Companhia Brasileira de Distribuição
Q4 2019 Earnings Call Transcript

Published: 24 Feb 2020

[Operator:]

Good morning, ladies and gentlemen. Thank you for waiting. Welcome to the GPA conference call to present the results for the fourth quarter of 2019 and for the year of 2019. This event is also being broadcasted via webcast, which can be accessed at www.gpari.com.vr with the corresponding presentation. The slide selection will be managed by you. There will be a replay option for this call after the end of this presentation. We inform you that the company's press release is also available at its IR website. This event is being recorded. [Operator Instructions]Before proceeding, let me mention that forward-looking statements are being made under -- that related to the beliefs and assumptions of GPA management, our beliefs and assumptions of the management as well as currently available information. They are not assurance of performance. And they involve risks, uncertainties and assumptions and depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA and could cause results to differ materially from those expressed in such forward-looking statements. Now I would like to turn over to Ms. Isabela Cadenassi, Investor Relations Officer of the company. You may proceed, madam.

[Isabela Cadenassi:]

Good morning. Welcome to our conference call for the results of the fourth quarter of 2019. Ronaldo Labrudi, the Vice Chairman of the Board; Mr. Peter Estermann, CEO, Christophe Hidalgo, CFO, Belmiro Gomes, the President of Assaí; and Jorge Faical, President of Multivarejo. Peter, turn over to you.

[Peter Estermann:]

Thank you, Isabela. I'd like to thank everyone who's attending this call. I thank you for your interest in listening to our conference call for the results of the fourth quarter of 2019 and for the year of 2019. Let me start by saying that we are very pleased to have completed the year of 2019 as the largest food retail company of South America. As you know, at the end of last year, we completed the acquisition of 96.5% of the Éxito Group. And with that, we have strengthened and expanded our operation in the group. Another important point that I'd like to highlight, that this was done with the highest levels of transparency and governance as you could follow-up.I am very pleased that we are completing the process of transferring GPA to Novo Mercado, and we are migrating this process, and it's probably expect to conclude that in the first quarter. This is a leader. And in 2019, it has had its highest performance of sales in the last 3 years. These are the Éxito's results. This is because their performance was very good and also because of the strategy they developed involving innovation.Basically, there were 3 pillars that consolidated this strategy; first, the expansion of value formats, very similar to the strategy we use at GPA in Brazil. Also because of the omni-channel strategy related to the joint work and the synergies that the company has used in the past years, that totaled almost 75% growth. And obviously, the contribution of complementary businesses, including real estate businesses, we have many real estate businesses. And also, in Éxito Colombia, we have millions of users there and the 2-year program, 1 of the main issuers of credit cards in Colombia, with over 50,000 different stores.We'll have more details on the Exito's results, but its business has contributed to the results of a BRL 2.4 billion in EBITDA and a very high-margin of 12.4% in the consolidation of its operations in December.It's important to say that in Colombia, December is a very seasonal month, highly seasonal month. In Brazil, we are very pleased to say that Faical is now reaching us. He was an executive from the company with over 25 years in the market, and now has become CEO. And during the 12 years, has been with the company. He worked in several areas in multi retail, and now he's been the CEO of Multivarejo. And he will also give you the details on the activities he has been leading.Assaí had a very good performance. We'll also provide more details about that. The Assaí banner of the whole Taylor has shown advances in customer traffic and market share month after month, despite a strong comparison base of previous months. I'm very pleased and very confident of the work plan that Demuro has led with his team and with the results that we have estimated for this year.2019 was a year of consolidation of the review processes and the strategy of GPA portfolio, especially involving Multivarejo. We also get more details later in this call about that.It's important to say that we have also opened 122 new stores between conversions, renovations and new stores in the Generation 7 model of Pao de Acucar. And to 70% of the renovation of Extra and Compre Bem.It's also important to note the consolidation of GPA's position as an absolute leader in the food retail business in e-commerce, it was in over 40% growth in the year, leveraged by Express Delivery model, ship from store, 116 stores of the company have that and the click and collect, 119 stores provide the service.We have our private label strategy, with 2.7%. And we hope to reach about 20% until the end of the year. I'm very optimistic about 2020.The outlook is more positive from the macroeconomic perspective. We are at the beginning of the process of continues and gradual resumption of the market, and also with the new interest rate levels, we believe the Brazilian families will have higher purchasing power.At the Extra group, Éxito Group also have very good perspective. The GDP is expected to grow by 3.5%, and also a gradual reduction in the unemployment rate, which reinforces our position and the importance of GPA being exposed to different types of economies in South America. For Assai we have a very bold plan for expansion, the largest ever as we announced at the end of last year that will strengthen the regional presence of these brand in markets and regions where we have not reached yet.We have very good growth opportunities. That enabled is going to talk more about that. Our expansion plan is very ambitious with Assaí, and we hope to reach over BRL 50 billion rising revenue with resale.In Multivarejo, I'll talk on focus is in the execution of optimizing the portfolio of stores, recovery of hypermarkets. Because that's the format that will dedicate more effort to -- in Multivarejo.And with the focus of our execution. I would like to renew our confidence in the execution of the strategy and delivering better results, supported by continuous quality and efficiency -- operational efficiency. Christophe is now going to make comments about the financial aspects.

