Companhia Brasileira de Distribuição
Q4 2014 Earnings Call Transcript

Published: 17 Feb 2015

[Operator:]

Good morning and thank you for waiting. Welcome to GPA's conference call to discuss the results of the fourth quarter and the full year of 2014. This event is being broadcast via webcast, and it can be accessed at www.gpari.com.br where you will find the respective presentations. The slide selection will be managed by you. There will be a replay facility for this call soon after the call is closed, we would like to inform you that the press release about the company's results is also available at the IR website of the company. The event is being recorded. All participants will be in listen only mode during the company's presentation. Afterwards there will be a Q&A session when further instructions will be given. [Operator Instructions] Before proceeding, I would like to mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of GA's management and information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA, and lead to results that differ materially from those expressed in such forward-looking statements. Now we would like to turn the floor over to Mrs. Daniela Sabbag, Investor Relations Officers.

[Daniela Sabbag:]

Good morning everyone. Thank you very much for participating in our call about the fourth quarter and year 2014 results. I would like to introduce the other officers of the company who are present here Ronaldo Iabrudi, CEO of GPA; Christophe Hidalgo, CFO; Libano Barroso

[Ronaldo Iabrudi:]

Good morning everyone. Really when Daniela starts to mention names we see that we have so many companies with so many different formats going to [indiscernible], Casas Bahia, Pontofrio and the more of that helps in making the company more profitable in the business of Israel and also the Peru with a strong growth of Assaí together with Cnova which was something that we launched last year and of which we're really proud, so thank you very much to all of you. I would like to make a short introduction in order to highlight the points that I consider as the most important list regarding the results for 2014 and as Danny said I will give the floor to each one of our officers to say a few words about their specific business as we expected 2014 was rather complex as we expected and when we drafted our strategic planning our budget we prepared ourselves for this and we prepared each one of our businesses with a very clear definition regarding the strategy and action plan and with specific targets to be attained for each one of our formats in order to be able to cope with the year. And I believe that all the leaders that we have around this table today we assured or they assured the execution of the plans and because of this joint work we were able to deliver the results that you have already seen and that we will be talking about during this conference call. When I talk about results just to mention a few points that are important in our view and are true how we have evolved in our profitability, we have posted growth that was very important for a year such as '14 an EBITDA of 19 something percent, almost 20%. And another fundamental indicator for the company net income and we had here a growth higher than 20% as well. And another fundamental point mainly in the situation such as the one that we're living today in Brazil, it is fundamental for the company to have the cash that we have and we closed the year with net cash more than 2 times or 2.4 times higher than the one that we had in 2013, at the end of 2013. As this ongoing search for profitability that we have delivered in 2013, it goes on and we also worked very strongly along these lines, that is to say to seek to do better with the same amount of money and do it better and we can see this reflected in the organic growth of the company. This was a year in which we had the highest growth in the company ever with a construction of an additional 212 stores divided among all our businesses. All our businesses have expanded during 2014 no exception. And I think these remarks are important as a backlog because in our view this further reinforces the leadership of the company and the group and the commitment that we have all made in terms of growing in all our different formats and banners and the different regions so as to expand the footprint of the Pontofrio group all over Brazil. Besides profitability we are very much focused and you will be able to hear about this from each one of the businesses our commercial area or sale and we have posted important growth and important evolution in all our businesses vis-à-vis the commercial area mainly the mall areas. And the only business where we faced a bigger challenge was in the hypermarket segment and I would like to highlight and we would be getting into detail. I would like to say that we have a detailed plan for the hypermarket business and that was implemented over the last half year in the hypermarket that we have in Sao Paolo and we'll lead to the regions and were implemented it fully we already see a positive trend measuring by the indicators that we track. And I believe that one of the most important points and that is present in all of our businesses is our management process, I think that the company has been evolving consistently in the discipline of following your targets in the execution of our action plans in the drafting of adjustments because our business is very dynamic and very often you build a plan and next month you have to fine tune it, but what we see is that this team has been working in a way that is very much connected to the market reality and tracking the implementation of these plans and we roll out the brands at all levels of the organization. And the method of drafting a budget and tracking our targets and doing the follow up of the plan at all the levels of the organization has everything, has allowed us to reach 2014 the results that you have already seen and that we will be talking about during this call. So just as an introduction for each one of the officers that we have here, COOs and other officers, I would like to give the floor to Christophe and afterwards each one of the business owners will be talking about their specific business. So Christophe you have the floor.

[Christophe Hidalgo:]

