital transformation.

mi Descuento or My Discount or Meu Desconto is today probably one of the most important applications in all America, including the U.S., with 7.5 million downloads and with an important percentage of the customers actively using the application.

If we go to Slide #13, I will speak about some of the initiatives in Brazil. I have spoken about them, but this -- pictures show it all. The first one is the strong expansion of Assaí, getting now to 144 stores nationwide. The second one is the renovations of our Pão de Açúcar, similar to that Carulla in Colombia format, with 15 stores renovated, and these renovations with 7% growth on top of the rest of the Pão de Açúcar stores. The third one is the portfolio modernization to the popular supermarkets of Extra, with our CompreBem -- with 13 conversions into CompreBem stores and 23 conversions into Mercado Extra. And finally, the loyalty apps with 7.5 million downloads and 2x sales of those active users of the application as compared with those who are not active users of the applications.

I will hand the presentation to Manfred Gartz, our CFO so that he continues with the results. Then José Loaiza will speak about the synergies in the region. And I will come with some conclusions and some guidelines for the next year -- for this year.

Okay, so thank you, Carlos Mario, and good morning, everyone. We'll start on Slide 14 with the highlights of the operational performance in Colombia.

To start, quarterly net revenues grew 2.4%, topping the positive trends showing during the year. Fiscal year ended at COP 11.2 billion, growing 1.1%, supported by our sales recovery and other revenues, which increased 25% in the year, mainly driven by the performance of the real estate business and the financial retail.

On the gross margin, it reached 24.9%, increasing 31 basis points. This margin reflects a very competitive level in our -- for our retail unit and higher participation of the complementary businesses. Boosted mainly by the real estate business with the opening of Viva Envigado and Viva Tunja.

In our cost-control initiative, showed remarkable results on the SG&A side. The operational expenditures grew 1.6% in the year, including expansion. That represents almost half of the inflation of last year. This result is really a great accomplishment if considered that major expenses, like labor, occupancy and utilities, grew way above inflation.

Finally, the Colombian operation has reached an annual recurrent EBITDA of COP 652,000 million and a margin of 5.8%, gaining 10 basis points versus last year. It's important to highlight that this 10 basis point improvement comes after the challenging start of the year where the EBITDA fell 88% in the first quarter.

Moving forward to Slide 15 to discuss the international operations, I will start with Brazil. In local currency, net revenues grew 12% in the quarter and 10.7% for the year, reaching COP 40.1 billion by year-end. This shows the assertiveness of the commercial proposal in Multivarejo and also the maturity and consolidation of our store portfolio of Assaí.

Gross margins reached 22.4% of sales when taking away the tax credits. This contribution actually reflects the higher weight of Assaí in the mix and an adequate level of competitiveness in Multivarejo's performance, very in line with our commercial strategy.

In terms of the SG&A, we managed to control expenditures and limited its growth to 3.6%, despite the inflationary pressures and high-expansion dynamics.

Recurrent EBITDA ended at COP 2.2 billion, growing 7.4% versus last year, resulting in a 5.5% margin and gaining 50 basis points.

Please move now to the next slide to Uruguay. Net sales in local currency for 2018 grew 5% and 4% in same-store sales. We faced a challenging scenario during the second half of the year due mainly to internal consumption slowdown and lower tariff inflow, mainly from Argentina.

We maintained our market share, though, thanks to our differentiation approach to the Fresh Market concept.

Net revenues reached COP 2.6 billion in the year, rising 5.2% in local currency, affected negatively by our FX of 6.5%. Gross margin finished the year at 33.8%, 10 basis points below last year due to the higher commercial activation in this -- in the middle of this very challenging consumption scenario. And higher logistic costs that were partially offset by efficiencies both in shrinkage and labor.

On the recurrent EBITDA side, we reach COP 198,000 million, maintaining a strong 7.7% margin, demonstrating a very solid performance on profitability levels.

Let's take a view on Argentina on Slide 17. To start, I think it's very important to -- worth mentioning that all the figures are appropriate expressed with monetary correction accordance to IAS 29. If you recall, Argentina was set as a hyperinflationary economy mid-last year. You will find all this information on the Note 33 of our consolidated financial statements.

Having said so, Libertad top line showed resilience in the middle of this complex consumption and macro environment. For 2018, net sales grew 28% in local terms. This result comes from our commercial strategies oriented to pricing food and capturing good volumes of the nonfood during the workup season of the middle of the year.