[Christophe Hidalgo:]

Good morning, everyone, and thank you for participating in this conference call regarding the fourth quarter of 2019 and the year of 2019. We'll start this presentation saying about the main results of the GPA consolidated consider the post-IFRS 16 accounting standard. The December results for the Éxito Group are part of these figures.Now on Slide 4, I would like to highlight that we have a very strong growth of rate in growth sales. This is leveraged by a significant and profitable performance of Assaí of about 22% in the year. And we also have some contribution across revenue of Éxito in December of BRL 2.4 billion. The gross margin have reached 21.3% of sales in the fourth quarter and 21.5% in the year showing that Assaí is more representative and also reflecting more investments in Multivarejo to improve competitiveness -- price competitiveness in all formats, and also to leverage the open -- reopening of stores that have been renovated. There's also been a significant dilution of 60 bps in the year-end in the quarter, favored by expense control efforts in Multivarejo and Assaí, still on Slide 4, the adjusted EBITDA has shown in advance of 13.3% in the quarter and 7.9% in the year. This result is done mainly by improvements of profitability of Assaí and the positive impact of the first consolidation of Éxito, as mentioned before.With that, we have completed the year of the GPA consolidated share owners of BRL 790 million, a 1.4% margin. This result was approximate the impacted by BRL 150 million post-tax costs related to the business that consolidated the purchase of Éxito.Now on Slide 4, we see that the financial result was BRL 442 million in the quarter, 2.5% of net sales and BRL 1.2 billion in the year that's equivalent to 2.1% of sales. The main component of this financial result, consolidated results has to do with the expenses due to the purchase of Éxito.As to indebtedness, we are in line with what was planned, and has to do with our shares in the group of Éxito, and also the sales and interest in Via Varejo and also the cash consolidation of Éxito. As a consequence, the net debt adjusted total BRL 6.1 billion and 1.5x the adjusted EBITDA, pro forma -- adjusted pro forma. That's a good level for this scenario of low interest rates and economic uptake. We hope to maintain this leverage level by generating operational cash and also the monetization of several assets.We have maintained a high level of CapEx in the year that reached BRL 2.1 billion, which is in line with our strategy of strengthening of the portfolio. We have also seen a significant number of new store openings of Assaí, 22 stores, the banner already represents 54% of sales in Brazil, and we will be even more representative by opening new stores and by converting Hyper-Extra. We also completed the first page of the transformation of motivated by means of the renovation of 22 stores of Pao de Acucar, the opening of 10 stores of Minuto Pao de Acucar and the conversion of 77 Extra Super and Mercado Extra and 15 Compre Bem.In this first stage, will be followed by other stages for this year to build a portfolio, which is ever more adherent to the competitive scenario of the country.I end my presentation with the main indicators, I turn the call over to Belmiro to -- who will make comments about Assaí.

[Belmiro Gomes:]