Thank you good morning everyone. Let's start the presentation with the main financial indications of profitability for 2014 for the consolidated group. Slide number 1; you can see that net sales in the quarter reached 19.7 billion, a 16.2% evolution on a year-over-year basis for the full year, sales exceeded 65.5 billion also with strong growth of 13.3% and the solution is explained for the year by the strong organic growth and we open 212 new stores, which means a very strong acceleration in our expansion pace vis-à-vis what was done in the previous years and this growth is also explained by a good performance of the sales of the quarter and the like-for-like sales of the group evolved as a same pace as inflation that is to say close to 6% and the effect of the first consolidation and a profitability measured by the adjusted EBITDA also shows the excellent behavior. The EBITDA for the quarter was 21.7% and at the level of 20% for the year as a whole closing the year with close to R$5.4 billion and a margin of 8.2% of sales. And this margin means an evolution of 40 basis point year-on-year and when we consider that the mix effect has been hitting in a way this growth or impacting this growth to a certain extent unfavorably. So this strong improvement in profitability it's important to say that it translates the strength of our model of our business portfolio which is multi-format and that reaches a higher balance consistently and this is translated in each one of the business lines, the gains of efficiency are significant our businesses adjusted net income reached 919 million at the revolution of 21% in the quarter in line with the annual growth. The annual growth was 20%. Adjusted net income exceeded 2 billion, it was R$2.84 billion to be more precise. The good performance of the company now going to next slide has been translated into a strong cash generation and this cash generation for the full year reached R$2.5 billion and this in spite of having maintained an exceptional high level of CapEx we invested this year almost 3% of our sales 1.6 and the financial results reached -- well it was aligned with our expectations at the beginning of the year 2.3% of our income. And it's important to say that in this environment of high silicon rate and as our debt is very much pegged to the silica rate with a strong deleveraging we have been able to contain the effects that are brought about mechanically by the silica rate. And now going to the next slide, we understand the form of the main factors for the deleveraging of the company. The gap between suppliers and inventory that has been improving for over 19 days for the full year and this represented liberation of cash that was superior to R$2.8 billion. And this is important to say that in different proportion but all the businesses, they have brought about a significant contribution to this improved efficiency of working capital in Assai opening new stores and of course this has an impact on working capital and Assai in this context of a strong opening of stores was able to improve its cash cycle in a significant fashion. As I said before on the following slide 2014 was a year of acceleration of organic growth. We opened 212 new stores in the full year, 117 were opened in the last quarter and I would like to highlight in the food area, seven Pão de Açúcar stores this is very significant. And offering the opportunity of new openings of this premium segment. 31 million we had extra according to our strategy of saturation of urban centers especially some Pão de Açúcar, Assai almost half of the opening in the last quarter. And nonfood Via Varejo we opened 16 new stores in the last quarter of the 88 opened in the year. And we closed the year with little bit more than two -- that is harder failed unit scattered throughout the country. And now I would like to give the floor to Robert to say a few words about the evolution of our Malls. And I would like to say the contribution of Malls becomes more and relevant 2014 was a year of very good contribution by the Malls. And this further reinforces the balance of our business portfolio which is most important format. So Roberto could you talk about our GLA?

[Roberto Oliveira:]

Good morning thank you very much for participating in the call and for having me. Once again good morning it's pleasure to be here talking about Malls. We close the year with a growth of GLA of 37,000 square meters and this generated 320,000 square meter, generating the over 20 new undertaking ventures. And with the comparable GLA we consider this as being quite aggressive very good and we will be continuing to work on in the direction the focus for the next few years are the remodeling not only in the existing Malls improvement in the level of service and the objective will be to generate more activities for the stores into group and reach better results for the company from rent revenues and new revenues coming from GLA. And we will be contributing to a higher profitability of the company assets and I think it may excels this way in the world for the company and once again I thank you for having me and I would like to give the floor to Christophe back.

[Christophe Hidalgo:]

Thank you Roberto. Giving the floor to Multivarejo and Assai I would like to say a few words about the performance of the nonfood 9.8 million plus 5% in growth 34.7 billion for the year and 9.2% growth. Adjusted EBITDA closing the year at 8.1% of sales, a high level for this kind of activity and we have been able to evolve our EBITDA by 9% for the full year. Adjusted net income 511 million relatively stable vis-à-vis the previous year with 5.2% of adjusted net margin and for the full year exceeding 1 billion that is to say R$1.1 billion, driven by 7.2% in the adjusted net income and the adjusted net margin exceeding 3% to be more précised reaching 3.2% for the full year. Now I'd like to give the full review for the Pão de Açúcar, sales performance had growth higher than inflation and a participation of this banner in self-service according to news grew and with a constant a growth for many consecutive months and the strategy of competitiveness of well executed activities, the expansion this year -- the organic expansion with comparisons 151 new stores and customized over 60% and especially the retraining of well store managers with the improvement in the quality of service and training over 14,000 employees under this banner, some services have been expanded, reinforced 13 stores to a 125 and the number of employees in the most important stores. Also the range of differentiated imported products was extended and growth higher than inflation with an important growth in the number of clients and the improvement in the level of service with the expansion of assortment for 2015. The banner will continue to focus on the levels of competitiveness, service levels more differentiated products, organic expansion and the increase in the delivery operation, these were the main points of the Pão de Açúcar banner and I'd like to give the floor to Libano.

[Libano Barroso:]

Good morning everyone. This is a challenging scenario for all areas since the second half of last year and the food business benefit from the difference in the consumer behavior. We also have to compete with specialty stores and non-food and the strong basis for comparison for the second half of 2014. Our performance is slightly better, vis-à-vis Q3 or Q3 the non-food that was impacted by a strong action of both food and non-food like a rendezvous of brand for assets. It was a stronger communication strategy and higher recovery in the food area and initiative that we started in the beginning of the second half of 2014. Our recovery plan for our dynamics considers many initiatives that were carried out at the end of last year and the first one is to keep our competitiveness and this is part of the strategy of the Hyper Extra format to be competitive in all areas every single day. And we have to ensure this competitiveness store-by-store, category-by-category and the prices are not discussed the extra format and we have to ensure our competitiveness every single day we have exclusive brands that participate in this economic divide so to say such as [Calita]. And it is important for us to have this new communication dynamics with a new commercial communication that we started last year and this is fundamental for the high growth format attracting clients by means of this multiple offerings communications and very strong TV presence every single week. And also the distribution of orders and territories and then the modernization of our stores with the redefinition of commercial concept of service with a redefinition of the circuit or the loop between us and the clients and the need for not wasting any time and to have basic product and stable demand, affordable prices and perishable products with good quality. Also we saw strong performance in our services such as the Click & Collect concept and by this Click & Collect system the clients can come to the store and pick up their product the products they have acquired and we have the Club Extra as well it's a loyalty program that we are establishing and financing solution by means of Extra cards. So we see very strong recovery in our sale dynamics growth regarding our client and volume. Now I would like to give the floor to [Renato].