Net revenues grew 28.1% to almost COP 1.1 billion, reflecting positive retail contribution and consistent real estate performance. Gross margin increased 10 basis points, mainly explained by the higher participation of our real estate business strength between our dual strategy. SG&A grew 30 basis points in a context of a high -- very high inflation that was -- that ended almost 48% by year-end, and mandatory wages increments, aiming to recover real-time salary and the internal economy reactivation.

Finally, recurrent EBITDA reached COP 46,000 million, with a 4.1% margin, decreasing 20 basis points but still showing outstanding profitable levels when compared to other local peers.

Moving forward to the next slide to discuss the consolidated results. Top line reached COP 55 billion, with a 8.9% year-over-year growth, including FX impact. These results really reflect: one, the strong performance in Brazil; two, the gradual recovery of Colombia; and three, the contribution of complementary businesses, particularly real estate in Colombia and Argentina.

SG&A diluted 90 basis points, reflecting productivity efforts throughout all the region, higher maturity of Assaí's portfolio and the consolidation of Surtimax synergies. Recurrent EBITDA ex- Brazilian tax credits grew 5%, even after a negative 10.4% FX effect.

We reached a margin of 5.7%, improving 40 basis points versus last year. Recurrent EBITDA reached COP 3.1 billion in 2018.

Finally, at the bottom line, net income grew 28% to COP 279,000 million, confirming a consistent growth during the last 3 years. I will provide further details on the next slide.

So moving forward, this improvement in net income results mainly as follows: first, lower interest expenses from rates in Brazil and Colombia and the FX effect of Brazil; two, control of the nonrecurring expenses that is mainly driven in Brazil; and third, improved operational performance in Colombia, thanks to the productivity efforts and a better commercial results in the top line.

Regarding the dividend proposal, yesterday, the Board of Directors of Éxito proposed a dividend of COP 312.12 per share equivalent to a 50% payoff ratio in line with our historical policy. This represents a 28% increase dividend versus last year, and this dividend is to be paid in 4 installments as per the previous years. This proposal is obviously subject to approval at the general shareholders' meetings to occur on March 27 of this year.

Finally, please move to Slide 20 to discuss net financial debt. At the holding level, net financial debt closed at COP 1.9 billion, decreasing almost 25%, very aligned with the company strategy of deleverage. Cash and equivalents closed at COP 1.9 billion, driven by lower financial expenses, higher dividends inflow and better generation of cash flow at the operational level.

Finally, the adjusted net financial debt-over-EBITDA ratio ended at 3.1x, coming out of the 3.52 ratio in last year, the lowest ratio since 2015. So at this point, I will turn the call over to Mr. José Loaiza to continue the call.

Thank you, Manfred. Good morning to all of you. As Carlos Mario said, that we are very pleased to tell you that, in 2018, we achieved our USD 160 million target for the synergy project. This was obtained after 3.5 years of hard work, 200 executives very committed to the project in the 4 countries, the coordination of the synergies office in each country and the contribution of 28 initiatives, again, 1 year ahead of the schedules. Just to give you some color, although we had 28 initiatives, as some examples of one of the most relevant ones in next slide. The category that we call joint negotiations to the other op figure, our core synergy of food and nonfood purchasing and our back-office synergy of purchasing of goods and services were very relevant to this achievement.

And now we can say that we don't have a process but also -- we have a process of very sound consolidating purchasing power in foods, nonfoods, that guarantees the recurrent benefits of these two initiatives.

On the next slide, I'm following with examples. We have the category that we call format replication. Carlos Mario mentioned already the benefits of the implementation of the Cash & Carry in Colombia, inspired by the Brazilian experience. And also, to the right, the joint development of Fresh Market in the region to the point that, today, we can say that no other player in LatAm has the value format, premium format footprint that we enjoy today to offer to our customers.

Last but not least is that this is not over. The question that we are asking ourselves is what's next in these synergy initiatives, and the main points that we want to share is that we want to move from talking about a project to talking about a process, an ongoing flow of initiatives in the different organizations and countries where we operate. Also, in this new phase, that we have named a process GO, Global Opportunities, we also want to evolve, not only about sharing best practices, which is basically what we did in the past 3.5 years but also building together the initiatives to face the future challenges that our organizations have. This process was kicked off last week in Brazil, with top executives from the region, and focus will be in omnichannel experience, a continuous improvement of our format and channels, digital transformation and productivity synergies.