Good morning, everyone. Thank you, Christophe. As has already been mentioned by Peter and Christophe, the fourth quarter was extraordinary, the best since the company started its renovation initiative. Fourth quarter has an additional number of sales of BRL 1.5 billion. This was a result of the higher traffic in the new stores. And 2.8 million clients were added for the quarter on the average per month, and it's about 1 country of the size of Uruguay and have added to our business. So 13 new stores were opened in different states. Assaí is now present in Rondonia and also in Amapa, with the opening in Macapa unit. The fourth quarter was very positive, with a record of stores being opened. And we also have internal factors that allow us allowed us even with all the difficulties faced with this challenge of opening stores. In different countries in Brazil, we had an increase of 100 bps in relation to the previous quarter from 16.1 to 17.1. This improvement is a result of the mix of stores opening and the complex in the network of stores that were opened, we did not need as happened in the previous year and additional effort for the opening and the calendar also helped us when there was a natural motivation for this increase. And we have also, as you can see that the strength of the banner. And in Rondonia, for example, was one of the best openings for the first phase. And we noticed that there is knowledge, a recognition of the banner and especially by the small businesses, when Assaí arrived with its proposition of value.In the fourth quarter, we had important gains. We had the lowest level of out of stock, and it was favored by the commercial margin and telesales had an important impact, but the overall result was very positive in terms of margin. And considering the expenses even considering all the efforts made for the opening new stores. We have not training and qualification efforts to allow us for this opening of the stores. We were very disciplined in the control of expenses. So we kind of set off all the effects caused by the expenses and expenses were very stable in relation to the previous years, amounting to 10.1% in relation to the gross sales. The fourth quarter delivers an extremely important result, as mentioned before, we reached an EBITDA of 7%, which is a record for the -- for our Assaí, we managed to deliver in the fourth quarter, the number of stores that were planned to be opened, and the results were as expected.2019 was a very positive year for Assaí, we grew by 22%, 55 -- 50% in 2 years. In 2017, we reached BRL 20 million. In 2019, we exceeded BRL 3.4 billion in sales. And after the 22 stores opened in last year, now we have a maturation of this network of stores. And even if no store were opened, the revenue would reach BRL 34 million considering the annualization of the stores that have been opened.Gross profit added to 10 bps and the market share reaches 29%. 22 stores were opened, 40 stores in 2 years. And in 2019, expenses dropped. We had a reduction in expenses, and that allowed us to capture all the improvements and deliver it in the EBITDA results, which was established 6.3% as a percentage basis, but instead of BRL 1.380 billion, we reached BRL 1.744 billion 2019. And some points that I would like to highlight are the following

[Unidentified Company Representative:]