[Unidentified Company Representative:]

Thank you, [indiscernible], good morning. I would like to talk about the neighborhood stores and this continues to grow consistently and importantly like-for-like higher than the market and higher than inflation. In this last quarter we opened 31 minimarket stores and 11 Minuto Pao de Acucar, that is to say 42 stores in the quarter and a 100 in 2014. The model has been going through adaptations in the Sao Paulo market trying to meet the needs of these clients in terms of practicality, assortment, promotions, always delivering a good option for a more frequent buying habit in the week, the results are higher than the market integrating the interior Sao Paulo more consistently in the second half of 2014 and the rate is of a 150 kilometer we reached Catucaba and we furthered increased opening in the sea side of Sao Paulo and divide to Paraiba, by 2015 we will be opening stores [Socia Des Discompos] Cacapava, [Dulvadir], Jacaraipe will be starting in 2015. Pão de Açúcar the more premium format of neighborhood closed the Minuto with 15 stores that we started in Q4 continued in Catucaba. Since the first store it was very well adapted to the A&B buyers. And in the last quarter we opened stores in more noble regions of Sao Paulo such as Jardim, Jardim Paulista, [indiscernible]. So very well adapted to these regions, very convenient and we are having a very good saturation in these regions 2015, we will continue to identify the format in the Sao Paulo region and by the end of first half we will be starting operations in the Northeast -- we believe in this region there is a market there -- a growing market and in the cities with higher demographics and higher purchasing power, so these are the concepts of the neighborhood stores and now [indiscernible] with Assai.

[Unidentified Company Representative:]

Thank you, [Henna] good morning. Q4 as we said Assai keeping a strong growth pace based on the same-store performance and due to the fact of the expansion of Assai in Q4 we grew our gross revenue, gross income better than the previous year and the quarter highlight for reductions dropping this quarter at 10.2. Assai as you saw in our results suffered the effect of the [fifth Abasico] or the basic product growing 37% this means an improvement of 0.5 percentage point and EBITDA level of frequent quarters. In Q4 we opened four new units a format that has a bigger selling area and we have been trying to extend footprint of our size of these four stores, four unit in four different states, Ceara, Sao Paolo, Bahia and Pernambuco which added over 18,000 square meters of selling area. The result of 2014 continued to be strong as Assai closed with 32.7% increasing gross revenue and the gross income at the same level of last year improving expenses, in spite of the expansion plan and net of the effect of the basic basket 10.38% and the adjusted EBITDA growing by 37% in the year higher than -- net of inflation about R$1 billion growth with the average ticket meaning 14 million in new operations the result of 2014 vis-à-vis 2013 and we reached 2014 at 2-3 state and the opening adding over 50,000 new selling areas. All areas in the new format just to give you an idea with this increase we closed the year with an average sales per store higher than R$110 million. So in the last four years 87% on average 57 million four years ago and today more than 110 million, the 32% in 2014 are in line with the growth in the last five years of Assai in the last five years is exactly 32%. And this performance in 2014 we believe we have increased a major participation in the wholesale market and we have been improving our position in the ranking of the main wholesalers and the outlook for 2015. We will continue a strong expansion of organic growth with five new units in the new format under construction and we believe that the search for economic conditions will continue to be very strong in the Brazilian market. And so now I would like to give the floor Ms [indiscernible].

[Unidentified Company Representative:]

Good morning, the operation in Q4 2014 and the full year of 2014 we saw an important expansion a record opening of 88 new stores in 2014, 60 stores in Q4. We reached an adjusted EBITDA margin of 10.4% for the year 12.7 in Q4 which represented for the year a growth of 31.7%. Adjusted net income reached 995 million with a 39.9% growth and we generated cash amounting to 914 million which allowed us to have a cash position of 4.4 billion at the end of this period. We would like to highlight the search for efficiency and expansion for 2015 our focus will be more and more to capture or tap into operating efficiencies seeking unit cost reductions and leveraging our competitive advantages on a superior scale our execution capacity, our operating efficiency the strength of the Pontofrio and Casas Bahia brand, a sound cash position. And taping into opportunities and increasing our competiveness for this we have created a project which is called [indiscernible] or Grow More and highlighting the main points of this project we want to tap into the growth potential of Pontofrio, for instance Casas Bahia grew by 6% in sales in the year and Pontofrio minus 2.4, but as guided margin positive and we have many initiatives here and we have to look for all of opportunities of improvement assortment layout of stores and working on a concept of premium Pontofrio in order to test the new positioning, keeping most of the stores catering to A minus, B and C classes. The category that will have a focus will be more than 10 stores in Q4 this we will study the roll out, as for furniture and we will accelerate our strategic expansion mainly in the northeast Midwest and north. And then 2014, 43% of the stores were also already opened in these regions. And in order to maximize the synergy with the group implementing a multi-channel initiative. We already have a pilot in four stores testing the quick and correct together with Cnova. And by the way I give the floor to [indiscernible] to talk about Cnova.

