Companhia Brasileira de Distribuicao Management Discusses Q4 2012 Results - Earnings Call Transcript

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Companhia Brasileira de Distribuicao (NYSE:CBD) Q4 2012 Earnings Call February 20, 2013 9:00 AM ET


Vitor Fagá de Almeida - Executive Director of Corporate Relations and Investor Relations

Abilio dos Santos Diniz - Chairman and Member of Stock Option Plan Management Committee

Enéas César Pestana Neto - Chief Executive Officer, Interim Head of Human Resources and Member of Stock Option Plan Management Committee

Christophe Hidalgo - Chief Financial Officer and Corporate Services Officer

José Roberto Coimbra Tambasco - Executive Vice-President of Retail Business and Member of Stock Option Plan Management Committee

Belmiro Gomes - Managing Director of The Assaí Chain and Wholesale Business Director

Alexandre Gonçalves de Vasconcellos - Real Estate Business Director

Antonio Ramatis Fernandes Rodrigues - Former Executive Vice-President of Commercial Strategy, Supply Chain & It and Member of Stock Option Plan Management Committee

German Quiroga

Claudia Elisa de Pinho Soares - Member of Stock Option Plan Management Committee

Caio Racy Mattar - Former Executive Vice-President of Specialized Businesses and Member of Stock Option Plan Management Committee


Tobias Stingelin - Santander, Equity Research

Andrea F. Teixeira - JP Morgan Chase & Co, Research Division

Ricardo Boiati - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

Pedro Leduc - JP Morgan Chase & Co, Research Division

Richard Cathcart - Espirito Santo Investment Bank, Research Division

Tina Barroso


Ladies and gentlemen, good morning, and thank you for waiting. Welcome to the Grupo Pão de Açúcar conference call to discuss the results of the fourth quarter and full year of 2012. This event is being broadcast via webcast and can be accessed at and With the respective presentation, the slide selection will be managed by you. There will be a replay specifically for this call on the website soon after the conference is closed. We would like to inform you that the press releases posted [ph] of the company are also available at their Investor Relations website. This event is being recorded [Operator Instructions]

Before proceeding, we 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 belief and assumptions of GPA's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, may 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 Mr. Vitor Fagá, Executive Director of Corporate Relations for the company. Mr. Faga, you may proceed.

Vitor Fagá de Almeida

Good morning, everyone. We are starting our results conference call for the fourth quarter of 2012. And today with us, we have Mr. Abilio Diniz, Chairman of the Board of GPA; Mr. Eneas Pestana Neto, CEO, of Grupo Pão de Açúcar, and many other officers of the company and some subsidiaries as well. Now, I would like to give the floor to Abilio Diniz for his opening remarks.

Abilio dos Santos Diniz

Good morning, everyone. It is a great pleasure for me to open this conference call with you, at the moment with which the company is presenting the closing of its figures for 2012 with the results that I believe you will all consider to be very good. We were talk here before the call. But we do not remember another moment at which the company gave 2% of the bottom line. We are not talking about EBITDA margin, we're talking about more than 2% of the bottom line.

I believe that the results of last year was excellent. The year was easy and all we had to decide to maintain our consumers, we had to decide to be better than the others. And we were, we achieved that. Otherwise, the results wouldn't be this. And we had to make our best endeavors in order to achieve all these figures.

This is even more outstanding when you think that a moment of tradition of the company was occurring and the company has some work here between and among our main shareholders, and the team was kept strictly separate from these issues and nothing of what was occurring ever affected the others. And they went after the market and they delivered the results and they operated the stores. And they did what they had to do and they transferred merchandise. And they did all the IT processes and logistics, et cetera, and the optimum result was great. And as the Chairman of the Board, I can only say that I'm extremely pleased with the results achieved.

And another thing that gives me a big satisfaction is that after the market insisted at the Board of Directors to meet the whole year of 2012, I had been very vocal saying that we have to be more firm in terms of retail and we had to get the company in our hands and back below the management of Pao de Acucar. They should be done and there's only half independents vendors. And on one hand, could say, well, it only half of them were vendors. But on the other hand, we must say, well, we're happy that it has already happened. Assai is doing a great job in retail. And what we can visualize as a company today is something totally different from what we visualized before.

This company in our hands looking for synergies and doing the homework and doing everything that has to be done. This certainly brings a lot of happiness to all of you investors and will be bringing a lot of satisfaction to all shareholders and everybody who works for the company in various issues. And we could see, in retail, the company as it should be, and the outlook for the future cannot be better.

2013 will continue to be very good for Grupo Pao de Acucar. Quite a lot shared about the macroeconomic output and -- outlook and relative [indiscernible] would look like. And I believe, consumers will continue outward consumptions, will continue to be high. And if there is a problem with credit -- I don't believe there will be a problem with credit, but if it happens, it will be offset by the higher offering of jobs. All the infrastructure jobs are -- that under way are very important. They will bring about more jobs, they'll be getting more money in the country and more money in the hands of households.

I think the outlook is really excellent for a company that is prepared to face challenges, a company that is strong, and sound and resilient. In the country that will continue to grow and is growing. And we are very happy with this situation. Thank you very much for your attention. Now, I would like to give the floor to Eneas who will give you more details about the operation and the results.

Enéas César Pestana Neto

Good morning, everyone. Thank you very much for participating in this call. It's a great pleasure for us. We have our team around this table. I'm not going to get into details, the team will be talking to you about each one of the operations and then we will need time for questions and answers. I will be straightforward in my remarks, but trying to give you an overview of the year and of the business.