Thank you, Belmiro. It is my pleasure to be part of this conference call and to share with you the main accomplishments of Multivarejo for '20 and our expectations for 2020. Our gross revenue last year accounted for BRL 28.7 billion, very similar to the previous year, a mild growth of 0.01%.This scenario reflected a very challenging scenario in 2019, where a lot of investments were made in competitiveness throughout the year, especially more focus on the last quarter. It's important to highlight that we had a significant reduction of SG&A expenses. There was a 1.3% reduction, in the year 0.4% -- 40 bps, that was very important in our continuous disciplined process of controlling our expenses.From the operational perspective, 2019 was a year that concentrated a lot of effort in the portfolio transformation plan for our stores. Our goal is to make our stores increasingly more efficient to the group and adapting our stores to the customer needs and market requirements, especially more regional markets that have transformed very quickly.In Multivarejo, in total, we have 880 stores, out of which 112 have been through renovation or conversion. We have made structural changes in about 15% of our units. We have renovated 112, and we also opened new -- 10 new stores in the proximity model of Pao de Acucar. Between renovations, conversions or portfolio adjustments, Extra Super is a point to highlight.We renovated 70% of the units there, they are charging to 2 new banners in the past years, but especially in 2019. 92 stores were converted from Extra Supermarket to Mercado Extra and to Compre Bem. The results were very positive, both for Mercado Extra and Compre Bem banners. So last year, we had in total 100 stores of Mercado Extra. And as Belmiro mentioned, 28 stores in the Compre Bem format.At Pao de Acucar, we renovated 20 stores along the year, using the new concept that we call Generation 7. This concept after these stores were reopened after the renovation, it was a 7% performance rate higher than the stores that were not renovated. These new stores account for 40% of the total sales of the banner, and they totaled 46 stores in the end of 2019.Also in the proximity format that is very good for our new portfolio of stores. We opened new stores in this Minuto Pao de Acucar format. Now we are resuming the opening of new stores after 4 years, during which we have reestablished our operational procedures. These format has provided a very assertive value proposition. They are showing continuous growth in sales for 7 quarters in a row with more market share and more profitability. At Extra Hiper, one of the business that was the most challenging one in 2019, I am sure that this is going to be the focus of our efforts for 2020. We have reached a significant segmentation model to be more assertive in our initiatives to resume sales and profitability. This Hiper Mercado stores are dividing 2 segments. One is the high-performing stores with EBITDA over 6% and stores that will be converted to Assaí or will be closed or sold.It's also important to highlight our digital strategy, that's Slide #12. It is strong. And we are quickly delivering our ecosystem between brick-and-mortar and digital assets.We have 240 physical stores, almost 900 units that can be a platform to accelerate the digital portfolio.Our food e-commerce is a leader in the market with a positive performance that was above 40%. It was leveraged by significant improvement of the services delivered to consumers, and especially because of the logistics model of express delivery.These models operating about 120 units all over Brazil. Our Loyalty program, which is something we often times talk about and -- is 20 million customers enrolled a significant number for the country. This is one of the largest and databases with more knowledge about consumers in the country. We're using this very rich database to perform -- to perfect the apps that are being used. They have reached over 11 million downloads.I would also like to highlight the accelerated advance of the James Delivery program that has already reached 19 cities, with a significant GMV growth of BRL 400 million and above 140%, with a 15% fall increase month after month with a significant growth in number of orders, has increased significantly since the beginning of operations. We announced 2 new things last year, and we hold high expectations for that. First one was the Sticks Loyalty program, which is a platform where you redeem and earn points that was launched at the end of last year. This is an unheard of program in the retail business, and our partner is higher drugstore in Brazil. It has already been approved by the authorities, and it's expected to be launched in the second half of the year.And when it's launched, you already have more than 15 million -- 50 million loyal customers considering both companies. The second new thing was the acquisition of Cheftime. This is a pioneering for tax start-up with food kits and meal kits. In the beginning of its operations, they have sold over 200,000 meals. That's very good figure for an operation that's going to be escalated in the next month.Now back to Slide 10, I would like to give you more details about our plans for the future, in terms of increased sales and profitability. I will divide those future plans in 2 programs. First, a very short term, things are already going on stores in the first quarter. One of the first effects that we expect for the first quarter, whether it is in sales or profitability, have to do with the renovations we had in last year. Although we suffered a little bit for the fact that we were renovating stores and opening new stores. Now we are reaping the fruit of these renovations that were conducted last year.So these stores will become more mature. And Compre Bem, Mercado, Extra and Pao de Acucar are part of that. After they were reopened, they have recovered many customers, including those that have already walked away from those formats in the past.Now they went back and they are buying those stores again gradually, but those stores are contributing to the results of the first quarter. Another concrete contribution for the first quarter is a double-digit growth in proximity format, and also the continued growth in food e-commerce. Those businesses have started their activities at an expedited pace, kept their growth level. And despite their size in terms of contribution, it's important to say when they add up, proximity and e-commerce, they account for 15% of Multivarejo.At Extra Hiper, we have a different rate of promotional plans and communication. We segment those promotional plans between regions and stores that have had an increasing level of competitiveness.Those communication, promotional plans are highly focused on seasonality. There were very strong promotional campaigns for Carnival this week. In March, we also have a nonrecurring store for Easter that we are really going to tap into, especially for the second quarter of March -- second half of March.And for private label brands we have also had a significant contribution in sales and in profitability.If we look even further in the medium term, so that will be after the second quarter of the year, there are several plans that are being prepared. So these impacts will be felt in the second half of the year. Just to simplify, I'm just going to divide between what is positive. The formats that is have had good results. So I have 4 good news in Multivarejo. We will have more of that. The first of that is in the Extra Mercado, very successful conversions, and we will complete the conversions of 49 stores of Extra Supermercados, so we'll no longer have the Extra Supermercado banner in 2020, they will all be converted to Mercado Extra. The second point is the continuity of the Generation 7 process of Pao de Acucar. In addition to converting 20 new stores that will be converted from the old Generation to Generation 7, where we'll resume the organic growth for this banner. We will announce at least 5 new stores for 2020.As for e-commerce, we expect to increase e-commerce operations in another 50 units across Brazil. We really want to saturate places where we are already present in food e-commerce. And as we mentioned at GPA Day, we want to reinforce the marketplace launch in the middle of the year. That's a very important point for food e-commerce. We have between 20 to 30 stores that we will renovate to the format Minuto Pão de Açúcar. That's a more robust and resilient and more profitable model. And we will resume growth in a faster -- at a faster pace.And finally, and as Peter mentioned and Belmiro mentioned, our main focus for 2020 is strengthen Mercado. We have a very strong plan for sales and profitability for the second quarter and involving a value proposition that will be more aggressive totally reviewed for the nonfood segment, especially focused on electronics.In parallel, we also revised our price policies that will be segmented in the Hiper stores. They will be more assertive in the local market. And another important point has to do with our operational efficiency for supply. This means a reduction of out-of-stock products on the shelf. New processes and tools will be used, including new control systems. As part of operational efficiency, we expect to reduce the levels of out of stock. They will be done especially through 2 pillars