[Unidentified Company Representative:]

I would like to talk about the results of Cnova for the fourth quarter and 2014. It was the best quarter in sales and cash generation Q4 '14. GMV the sales that go through our website in Q4 or GMV was R$2.2 billion 36.6% increase on year on year basis. For the year we had R$6.87 billion in sales 43.5% higher than the GMV of 2013 with a market share of 19.2% according to public data. Talking about our net sales in Q4 we reached 1.8 billion with a 28.6% increase on a year-on-year basis, 37% increase year in Q4 12.4% market based share in Extra and Smartphones, Tablets share for Cnova Brazil representing 10.5%. We also launched the Cdiscount.com.br in October in our marketplace at Pontofrio and Casas Bahia website and a very good result strong performance in Black Friday and Christmas sales. And also excellence level of service in these two operations we reinforce our multi-channel operations last year. We reached 100 stores operating Click and Collect in 2014 and we have over 1000 opportunities to tap into this small bill back we will bringing to Brazil. And talking about the group and synergies this was a very important year in which we tapped synergy into synergies at Via Varejo logistics, GPA via Varejo. And lastly we had a very important cash generation for the period keeping our history or track history of strong cash generation, strong growth, gain of share, cash generation are our objective for 2015. Thank you. Now we would like to open for questions.

[Operator:]

We would like to open for questions from the Audience. Could you please ask all your question all at once and waiting for the company to answer all your questions at once. [Operator Instructions] Mr. Gustavo Piras Oliveira from UBS would like to ask a question.

[Gustavo Piras Oliveira:]

Good morning, everyone. This is just one question to Ronaldo. Ronaldo, could you give us an update of the initiatives that you are implementing mainly in hypermarkets in order to improve same-store sales? Could you give us some color about the evolution of these efforts? Are you focusing on the stores or do you expect growth resuming in the first or the second quarter

[Ronaldo Iabrudi:]

Each one of the banners has a focus more on the client and because of that we are doing quite a lot of work on competitiveness. We have a range of products that are basic products and that are stable in fact and they are very competitive and we have a wider array. And the first one I refer to compete with cash and carry and second one compete with in all the regions that we are -- many commercial actions, media actions over the week and many programs inside the stores in terms of store activation, compromise and the [Puma Verde] or the [Green Lun] and the traveler program. There are many different program and many different measures that have been taken in this last quarter. And the second quarter -- second half of 2014, and we are moving out starting with view where we have an important number of stores we will be doing this into Northeast and the Midwest too. We do have a very clear of what should be done and what is being done and the type of Luiz said we are starting an important plan to remodel the main stores of Hyper and Pao and that we will be doing this very speedily over 2015. So to be more clear we see a positive trend in the slower client into the stores where we have already carried out this initiative and the same trend is not seen yet in the other regions where we have not adopted the stores yet and with the program of remodeling stores we understand that the first and the second quarters of 2015, we will be achieving our plan.

[Gustavo Piras Oliveira:]

In this renovation plan, how many stores will be remodeled? And in some of these stores, will you have to close them for a longer time in order to remodel them, mainly the big stores? Do we intend to have some partnership with some furniture developer, for instance? And what about your CapEx plan? What is the investment that you will be making in these remodeling?

[Unidentified Company Representative:]

Well, this has to do with concept; it's not just a physical investment. There is a major part, as Lujan said, that has to do with assortment, with the circuit in the store, merchandise. This is being built. And we know about our capacity of doing these things very quickly mainly in a moment in our economy like the one that we are living today, so this is an advantage that we have. We are defining this and as soon as we have this definition, we will be communicating and we will be telling about the project. I don't have anything to tell you right now neither regarding the number of stores nor the amount to be invested. We are still working on that. Thank you very much.

[Operator:]

Mr. [indiscernible] from Goldman Sachs would like to ask a question.

[Bernardo Cavalcanti:]

This is Bernardo Cavalcanti from Goldman Sachs. A question to everybody regarding Multivarejo. We see a very strong trend in gross margin changing the direction of this trend and a strong expansion. In the second half of last year, what is your expectation for gross margin gains? Is this going to go back to the previous trend for the first quarter of 201? And for the full-year, do you have a projection for that?

[Unidentified Company Representative:]

In fact, our gross margin increased surprisingly because of the competitiveness that we have. Our competitiveness policy, this doesn't mean that it has been changed. It is quietly opposite because our competitiveness policy in the universe of Multivarejo has been reinforced consistently and will be maintained. So how can we explain this behavior of margin in the last quarter? Basically, because of many different elements. The first one, the category mix and the banner mix that are favorable to the margin in the Multivarejo format, the category that bring about more margin are the ones that grew the most and the banners that bring the best margins are the ones that grew the most as well. The gross margin, it has to do with the mix effect. The reinforcement and better negotiation as well in the last period of the year, I reiterate that it does not change at all our competitiveness policy. And what is the outlook for the next period? I believe that the gross margin with which we ended the full-year and in Q4 and the full-year of 2014, net of the mix effect represents our expectation for margins for the future periods or in other words, the maintenance of the gross margin for the next period

[Unidentified Analyst:]

I'll just ask another question about other formats now. When it comes to a possible water savings rationing, particularly where you have more selling area exposure and any possible savings of a rationing of power, what is the impact on your operations maybe due to cooling capacity or water to clean the stores? What is the expectation should we have energy or power rationing this year

[Unidentified Company Representative:]

Peter is our VP for Infrastructure. And since last year he's been leading what we call in-house as a crisis committee, so he'll give us some background of what we're doing and also the outlook for the future.

