Companhia Brasileira de Distribuição
Q4 2013 Earnings Call Transcript

Published: 14 Feb 2014

[Operator:]

Good morning, and thank you for waiting. Welcome to GPA's conference call to discuss the results of the fourth quarter and the year of 2013. This event is being recorded -- broadcast via webcast and can be accessed at www.gpair.com.br with the respective presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website. 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 the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of GPA's management and information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore 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 the floor over to Mrs. Daniela Sabbag, Investor Relations Officer of the company. Mrs. Sabbag, you may proceed.

[Daniela Sabbag:]

Thank you for participating in our call to discuss the results of the fourth quarter of '13 and also the year of 2013. I would like to introduce everybody who is with us. Ronaldo Iabrudi, CEO of the company; Christophe, CFO; Francisco Valim from Via Varejo; Belmiro from Assaí; Quiroga, Nova Pontocom; and representing Retail Food, unfortunately, Tambasco was not able to be with us for personal reasons. We have Fernando Zancopé representing Food Retail, beside Alexandre de Vasconcellos whose from GPA Malls. In order to start our presentation, I would like to give the floor to Ronaldo and afterwards, Christophe will be addressing you.

[Ronaldo Iabrudi Dos Santos Pereira:]

Good morning, everyone. Once again, I would like to thank all of you who are participating in our call, analysts, investors and the other participants in this call. I would like to thank Daniela and her team, who prepared the material and prepared the meeting so that we could be with you today. Most of you know that this is my first participation in conference calls of GPA, representing GPA, and I'm very pleased to be here participating with you. I'm very proud of being here. However, I confess that I feel a lot of responsibility upon my shoulders. This is a huge business. We have a very special team. However, the responsibility is very big to be at the head of this business, but I'm very bullish about it. So the idea is to give you an overview of our figures for 2013, and Christophe will do this with the participation of each one of the business owners. And at the end very quickly, I would like to make a few remarks about how we see 2014, and then we will be opening to receive your questions. I would like to make some opening remarks about the year of 2013. For us, it was rather complex year, a very challenging one. However, the assessment that we have about 2013 is that it was, all in all, a very positive year. If we break down the figures, you can see that our assessment is very positive. Our strategy was implemented. And in our view, it was the best possible strategy and a true winner. The focus or the strategy was seeking -- or the aim was to seek competitiveness, and this allowed us to achieve growth in all of our businesses. This competitiveness was funded by the optimization of our processes and also by the rationalization of our expenses, above all, the corporate expenses in such a way that we were able to deliver price competitiveness and practically maintaining our margin. Another focus, besides competitiveness, was the quest for synergies. Each one of our business units worked very hard, exchanging indicators and benchmarks in order to look for these synergies, and we carried out this work together with the Casino Group in such a way that each one of our business units was able to implement and to benefit from this strategy, be it from the viewpoint of competitiveness or from the viewpoint of synergies. In a nutshell, we will see that in Food Retail, we started the year with a negative flow of clients into our stores. And after the middle of the year, the flow became positive with market share gains, and thanks to the pricing policy that we implemented and our higher competitiveness and everything, as I said before, financed by the optimization of our internal processes. And if we look at e-commerce, which is led by Quiroga and his team, and he's going to get into details, but we started the half year with an important growth, and the second half was even more important in terms of growth. And mainly when we compare this to the market, it was a sustainable growth. We didn't have any growth whatsoever without maintaining a minimum level of returns. At Via Varejo, I think many of you have participated in the conference call of this company with Valim and his team show optimization of processes, operating efficiency were the highlights of Via Varejo. And we concluded a very positive year for Via Varejo as well. Assaí, together with commerce, this is where we grow the most. And we achieved a significant organic expansion in this company, and Belmiro will be making a presentation afterwards. And the outlook for this company is also very bullish. And finally, regarding GPA Malls, headed by Alexandre and his team, there was an ongoing quest for profitability at GPA Malls. And we still have some room for growth in these activities and also expansion of the gross leasable areas. And before I give the floor to Christophe, I would like to make 2 remarks because I think they are fundamental in what we call a positive year. One has to do with the team, the team that we have in place at GPA. I confess that I have been working with part of this team for quite some time already, but now in the last few months, I would say I must recognize that our team makes all the difference in the world, both the people of top management that are sitting around this table with me and also the people who are at the stores and that deliver services directly to our customers and which is truly a differentiated thing. And another remark I would like to make is about the support that we had from our board for the implementation of the company strategy. And I think these 2 points, the team and the Board of Directors, totally helped the team that is around this table to deliver the results that we were able to deliver. And 2 additional points that I would like to mention before I give the floor to Christophe. In 2013, we consolidated our governance committee. This is a committee that was created in mid-2012. However, with a more marked action in 2013, and we also created in late 2013 the audit committee, 2 structures that, in our opinion, are fundamental for us to continue to deliver our sustainable growth. So these were my initial remarks, and now I would like to give the floor to Christophe and to each one of the business owners, and I will return at the end to tell you how we see 2014. Thank you very much.