It was a year of major challenges but also, on the other hand, many opportunities on the team. It's very strong, they're very competent and very professional. They are true pros and they know how to work in an integrated fashion through teamwork and maintaining focus on our clients, on our business. And I think, this is a major competitive advantage that we have and that brings us better results like the ones that we are presenting. I'm still talking about the macro of our business.

Let's start with Assaí, which has been doing an excellent job. 2011 was a tough year -- really tough year. And we have I don't know how many challenges ahead of us. And Belmiro, together with the challenge of setting up his team, and the structure and do his homework and in all senses, from the viewpoint of stores, assortment, supply chain, strategic positioning and the target market, this was done in 2011. It was concluded at the beginning of 2012. And 2012 was already in the year where we reaped the fruits and we were able to focus on expansion. And this was done in a very competent fashion, creating a land bank that will help us accelerate, further accelerate our expansion from our important same-store sales that shows how healthy our business is, and we did our homework and very well. But all that, with a significant increase inside the section regarding the net profit of Pao de Acucar Group.

2011 was not very good and the participation from Assaí was 1% in net profit and it is up to close to 9% in 2012, the participation of the Assaí Group. So you can see that this is enough evidence that Assai is at the right track, on the right track. And in Food retail, are very focused team, a very seasoned one, that have the capacity to maintain their serenity and their focus on the business all the time. This is a major stride this year with the conclusion of conversions to the Minimercado format and the neighborhood model that completes our portfolio in terms of food retail to cater to our clients and all their purchasing orders. And looking for the revitalization of the non-food categories in the hypermarkets. And this is being done in a very competent manner, both for fish and the other categories in the hypermarket.

Food retail has a total focus on clients -- clients today and clients tomorrow. So each one of them emerged in order to use the strength of the portfolio in the different banners, in the different regions, in order to be able to offer an end-to-end option to our clients. But I would like to highlight the expenses control that was done very competently, guarantee the margins of Food retail via variations. And was -- came on board in a very motivated manner and this is the way how much we've always worked in an integrated fashion and we come to focus on what he's doing.

And there is an important expansion that has already been carried out in especially in the North East, and the reduction in the financial expenses also done since the beginning of the year. Raphael, Claudia, [indiscernible], Roberto, they did a great job and made a payment. And they were able to bring down the non-interest bearing trends and strengthening our informant operations, and more specializing the financial management of the e-commerce. This segment continues to soar in the group with all the players seeking the same, which is gaining market share and profitability, of course.

But we have a strong team, a team that works in a very agile fashion. And is very good performance, in other words, was able to raise the bar in services. And I can say that we have the best service level in the whole segment and this is totally recognized. And this is done by very hard job in logistics and achieving growth with no negative results at all.

There you see decisions that this year, we are starting at a very growth-structured manner, with a review of the team and the processes which, is our Real Estate division. Our Real Estate division is led by Alexandre de Vasconcellos, he's a very competent guy. He has a holistic view, he set up the team and he reads all the process reviews. And we already have subjects that have contribution to our bottom line. And from now on, we have excellent opportunities to create value by means of our real estate assets. And of course, together hand-in-hand with retail.

So to complete my remarks, talking about our people. Our people are great. They have a lot of experience, they have a lot of motivation and perfect focus on each of our businesses. It was a great pleasure for us to see the increase of the level of engagement by the end of 2012. That was really outstanding. And we invested quite a lot in training and we started in internal work with training of our people in the situation of full employment that could have been a bottleneck and limitation to cooperate for the labor, especially skilled labor. And we are preparing ourselves to do this internally. We have made gateway to try this direction. We already have training of professionals in a significant number in 2012, and it will even be higher in 2013.

And focused with management with autonomy, with accountability and meritocracy. This is the way we work, and this is the way we will continue to work which was a year with a sound capital structure. We reduced our indebtedness, we increased our liquidity, with a focused financial management. And we start most retail with those results, so they came on board with a lot of knowledge and efficiency ratio and the reduction of inventories, reduction of the non-interest-bearing installments and working with all the other business areas and guarantee the refinancing lines for the company.

Infrastructure. I really must mention, because a company that is willing to have an aggressive expansion, organic expansion, to enhance, to investment in infrastructure and we've invested quite a lot of money in IPI logistics to prepare the company and to keep it prepared for a strong performance, but always tapping into synergies and efficiencies among the different businesses. And we were able to achieve a solid result with sound margins, with all these efforts, and with great, great opportunities.

And our operating investment and the expansion, we had 103 new stores being opened, 71 Foods and 32 non-foods. 2013, in my view, just to say a few words about that, what can we expect for 2013? We can expect efficiency and results. We will continue to maintain a total focus, which is our major competitive advantage, being very close to our clients and making surveys all the time and paying attention to our clients and focus on our business. Expecting cultures and the specifics of each business, guaranty a convergence to economic group which is prepared with a portfolio to fight biggest market, to rise on the market, which becomes more and more competitive with the professional management. And it is very important for me to say that we must have agility. This is retail, so retail is carried out by means of consistent work proceeds with autonomy, with accountability, control and meritocracy.

So this is the work of order. This is how we operate. This gives us agility in our decision-making process and guarantees that execution. It's up-to-date every day. It very much strengthened this year so that we may really be aggressive based on competitiveness, growing our sales, gaining market shares and growing the inflow of clients in our stores, with sustainability in our retail equation. Always based on efficiency gains so that we can hold but at the same time, maintain our margins. You may also expect an aggressive organic growth. We will have at least, 150 new stores opened in 2013; 160,000 square meters in 2013.