[Unidentified Company Representative:]

Thank you for your question. We have been coordinating a multi-disciplinary team and it involves all our business units and we have some important strategies, one is at a company level involving all the actions with the rational use and also incentive for the economy and for savings of water and also power, we have been working on these initiatives since the beginning of the second half of last year with very significant results. We also have very close power work with other agencies and bodies that track the circumstance related to water and power in most affected areas and I am referring specifically to Sao Paulo. And we have a base to work on our in-house plants and then we also have significant focus on infrastructure in this case basically for water use. Our main stores partially in locations that maybe affected or directly affected and in the first phase due to water shortage I think you have been watching that closely, right. So we do have actions for artesian wells, we already are reactivating these existing wells and we have a very consistent plan to have these artesian wells available for the major stores particularly in higher risk areas in the greater Sao Paulo. Two about water, we are having intense actions in reservoirs in order to have more rational use of water and have a more significant stock of water to be reused. As to power in addition to internal campaigns we have already started last year a strong program on energy efficiency. We have pilot studies that are very significant results that are proven by evidence and we have a speedy roll out for this year with significant impact for the second half of 2015. And we’ll also have generators in the major stores, we have many stores where we already have generators installed. And we just make sure that they will be up and running when they are needed and we are also considering the installation of more generators in stores and buildings directing to the company.

[Operator:]

Andrea Teixeira from JPMorgan has a question.

[Andrea Teixeira:]

I have two questions actually and they are about CapEx. We expect to see total CapEx -- when you think about CapEx reduction per square meter and also along the same lines I have another question about the timing for store remodeling and the new visual display of hypermarkets. Should we expect to see this move already having an impact in future months or quarters? And along the same lines, there was a move to improve working capital. Will this improved working capital help us or help the Company to have even better results now? If we consider tighter finance with higher interest rates, so I want to know about CapEx, the timing of hypermarket modeling and also have a better understanding of financial expenses or interest expenses over the year. Thank you

[Unidentified Company Representative:]

I will be answering two questions and then [indiscernible] is going to ask a question about remodeling. About CapEx, you are right, we had committed ourselves to being more CapEx efficient per square meter and this turned out to be something concrete over 2014. And we closed the year with an average reduction close to 9%; this reduction is very different from one business or one format to another. So with businesses that already had a good level of efficiencies and therefore the level of CapEx per square meter was maintained like in Assai for instance and we also have other formats in which we managed to be more efficient lowering almost 20% the level of investment per square meter. So this move to improve and to have better CapEx efficiency per square meter. Despite faster organic growth this has allowed us to limit our amount of CapEx and this reduction move obviously is not so prominent in our areas but we still have room to improve the CapEx level per square meter. Now Andrea your question about improved working capital. We can see the effect of first consolidation of Cdiscount; it is not a big effect we can see that working capital has significantly improved over the year. Basically with a well-balanced effort to lower inventory levels and also to improve payment terms to suppliers. This action will obviously continue at a lower magnitude, please bear in mind that we moved from two years in which we had improved cash flow in terms of working capital at approximately 30 days. There is always room for growth naturally and this growth brings a mechanic-reduction in our working capital. But we believe we're already getting to a positive cycle -- a virtual cycle. In other words, our growth unleashes cash due to our working capital structure. And we can confirm that we'll keep on making out best effort in the sense but certainly the magnitude will be lower compared to what we had in 2014 and 2013.

[Andrea Teixeira:]

What about this total CapEx for 2015?

[Unidentified Company Representative:]

The idea is to maintain a level of CapEx similar to what would be investing so far. As regard to answer one of your questions, the question about interest rates stemming from the finance area. Naturally, Andrea we all know that solid rate is going up from 34% in year 2014 vis-à-vis year 2013. And despite such increase and thanks to our efficient management and allocation of funds we did manage to control our financial results by 26%, so we do have an advantage vis-à-vis the rates in the market, the advantage is 8%. And there is another point that explains the occurrence performance, good performance of the P&L. In year 2014 or 2013 we benefited from a positive restatement affect approximately R$25 million that was captured in 2014. And considering all that you can have a better idea of our efficient management of our P&L.

[Unidentified Analyst:]

And with another question about the remodeling, well did you already answer the question?

[Unidentified Company Representative:]

As we said before we are working on the remodeling plan and the framework for 2015, and to follow the sequence but what we can tell you right now is that we’re going to have two stages, the first step we have hypermarket with different positioning, we also have a group of hypermarkets that we can consider more low income and the other is more premium. In stage one, we have to work on commercial concepts by each one of the clusters hypermarkets for instance, that's something that we have already started working on and we expect to conclude by the end of the first quarter 2015. And that's a stop to measured implementation of all these concepts and in stage two as a sequence we're going to have a roll out for the second half of the year. So this sequence has to do with clustering in the first half of our commercial concepts and then a roll out expected to happen in mid-2015.

[Unidentified Company Representative:]

Just adding to the comments, we will take keen attention to our pilot study, but we expect to see the first results of the remodeling project over 2015. It's too early to give you any deadlines because we're still building and working on the planning, but we will reap the results in the second half of 2015.

[Unidentified Company Representative:]

Tobias Stingelin from Credit Suisse has a question.

[Tobias Stingelin:]

Good morning, everyone. I have three questions actually. I want to know if you consistently measure the quality of the services you provide. Do you have surveys in the stores Pao de Acucar and other banners that consistently check the quality of service?