[Christophe Hidalgo:]

Thank you. As we have mentioned in the beginning of the presentation, the most -- we have 1 month of performance of Éxito Group already included in our results. And I would like to provide some visibility on the figures with Éxito, and I would like to share our optimism related to this positive performance of Éxito and how this is going to bring about in terms of results for GPA Group.The pro forma of Éxito, I'm going to be focused on this specifically, considering the 12 months of operation had a net revenue of BRL 10.8 billion. And this is driven by the better performance that was observed in the behavior of sales in Colombia for the past 3 years. And as a consequence, an adjusted EBITDA of about BRL 1.5 billion and a high margin of 8.3% of the sales. 2019 was marked by the strengthening of the portfolio of Éxito, and which is what is also happening here by means of converting and opening stores and 22 FreshMarket and 2 assortment and the perspective that we can share for 2020.For Colombia specifically, we can see in the following slide, I believe that for this year, we are going to be able to open from 20 to 24 additional stores in Colombia. And considering opening, conversion and renovation, Colombia is Éxito's main markets, and we see major opportunities for growth in retail and additional businesses. And this is basically related to the real estate sector.Our expectations in terms of margin is to maintain the level of EBITDA, which is going to continue being solid as we captured in 2019, and we intend to allocate $110 million of CapEx for us to optimize the complex, strengthen innovation and encourage digital transformation.And with this, I wrap up presentation of the fourth quarter and for the full year of 2019, and I will start the Q&A session. Thank you.

[Operator:]

[Operator Instructions] The first question comes from Joseph Giordano, JPMorgan.

[Joseph Giordano:]

I'm going to divide it into 2 parts. The first one is related to Assaí, which I believe was the major highlight of the company. I would like to understand what the margin trend for the year as you see it. I think this 7% margin year-on-year was a major highlight, and I would like to know what you expect about this margin. And looking at Multivarejo, this is where everybody was negatively surprised. I would like to understand about the gross margin. I would like to have more details about it.You mentioned a more promotional environment. So I would like to understand how does it come about? How do you see it? Or if it's pressurized by the competition and if you see the pressure of competition? And the second point is in order to ramp up the store after the opening, for how long do you need to be so promotional to bring the results back?And now focusing on food, which we believe that this has been your focus after the divestment of Via Varejo. I would like to know what you intend to do to renovate this category. Are you considering a partnership? Would you like to renew the partnership with Via Varejo in different terms? Or are you going to focus on direct sales?

[Belmiro Gomes:]

Joseph, thank you very much for your question. This is Belmiro speaking. Via Varejo has left the company. So we are looking at the total margin. Since 2019 had a record sale, considering the number of stores, there may be some pressure on margin, but that doesn't mean that we will dilute margin. We expect that in 2020 we will have the margin maintained. In the other years, you had some acceleration when we could grow the margin and sales. Considering the expansion and considering the size of the expansion, the expectation of gains is 0.10, 0.20 points. I do not think we should expect more than that. But we also have to consider all the new inaugurations. And we have seen that the beginning of 2020, we show no signs of dilution of this growth, even considering all the numbers of stores opened. I hope I answered your question. Thank you.In relation to Multivarejo, Giordano, first, I would like to talk about the gross margin. In the first quarter, what we have been doing is to balance the mix among banners. If we're growing more in Pão de Açúcar in the Generation 7 format with the proximity format, this format has gross margins which are higher, and they help us balance the mix.Another point of the promotions, we encourage promotions not across Brazil but rather in competitive regions. We segment our promotional strategy in a more accurate manner when we choose the categories. And then the promotions will also have support behind it with the negotiations with the suppliers.As to foods, where we were negatively impacted according to results, so we started new negotiations with our private labels, also include electronics. Our mix has been favored according to the categories especially related to electronics and cell phones, whose margins are above the average. So we go back to a level of negotiation establishing independent strategies. And along the year, this will help us to renovate the stocks and inventories in company and also on focused strategies and taking advantage of all the traffic that we bring to the supermarket. We have about 9,000 tickets per day, and we are going to take advantage of all this traffic to leverage the nonfood sectors in our stores.