[Christophe Jose Hidalgo:]

Thank you, Ronaldo, and good morning, everyone. I would like to go directly to Slide #2, starting the presentation with the main highlights for the period and for the last period of the year. As we had already announced, we accelerated our expansion with the opening of 50 new stores in the last quarter. And for the whole year, we opened a 128 new stores, scattered throughout the country and for all our brands, for all our formats. I would like to highlight the same-store sales growth, which was 10.8% vis-à-vis Q4 2012, and the sales grew in Food and Non-Food categories as well. In Food categories, the growth was 9.8%, exceeding by 4 percentage points the inflation that we observed in the same period, and this was the result of a very good policy for promotions in the food categories. And the nonfood categories grew even more. It grew 11.5% during this period, the highlight being the technology categories and mainly during the Black Friday period that happened at the end of this period. And also we had an impact because of the good level of sales in this quarter because of that the adjusted EBITDA grew almost 24%, reaching adjusted net income from 72% in Q4 '13 and above the extraordinary adjustments that we had in Q4. We had an impact in operational. We had a review or reevaluation of the labor risks that we have. And the impact was BRL 299 million, especially in the fourth quarter because of this review of the situation of the labor risks and the need to adapt our provision to reflect the reality and the risk in our financial results. And the 2 other extraordinary adjustments were the provisioning for restructuring, and as Ronaldo has already said, this was a year of restructuring the organization and have the necessary provisions within the BRL 299 million. So this represents 20%, and the other 20% corresponds basically to another effect, a one-shot effect, which was a write-off of assets and the effect of the implementation of the PCB and the CADE provision as well. Going now to Slide #3, the consolidated figures for the GPA group. We see a level of gross sales that reached BRL 18.8 billion with a growth of 14.9%. We had already talked about 10.8% in same-store sales, total sales for the year. The gross sales now exceeded the guidance that we gave at the beginning of the year at BRL 64.4 billion or 2.8% growth. Regarding the adjusted EBITDA, as we said before, BRL 1.6 billion, 9.5% margin in the period. And for the whole year, BRL 4.5 billion or 7.8% EBITDA margin, which means a growth in the adjusted EBITDA of 20.2%. Adjusted net income impacted by the good behavior of financial expenses reached BRL 864 million, 72% growth, 79% in the year. And the net margin was 3.2% in the period. For the whole year, the highlight for the year was the de-leveraging of the company as well, and the net debt that represented at the end of 2012, 0.91x the EBITDA, was reduced proportionally, representing 0.29x EBITDA. That is to say, BRL 1.1 billion and a very strong de-leveraging of BRL 2.3 billion. And we can exclaim the de-leveraging by 2 effects

[Fernando Zancopé:]

Thank you. In this quarter, Food Retail with Pão de Açúcar, Extra and Minimercado stores had these highlights the highest sales growth, 10.3% in this quarter, which showed the success of our strategy of commercial competitiveness, pricing competitiveness. We had an expense reduction of 16.8%, a 2.8 percentage point reduction in the quarter. As Ronaldo mentioned, we had an important market share gain in the period. 1 percentage point of market share gains in all of the banners. It was the fifth consecutive quarter with market share gains in Food Retail. Our EBITDA totaled BRL 2.3 billion in the year, a 17% growth, our margin of 9.2% EBITDA margin higher than in 2012. This reinforces the maintenance of our strategy. We will continue with the strategy, pursuing more efficiency and expense reduction to remain competitive. Of course, never losing sight of profitability, which is our main KPI and customer service. I will now give the floor to Belmiro representing Assaí business unit.

[Belmiro De Figueiredo Gomes:]