Focus, I have already mentioned, is quite a lot. And I reinforce that priority to the Northeast and the Midwest. And I think this is going to be the year in which we will be advancing and consolidating our operations of low-priced channels. And this is our big strength and this is our big difference. We are a very complete player in the market from the viewpoint of banners and mix. And all regions of the country, and of course, the lot of value can be further created with multiple channels and synergies. And advance, very strongly in value creation, in a recurrent fashion, taking advantage of one-shop opportunities of course. But we must have a recurrent value being brought to the Grupo Pão de Açúcar by our real estate activities.

So without further ado, I would like to give the floor to the members of the management from the company. I will give the floor to Christophe and afterwards, I will say a few words. I'm very happy to be here and I'm very bullish and we will continue together. So I will give the floor to Christophe.

Christophe Hidalgo

Good morning, everyone. I would like to start the presentation. We can see that consolidated sales for the fourth quarter BRL 16.3, excluding real estate projects, 8% growth, excluding real estate projects. And among comparable stores, 5.8%, vis-à-vis the previous year. And toward the same period, profitability measured by EBITDA moved from 28% to 28% -- representing 8 -- grew by 28%, representing 8.7% net income for the company, BRL 488 million, with a 23.4% increase year-on-year, representing a 3.4% margin.

The capture of opportunities in the real estate area allowed us to add 40 basis points to the EBITDA margin, which reaches 9.1% of our net sales and the impact on the net income of the company, but our real estate project allowed us to reach 36.4% increase, with a 3.7% margin.

Now, going to Slide #3. We see that during the whole year, sales exceeded BRL 57 billion, with a growth of 8.4% during the period and same-store sales growth in the same period was sound, reaching 7%. EBITDA for the period 2012 was BRL 3.5 billion, which means 6.9% margin with a 24.8% growth. And this good performance reflects the very good control over our expenses with the objective of not heavy -- of continuing to be very competitive. Net, well we had our net income going from 39.2%, reaching the best historical level with a 2% margin. The contribution of the real estate projects brought 30 basis points to the EBITDA and to the net income, which reached 7.2% and 2.3%, respectively.

Now, going to Slide #4. We can see that the net debt, by the end of the year, was BRL 3.4 billion, showing a major deleveraging in spite of the significant level of investments carried out in the fourth quarter. By the end of 2012, net debt represent 0.93x the EBITDA and it is reflected in the reduction of the net financial expenses.

Now, I would like to give the floor to Tambasco and he is going to talk about the Foods.

José Roberto Coimbra Tambasco

Food retail. Well, in food retail, the results were not different from that. As Abilio said, it was a tough year, but it was a rather successful year in terms of growth and good results obtained. We'll be talking in detail about that. And I would like to limit myself to a few points of our strategy, which has brought about these results. In the last few years, we have been talking about extensively about that.

Consumers have been changing their buying behavior and they have a higher purchasing power than they had in the past than they have been trying to establish a more complex relationship in retail. Because of that, our strategy, as Eneas said, a strategy of being a company that has a very complete portfolio in terms of store models allows us to establish a strategy with 2 major focuses: The first one has to do with multi-format or multi-value. All consumers, more and more look for multi-banner and multi-channel, which has a lot to do with our strategy due to our portfolio. And we are focusing our strategy on this aspect.

In terms of multi-banner, or, multi-format, we are trying to reinforce each one of our formats having the best outlet option for our consumers at that specific moment, be it at the supermarkets or a neighborhood store or a hypermarket. So we have been focusing on the growth of the mini-markets. In the last quarter, we opened 40 new stores of Minimercado's, mini-markets. And this model caters to these consumers in their daily needs and this also gives us as an opportunity to strengthen our ties with these consumers with the Extra brand.

[indiscernible] we have a significant gain because of the improved processing power of our consumers that try to use and buy new products and look for other services. And this offers Grupo Pão de Açúcar an opportunity to consolidate with a banner that caters to these consumers and in the hypermarkets, besides having resumed with the expansion of this store model, we are also trying to reinforce the offer of products and services in this model of store.

And here, I would like to highlight the textile area. This is an area that, since 2011, we repositioned our product portfolio for this category and bringing Extra to rise for the textile market with specialized stores, with specialty stores. And in 2012, we started the new reformulation of the sale, of the selling areas of the sector, creating a much more pleasant ambience for our consumers, and adding other services of the sale of these textile products. And this has been bringing us a very robust growth. And in 2013, we should be concluding the rollout of this operation in all the hypermarkets.

Another area that I would like to highlight and that has a lot to do with this new consumer that I have just described and that looks more and more to have piece of their meals outside their homes, it's a transformed Extra with a rotisserie operation or placing [ph] there. Both -- in operation, hypermarkets are going through a transformation in the implementation of restaurants, our own restaurants in these areas. And this has been generating a new option to these consumers and also bringing a higher inflow of clients to our stores. Alexandre de Vasconcellos will be talking in detail about that.

But another highlight for Extra is the increase of our galleries to offer more and more services to these consumers. And the second part of our retail strategy that, Eneas has already touched upon, is the search for a higher level of integration between the physical world and the virtual world. In our several retail stores, the brick & mortar stores with a novel Pontocom. In dozens of the extra Supermercado stores, we had already implemented the kiosks of Pontocom that allow these consumers to have access to nonfood products that the supermarkets don't have. With a very big integration -- and with the Extra Pontocom website. And we also launched by the end of this year, the Extra food delivery operation. We only had this before with the Pontocom. Now, we have launched with Extra integrated to the Extra Pontocom website with the objective deepening this concept contract with our consumers by means of the Extra brand.