[Unidentified Company Representative:]

We have a bias because we talk to a small universe of people, but we've been listening to complaints like lack of products or many things about private labels. I don't know to what extent Brazilians are used to private brands. Sometimes they find Casanova, but it's not necessarily what they want. So do you consider measuring consumer idea and to be very honest I still don't understand because over 2013 you were focusing on competiveness and we can clearly see a double digit growth by growth going down expenses going down and very solid regard results when it comes to EBITDA margin. And after one year it's still to be different, it's a different reality sales grew very little; gross margin went up quite a lot. I do know they're many aspects. But expenses are also going up maybe due to labor cost and I don’t know if they have to hire people again because you were too aggressive. Over 2015 cutting down on personal, so that’s clear focus on competiveness but whether number show over 12 months in the second half of 2014 after that point '15.

[Tobias Stingelin:]

So why did it change hypermarket it was a business that was having tough time. So how come it was so much, what happened? Quarter on quarter is there any driver is the competition so much better. Thank you.

[Unidentified Company Representative:]

Thank you for your question [indiscernible] speaking. We do measure the qualities of our services. We have two systems basically all the context we have customers’ homes and we also have data over the web and also special methods. We follow it up, we follow lines product quality, service and we always try to improve the level of service, lines for instant were a strong product early last year. As to stock out we had a problem earlier in the year but it was lower compared to the previous year, when you had a problem of strong temperatures. But we've been following it up carefully and stock out control was broken down by store and banner. Unfortunately sometimes shrinkage and stock out can be problems. But this also related to the market and demand for volume. As to the private label issue Pão de Açúcar we have been following up our private brand products. But our portfolio has multiple products like we said before Casinova for instance is a brand that has an amazing performance highly acclaimed by our customers and we don’t have a problem and we also offer chocolate other products, so we don’t have it and hyper. But it does happen in our measurements and our actions and our alternate over to Christophe to talk about competiveness.

[Christophe Hidalgo:]

I can talk about it; just to underscore something that we always say which for us is a condition to be in business. We don’t change our competitiveness policy. We have our warm resources to follow up our performance through a bit of competition, and we compare ourselves and we have third parties that do some survey and that is new about the results. So that’s a basic requirement for the business, we'll be strongly engaged and assure our competitive edge. Which doesn’t mean we always have the lower price in that store or stores or neighboring stores, competitive stores for a couple of products for instance that are basic products or stable food then we can offer the best price. So nothing has changed we stick to our own direction but when it comes to margin you mention an increasing gross margin that’s a reality or have different mix, different growth rates particularly in the last quarter. And we also have a growth plan for 2015 and it also moves in the same direction, so this is important information it almost a mechanical process. And it depends from the company's mix for growth. As to expenses there also slightly related to this. Last quarter our sales growth was much higher compared to the last nine months we mentioned this already and by the way it applies to old banners, Assai and also applies quite to Minimercado and to Pao. This is where we had very good growth last quarter and eventually your expense volume is slightly higher. And the last point you mentioned about competitiveness our position the groups position is that if you don’t follow your competitors and if you are aware of competitiveness chances are you will not survive in the long run. So for us we follow our competitors in Rio, São Paulo, in the Northeast, Midwest and several competitors. We have competitors for Via Varejo, Nova, foods competitors at Assai. So we do track our competitors and in the long run we by the way we should never focus on one or two quarters alone we are pretty much focus on our strategy for competitiveness in order to make sure our formats provide good levels of service and quality and we don't focus on one or two quarters of all like I said we're pretty much convinced that our plan for the future will ensure the growth we have already achieved and also continue our growth in the future.

[Tobias Stingelin:]

Thank you, Ronaldo. Just a follow-up question, if we were focusing on the third quarter, well, Extra was no concern for anyone even though historically hypermarket already is seen as the difficult business. You mentioned you're being attacked by several fronts. It didn't seem to be an issue, but then overnight it apparently became an issue. So what has changed? Can you pinpoint anything? It seems to me the bigger the business and the trend change dramatically, I know it sounds weird but what is poor already and other banners were somehow hiding it and then we never realized that and then in the third or fourth quarter it started to come up? What grabs my attention is how fast it happened and now it's a big issue? Thank you again and I’m sorry for the follow up question.

[Unidentified Company Representative:]

I think we are seeing things from different sides of the wall. That's not what I see, quite the opposite. What I can see is that Hyper and Pao, the best indicator we have is customer traffic. Hyper and Pao had some losses in terms of customer traffic until mid-year. And starting August, considering my numbers on a daily basis per store there is a trend to recover. Whenever we have an action plan implemented, I have already reduced by two-thirds the loss we had from August up to now. January, for instance, has a good trend. And we are rolling out what happened in Sao Paulo and in Rio, there's our 24 hypermarkets. In the northeast, there are 19, and in Midwest 24. I see a different picture compared to you and very confident in our actions. And I think we can have balanced customer traffic with no losses. So I think we should talk more so we can have a better understanding in more detail of our operations.

[Tobias Stingelin:]

That's all I want I really aspired to have this improvement I'm just focusing on consolidated numbers and that's why we try to have a wide guess about different business, but it's perfect if you improve and that's all we want, thank you again.

[Unidentified Company Representative:]

Tobias you are focusing in one side and we're focusing on sales and customer traffic but that's not all we should focus on, we've to check profitability, cash generation, EBITDA, investment, level of customer satisfaction. So one thing has to be clear we're analyzing several drivers at a company.

[Tobias Stingelin:]

Perfect, thank you again for your explanation.

[Operator:]

Richard Cathcart from HSBC has a question.

[Richard Cathcart:]

Good afternoon. I would just like to go back to the question about gross margin. Could you break down the numbers about gross margin? How much from suppliers, mix, furniture? And second question coming back to the question about customer flow, could you give us some color about the loss in customer traffic last year? Thank you.