Good morning, everyone. As mentioned by Christophe and Ronaldo, the fourth quarter for Assaí was the very best quarter. It was an extremely strong quarter, sustained by the opening of new stores in the period, as well as our same-store sales growth. We continued expanding organically strongly. We opened 6 new stores in the last quarter, representing an additional selling area of more than 32,000 square meters, closing 2013 with an additional selling stores of 74,000 square meters or 176,000 square meters of floor area. As mentioned by Christophe, we were pursuing to increase our capability and footprint in Brazil. It is extremely important for our business; it reinforces our role as a supplementary distributor. That's why the sales performance in the fourth quarter, it was 37.7% growth by adding same-store sales and the expansion. We had a number of negotiations, particularly for seasonal products, which ran a positive impact, a margin of 1.7 percentage points, increasing the results by 98% in the fourth quarter of the year. With that, Assaí closed out 2013 with a sales performance of 35.2 and an increase in the net income of 39%. We were able to expand -- we were able to overcome a number of challenges related to organic expansion, which are only natural, and we were able to deliver better results with our sales. As for the expenses as mentioned by Ronaldo and Christophe, we were focused on lowering expenses. We are a low-cost business. Expenses in 2013 totaled 9.784%, 10.58% on net sales. Assaí grew more than twofold the segment of cash-and-carry. We had an important market share gain in the business. We started representing this business more than 10% of GPA revenue, and we represented close to 40% of the real growth for the whole group in the period. For 2014, Assaí remains extremely focused on organic expansion, opening new stores and expanding to new space. The outlook for 2014 is very positive for this business model. We have some logistics challenges. Well, logistics bottlenecks make it very difficult for a small business to work, and they are harming clients, and they are also looking for better prices. So we remain focused on expansion, footprint to deliver very strong results in 2014. Thank you very much. Now I give the floor to Valim, Via Varejo.

[Francisco Valim:]

Thank you, Belmiro. As we had an opportunity to present yesterday, the Via Varejo results showed growth of more than 11% in revenue, margin growth quite significant, exceeding 9% of the EBITDA margin. Adjusted profit of more than 4 -- growing more than 4% this year. And net income increasing more than 4x. As a result of these strategies to gain market share, we had a substantial growth of market share in the specialized market, as well as in the generalist market. We were able to maintain our position in market share. With that, we had a very differentiated result as we reported yesterday. I now give the floor to Quiroga.

[German Quiroga:]

Good morning. In 2013, Nova Pontocom had a competitiveness gain in repositioning. Savings generated helped us be very competitive in pricing. It increased the traffic of clients and conversion rates. Nova Pontocom 2013 launched Extra market place. In one single fight, we can sell products from many stores and varied segments. Perhaps [ph] significant results, more than 200 retailers registered and thousands and thousands of suppliers. Our business unit was strengthened with the operation of Nike.com with the volume sales and importance of the brand, Nova Pontocom became the first client. They became the first client of this business unit. We also have Microsoft, HP and many other clients. GPA bet on integrating e-commerce, promoting multi-channel strategies. And in 2013, we launched a number of new business models. Walkers, kiosks, services for tablets, ensuring more connectivity and application for our customers. In Camacari, we were able to reduce our logistics costs and improve our level of service to customers in the region. In 2013, we achieved BRL 535 billion in sales growth vis-à-vis 2012. In the second quarter, growth was accelerated, and an all-time sales record was reached in the Black Friday production. We posted record sales in addition. The net income in the fourth quarter was a record in showing a cash generation in the year. Finally, we believe that 2014 will be a very special year for Nova Pontocom. We will continue pursuing our initiative to increase efficiency, to raise the bar and competitiveness, enjoying synergies with the group and with our multi-channel strategies. I will give the floor to Ronaldo for his.

[Daniela Sabbag:]

This is Daniela, and I will give the floor to Ronaldo for his final remarks.

[Ronaldo Iabrudi Dos Santos Pereira:]

Thank you, and after my final remarks, we will open the Q&A session. How do we see 2014? What is the outlook? We have positioned ourselves for a very good year. We are very much focused on growth. The focus is on growth, but with process discipline in optimization and control of expenses. We will be also very much focused on continuously enjoying more synergies. Another point that gave us a very positive result in 2013, and which we want to continue in 2014, is financial discipline, either in working capital or in investments CapEx. You probably heard in GPA Day, we will be investing in terms of amounts very close to what we invested in 2013, but our goal is to expand even more than we expanded in the past, which means that we will be optimizing investment. CapEx per square meter should be optimized so that with the same amount of investment, we'll be able to grow even more in 2014. Another important outlook for us in 2014 is improving our working methods, basically our methodologies. We have a budget, and we have a plan for 2014. We are, as we speak, formalizing the goals for each business unit, and this will be cascading down to all levels of the organization. Each business unit has to have an action plan, and we are going to be strictly disciplined in following these goals, targets and the action plan. That is another very important improvement point that we will be working on throughout 2014. And last but not least, and this was mentioned here today is the continuous and ongoing focus on the quality of service and customer service. In other words, we want to have optimization. We want to have financial discipline. We want to optimize processes, but always improving the quality of our services to clients and customers. In Food Retail, that now we are calling multi-retail, we intend to continue with our competitiveness strategy. We expect to continue to grow our customer traffic at our stores while maintaining the level of profitability. For Assaí, Belmiro mentioned we expect an important growth, as important as the growth that we witnessed in 2013. We are looking at the north and northeastern region. Belmiro has an important logistics challenge ahead of him to make this happen in these new regions. For Via Varejo, Valim mentioned that our focus is continuous pursuit of efficiency in margin gains and more growth also pursuing synergies. It is why we are also going to see in e-commerce continuous gains in market share but not just for the sake of gaining market share. We want to have a balance between sales growth and profitability. Quiroga will be looking at that full-time while, at the same time, increasing synergies and multi-channel opportunities. For Malls, although Alexandre did not had an opportunity to speak, but the focus remains expansion. We have more than 3,000 leasing contracts, and we want to make these contracts profitable. We will continue to invest with the same focus. In other words, have more efficiency per square meter and having more efficiency in gross leasable areas in 2014. Finally, the whole team is here. We're ready. We are practical in the second month of the year, and we are ready to implement what was planned for 2014 and make it all happen. To us, it is really important that we deliver all of these targets with the highest level of governance -- highest level of corporate governance. We want to be an example to be followed by Brazilian organization. I would like to end thanking you for joining us, and each one of the business unit owners will be here, and we are all available to answer your questions. Thank you very much.