Our objective is not only to be close to these clients whenever he wishes to buy -- he or she wishes to buy, but at the same time, we are able to reinforce the Extra brand as a better purchasing option for that client. And then as Eneas said, for 2013, we are very bullish about the reinforcement of this strategy with a very aggressive expansion. And we intend to deepen this integration with the virtual world. And of course, we will hear about that even more afterwards.

So I thank you very much for your attention and wish you all a very good day. And now, I would like to give the floor -- I apologize. I will give the floor to Belmiro, and Belmiro will be talking about the GPA Food with Assaí.

Belmiro Gomes

Thank you very much, Tambasco. Good morning, everyone. Talking about Q4 2013, Q4 in terms of sales was the best period of the year. For Assai, we had a very good increase in our sales and this increase in sales was 24%, and it was driven by growth of same-store sales in the fourth quarter, which leaves an 18.8% growth, closing the year with 15.7%, with a growth higher than inflation, higher than 2 digits, which is unprecedented in the market. And this result was obtained with the maturing of some operations and some categories in 2011, and operations regarding our target public.

These new items, as they are part of this basket of our clients, we increased the average ticket in a positive fashion. And increased both more than 15% of the remainder, with widely increased consumer traffic, which was more than 4% increase in same-store sales. We closed with BRL 1.542 billion vis-a-vis the figure that you have for the previous year, and this increase and the strength of this category brought pressure to our OD and 10.6 advancement and 10.6 -- and we continued to gain efficiency in expenses because expenses do not grow as much as sales, neither in the year nor in the quarter.

2012, Assaí was very positive. We had an 18.5% increase in total sales. We reached BRL 5 billion in sales and EBITDA went from 77 -- with an increase of 77 from BRL 106 million to BRL 190 million. And for our segment, doesn't suffer so much pressure, 57% of the EBITDA value was converted in IR and 42% converted in net income. With that, the net income of 2011, which was BRL 9 million as we may have said before, income before tax -- income tax with a big capture as the result coming from the changes in the business, 8x increase vis-a-vis the previous is year reaching a percentage of 1.8% of the net sales.

2012 was a year in which we reaped the results of the adjustments in our commercial policy off Assaí. But it was mainly the year that we compared Assaí for new leads. We have a growth -- organic growth plan, which was very aggressive despite 2012 was down. In 2012, since the definition of the stores format and the sites, and which was they executed in 2013. We spent 2012 to 2013 with over 40,000 square meters under construction that will be opened in the first half of this year, going from 7 to 14 states, increasing its presence nationally. It will be a year in which we are sure that we're very good in terms of expansion, our team is very motivated with the growth of our business. We have been growing largely very strongly, to have also growth in our people. That is to say, so that they may develop themselves and we are 100% sure that 2013 will be the best year ever so far.

Thank you very much. Alexandre de Vasconcellos now will be making some remarks.

Alexandre Gonçalves de Vasconcellos

Good morning. I would like to move to Slide 6. All the sentence summarizes the real estate in terms of growth, as mentioned before, it's been a constant change in the way you have to understand, follow and first meet their needs and expectations. [indiscernible] To opportunities to include the attractiveness of our part with complementary offerings offered in the segments of leisure, health, well-being, convenience and food. Within that formation, this is a transformation of our galleries, both through the expansion of the physical space, the ambiance and also the inclusion of the new assortment of stores. This in full penetrate with our retail operations.

However you want to do it to fully [indiscernible] these challenges would involve responsibility to care for retail stores, such as organic growth and partly including renovation and maintenance of the stores. We have worked constantly to reduce the cost and intend to set up new stores of food to retail. As an example, I mentioned the expansion of minimarkets and neighborhood stores where we changed banners and focused -- and now we have a dedicated team working in an integrated fashion, working on the source for new points into the delivery of new stores. [indiscernible] the markets have been reduced by 50% and the cost has been reduced by 25%. By next month, we will be delivering more of what I had just described.

Thank you very much, and now I'll give the floor to Vitor Fagá.

Vitor Fagá de Almeida

Thank you, Alexandre. On Slide 7, we'll give you some highlights. Referring to growth of our selling area. This is the topic we have been discussing with you at the end. Incidentally, to highlight that for GPA Food, in the last quarter of 2012, we opened 38 new stores in the quarter's acceleration in the period of store openings, which is represented more than 25,000 square meters of additional selling areas added in this quarter alone.

At Viavarejo, 16 new stores were opened. 12 Casas Bahia and 4 Ponto Frio, which comes to show an important expansion in the following area for these 2 business segments. To give you some highlights, particularly for GPA food, we had a growth in the selling area close to 5% to 2012, with 4.4% of net growth happened in the second half of the year, which shows the base of growth in the second half, a lot stronger than in the first half of the year. Because of this, we fully expected to evolve over 2013. We're selling in our areas through organic growth, through several banners along 2013.

Moving to Slide 8, I'm going to give you some business highlights. Our business results for GPA Food with operations including food, retail, banners, Extra, Pão de Açúcar, and cash-and-carry, and Assaí. Growth in sales grew, excluding the real estate projects, 9% in the last quarter of 2012. Also the first quarter of 2011. Growth of profit expected to be growing to 8 percentage points compared to the same period as seen this year. Therefore, a growth of almost 13% in absolute terms. Associated for reduction in operating expenses is the percentage of sales, now, at 18.1% operating expenses compared to net sales, which shows a synergy in the gain of operating efficiency which is ongoing in GPA Food.