[Unidentified Company Representative:]

Thank you, Richard. Answering your question about margin, in addition to being a little bit complex we don't have a breakdown by banner or by region. Breaking down malls is not something we would like to do in terms of gross margin and Multivarejo we move from 27.8 to 28.6. And malls take it quite significant, very significant but not only that, Pão de Açúcar is also very significant. I would like to emphasize that we had over 8% growth in Pão de Açúcar like-for-like please be reminded that Pão de Açúcar gross income is way above the average in Multivarejo and there was an additive impact on gross income and the contribution or the stake of the margin in terms of higher margin, this is quite remarkable significant. But as I answered to Andrea Teixeira, the performance of the margin is explained by the mix of banners, category mix within different banners and I confirm without giving you the numbers that actually malls contribution is significant, but it doesn't fully explain the increase in margins. As to the drop in customer traffic I will turn it over to [indiscernible] to talk about hypermarkets.

[Unidentified Company Representative:]

That’s a very important topic for us, so we can keep on running the business and as we mentioned before the drop in customer traffic over the 2014 involves several steps. We've been through a significantly event which was the World Cup, and in the last quarter Q4 we had a significant recovery and as Ronaldo mentioned we are already with a strong positive recovery in the beginning of 2015. A drop in customer traffic certainly has to do with a more competitive market and also the expansion we had in existing areas or the surrounding areas. Important channels like proximity and wholesale. And as I also mentioned before we had historical base a strong comparison base. In Q4 our growth base year-on-year was over 9.8 in the food segment and 11.5 in non-foods. So repeating such a growth performance in terms of sales flow with such a high base is quite a challenge for us.

[Operator:]

Alan Cardoso from Banco Safra has a question.

[Alan Cardoso:]

I have three questions actually. My first question -- there are several conversations about several initiatives by GPA to expedite sales in different formats particularly from Extra and Hyper. I would like to understand the changes that are being made. When I compare price assortment, customer experience in these three banners, the position you are now and what you want to see by the end of 2015 the level of sales would be within the expectations, where should you really invest either in customers, assortment, and price just to give us some color? My second question is, is there any difference in terms of competiveness by region when it's focused on these three brands or banners. And lastly can you be more specific about the level of same-store sales in GPA Foods in the first two months of 2015?

[Unidentified Company Representative:]

Alan let me answer your question. Price for us is a critical condition, it is a strategy and we want to remain competitive always. Assortment is something we're working on. Lujan made comments about it. He is revisiting the whole assortment by store. It's not that I have the same assortment set for the whole country. I think that's something very -- a strong characteristic that we preserve at Pão de Açúcar. Let me give an example. If you go to a store in Rio and you look at seafood, it is completely different from a seafood department in Sao Paulo. If you look for coffee, for instance, there are specific brands that you only find at the Midwest, but not in other regions. So assortment is something we are constantly working on. Every banner is different. At Pao, this is always present. We are constantly searching for innovation. In Mini, its different the number of skills is much lower, and then you need proximity products to the customers. And Hyper is an ongoing concern of having all the products the customer wants. So it's an ongoing process by banner and also within the banner even by region.

[Unidentified Company Representative:]

Same-store sales in 2015 we don't breakdown the figures; we have to wait until the close the quarter. What I can tell you is that we are evolving according to our actions.

[Alan Cardoso:]

My last question was about competitive edge, if there is any difference by geography and even considering the competitors and lower competitors or smaller competitors. Do you feel there is a different commercial aggressiveness level?

[Unidentified Company Representative:]

There is a difference and it all depends on the implementation of our plan. Wherever we are redesigning our commercial action plan, our group of stores and have special focus, we can perceive a difference. Like Lujan said and I also mentioned this before, we don't see any difference in addition to our internal practice.

[Unidentified Company Representative:]

For quite a long time talking about importance of hyper almost 40% of GPA foods, but there are only three levels here. Think about the first quarter of 2014, there was a growth of 10.8% of third quarter it grew 5.6% and in the fourth quarter 2.8%.

[Alan Cardoso:]

When I look at this format considering the total sales and error reduction growth seems to be too small, I don’t understand why it happens? In terms of industrial performance for instance which apparently is doing great and is not clear what are the initiatives for improvement for Pão de Açúcar?

[Unidentified Company Representative:]

The first three quarters of the year were really stronger in terms of sales volume, and in the last quarter, we did have more difficulties; it was tougher. And in Q4 we also opened new stores and had some store conversions, particularly in Sao Paulo where we are stronger. There was some cannibalization in our sales even though this was expected. So what have you've been doing? Since last quarter, I cannot give you all detail, but we launched three or four initiatives to adjust our commercial plan, our sales policy, assortment adjustment, and to some extent, they will help us out. We have already perceived both in January and now in February that these actions and plans have a positive impact in our sales performance vis-à-vis the previous quarter. And the previous question about different formats. Is everything particularly striking? When you change the year that leads to a change in performance, a problem related to supply for instance there are more serious service problem or something that could be easily corrected. Hyper has several structural problems but Pão de Açúcar is different. It is doing very well, so as the year, as we moved into 2015 is there a clear response of why some changes happened.

[Alan Cardoso:]

You mentioned a couple of things but I must confess I still don't understand it is the real drivers. Cannibalization is normal; one story is close to the other. I understand that it's difficult to see the impact as a whole to understand the impact as a whole. So in your viewpoint how can you tackle this? Is there an easy solution?

[Unidentified Company Representative:]

You're referring to the second half of the year?

[Unidentified Analyst:]

I am referring to the difference in sales growth between the first half of the year and previous years. And also what happened over the second half of the year?