[Operator:]

[Operator Instructions] It is João Mamede from Santander who wants to ask a question.

[João Mamede:]

I actually have 2 questions. One is related to expense reduction. I believe this was the major highlight in the results. We were seeing a trend to reduce expenses and adjust pricing, but what surprised us in this quarter was how big the effect was. With stronger sales you naturally helped that, but my question is, looking forward, how recurrent is this improvement? Rephrasing it, you took the company to a whole level of profitability, but will you find perhaps a balance where sales will not be that strong? That's my first question. My second question goes to Belmiro. It has to do with the performance of the gross margin in Assaí. So a very good performance in that quarter. Actually, this improvement has been happening, but the fact is that this was the very first time that, year-on-year, this variation was positive. Belmiro mentioned that you negotiated some seasonal products, and that helped. So how should we see this looking forward? Are these improvements in line with what I asked in the previous questions? Or are these improvements recurrent, expected to be recurrent or at least part of them? So I just would like to get a sense of the dynamics for the gross margin for Assaí. These are my questions.

[Ronaldo Iabrudi Dos Santos Pereira:]

Thank you João, for the questions. I will answer the first, and then I will give the floor to Belmiro. In terms of the expense reduction, the sustainable recurring characteristic here, like in the origin of the reduction, there was no huge movement in expenses, but rather an addition of small efficiencies and rationalizations here and there, which added together, added us -- or helped us have an improvement, not one specific line. We implemented a lot of rigor. We started implementing a lot of rigor in 2013. That rigor allowed us, as you can see, to capture the improvements, adding to a little more than 140 basis points. This does not represent an annual rhythm. Putting it differently, you can expect something more in the periods to come. So to be very clear in answering the question, all captures in terms of expense dilutions are genuine, and they are legitimate. They are perennial and sustainable over time. We can expect that they will continue to remain at this level, expenses to remain at this level.

[João Mamede:]

Christophe, just a follow-up question if I may. I just wanted to understand if you start observing that you're capturing synergies and reducing expenses even a little further than expected. This additional delta, is it going to be reinvested in lowering prices or can you have an increase in margins even by keeping the prices under control aggressively from now on?

[Christophe Jose Hidalgo:]

I actually have 2 answers to your question. What we captured in the Food segment will be reinvested in pricing competitiveness. The synergies we captured in the nonfood segment will not necessarily be geared to price competitiveness because we understand that the level of competitiveness seen in Nova Pontocom and Via Varejo are already at a very aggressive level in keeping with the scenario for the nonfood segment. Thank you. As for your question about Assaí. Assaí is enjoying a special moment. Most of the sales added were added by new stores. Obviously, the new stores have a ramp-up period, a maturation period, a period where you have to invest more in the margin, which is natural in the beginning of the life cycle of the store. Now that factor's not very seen in the end of the year when products are market price, so you sell a mix of products until almost 9 or 10 of the industries not reflect in the margin that you work within the end of the year. With the existing stores and with the new stores, we were able to negotiate some seasonal products, which led to an elevation of the margin. This expect of the end of the year, though [ph] will be recurring in coming years even with the expansion, but obviously, it's important to highlight that we're expanding aggressively. New stores are opening, last year 6 between November and December. And now in 2014, they will have a ramp-up period. So what we can expect for the coming quarters is to maintain always the margin compared to 2012 and effect of December is to be expected -- is to be recurrent.

[João Mamede:]

So Belmiro, when you are looking -- when you talk about margin, you're talking about EBITDA margin?

[Belmiro De Figueiredo Gomes:]

No.

[João Mamede:]

Stability of the gross margin, then?

[Belmiro De Figueiredo Gomes:]

I mean, gross profit.