[Operator:]

Next question is by Guilherme Assis at Safra.

[Guilherme Assis:]

I would like to go back to the topic that have been discussed a little. But more specifically, I would like to focus on hypermarket format. We have seen competitors, especially Carrefour, saying that they adopted the strategy to reduce the gap of pricing in relation to retailer takedown, which is their format. And this press gap is below 10%. I would like to understand how you have seen this movement. And I understand that you're focusing on your strategy on regional segmentation. But I would like to understand if you have any parameter related to this to improve competitiveness of Hiper in relation to the wholesaler in terms of price differential in relation to the wholesaler? So this is one of the question.The second question is that I would like to understand a little bit more about what you mentioned in the release and you touched upon very quickly at the call related to the monetization of assets. Last year, we heard some news about the potential sale of Éxito. So I would like to know if this is your expectation, if there is any timing for you that you're planning for this to happen. And how has been the search for assets?

[Peter Estermann:]

Guilherme, thank you very much for your question. First off, it's important to understand that the competitive scenario of the wholesale is not only cash and carry. It's not only the segment of wholesaler. There has been an expressive growth associated with the growth of the number of stores. But the regional -- the regional stores have solid operations considering the regions where they operate. But it's important to mention that there has been a strong growth in the online sales, and this also affects the competitiveness.So when we talk about the future, we also consider all those dimensions. We are not going to be looking only at the reduction of gap of -- against the wholesale market because this depends on a promotional strategy that needs to be reviewed, considering all the wholesale. So it also depends on cost reduction so that we can generate a value proposition which can be healthier to the customers.This is under discussion. We still do not have a definite position or which way to take, but we have been considering important proposals that will be discussed with you in the future. It's important to mention that considering all those negotiations and movements that we are going to use our private labels whose cost and quality perception is very important. And this is going to be part of our portfolio of actions related to the wholesale.

[Guilherme Assis:]

Okay. Could I add -- you mentioned this gap in relation to the wholesaler, but this is a strategy that has been adopted by Carrefour. Like my real question is the following

[Belmiro Gomes:]

This is Belmiro from Assaí. Well, Carrefour has not done anything because it already is the difference between channels. So it's just communicated. I don't think that they did anything. But if you take the new levels of Nielsen, it's from 8% to 10%. That's the difference. There's no movement to the sand.It's almost unbelievable that you can maintain a policy like that because the audience is absolutely different when there is a movement price in the market. If you put a product and offer at a hypermarket, even if it's 30% lower, they will take just 3 products. If it is a company purchase, maybe they'll take a whole stock.So you will see that price differences in the food market from a cash-and-carry to a hypermarket is up 10%. That's the usual difference. Of course, if you consider proximity or supermarket, maybe this gap is 15% to 18%.It is true that supermarket also is a competitor of wholesalers, but it's also a competitor of other retailer formats. And it could be something that was communicated by Carrefour, but we have not seen this margin of 10%. So we are very skeptical about that. Maybe this was just a communication of something that already exists.

[Unidentified Company Representative:]

I'd just like to add, Guilherme, that in the year in the food business in hypermarket, we have not lost the market share. Our market share was focused -- lots of focus on nonfood products.

[Christophe Hidalgo:]

Good morning, Guilherme. Regarding the monetization of assets, you asked whether we are doing that, but we are constantly analyzing the opportunities to monetize assets. Some are in the short term. Others are in the medium term. Those that we believe to be realistic and that account for values about BRL 3 billion and that also encompass noncore assets especially in Brazil, so I'm talking about warehouses or plots of land. So talking about assets like this. So this portfolio of possible monetization of the real estate of some stores and that we estimate as a mature valuation that can be reached.So when we have that, if it is appropriate, then we take that into consideration. We also have shares at Cnova. We have interest in it. And considering the situation of gas stations and considering the situation of Uruguay and Argentina, we have all that under our radar. I know there was a leak of information related to the operations in Uruguay, but we are reflecting on it. But no negotiations have moved forward to the point that anything needs to be communicated to the market. This is true not only for Uruguay assets but also for other assets. I can confirm you that we are analyzing the possibilities, and there will be significant monetization of assets in the upcoming month.

[Operator:]

Gustavo Oliveira from UBS.

