Gross revenue up 14.6% in 4Q13;

Adjusted EBITDA of R$1.605 billion, with EBITDA margin of 9.5% in the quarter.

• Gross revenue of R$ 18.8 billion in 4Q13. Same-store growth of 10.8%, with growth of 9.8% in the Food category and 11.5% in the Non-Food category;
• Selling, general and administrative expenses as a ratio of net revenue decrease 220 basis points in 4Q13;
• Net income of R$ 687 million, up 27.5% from 4Q12.

Gross revenue up 14.8% in 4Q13. On a same-store basis, gross revenue grows 8.8%;

Net income of R$ 321 million, growing 26.4% from 4Q12.

Gross revenue grows 15.1% to R$8.7 billion in 4Q13;

EBITDA up 19.4% to R$703 million, with EBITDA margin of 9.2% in the quarter.

MESSAGE FROM THE MANAGEMENT

In 2013, we faced a challenging macroeconomic environment marked by modest growth and interest rate hikes as a mechanism to control inflation.

Despite this adverse scenario, GPA demonstrated the capacity and agility to adjust its strategy to market conditions and deliver strong results accompanied by market share gains in its various business segments. In recent years, we have delivered growth and positive results, strengthening GPA as a group poised for sustainable and structured growth going forward, which is an important differential in the retail business.

In 2013, we consolidated our multi-format model with a diversified yet convergent business portfolio, while expanding our competitive advantages. We have definitively selected the multi-channel approach as our strategic priority. For this, we implemented a series of initiatives focused on integration, capturing synergies and creative solutions to make the buying experience increasingly more practical, convenient and attractive for our customers. As a result, we identified opportunities that enable us to act in a coordinated fashion to offer the best buying solution, while ensuring the alignment of processes, synergy gains, financial discipline and consequently lower costs.

During the year, the Company also focused on implementing the competitive pricing strategy in the Food Retail segment, especially in the Extra banner. As a result, we registered a significant increase in customer traffic at our stores and captured market share gains. The competitive pricing strategy is supported by the pursuit of efficiency gains, which we have achieved by streamlining our operating and corporate expenses.

Investment in organic growth was another important guideline that allowed us to achieve strong growth in sales area during the year. The Group entered new markets, mainly through the Assaí model, strengthened its presence in important markets such as the Northeast through Via Varejo and expanded the neighborhood format through Minimercado Extra in the state of São Paulo.

Among the businesses, Assaí’s performance was one of the highlights of 2013. During the year, we consolidated the new store model and invested in organic expansion by opening 14 new stores and entering five states, which effectively strengthened the banner’s national footprint.

As part of our strategy to increase traffic and make the Group’s stores more attractive, while also boosting the Company’s results through revenue from the leasing of commercial spaces, GPA Malls added some 45,000 square meters of gross leasable area (GLA) to end the year with total GLA of 288,000 square meters.

For Via Varejo, the year was marked by sales growth, the consolidation of the process to professionalize the business and the adoption of a set of measures focused on capturing efficiency gains. The Company’s profitability grew significantly, driven by these measures and by greater discipline. At the end of the year, Via Varejo, the leader in the electronics and home appliance segment, carried out an IPO, which represents an important step towards strengthening its presence in the capital markets. The IPO also strengthened the financial structure of GPA, helping to reduce its net debt position at year-end 2013.

At Nova Pontocom, we adopted a strategy that also focused on competitiveness and growth, which led to efficiency and market share gains as well as positive returns already as of the second quarter. We also launched Extra Marketplace, a new sales model that brings together in a single website offers from multiple stores in a variety of segments, which enabled us to considerably increase our product assortment.

We take immense pride in affirming that these results were achieved thanks to the efforts of our employees, whose drive, determination and professionalism made it possible for GPA to continue overcoming challenges. That is why we will maintain our commitment to increase the satisfaction of our employees by investing in developing their potential so that we will always have well-prepared and happy people who are engaged in the business and its demands for growth, results and sustainability.

Conscious of the fact that sustainable management is a long and never-ending journey, we will continue to invest in dialogue and value creation with our stakeholders and to strengthen the relationship with our customers without abandoning our social and environmental stance, while maintaining our permanent alignment with the international principles to which we are signatories, such as the Global Compact, a United Nations initiative for promoting the adoption by companies of social responsibility and sustainability practices.