And finally, despite the fact, the EBITDA margin -- EBITDA margin, as mentioned before, increased with a nominal -- EBITDA increase by more than 20% in the period. When we associate a reduction of net financial expenses, adding in to other deduction in our debt level, and a reduction in the cost of the debt, that led to a net income of BRL 254 million, which gives us an EBITDA margin of over 3% for GPA Food.

When we quote real estate projects, net income in this business segment, above BRL 300 million, BRL 305 million, and a margin of 13.3% is the highlight for GPA Food that we wanted to share with you.

I will now give the floor to who Ramatis who will talk about Viavarejo.

Antonio Ramatis Fernandes Rodrigues

Good morning. 2012 was a very important year in the process of integration of Viavarejo. This year, we focused on 2 main growers. On processes and on our people. Regarding the processes, the management of our offices. When we talk about people, we started a very strong process to strengthen our culture. We started a program called [indiscernible], higher costs. Focusing on getting an engagement and commitment on the part of our staff. In addition, we strongly focused on training, training our people. We have more than 1.2 million hours of training. We want to focus on professionalizing our management. With all of that and the result of that, we had a growth of -- same store sales going 7.4% in 2012. That sales growth was led by the repositioning in improved product mix, or a segment of Ponto Frio stores. As Belmiro mentioned, with the understanding of this new consumer, we are making adjustments in our marketing strategy, in our product mix strategy, so we can better serve these new customers.

After the expansion, year of 2012 had 32 new stores. And as it is on Casas Bahia banner, of the 32, we had the 25 of those being Casas Bahia . 16 of these new stores opened in the northeast and northern region. With that expansion, we currently totaled 39 stores in the northeast.

After the reduction of operating expenses, in 2012, we focused on improving our internal processes, particularly with the introduction of new tools and management systems. That allowed us to create productivity gains and a strong reduction of expenses. As mentioned before, we had had a reduction of our net financial expenses, mainly due to a reduced average collection period of customers. And another element contributing to that was the selected cuts, was our cash generation, particularly due to increase in profitability and due to improved inventory and supplier's management.

So 2012 for us is very important. We started 2013 feeling confident that we are a strong and well-structured company with a highly motivated team to continue to grow towards profitability, competitiveness and to remain leaders in the market.

Thank you very much. I'd like to give the floor now to Quiroga to talk about Nova Pontocom.

German Quiroga

Thank you, Ramatis. Good morning. The first quarter of 2012, in particular, had the challenge of reversing the losses accumulated in the three -- the first 3 quarters of the year and continue to grow and having to face the competition. The great news is that the Nova team was able to overcome the challenge. In the fourth quarter, we had a growth and positive operating results net of that, we reversed the accumulated losses of the year, maintaining therefore our track record of growth with consistent positive results, delivering the guidance at the beginning of the year, closing 2012 with a net cash above BRL 100 million.

Innovation. We developed and new strategic business for the company. Market growth [indiscernible]. We structured the marketplace and invested strongly in marketing analytics and supply chain. In 2013 we can count on the results of all our current levels in 2012. We are most prepared to anticipate a highly competitive market, because in 2012, we worked in process review to increase our efficiency and productivity.

In the presence of a positive operating result in the fourth quarter of 2012. Prior to that, we have an unprecedented condition. We can capture synergy that will help us be more competitive, which represents a focus on enjoying one of the main competitive advantages that we have multi-channel. The team is working closely together and is highly motivated to make multichannel a reality. But now, Tambasco and the our teams have been working together for a long time. And now we are in this fantastic position to make these synergy initiatives. Client focus remains one of our pillars. And finally, I would like to thank our team at the Pao de Acucar group for all the work that we did together in 2012. My message to you is, in 2013, we will accelerate our growth to already have positive profitability and cash generation.

Thank you very much. I give the floor now to Claudia.

Claudia Elisa de Pinho Soares

This is Claudia Elisa. [indiscernible]. Looking at the results of the first quarter of 2012, and the amount in presentation, having talked about delivering the guidance for the year, for the operation. This is a very positive year for us. Looking at our gross sales in the quarter, which have been more than BRL 7.5 billion -- almost a 7% growth quarterly over quarterly, 6% in same store sales growth and BRL 26.2 billion in sales. Therefore, delivering more than the guidance given before 2012, that's BRL 25.7 billion. That was the expectation for Viavarejo. In terms of gross profit, we see gross margin of 29.1%, a reduction compared to the third quarter of 2011, up 1%.

But just the second quarter, we've been talking about some allocations among accounts became gross profit and after the expected service 1% reduction in the fourth quarter was actually a 0.5% reduction. But as set by our performance and control of operating expenses.

Operating expenses were reduced substantially in the fourth quarter. Even with increased gross sales and gross profit, operating expenses in the quarter, were reduced by 6%. And in terms of percentage points after net revenue, we had a reduction of 3.1 percentage points, considering what is written in the press release, it's a 3.1% corresponds to 2.5 percentage points. With that kind of performance we reached the end of first of term of BRL 579 million in the EBITDA margin in the first quarter of 8.7% -- growing 38.7% in the quarter, our EBITDA.

And in the year, our EBITDA margin was 6%. Also in accordance with the guidance given to the market, between 5.7% and 6.5%. And to invest in financial expenses, just like the whole group, we performed better, reducing our net financial expenses. In the quarter, we reached 2.5%, after net sale, up 0.7 percentage points reduction compared to the third quarter of 2011. And for the year [indiscernible] financial expenses.