As we move on we'll bring here, to this call, progress on this new process, GO. So having said this, I'll turn it over to Carlos Mario for his final remarks.

Thank you very much. I will go directly to Slide #25, and I will be speaking about how the -- how accurate our guidelines given in the different countries for the year 2018 were against the final results. In Colombia, we said that we would have a retail expansion between 12 to 15 stores. We did 17. Fresh Market, that we would go up to 5. We did 6. Puntos Colombia would start in the first half of '18. It started nationally in August of 2018. SG&As would be below inflation. They were really almost half inflation. Viva Malls would go to 160,000 square meters of GLA, which it achieved. And that our CapEx would be COP 300,000 million, which is exceeded by around 25%.

In Brazil, that we would go out -- up to 20 Assaí stores. It got to 18. That we would renovate 20 Pão de Açúcars. We renovated 15 Pão de Açúcars, and we will be accelerating that during this year. And that CapEx would be at BRL 1.6 billion, that is [real], to BRL 1.7 billion.

In Uruguay, we said that we would be opening between 8 to 10 Devoto Express. Given the slowdown in the economy, we opened 5 Devoto Express. And in Argentina, that we would be investing around ARS 160 million, and we got to ARS 111 million. We really slowed a little bit the investment because we want to be cautious until we see how the economy will develop. In LatAm, as José said, that the run rate benefits would be above $120 million, which were exceeded.

If we go to Slide #28, we will go to the final conclusions before giving the guidelines for 2019. First, as we said, net sales growth was achieved in all the countries, with the most strong -- the strongest of them all in Brazil. Annual consolidated recurring EBITDA margin gained 40 basis points, arriving to 5.7% and in Colombia, it gained 10 basis points.

Earnings per share grew 28.3%, and our dividend proposal that is being taken to the general assembly is to have the same increase of 28% in the dividend to our shareholders. That would give a yield of around 2.1% if we compare it against the share value of yesterday.

Net debt-to-EBITDA ratio at a consolidated level at 1.23x and 3.11x at the holding level, down from 3.52x.

Successful action plans and cost control activities in all the countries, traffic and asset monetization activities going forward through Puntos Colombia and through Viva Malls, store innovation in all the countries of which we have to highlight what is happening with the Fresh Market, which is clearly an innovation being driven in the all-the-time market by the Éxito Group. And then at Extra supermarkets being converted into CompreBem and Mercado Extra, and the WOW innovation format for the hypermarkets in Colombia. Finally, the relevance that Cash & Carry has acquired in our country in Colombia.

Digital transformation at all levels, not only with last-mile development, with different expressions in every country according with the realities of the country. Applications, especially in Brazil and now in Colombia as a very, very critical part of our looking-forward digital transformation and digital culture development of our customers and omnichannel strategy with very important increasing sales. Total synergy plan outcome achieved, as was said before.

Finally, we go to Slide 29, and we speak about the outlook for 2019. In Colombia, we will be doing expansion between 18 to 20 stores. We will be opening between 10 to 12 SurtiMayorista stores. We will be developing between 5 and 7 Fresh Markets and WOW stores, each one between 5 and 7. This is very important. If we put together, by the end of the year, in a full year running year, the WOW stores, the 9 WOW stores, the 13 Fresh Markets, the 30 SurtiMayoristas and all our omnichannel strategy, all this innovation and modern strategy will account to more than 20% of the total sales of the company. This is a very important figure about innovation in retail. Our CapEx will be between COP 270,000 million and COP 300,000 million. And our EBITDA margin will be at least stable as compared with 2018.

In Brazil, retail expansion will be going between 15 to 20 Assaí stores and 10 to 15 renovations of Pão de Açúcar stores. 100 stores will be intervened in renovations of Supermercados Extra into Mercado Extra and CompreBem alternatives. Recurring EBITDA margin will be expanding, and it's calculated that this can expand as much as 30 basis points for Multivarejo and 30 to 40 basis points at Assaí level. And the CapEx will be between BRL 1.7 billion and BRL 1.8 billion.

In Uruguay, the opening of 4 Fresh Market stores and a very strong operational excellence program to keep our cost in line with our sales. And in Argentina, the focus will be on productivity and on the real estate portfolio enhancements to keep the level of occupation, which we are already having above 90%.

Finally, at LatAm level, in synergies, as José said, our focus will be in innovation, digital transformation and omnichannelity while keeping, in the day-to-day basis, the initiatives that have always -- already been developed in the past years.