[Operator:]

Marcel Moraes from Deutsche Bank has a question.

[Marcel Moraes:]

My first question has to do with the food division. If you could elaborate on the pricing environment in the fourth quarter. Didn't competitors follow the Pão de Açúcar price policy or did they maintain their pricing policy constant. What was their strategy? That's my first question. My second question has to do with the CapEx. If you could perhaps give us a flavor about the initiative being implemented to rationalize CapEx.

[Ronaldo Iabrudi Dos Santos Pereira:]

Marcel, I'll give the floor to Jorge Herzog commercial officer of food retail.

[Jorge Fernando Herzog:]

Thank you for the question. Our strategy in the fourth quarter in terms of prices -- in the fourth quarter, that's when we started arriving more sales results and customer traffic. Well, it all started in May, when we set different strategies for Pão de Açúcar and Extra. Pão de Açúcar follow the strategy that we call everyday fair price. We've got localized categories and offered specific pricing reductions. All those categories at Pão de Açúcar customers consider important. At Extra though, that's where we have more intense price reduction. We follow 3 different paths. One, we maintain our policy of high, low promotional -- promotions. We have the promotion sales and we are recognized by customers as being very strong in promotions. Secondly, we significantly reduced what we call basic assortment. We had a significant reduction in prices, and that favors the trade up of categories, particularly the consumers of classes B and C start consuming richer mixes of product. One example, for example, is the Greek yogurt, coffees and Nova meats. These are segment that grew a lot, beef, prime beef and cuts. And thirdly, we were able to choose intelligently our media so that we can accelerate the price perception of customers. All this was our strategy. As for the competition, they were more aggressive in the fourth quarter of the year, but we were able to position ourselves very well, and customers understood that.

[Marcel Moraes:]

My second question?

[Jorge Fernando Herzog:]

Well, in addition to your GPA Malls, we are responsible for investing in organic expansion. We have 3 types of initiative. One in the cost of acquisition of land. We are able to get good negotiations now, bringing the prices of land acquisition to lower levels than historically. Secondly, a deep and intense discussion with the operations people regarding the concept of the stores. We review all of the concepts from the selling area to operational and back office areas. When you simplify the concept, you naturally spend less. And thirdly, construction method. We are adopting new construction techniques, so which are reducing the civil construction work and their prices of renovations of the stores.

[Operator:]

Gustavo Oliveira from UBS has a question.

[Gustavo Piras Oliveira:]

My question goes back to Assaí margin, and its performance. If I'm not mistaken, you had an EBITDA target between 5% and 7%. You achieved that in the fourth quarter. With the renegotiations you had for product -- those seasonal products, which you believe might bring a recurrent effect and knowing that some stores haven't paid off yet, do you believe that you can have margins superior to 5% to 7%? And do you think that this is sustainable the moment the stores become more mature? Did the profitability for the business change, the profitability model?

[Belmiro De Figueiredo Gomes:]

Thank you for the question. Obviously, it's not that the stores are not mature. They have a payoff curve, a ramp-up curve, then for each store you have a number of the years for the payoff. Now the new -- the pack of new stores of Assaí was conceived to generate lower levels of expenses. In other words, the stores have more equipment, more automation, more inventory in the stores. So we expect an improvement in EBITDA derived stemming from lower expenses. As the part of new stores, growth, it dilutes the expenses for the whole Assaí part of stores.

[Gustavo Piras Oliveira:]

But is the new store a lot more profitable than the old stores? I guess you said that, but the model itself should perhaps reach margins close to 10% or am I overdoing it a little?

[Belmiro De Figueiredo Gomes:]

You're overdoing it a little. It is impossible to have an EBITDA margin of 10%. One of the things we need to consider in the GPA mix is that we are the only group that does not offer term sales. Assaí only sales cash sales, and our level of depreciation is also lower. So in wholesale, it's better to look at the net income than the EBITDA since we do not have financial expenses, and we are so geared to prices, I always advise you to look at the net income.

[Gustavo Piras Oliveira:]

So you can reinvest in competitiveness, right? It wouldn't really be a focus on the operating margin? Oh, okay, okay. And my second question goes to Quiroga. Quiroga, do you -- which is the best metric to measure the level of service for the E-Commerce business? For 2013, we see a greater deterioration in the metrics and in the complaints of Reclame Aqui complain here. What is the adequate metrics assess your business? And how do you see the evolution in the level of service of Nova Pontocom now, last year and looking forward?