[Gustavo Oliveira:]

I've gotten to the call later. So I'd like to understand this Multivarejo activity. So you said that this will be done related to promotional activities especially in hypermarkets and also nonfood segments. This is what I gathered. In the first and in the second quarter of 2020, do you believe that everything that you're doing to revert sales in hypermarkets will lead to an even greater impact on the gross revenue in this first half of the year or in this year? And what could be done differently in addition to promotions or price strategies? Maybe the fact that you have lost scale in the nonfood segment with the sales of Via Varejo? And I don't know if you still have a partnership with Via Varejo in e-commerce. So I would like to understand those 2 effects on sales and on margin and what can be done in addition to just price strategies, maybe partnerships.

[Peter Estermann:]

Gustavo, thank you for your call. Of course, the promotional intensity needs to be taken to a high level, and that puts pressure on margin not only in the fourth quarter as we've had, but we want to ensure high levels of sale. And we are pursuing improvements in margin through initiatives as the one that I've mentioned in my report by reducing out-of-stock products on the shelves or reducing out-of-stock levels in animal protein, especially in the fourth quarter related to the increased prices in beef, for example, we have had significant problems of out of stock. So we'll no longer have this impact in the first quarter. These are effects that put a lot of pressure on our margins. But we are finding new ways to mitigate those problems or to revert this scenario.In terms of the nonfood segment, that had a lot of impact on Q4. The mix of products is healthier. That strengthened categories such as household articles and they have margins above 30%. This segment help us build a healthier portfolio of products for sales.We no longer have partnerships of joint operations with Via Varejo. Since the beginning of January, we have our own contracts. And as I mentioned in the previous question, we have more fluidity in sales and also in-stock levels with significant good results along the year. I hope that I answered your question.

[Gustavo Oliveira:]

Yes, it was very helpful. The gross margin that was maintained along the year was 27%, last year 28%, and there was an abrupt drop to 24% in Multivarejo for the last quarter. As far as I could understand, maybe this result was the worse than you expect improvements for the upcoming quarters, so levels will be higher than 24%. Or do you believe that there will be much pressure in the beginning of the year?

[Peter Estermann:]

No. As I mentioned, the fourth quarter, despite the effects of higher competition in the market as a general and in several categories, there are also nonrecurring effects related to animal protein, problems of out of stock specifically for animal protein, and also in the nonfood segment, in appliances. And Black Friday was also part of the fourth quarter, and that has put pressure on the margin, taking it down especially in the electronics segment.The food segment was very resilient, except for the animal protein segment. But the nonfood segment had a significant negative impact, but these are nonrecurring items that will no longer be seen in other quarters despite of the levels of promotions.

[Operator:]

Ladies and gentlemen, our next question will be asked in English from Morgan Stanley.

[Andrew Ruben:]

So two questions here, the first one on Assaí. Comps decelerated in the second half, but gross margins were an upside surprise. So I was curious how you think about the right level of pricing, the competitive backdrop and the balance of sales and gross margin.And then the second question on Multivarejo. You mentioned reduced SG&A. And I was wondering if you could go into more detail on some of the specific expense initiatives? And what gives you confidence that you can reduce expenses without seeing an impact to sales?

[Peter Estermann:]

Andrew, thank you for your question. First, one of the lines that have become effective in 2019 and then will continue to be implemented in 2020 are the reductions of SG&A expenses, of G&A specifically. We are building a plan to reduce 40 bps in 2020 that will not affect at all the level of services provided to customers. So this is one of the most important pillars of our expense reduction plan. But obviously, expense reduction is a continuing goal. And in each one of our units, we are constantly implementing benchmarking exercises, including internal benchmarkings with Assaí looking for integrated solutions, especially in lines that will not impact customer service.

[Christophe Hidalgo:]

Thank you for your call -- for your question. The balance of margin in the fourth quarter includes several components that will explain the additional 1 percentage point in the margin. There are some stores where the commercial margins were more stable than in previous years. Our sales -- the phone call sales business was no longer a focus. Since we have 5% margin difference between the price we sell to companies versus the price we sell to individual consumers, there was a positive effect in the fourth quarter. Also, the mix of out of stocks, 0.30 difference. 30% of that has to do with the reduction in the volume of out of stocks, the lowest volume of out of stocks we had at Assaí ever.And the last component of that is the opening of new stores. Our commercial department designs different strategies in different places. Many of the new stores were opened in cities where there was already an Assaí store. So it's a different strategy. So the fact that you had a lot of new openings in November or December and not in October or September, for example, this led to higher volume of sales with lower margins. But the gain was about 0.20. And if you consider all these components, it reaches 1% in the fourth quarter. And I hope to have answered to your questions.