Again, given the guidance, we would be below 3.3%. In the light of these good results, our net income grew substantially in the quarter. Net income grew 85.9% and net marketing at 3.5%, in the year, 1.4%. This 1.4% growth is a growth of almost 1 percentage point over 2011. In year-on-year, in reais, in the realtime growth of BRL 234 million.

I will give the floor now to Vitor who will continue this presentation. Thank you.

Vitor Fagá de Almeida

Thank you, Claudia. We are now going to have the Q&A session.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Mr. Tobias Stingelin from Santander.

Tobias Stingelin - Santander, Equity Research

I would like reference to the guidance of expansion, 160,000 square meters. [indiscernible] GPA Food. The first question is this. The second question is, I'd like to listen to the Expansion of the gross margin of Food excluding Assai, which is quite expensive. I would like to understand how we can interpret that the previous quarter because of a reduction? Now you went up again quite a lot. How can you see that in strategic terms? And I would like to understand some [indiscernible], if you could explain the gains in the fourth quarter. How can we see typically looking forward? Could you give us an indication of that base for new gains for the financial?

Enéas César Pestana Neto

Tobias, to answer your first question, our guidance of 174, more than 174, more than 117,000 higher for the whole group. In the future, where this growth amounted totaled -- amounted to a guidance for results and the guidance for the new stores. But the 2 [ph] percentage points for the group as a whole.

José Roberto Coimbra Tambasco

This is Tambasco. Talking about the performance of margins in GPA Food. What we have your is clearly a change in the mix in the participation to match the segment. It's a bigger market and the neighborhood stores are expanding more now. [indiscernible] positioning of that banner. And I'm happy to see the aggregate, of categories of perishables in that market. We think we have grown strongly. Our group [ph] have gained higher margins. There's another aspect involved here. [indiscernible] In the last few years, we have seen a reduction in the consumption of [indiscernible] products overall. [indiscernible] have lost share? The values offsetting categories that have higher EBIT value and the better margins related to it -- categories of rice, beans, staple food, they don't have very rigid margins. It is the benefit there of a reduction of staple food and they include apparel, textiles in the hypermarkets or ready-made perishables. Probably a product with a higher margin and a higher EBIT value. So it's fundamentally a shift in types of products.

Tobias Stingelin - Santander, Equity Research

And a follow-up question, I'm looking at the third quarter. In the third quarter, the product mix shift to the more long-lasting effect. It was a drop of 70 bps, and now it grew more than 100. And [indiscernible] the returns, but it's such a major shift from one product to another [indiscernible] mix of products.

José Roberto Coimbra Tambasco

Just fundamentally, this is among [ph] product mix, there's no change in the market. [indiscernible] might have been forged by us. But the performance at the hypermarket in the category of consumer electronics is lower compared to the year as a whole. Particularly in the category of video and IT. These categories with very rigid margins given the competitive niche of the market. So, again, it is one more point that reinforced the improvement in the market despite the fact that we lost a little bit of Food in this category. But to answer the question, yes, it's fundamentally a product mix. I can't explain it any other way, thank you. There's 1 question about the variation [ph]. Ramatis is here to answer your question about the variation [ph].

Antonio Ramatis Fernandes Rodrigues

Hello, Tobias, and thank you for the question. This is indeed a very important point because most of the gains to be captured were now in the first quarter, as we can see the results of the adjusting firms. Many of the actions were implemented in the second half. Many of them are still being implemented but we started capturing some of these gains that tends to be recurring over 2013. We created an internal committee on March 4, as we mentioned, in our press release. Because internal committee, we are analyzing, controlling and attribute all of the expenses. This is one circumstance where we have the advantage we'll have to focus on our expenses, on our cash so that we can focus on a reduction of our expenses. We also have to create another committee that is concentrating on new opportunities to reduce expenses [ph] of the company. And it can reduce some strategic issues that can be very important. Here, we're dealing partly logistic marketing and we're trying to think out of the box, so that we can start pushing our net sales but with more expenses. This has been our work today. We should consolidate these gains by the end of 2013.

Andrea F. Teixeira - JP Morgan Chase & Co, Research Division

And a follow-up question, do you continue to believe that everything has been mapped and that now you are in the process of implementation, a quick implementation of all of these measures?

Enéas César Pestana Neto

The answer is, in fact, the part has been implemented and another part is being implemented, at an accelerated pace. Particularly, as of December, we've been working on things that have come up before. At the beginning of the first quarter, we started capturing some of these things.


Our next question comes from Mr. Ricardo Boiati from Bradesco.

Ricardo Boiati - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

My question is addressed to Belmiro regarding Assaí. Could you give me -- could you elaborate on where you got reductions from the logistics cost of the operation? Is it due to a product mix? Is it just something else? Or perhaps different customers? What is really the potential looking at the operation as a whole, given that we don't have task-competitiveness and given the potential to reduce expenses, is there any reason -- or what should we expect? Could we expect a positive impact on return on capital invested? And my second question, Mr. Quiroga, in your earlier conference call, Quiroga, could you elaborate a little bit further on the service aspect? Any indicators you could share with us about how delivery returns, customer satisfaction -- is there anything you could give us? Perhaps you could have a benchmark with some income practices. And also, regarding expenses of Pontocom. How do you track the indicators such as cost to acquiring new customers? The expenses related to challenge versus non-paid channels? So that we can have an idea of what to expect in terms of margin performance and the operation looking forward.