[German Quiroga:]

Thank you, Gustavo. Excellent question, because it will give me an opportunity to clarify some things. Talking about Reclame Aqui, well, I'll talk about that specifically, but before that I have to make mention something important. In the second half of the year in the [indiscernible], we had a natural problem in Rio disaster, a disaster. Our DC in Rio, in Arujá, which is responsible for 40% of our revenue was flooded. The whole DC was underwater. It led to a lot of losses of goods and you can imagine the problems in terms of our clients receiving the products. We were able to renegotiate a lot with our clients, but there was a big impact in the volume of orders and in the number of complaints. We practically doubled our rate of complaints because of that problem. Since then, we've been working on that, and the Pão de Açúcar group helped us. Our DC went back to operating normally quickly. We're building another DC in Rio because our operations now want to avoid this kind of natural disaster. So that's one point. There's another relevant point before I talk about Reclame Aqui. Even doubling our levels of complaints and unfortunately, with the competition improving a lot, when we look at the rate of complaints for revenue, we are at the same level of the market. We are not pleased. We want to go back to having a better level of service than the competition than the market. Our expectation is that by the end of this quarter, our level of service will be better than that of the competition, as has been the case since the beginning of our operations. So thank you for the question. Now as for Reclame Aqui, it is a channel that we have been focusing on. We want to work on our ombudsman service, and I believe that this has the merit because consumers needed a digital channel to complain and to speak their minds, and they found Reclame Aqui. Complain here, and we will be improving and hopefully our complaints will be reduced, and we will be in line with the market.

[Gustavo Piras Oliveira:]

What happened in the Arujá distribution center? What happened there?

[German Quiroga:]

Well, we were close to Black Friday promotions. We had a record sales day, and the DC was flooded. This was in the media, in the news. It was Arujá DC, it used to be all the old Ponto Frio DC, it handles all the Ponto Frio operations in Rio. And we talk over it in full. In terms of the production, it's very good, but it has some issues, and the main one being that it is the area subject to flooding.

[Operator:]

Fábio Monteiro from BTG Pactual.

[Fábio Monteiro:]

I would like to know about returns. You have in highlight in terms of margin returns due to the improvement that you have been delivered in SG&A. You have already talked about CapEx. We see high figure for that. You have already talked about investment in gross leasable area. But overall, the consolidated CapEx is BRL 1.85 billion or more than that. So you have a higher return than the average in retail, but I would like to know if you expect your CapEx figure to go down and to be further optimized, could we expect the contribution of your CapEx reduction to improve your returns, your margin of returns?

[Christophe Jose Hidalgo:]

Thank you, Fabio. Regarding returns, we have 3 sources of leverage, as supposedly, the best source of returns is the use or the return per square meter. And one that we have already captured significantly in 2013 was the release of working capital. In our economic model, the working capital is being released, as I said before, and the ongoing reduction of G&A. As we have already shown you and that is already giving you a contribution to increase our returns. The formats I have -- had accelerated growth such as Assaí, Minimercado, mini market and Pão de Açúcar as well. These are formats that give us returns that in most of the cases are higher than 20%. Given the 3% of sales CapEx as you said yourself, there should be a significant contribution to the overall returns for the company. If the CapEx level will go down, yes in a way, but due to efficiency gains and not because we are going to open less units, for instance, because our focus on expansion, which was one of our highlights in 2013, will continue for the foreseeable future.

[Fábio Monteiro:]

In e-commerce, I would like to know how much of the CapEx went to e-commerce. And looking ahead, do you foresee any investments in new platform or technology in general or logistics for the next few years?

[Ronaldo Iabrudi Dos Santos Pereira:]

Before giving the floor to Quiroga, I would like to add to what Christophe said. You mentioned in your question CapEx investment for the creation of gross leasable area. I would like to mention that this initiative consumes CapEx. However, it aims at generating a much higher margin in our results, which is under food. But here, we're talking about the shopping mall industry that works with a 70% EBITDA margin. We closed the year around 40%, and we are ramping up. So this investment is being made in order to generate a higher profitability for the group as a whole. Now I would like to give the floor to Quiroga.

[German Quiroga:]

Fabio, thank you for the question. Our CapEx was 1% of our gross sales last year. Vis-à-vis competition, it is low. I would like to apologize for the way I'm speaking. However, I have problem when my -- in my -- on my tongue. My tongue is hurt. You understand this why I'm talking like that. So I don't know whether you understand me or not. It's relatively low around 1% ever since Nova was started. And historically, we went from BRL 250 million to BRL 5 billion. If you take the consolidated or the bottom line, you see in the period, it is positive to BRL 5 billion in sales, with cash generation -- strong cash generation, even stronger now with this level of investment. So it is relatively low vis-à-vis our competition, but we believe it is adequate. Investment in people, in logistics and technology, okay?

[Operator:]

Pedro Leduc from JPMorgan.

[Pedro Leduc:]

My question has to do with provisions that we saw in this quarter, mainly, if you give us more details about the BRL 140 million in labor and reserves or provisions and also for restructuring. Could we expect something similar to this for Q1 2014, because we have this change in the management of the company?