So this would be the presentation for the moment, and we will open now the scenario for Q&A.

(Operator Instructions) Our first question online comes from Federico Peréz with Bancolombia.

And sorry if I ask some questions you guys already talk about, but I had some trouble with the call, and I couldn't hear all the Manfred and José Loaiza's presentation. I had a couple of questions. The first one would be, in Colombia, you stated that the increasing the EBITDA margin was mainly explained due to the cost and expenses strategy you have made over the last quarters, but also the higher weight of your complementary businesses. Could you give us a little bit of color on this? Perhaps how much is weighting in terms of revenues and EBITDA, the complementary business in term of your -- not only the real estate business?

My second question will be in terms of leverage. Do you feel confident enough with the leverage ratio reached this year that show a significant improvement and close at 3.11x? Is it enough for you, or will you try to implement a new strategy in 2019 to decrease it even harder? And my last question will be in line with SurtiMayorista and Super -- sorry, Super Inter and Surtimax. I know that these 2 brands are the ones that are having like the worst perform in Colombia. They are improving a little bit in their sales, but we see they are quite below Éxito and Carulla brands. So maybe what is the strategy you guys follow in the next quarters to try to improve these brands?

Okay, thank you very much. I want to address first the last question about Super Inter and Surtimax. And then I will turn it to Manfred for the rest of the questions. Surtimax and Super Inter are going through a very important change in their strategy. First, reinforcing fresh product. They have always been important in Super Inter, but now they are very important in Surtimax, which gives them differentiation against discounters. Number two, improving assortment. That is, reducing some assortments to be strong -- stronger in the private brand proposition. And the third, through the renovation of the stores. And in the case of Surtimax, by taking nonprofitable stores or big stores, which is -- it is not the best brand to operate into SurtiMayorista, which have always given -- has been very good because it has focus. Big stores in the Cash & Carry format and small supermarket stores in Surtimax. We saw a 300 basis points improvement in the last 2 quarters in sales, and we expect that they will continue this in a gradual recuperation.

In terms of the EBITDA recovery, I will have to say, there are mainly 3 items to take into account. First, obviously, the recovery of the sales trend, that actually helps the dilution of the expenses, that's one. Second has to do with the increased performance of the complementary businesses that, as of now, represents roughly about 35% of the EBITDA, about that, half of that comes from real estate. But that's the reason why. So [understand], last year, as you know, we opened Viva Malls' largest shopping center, Viva Envigado, at the end of the year. So this actually help impacting the results. And third, a very strong expense control, that as I mentioned before, that was mainly half of the inflation of last year. So the combination of these 3 things helped to increase the EBITDA margin of the company. Even despite, once again, of the challenging start in the first quarter.

Perfect. And if I may, the last question, Manfred, would be on the leverage ratio so...

Yes, sorry about that. I think, as of now, we are -- once again, we're pretty comfortable with the current level of 3.1. If you recall, this is not a covenant but the current test. So 3.1 is -- it's a very, very, say, sound and comfortable level. However, we continue our deleverage -- our leverage strategy, so we expect that to continue lowering in the upcoming years. As for your question regarding the covenant, the covenant is way under control. It's actually at -- it's 1.2x, where the threshold is 3.5x. So we're pretty comfortable with that threshold.

(Operator Instructions) And we have a question online from Andres Soto from Santander.

My question is regarding cash flow generation. When I looked at net -- the leverage ratio, and I look at the net financial debt at the end of 2018, I see that a huge portion of the reduction comes from the debt that you put at the subsidiary level in Brazil. Meaning that if I exclude the effect of this COP 670 billion, there was virtually no cash flow generation throughout the year. Can you please share your thoughts on that, and what are you expecting for 2019?

Okay. Thank you, Andres, for your question. I would start saying that what you mentioned is actually true. Part of diminishing in the debt comes from that operation. However, you have to take into account the following. First, cash flow generation at the Éxito level remains strong. We have been able even to increase the level of CapEx that we historically have been done. So there's no -- I think there's no kind of restraint as per the cash flow. So actually, if you recall, while we maintain the proper level of CapEx that we do for our retail business, we actually have a big investments in the 2 shopping centers of Viva Mall, especially on Viva Envigado and Tunja, those required a lot of CapEx.

The dividend, obviously, has not changed. We have met all our debt repayment process. So at the end, what this shows is that the cash flow is strong enough to maintain, not just the dividend policy, to increase the capital expenditures that we normally have done and still be able to manage that without deteriorating our net financial debt.