Sustainability remains a strategic vector of GPA’s strategy, especially given the importance and reach of our business. With over 150,000 employees, we are the largest private employer in Brazil, which further heightens our awareness of the social and environmental responsibility we have to this group and to society as a whole. In addition to balancing the economic, social and environmental aspects of our activities, our role is to engage the entire value chain to build together a better and more sustainable future for all Brazilians.

Sales Performance

Consolidated gross revenue was R$18.8 billion in 4Q13, increasing 14.9% in the period. The result benefitted from same-store sales growth of 10.8%, sustaining the performance of the previous quarter, with growth in relation to 4Q12 in all the Group's businesses, as detailed below:

ü     Food Category: growth  of 9.8%, with acceleration in all Food Retail categories compared to 3Q13 (led by beverages) and extension of the Black Friday sales campaign to food products in 2013, as well as anniversary promotions that benefited Assaí in the period. This growth of approximately 400 basis points above inflation (IPCA index) represents acceleration from the initial quarters of the year.

ü     Non-Food Category: growth of 11.5%, led by technology products: mobile phones, video and computers, in all formats, driven by Black Friday sales. 4Q13 was the best quarter of the year in 2013 for non-food products at Hypermarkets, with sales recovering over course of the year.

In the year, gross revenue amounted to R$ 64.4 billion, driven by same-store sales growth of 9.0%, or 300 basis points above inflation (IPCA), closing the year with excellent performances and growth in each business. The Company ended 2013 with 128 new stores, of which 87 were GPA Food and 41 were Via Varejo stores. A total of 50 new stores were delivered in 4Q13.  

GPA Food Highlights

Gross revenue increased 14.8% in 4Q13, with accelerated growth across all Food Retail banners. The highlight was Minimercado Extra, where same-store revenue growth continued to outperform the average of GPA Food, and Assaí, which continued to register strong growth (35.6%). On a same-store basis, gross sales increased 8.8%. A total of 24 stores were delivered in the period: 12 Minimercado, 6 Assaí, 4 Extra Super and 2 Pão de Açúcar.

After opening eight stores in 9M13, Assaí opened six stores this quarter, with a focus on states where it already has a presence, which allowed it to expand sales volume and strengthen its position against direct competitors. In the past 12 months, 14 new stores were delivered that included nine new store openings in five new states, whose performance continues to exceed expectations.

In the Retail segment, growth on the prior quarter accelerated in all banners to reach 10.3% in 4Q13, supported by the strategy to improve competitiveness implemented in the first half of the year, leveraged by a more effective communication campaign in stores and media channels. This strategy has already translated into higher customer traffic at stores, a higher average ticket and market share gains, especially at hypermarkets.

Retail sales in 4Q13 also benefited from the excellent performance of the Black Friday promotional campaign, which was extended to food categories, with strong performances in perishables and beverages. Non-food sales at hypermarkets also benefitted from Black Friday and presented yet another quarter of recovery, driven by electronics, which posted the strongest growth in the year, led by the mobile phone and video lines.

Nova Pontocom Highlights

Gross revenue grew 35.3% in 4Q13, reflecting the strategy to adjust the pricing policy implemented during 2013, which increased our competitiveness. For yet another quarter, we registered significant growth in online customer traffic and in the conversion rate. It is important to note the significant impact from Black Friday, which supported record high sales in Nova Pontocom’s calendar.

In 2013, Nova Pontocom outperformed the industry average, pointing to market share gains. This performance was driven by the accelerated growth during the year, especially as from 3Q13, when the efficiency gains in processes, strategic investments and higher service levels were consolidated.

Via Varejo Highlights

Gross revenue amounted to R$ 7.1 billion in 4Q13, with same-store growth of 9.0% and total store growth of 11.4%, maintaining the growth pace of previous periods. A total of 26 new stores were delivered, of which 24 were Casas Bahia and 2 were Pontofrio stores.

The fourth quarter of 2013 was marked by the performance of Black Friday sales  at Ponto Frio and Casas Bahia, which set a new record for sales on a single day by the Company and transformed both banners into a reference for consumers on that date, as well as by the Christmas and Children’s Day initiatives that also contributed to the results. The highlight was the mobile phone and computer categories, which maintained the strong growth trend of prior quarters, confirming the continuation of the country's technology consumption cycle.