[Ronaldo Iabrudi Dos Santos Pereira:]

Thank you, Pedro, for the question. As we said before, this one-shot adjustment represented BRL 299 million, half, BRL 140 million more or less related to labor themes. That is to say, provisions and core deposits basically. And the ongoing work that we do in terms of reassessing GPA's exposure to risk was carried out, focusing on labor themes. And I would like to remind you that we are talking about labor contingencies here. Given the claims ratio that we saw in the last few periods, we saw that our provisions were not enough, vis-à-vis the more realistic view and the situation that we will have to face entering the next few periods is necessary. This will have to reflect the potential impact, but nothing represents a very deep change in the scenario. What we are talking is about a more realistic view of the potential future impacts having to do with labor contingencies. And after carrying out this reassessment, we understand that now, we are fully adapted to the needs that we foresee for the future. Regarding the second part of your question, restructuring expenses. Expenses dilution represented 140 basis points during the year. And most of that does not come from the mix of our business. It has to do with genuine capture of efficiencies only for this year. We are talking about something higher than BRL 100 million, in fact. And you know that the capture all this amount, of course, we have to make decisions in many different sectors, management and contract issues. And we had to reflect the effect of this restructure on our balance sheet and give the necessary steps in order to further capture all the effect that we expect for the next year or this current year. Of course, we have already started to reflect this in 2013. So there is nothing that -- bigger that may draw the attention to this restructuring CapEx. It's just business as usual, nothing extraordinary here.

[Pedro Leduc:]

For the first quarter, we had some changes in the top management. So could we expect some other restructuring expenses in this regard?

[Ronaldo Iabrudi Dos Santos Pereira:]

Well, most of it has already been reflected. If we do have any impact in the future, it will be just a small impact.

[Pedro Leduc:]

Now talking about operations, we see in Brazil floods and sometimes we have problems regarding supply. So how do you see this? Do you see any significant effect of the climate or weather conditions, mainly on food?

[Belmiro De Figueiredo Gomes:]

Belmiro from Assaí. In fact, this has an impact at the beginning of this year because consumption of beverages is higher. And, of course, we track with concern the issue of supply and energy. But we do not really feel an impact on our operations in retail because we will have our own generation. So the company, it's fully prepared to face this kind of situation. We need rain, of course, to fill the reservoirs and mainly -- but we have a high consumption of mineral water and beer.

[Operator:]

[Operator Instructions] Mr. Richard Cathcart from Espirito Santo.

[Richard Cathcart:]

I just want to go back to the margin on Assaí. And I'm just trying to understand the balance between more investments and more new space, on the one hand, and then increasing maturity and increasing scale on the other hand. Can we expect to see a higher EBITDA margin in 2014? And over the next 3 years, do you think you can go for an EBITDA margin of 4% to 5%? That's the first question. The second question just comes to the price investment at the Extra Hiper markets and supermarkets. On basic products, do you think Extra is now the cheapest in the market? And how much cheaper than the competition, if that's the case?

[Belmiro De Figueiredo Gomes:]

I'm going to answer in Portuguese. This is Belmiro. As our stores mature and they hit the payoff curve, we have an expectation of better margins. But specifically Assaí, it is like a wholesale where the price issue is very relevant, and in order to offer low prices, we have to focus on our low operating expenses, and so that we may have a more competitive selling price. So price competitiveness is the main focus for this cash-and-carry business like Assaí, which is very similar to Costco in the United States with limited number of categories. But our pricing category is really what is the major point in cash-and-carry operations. Especially at Extra in basic products, we have to look at each one of the areas where our stores are located, and we have to be the cheapest in the area, the cheapest retailer vis-à-vis each one of the local competitors. We believe that we are the cheapest in each one of the categories within this channel, which is hypermarket and self-service. That is to say we compete with hypermarket, which means that our prices are lower, each one of the areas where we have our source vis-à-vis our competitors. I hope I have answered your question. Thank you.

[Operator:]

Mr. Tobias Hansen from Credit Suisse.

[Tobias Hansen:]

Quiroga, anything you can tell us about negotiation for Via Varejo in terms of synergies? In other words, are you procuring together? Since when? I would like to understand where we stand in that process. Are you benefiting from these advantages of this being reflected in prices? Perhaps you can be selling at more affordable prices to gain volume? Could you please elaborate? It would be really helpful.