Our next question online comes from Nicolas Larrain from JPMorgan.

I wanted to see if you could touch a little bit on Uruguay, the performance over there. I notice that you mentioned in the release that there were some strikes. It wasn't clear to me if it was in your stores or your employees or just around the stores, general problems that affected sales. And in general terms, when do you expect, aside from the FX headwinds which cannot be controlled, but when do you expect for trends in -- on the grounds in local currency to start reaccelerating and improving profitability?

Let me refer a little bit to Uruguay. Uruguay continues to be a stable market. The economy continues to grow and devaluation, even though it was greater than the Colombian peso because it's important to remember that the Colombian peso was very strong against the other LatAm currencies. It was -- it performed much better than its neighbors. However, what's impacting Uruguay today is more the flux coming from Argentina tourism. As you know, Montevideo is one river away from Buenos Aires, and there's a lot of purchasing that happens by the Argentinean tourists. And in the season that started in December and continued through in January and February, we saw a very important reduction in tourism near to 30% coming from Argentineans.

At the same time, we are seeing that -- given that, in Argentina, that devaluation has been so strong, going from 17 pesos to 38 pesos by the end of the year, of course, Argentina is much cheaper than Uruguay today. That will correct with inflation, probably in the following year or 1.5 years. But for the moment, it gives some difficulties in competitivity, for example, for the purchasing of nonfood products. Having said this, our operation continues to be very strong. Our -- we have arrived now to 15 Fresh Market conversions. Our Express is the leader of the express supermarkets in Uruguay, with that Devoto. And we keep market share near to 45%, which is very positive for Uruguay. So I would say, and as you can see, even under these circumstances, it arrived to an EBITDA level of above 7%, which is very strong in any retail environment.

Perfect. And if I could ask just a smaller question on Argentina. Could you give us a sense or some color on what's the participation of real estate or other complementary businesses in the EBITDA? Either the year or the fourth quarter would be great.

Okay, you give me the opportunity also to refer to Argentina because I really, really consider that our team in Argentina has done an outstanding job. I mean, even after the adjustment of hyperinflation, the economy going down by more than 3% and inflation of 47%, a devaluation of more than 100%, increasing unemployment, and you keep an EBITDA margin of 4.1%, you gain market share, and you keep occupation rates of real estate above 90%, that's really outstanding. And I think it has to do with our team adjusting in a very dynamic and rapid way to the changing circumstances.

That is not to say that we're not going to face a lot of challenges because, of course, with an inflation of 47%, you are going to have a lot of pressure in your costs by inflation. But we have the fortune, also, of a natural hedge that many other competitors do not have in our 15 commercial galleries in the main cities to the north of Buenos Aires. What I would say, we do not give the exact figure of how much real estate represents of the EBITDA. But I can tell you that it represents, clearly, more than half of the EBITDA generated for the company, and it is at a very stable moment, even with the circumstances. Real estate has an advantage, and it is that the assets have been revaluated permanently. And second, that when there is inflation and devaluation in Argentina, there is a natural trend of investors to try to hedge on real estate, and we don't have to do it because we are already hedged there.

(Operator Instructions) And our next question comes from Luis Miguel Alcega from Corficolombiana.

I have a question on -- regarding the cash flow from operation at the holding level. You have a decrease of 60% year-over-year. And you have a new accounting presentation. So there is not clear how much do you have in cash flows between suppliers. So I would like to know how much do you actually, in this last quarter, lever with suppliers, and why does these cash flows decrease so much?

If you go to the financial statement release that we have, the full book, not the presentation, but the full book, you have all the details, information regarding the cash flow. That's first. Second, in terms of policies or in terms of operations, I think what has happened in terms of accounts payables for providers and stuff, we have -- last year was conducted the same way it was conducted in the following year. So there's no major change, per se, in the way we have managed that. If you go through the consolidated statements on Page 8, you'll have the full disclosure of the cash flows. Everything to go from operations, investments, [et cetera]. If you have any particular question regarding one items, please feel to -- contact IR of Éxito, and we'll be happy to explain.

(Operator Instructions) We have a follow-up question from Federico Peréz from Bancolombia.

Given that there are no more other questions, I would like to ask one more, and it's regarding the law that is going to be discussed in the coming months in the government, which is the property timely payment to suppliers. Can you give us a little bit of opinion regarding this law and how you see that this could affect companies' capital?