[Operator:]

We continue with a question of Tobias with Citibank.

[Tobias Stingelin:]

I would like to talk about Multivarejo because about 1 year, we have the guidance that the margin would be about 5% in Multivarejo and the following semester was very scary. And you made lots of notification, trying to improve the margin. Since so many actions have happened with the renovation and now the changes -- and we also have a very competitive scenario. And now that you were more encouraged with the maturation of those stores, would there be more converted stores, Hiper, Extra Hiper being converted? You have the positive impacts, but there are many effects that have been felt in 2019.So I would like to understand how we are going to go about so that we have an idea of what to expect in the next 12 months. I know you prepared the guidance, and this has been mentioned in the release, but there are also some negative impacts affecting you. So how can we see the result? What result can we possibly expect?

[Jorge Faiçal:]

Tobias, this is Faiçal. Thank you very much for your question. Of course, we are working for the continuous improvement of the EBITDA of 2019. Of course, 2019 was not favorable to us. We are not going to provide a very concrete guidance. Of course, we are going to focus on a number which is higher than what we were able to deliver in 2019.As I said in the beginning, we can divide roughly Multivarejo into what is doing well, what's not going well. The world is not going well when the Extra format we had also made a division. Those stores whose results are very negative and where we do not see any possibility of recovery, we are going to get rid of them, either converting them into Assaí, where we can optimize the assets and the sale multiplier has shown to be quite significant. Or when there is no possibility to convert into Assaí and if there's no Assaí ready to be converted, we are going to sell our closed operation, and then we no longer would have a negative contribution to EBITDA. This is a very important point.Considering the businesses that are performing well, I can mention Pão de Açúcar. Pão de Açúcar accounts -- 40% of Pão de Açúcar is already in the new generation format and all the 40 -- 20 stores that are going to be converted this year. And this would account for about 60%. However, there is 40% of stores that need some sort of renovation. So there is another plan for those stores which have not adopted this new model. And we have a plan with promotions, or we are also looking at renovating the assortment. In other words, we are focusing on the basics. As I said, we are using a precision strategy, and we are looking at all the areas so that we can improve our EBITDA for 2020 as a whole. I hope I was able to answer your question. Thank you.

[Tobias Stingelin:]

I understand this. When you look at the results, we have the impression that the margin and the sales of Pão de Açúcar banner is in the process of reformulation. So we have the positive impact coming from the renovations. There's the maturation that will come. And this is something that you will capture. But still, there is a number of other stores that need to be reformed. As you said, there are 20 stores planned to be reformed.My question is the following

[Jorge Faiçal:]

I don't know if I was clear, so I'm going to try to answer your question. I'm going to divide it into 2 parts. First, the number of renovations or conversions that we carried out in 2019 was a very high number. We involved more than 110 units. And we are now talking about the conversion of Pão de Açúcar of 20 units and 20 units of hipermercado. So the number is much less. So the impact that we saw in 2019 will not be reflected at the same intensity in 2020.On the other hand, Pão de Açúcar, especially when we talk about the generation for conversions, they had an impact in the fourth quarter which was associated to the renovations and also the effort that you make in the re-inauguration of the store. Even considering this marginal impact in the drop of results, there is a gradual margin expected to grow. And these renovated stores will provide us a better performance for our business.

[Operator:]

The Q&A session has been completed. I would like to turn the conference over to the company management for the final remarks.

[Peter Estermann:]

I would like to thank you all for attending this conference call. We have been focusing our efforts on operational improvement on the execution of our strategy. And as Belmiro and Faiçal also said, all the strategic guidelines, all the fronts adopted last year have evolved in a significant level. We are going to start to have better results from the execution of the strategies in 2020.And considering this positive perspective of better macro environment which is founded by the better employment levels, and as a consequence, the consuming market, together with all the initiatives that we have adopted, I would like to reiterate our commitment to evolve continuously and providing a better experience to our customers and delivery the results expected for this year. Have a good day, and thank you all.

[Operator:]

GPA conference call has come to an end. The IR Department of the group will be available to take any other questions you might have. We would like to thank you for your participation, and have a good day.