[German Quiroga:]

Thank you, Tobias, for the question. Great question. We are at a very good stage of capturing synergies with the arrival of Valim and his team and with the agreement that we signed last year to control expenses. We are now in a position to capture more synergies more clearly. Nova Pontocom and Via Varejo working together, a good deal of the suppliers are being approached from one single point of context through Via Varejo. And we are able to capture this commercial synergy. So we feel that orders are being placed in the scheme since January. So this is not yet reflected in our margin, but along the first half of the year, we'll able to capture more and more this commercial synergy. There's also synergy in logistics, both at Nova and Via Varejo, we are working together, mapping a number of opportunities, sharing DCs, working together, sharing freight cost, et cetera. And we expect that the synergy that we have always dreamed of is closer and closer. I would like to publicly thank Via Varejo and the opportunity that the group gave us. And also with Extra, we're enjoying synergies commercially, logistically as well. Thank you, Tobias, for the question.

[Tobias Hansen:]

Quiroga, I have a follow-up question. You are buying at cheaper prices. We can't see that in the margin yet, but we're going to start seeing as of February. Does this mean that you're going to try to maintain the margin, grow your margin? Will you keep the price to consumers that buy at cheaper prices or will you adopt a different strategy? Well, I can maintain my margin, keep or increase the volume, not reduce the price to customer. So I know that from -- it varies from product to product to product, but could you give us the gist of it?

[German Quiroga:]

Again thank you for the question. I would like to remind you that for e-commerce, the strategy is to grow as much as possible in keeping with the breakeven. Our bottom line is trying to grow as much is possible, not having a loss. We have managed that and it is to continue. We have done a number of works to prepare for a new competitive landscape. But our goal is that the benefit in the procurement power now with Via Varejo can be replicated, particularly to other categories and in the longtail. We have a number of opportunities, a number of categories and some categories where we have a strong brand, for example, the Extra brand. Still, the benefit that we will enjoy by buying together with Via Varejo will be reinvested in these other categories and in the longtail categories where we do not act today.

[Operator:]

This will be our last question. Mr. Alencar Costa from Goldman Sachs have a question.

[Alencar Costa:]

I have 2 specific questions. Christophe, explain the other expenses that occurred in the quarter, adding BRL 290 million at the consolidated level. But specifically for food retail, we had some nonrecurring expenses around BRL 365 million. With a breakdown to BRL 299 million, it seems only BRL 170 million came from union and labor contingencies, and plus BRL 62 million that came from the restructuring effort. So there's still about BRL 120 million that were not explained. So could you please explain? And then I'll ask my second question.

[Christophe Jose Hidalgo:]

Thank you for the question. For the breakdown of the BRL 299 million, this is in the consolidated approach of the main effect. When we break it down by business unit, if we break the number down by business unit, the reasons are basically the same. In other words, we have 3 key sources of nonrecurring adjustments

[Alencar Costa:]

It became clear. I have a second question regarding food retail. In this quarter, could you explain what happened? I think there was perhaps accumulated losses of some subsidiaries?

[Christophe Jose Hidalgo:]

It was a relevant effect that you could see in the financial statements. We didn't mention it in detail here, because the fact was merely an accounting one. I'll explain. When we contracted the call option that the GPA group had over Bartira, the moment it was recorded in the asset, the fair value -- we had that fair value according to accounting standards, but this was just a call option at the moment that we contracted. That generated a deferred tax, and that was a tax benefit. I think it was in 2010 a deferred tax. That deferred tax when we decided to exercise the call option, Via Varejo decided to exercise a 75% call option of Bartira. That provision for deferred tax no longer needed to exist. It didn't make any sense, and that explains this level of tax, which is apparently low. That's basically the explanation for the tax line item. Basically, the reversal of the deferred tax provision that we had made in 2010 for the possible call option of Bartira, okay?

[Operator:]

Mr. Robert Ford, Merrill Lynch. The reason why the question is not being translated is because we cannot hear what the person is saying.

[Robert Ford:]

[indiscernible]

[Daniela Sabbag:]

This is Daniela speaking.

[Operator:]

We apologize Daniela Sabbag -- Daniela Sabbag is apologizing because she cannot hear what the person is asking either. Neither Daniela Sabbag, nor us, nor the interpreters.

[Robert Ford:]

Working capital, looking at similar opportunities.

[Daniela Sabbag:]

We apologize because we cannot understand what the person is asking.

[Operator:]

Daniela Sabbag apologizes because she cannot hear either.

[Daniela Sabbag:]

Could you try to ask a question again?

[Operator:]

Now the Q&A session is closed. We would like to give the floor back to GPA for the closing remarks.

[Ronaldo Iabrudi Dos Santos Pereira:]

Now we are closing this conference call, and once again I would like to thank you all very much for participating. Investors, analysts and our team will remain available to answer any questions that you might have. Thank you very much, and see you during the next quarter.

[Operator:]

GPA's results conference call is closed. Investor Relations department of the group will remain available to answer any remaining questions that you might have. Thank you very much for your participation and we wish you all very good day. Thank you.