Thank you very much, Federico. We have making -- we have been given a very close follow-up to the project of law that has been discussed. The first thing is that it is only going to go to the Chamber of Representatives, and then it has to go to the Senate. The second thing is that very -- it's very probable that we are going to have a proposal coming from the government, from the Ministry of Commerce, which would eventually be restricted only to micro and small players, companies and not to all companies, where it makes no sense to have a state intervention. The third thing is that the reference to this law is the law in Chile. And the law in Chile leaves the faculty of freedom of having bilateral commitments and contractual dispositions between the different parties. So for the moment, we see that this is the environment around it. Of course, nobody knows how the law discussions are going to go. But clearly, all the players that have referred to it refer only to the micro and small companies. Only to give you a figure, if we see the complete payables of the company, and we divide them between payables with big and multinationals and big companies and micro, small- and medium-size companies, even if we include the medium-size company, that does not go beyond 16% of the total payables of the company. So it's very manageable, especially because it is very probable that if something is enacted, it will be gradual and that it will be changing the terms of payment in a term of between 2 and 3 years and very probably starting next year.

We have no further questions at this time. I would like to turn the call over to Carlos Mario Giraldo for closing comments.

Okay, thank you very much. I will make some final remarks, take in consideration some things that have already said. But I think that having it in a nutshell is very important. I believe that 2018 was a clear year of improvement in the Colombian business and of consolidation of the Brazilian business, our 2 most important assets.

The net result saw an improvement of 28%, and our shareholder yield is clearly improvement with the dividend distribution that is being recommended to the general assembly. We continue with the policy of 50% distribution of the profits generated by the company. Sales are increasing in all the markets in local currency. Both consolidated and Colombian EBITDA margin expansion is being observed, 40 basis points for the consolidated and 10 basis points for the Colombian. Productivity initiatives across the business are helping a lot, and innovation has been also introduced in productivity with lean schemes like SIX SIGMA and KAIZEN. Synergies came above target, and new objectives around digital, omnichannel, format innovation and productivity best practices are being set.

As of Colombia, the commercial activity enhancement is giving good results, even though there is an active expansion of other discount players, every time this expansion has a lower impact in the market, not only because of the base but because it starts to have, at its own, some cannibalization. There is a differentiated answer from Éxito to these market forces through omnichannel, through innovation, through Cash & Carry and through our traffic and asset monetization. The end goal is that our customer gets always a better experience and a profitable growth.

If you live in Colombia, you can see, 2 days ago that for the first time in the history of Éxito, in celebrating the 70 years, we started our big promotion at 12 at night in 57 stores. And it was an amazing experience for all Colombians that were buying stuff at 3:00 a.m., 4:00 a.m. and 5:00 a.m. And there's a historic landmark getting to materiality with our hypermarket innovation in WOW and with our Fresh Market and also with the Viva Malls emblematic opening that we saw at Envigado. Omnichannel is getting now to 3.4%, whereas some days -- some years ago, it was below 1% of total sales of the company. So every time, we're going to expect 60, 70, 80 basis points of improvement against the rest of the sales, which is going to be a big driver, with the last-mile and marketplace driving also that increase in the omnichannel strategy. Puntos Colombia is not only a customer retention strategy, but it is also a monetization of our customer database. And Viva Malls, getting to our reality with a value above $730 million.

In Brazil, GPA is the market clear winner. If you see the last quarters, it has been increasing its sales both at the Multivarejo and at the Assaí in a very dynamic way against the other noncompetitors. Cash & Carry and Pão de Açúcar premium consolidation is being seen and the new supermarket popular proposition going forward. The strongest digital and regional transformation through the application of Meu Desconto is, I would say, like a study case to be seen in digital transformation and digital adaptation by the customers, and clearly, results have met market expectations and are positive looking forward.

In Uruguay, as we saw, a steady company, even given the circumstances present with the devaluation, hyperinflation and tourism reduction from Argentina.

In Argentina, a business that has had positive margins and EBITDA at retail business and is very much supported by the hedge that we get from real estate.

And looking forward, as an organization in South America, the word will be consistency: consistency in playing on innovation; consistency in playing on productivity; consistency in driving omnichannelity and digital transformation; and consistency in finding, in the monetization of the traffic of our customers and of the assets of the company, the generation of profitability for these organization. I would like to thank you all for being here, and I would invite you to the next conference where we deliver our first quarter results. Thank you very much.

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