[Unidentified Company Representative:]

Except for the World Cup which was not so good for us we did not have any serious strategic problem or any change to our prophecies, answering your question. We don’t see that. First let me answer from the macro-standpoint. Retail, I am referring to food retail it grew 2.2% according to our newspapers published yesterday. We also grew 40.4% in food retail, Pão de Açúcar banner which was part of [indiscernible] speech in the beginning regardless of the growth rate by quarter it has market share gaining quarter-on-quarter including the fourth quarter. So what you're seeing possibly and that our viewpoint is much more related to macro-economic rather than a specific effect in the banner because the data I am sharing are evidence based.

[Operator:]

Vagines Salivayey has a question.

[Vagines Salivayey:]

My question has to do with metrics and indicators that are used for variable compensation of the main officers in the group and also the management. What is the characteristic and the profile of such indicator in 2015 and if you expect to make any changes in 2015 considering priority, for instance, grow sales in one year and more profitability in another? Was there any change in this profile? Thank you.

[Unidentified Company Representative:]

That's a great question. The whole group that is here sitting at the table has part of compensation, which is fixed, and an important part which is variable and it varies according to the goals and targets. And then we have two parts, one is short-term which is annual and the other long-term, which is stock options. So the whole team has metrics that stem from the Company's budget, and these goals are transformed into action plans that are followed up over the year. And by year-end, you have an assessment and you have global targets, targets by business unit, and you also have individual goals. So that's the model we have. It's been taken place at the Company for a while now. And we pay keen attention to it, and every CEO of every business unit should work with their team and this is followed up as a whole by GPA as a group.

[Vagines Salivayey:]

Could you specific if there'll be any change in the profile from 2014 to 2015?

[Unidentified Company Representative:]

I would say we have more detailed plans over -- they were already detailed in 2014 there'll be even more detail on 2015 that’s a process that improves year on year. We had some levels of management that were included in the process and year after we are involving more and more people at the company.

[Vagines Salivayey:]

Just to make it clear if possible. Are there any metrics that are far more relevant than other like return on invested capital or EBITDA margin or sales growth is there any differentiated factor in these metrics or is there a balance among several different indicators?

[Unidentified Company Representative:]

We implemented, negotiated and accreted wage. According to the means, according to customers and market needs we've focused quite a lot on demand, take Nova for instance we're really focused on growth and break even points these are critical things for Nova. Our performances are most focus on higher customer traffic and profitability. So you attribute different ways year on year to tend in on the business unit strategy for the year.

[Vagines Salivayey:]

What about foods? Since you mentioned to Cnova and Malls, what about the foods segment what are the main goals for 2015 if I may ask?

[Unidentified Company Representative:]

For hypermarket it is customer flow and also service that’s why hypermarket is working on every store manager traces customer flow average ticket and service. So focuses on growth Mini focuses on growth, Mini are the great challenge for growth over 2015 it will grow more than what we achieved in 2014. So the challenge is innovation, new product and also remodeling in 2015 and another challenge at hyper is also store remodeling I forget to mention that it will also happen in 2015. When it comes to the cooperation as a whole that’s very efficient system it has been working well for quite a while at the company.

[Operator:]

Our last question is from Marcelo Lima from Heatherhouse

[Marcelo Lima:]

Good morning. I have two questions. The first question is about CapEx. Christophe mentioned that CapEx was 3% of sales last year that it's been from a lot of growth and an increase in the number of stores. Do you have any expectation for maintenance CapEx? In the circumstance in which the Company doesn't grow that much, about maintenance CapEx, what is the percentage of the sales or absolute numbers? And my second question is about stock buyback? Do you have any buyback program both as a controlling company level and also at Via Varejo? Thank you.

[Unidentified Company Representative:]

The part about CapEx that is focused on maintenance it's relatively flat year-on-year and will remain flat in future plans. It accounts approximately 20% of total CapEx year-on-year, so the absolute number is, in 2014, R$350 million invested in maintenance of our stores. As to our stock buyback program, at a controlling company or Via Varejo, at this time of the year, we don't have anything in mind, which doesn't mean that if an opportunity comes up or if we have a time or the opportunity for our shareholders as a whole, this can be considered. But answering your question, today, we don't have such a program for any other companies.

[Operator:]

This concludes the question-and-answer session. I'd like to turn the floor back to the company's management for the closing remarks.

[Ronaldo Iabrudi:]

Once again I wish to thank you all for joining us for the call. Our team is convinced of the outcome of all our efforts in 2014, but that's part of the past. We have a big challenge for 2015. And this challenge can be represented by our planning, our budget and our targets. We have a clear vision of our plan for 2015 and the leaders of the team the participants of this conference call have a clear mind and everybody is fully ready to perform the budget and this planning and this makes us extremely confident despite this scenario that starts very complex in 2015. Lastly, on behalf of all our team I'd like to thank the support we've been getting from [Casino] and from the Board of Director, several Board of Directors actually. We have this board; we've Via Varejo, Cnova’s Board. They've supported us, thank you so much, thank you for your efforts and support. So, we can keep on working. Lastly, I would like to highlight something critical which is our commitment with governance and our conviction and the sense that governance is worth at the end of the day ensures our long term results and it is critical for us to be compliant and focused on everything we've seen so far, but always prioritizing and having as a basic guidance the best governance at the company. Thank you so much. Have a great day.

[Operator:]

This concludes GPA earnings conference call. The Investor Relations officer of the group is at your service for further questions. Thank you all for joining us. Have a good day.