Unknown Executive

Now just like efficiency gains, we have a relationship for the mix of product, which changed. Depending on the EBIT value of the product, we look at fixed expenses to share reduction. But it's a good view of what the logistics gain that we got to find, but we'll continue to potentially hedge the dividend testament to our best banners. All portfolio stores have the ability to stock change in stores that can stock more than a retail store. The same happens if you cut our second logistics the direct -- in the store directly from suppliers, when you drop products in the store for reduction and cost. Northeastern stores, particularly because we earn something now, then that happened since I've pulled [ph] 100% of the stores, where the stores will keep 100% of the product mix directly from the industry, the manufacturers, and with that you lower logistic expenses. [indiscernible] logistics is in the region. [indiscernible] in the case of São Paulo or in very remote could be -- in this format, this banner. We are also rather better. But wholesale, should we look at the forecast, which is I consider the beginning, which we do not need.

[Technical Difficulty]

our service. We are diamonds. We are one of the few diamond companies in Brazil that have an indicator, which is important -- which is the importance of people -- 1% or 2% [ph] to buy them from us. To be a diamond, it's about 85%, very few companies manage that. And they'll have an indicator for the 90% consistently in this indicator, meaning people are willing to come and buy from us again. In other words, our repurchasing index. In other words, our customers will come and buy again in higher business, which leads to your other question. I think it's expenses -- that talks about expenses. Marketing expenses, direct channels versus non-direct channels. That's an 80% of our sales. I think 80% of our sales -- about 80% of our sales go through direct channels. That's a relatively new level of channel normally. But we offer complicated business, and there you have it. And we just have a strong portfolio of brand, the [indiscernible] Extra. So that's what we think this indicator are. In addition to a positive contribution combined convention again. The positive month-to month data level. [indiscernible] all of the brand indicator. On the second question, we normally don't disclose that because related to the percentage product that is there. I mean, the cost of acquiring this client is a cost that is dropping over time.


Our next question comes from Mr. Fabio Monteiro from BTG Pactual.

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

I have 2 questions, one is about Viavarejo. I just want to understand how far along are you in the expenses concerning marketing logistics ways in particular. I'd like to know whether marketing, do you have any requirements, internal line of credit you're advertising? This is few years ago in Pontocom. And then logistics, any strategy regarding your success [ph] or possibility of closing a distribution center? Any expectations regarding a CADE decision? That is my first question.

Claudia Elisa de Pinho Soares

Fabio, this is Claudia -- Claudia Elisa. I know that there was another question asked. The page of our plans, so it's in full control, because of our expenses committee where we tried to bring something -- we've got a lot of expenses related to IT, related to contract, and a good use we had in that regard. We will continue implementing these, given, of course, we always ask them to do the math and then we're asked, "Could we do it?" [indiscernible] continue regarding [ph] including marketing and logistics. In marketing, specifically regarding your question, whether we have made any decisions about the agencies. No, no decisions has made -- has been made. The expertise and the knowledge that he has of our areas. Of course, his knowledge will be very useful for us to continue this debate in the company regarding logistics. Once we have a new role [ph] from 2013 -- to 2012 to '13. I'm going to give the phone to Ciao.

Caio Racy Mattar

Regarding logistics, there are some work already done. There is some work already done in company to synergies. We identify the possibility to carry out changes model in some areas. Vis-à-vis, our own fleet and unsold fleet. By the end of 2011, and over year of 2012, we have already started to implement that, and they believe they already have weighted a good level, we have 60%, fleet, 40% outsourced. Regarding possible increase with the synergies, today, we already have a study that is rather advanced already [ph] regarding synergies in the group. And they are required as one of the participants that will have an important benefit about using synergies between the different businesses that we will be analyzing in debt and implementing in 2013. In this regard, I would like to remind you that in logistics, there are some limitations that are -- these levels like the Assaí. One of them is -- had to do with our artificial agreement for the possible reversal of transaction, trying to do with our logistics operations. As soon as we have the decision by CADE, we would be able to advance and optimize the areas that we have to play. Regarding CADE, I'm already answering your second question, what is our expectation. We are very closed to CADE in all the debate, together with our advisers. And they have been telling us that the CADE's idea is to have this as quick as possible. That is we take a decision about our case, and we believe, it is already have met, because all the information that they requested from us, given the process, we have already submitted everything. So this is the reason why we believe that in the next few sessions, our case will be judged, and we are bullish about our strength. We still have some limitations regarding CADE. Basically, in logistics, as I said before, and also in some stores, that we could make decisions about them afterwards. But we have to wait for CADE's decision. Our expectation is that the next sessions of CADE, our case will be before them and judged by them.

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

I have one last question, very quick one. About the publishing people. We should have the right to the recognition of the last known to present the execution, et cetera. What is the pipeline that you have in 2013, coming from this business, the real estate business?

Unknown Analyst

Our pipeline doesn't have anything independent in 2013. By that, I mean, that the whole operations is linked to retail. And we're working in the pipeline in the following array of actions. Already in design of the new stores is organic growth. We are increasing our galleries according to the concept I described today, our galleries of Extra [indiscernible] are between 506 center square meters, and we're working with larger areas from 1,000 to 1,500 square meters for 2013. So in 2013, we are going to grow this further. And we are going to revisit all the stores that we already have, searching the opportunity by means of increasing our galleries that means remodeling the stores -- already existing stores. We also have our fuel stations. We had pilot with convenience stores, and we're negotiating that. I cannot give you any further details, because we're about to close our negotiations with our future store owners, and we have bigger initiatives as well in areas of over 10,000 square meters for the third quarter of this year.


Pedro Leduc, JP Morgan, for the question.

Pedro Leduc - JP Morgan Chase & Co, Research Division

Very quickly, I would like to understand the rationale for the operation at [ph] Québec City. What's with the rational for the changes? And what kind of change will this carry out in all your receivables discounts?

Unknown Executive

The decision was a major one -- made by the company. This was not different from all the decisions we made on a daily basis. You must keep in mind that the CD was close to their maturities, so it was the right moment to think about the opportunity of either we knew the existing structures are due to the situation or the analysis [ph] of the situation. The liquidity situation and the perspectives for market, we deemed it convenient, not to renew the structures. And today, we have the right conditions to tap into the opportunities that the market offers. Or in other words, this decision allows us to optimize our discount operations in a more proper way than we could do with the city structures. Of course, I'm not going to get into about the cost and the expenses regarding these discounts, but I confirm that exiting the FIDC was a decision that allows us to improve our discount structure.


We now have a question coming from the english line [ph]. Our next question comes from Richard Cathcart from Banco Espirito Santo.

Richard Cathcart - Espirito Santo Investment Bank, Research Division



Please ask your question in english.

Richard Cathcart - Espirito Santo Investment Bank, Research Division

So the gross margin -- the lower gross margin from the net gross margin of Assaí in the fourth quarter, will that continue for the next few quarters? And could you have been happy with that price position against the competition, the Assaí? Or does it need to improve?

Unknown Executive

No, the gross margin, the drop in Q4 was much more due to the fact that we were seeking more sales, and the crucial option target groups in our legal entity group. The change in the participation of the groups could cause a drop, which was more difficult in this q. For 2013, it shouldn't be the same scenario. A dropping margin could happen, yes. Margin to the opening of the new stores, and this would only be natural because of store when it is opened during the maturation curve. The margin is lower, however, this will not be happening for the existing stores.


[Operator Instructions] Mrs. Tina Barroso from Santander.

Tina Barroso

I would like to add to Tobia's question. I would like to understand how much is recurrent in your gross margin with the food area in the fourth quarter? And I know that in the next 3 quarters, which is not going to happen, how much of this improvement in margin was because you lost products with the lower margin once we need in other words, as a guidance for margins for the food area and regarding expansion, 4.8%? So how comfortable can we be with a minimum fixed guidance? And that could reach 8%, I think it was the past guidance for 2015 in terms of the selling period?

Enéas César Pestana Neto

Tina, this is Neto. I would like to start by answering your second question. We had 4.8% slowed increase in 2012. Our expectation was to go slightly more than that. And then what happened was that we had to postpone the opening of some stores from late 2012 to early 2013. And in Q1 2013, the pace of new stores we opened will be substantially faster than what we saw last year in the first half. How comfortable can we be with this pace of growth in 2013? Very comfortable. Because growth in 2012, in the second half was much stronger in the first half of the year. And this shows that our expansion base due to many factors for instance, the implementation of a specific process or the opening of Minimercado stores, minimarket stores, which is much more agile, and it and allows us to open, for instance, 30 new stores every quarter. This is the reason why we did that in Q4. And this means 1 store in every 3 days. And, of course, the new process has to be implemented regarding mapping, development and the opening of the source, so we are very comfortable with this pace of opening new stores. About the gross margin, we will be disclosing our guidance for the company for each one of the business units, which will be a little bit later on. It will be a more detailed guidance about specific details. But anyway, I would like to give the floor to Tambasco, and he will be able to say something about the thing okay.

José Roberto Coimbra Tambasco

Tina, I would like to reiterate the mix, which is very significant. It is difficult to tell you how much this represents in terms of participation only. This is our daily routine. Every single day, we look at the market, and we, of course, make price adjustments that is -- what is more difficult to what you see here. You seek productivity, you try to improve efficiency every single day then improving negotiations with suppliers, so this is the dynamics of the business. Of course, if we have something, like an initiative, such as the one that I mentioned, in the [indiscernible] or textiles, and the rotisserie, which are categories that contribute higher margins. This could give you some room for maneuver, the key dynamics of our business. It is going back to your suppliers, negotiating with them all the time, and there are 2 things we never change. What is my price competitiveness vis-a-vis our competitors, in each one of our markets. And what is the outcome, what is the result that I have to achieve, ultimately. And we try to establish an equation and fine tune in order to guarantee that. We do not want to lose competitiveness, because of the need to look for market share, and we do not touch our results. So looking ahead, the dynamics is great. This is what's happened last year, and this is what will happen this year. We can't lose competitiveness, and we don't lose probability. And this is where you have to fine tune all your variables with the dress suppliers or and category mix, in order to guarantee the outcome.

Tina Barroso

What about same-store sales at the beginning of the year? Do you see the same mix that you've had in the fourth quarter, net of the seasonal products like Christmas items, et cetera? Do you see this trend continue of weak or same-store sales with the better mix and better margins?

Unknown Executive

In the case of hypermarkets, as you saw, in the beginning of year, our performance in IT is the one described, with a very strong increase in the food area and maybe in the fresh produce, we had better margins, so this was true. So I can say that the picture that we had at the last quarter should be maintained.


If there are no more questions. I would like to give the floor back to Mr. Vitor Fagá, for his closing remarks. Mr. Fagá, you may proceed.

Vitor Fagá de Almeida

I would like to thank you all very much for participating in our call. And that concludes the Grupo Pão de Açúcar conference call about our results. And if you still have any doubts, could you please contact our Investor Relations area. Thank you very much, and I wish you all a very good afternoon.


Grupo Pão de Açúcar conference call about results for the fourth quarter is closed. The Investor Relations department of the group is available to answer any question that you might have. We would like to thank you very much for your participation and wish you all a very good afternoon. Thank you.

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