Operating Performance

(1)   As of 4Q12, the Equity Income and Other Operating Income (Expenses) were included in Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM).

(2)   As of 1Q13, the EBITDA calculation reported by the Company included depreciation appropriated to the cost of goods sold, which is essentially related to the distribution centers.

(3)   In 2Q13, the Company began to disclose adjusted EBITDA, which excludes Other Operating Income and Expenses, thereby eliminating non-recurring income and expenses.

The Company’s gross margin decreased 170 basis points, reflecting the investments to increase competitiveness in the Food Retail segment and the intense promotional activities for Black Friday, especially at Via Varejo and Nova Pontocom.

In terms of operating efficiency gains, the highlight was the reduction in the ratio of selling, general and administrative expenses to net revenue from 19.0% in 4Q12 to 16.8% in 4Q13, basically due to the reduction in corporate expenses, the better control of selling expenses at GPA Food and the operating efficiency gains at Via Varejo.

As was the case in 2Q13, the Company incurred other operating income and expenses this quarter, in the amount of R$ 299 million, which were mainly related to the Food Retail segment, as follows:  

·       Additional labor risk provisions of R$140 million and tax risk provisions of R$30 million;Provisions accrued for the restructuring of GPA Food and Via Varejo in the amount of R$ 62 million;

·       Provision accrued for compliance with the terms established by Brazil's antitrust agency CADE and other write-offs of property, plant and equipment, especially at Via Varejo, in the amount of R$ 54 million;

·       Positive impact of R$13 million from the business combination and the compensatory liabilities of Via Varejo.

EBITDA amounted to R$ 1.307 billion in 4Q13, reflecting the recognition of Other Operating Income and Expenses, as mentioned above. Adjusted EBITDA, which excludes Other Operating Income and Expenses, was R$ 1.605 billion, up 23.8% from the prior-year period. Adjusted EBITDA margin was 9.5%, up 60 basis points from 4Q12.

In 2013, EBITDA amounted to R$ 3.814 billion, with EBITDA margin of 6.6%. In the year, adjusted EBITDA amounted to R$ 4.487 billion, with adjusted EBITDA margin of 7.8%, up 70 basis points from 2012.  

Food Retail (Extra and Pão de Açúcar)

⁽¹⁾       As of 4Q12, the Equity Income and Other Operating Income (Expenses) were included in Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM).

⁽²⁾       As of 1Q13, the EBITDA calculation reported by the Company included depreciation appropriated to the cost of goods sold, which is essentially related to the distribution centers

⁽³⁾       As of 2Q13, the Company began to disclose adjusted EBITDA, which excludes Other Operating Income and Expenses, thereby eliminating non-recurring income and expenses.

Food Retail recorded its best sales performance of the year in 4Q13, chiefly due to the rollout of the business competitiveness strategy. As a result of this investment in lower prices, gross margin decreased by 120 basis points, backed by streamlined selling, general and administrative expenses. These expenses decreased from 19.6% in 4Q12 to 16.8% in 4Q13, continuing to reflect the better control of expenses, led by efficiency gains at stores, lower marketing expenses, and optimization of corporate expenses such as consulting services and projects.

EBITDA amounted to R$ 491 million, down 21.1% from the prior-year period, impacted by R$365 million from Other Operating Income and Expenses, as detailed in the section “Operating Performance – GPA Consolidated.”

Adjusted EBITDA, which excludes Other Operating Income and Expenses, was R$ 856 million, up 32.3% from 4Q12, with margin of 11.7%.

In full-year 2013, adjusted EBITDA amounted to R$2,337 million, with margin of 9.2%, up 60 basis points from 2012.

For 2014, Management reaffirms the strategy that it began to implement in 2013 to continuously pursue operating efficiency gains, which have been sustaining the investments made in price competitiveness to increase customer traffic and capture market share gains.

In 4Q13, GPA Malls expanded its gross leasable area (GLA) by 13,200 square meters, driven by the expansion of existing commercial centers and the inauguration of new projects. A highlight was the conclusion, in December, of the Conviva Minas project in Belo Horizonte, Minas Gerais, with the Company inaugurating its second neighborhood mall following the delivery of the first phase of the project in the prior quarter. In the year 2013, GPA Malls added 44,800 square meters of GLA to end the year with total GLA of 288,000 square meters. The GLA expansion strategy aims to improve the attractiveness of the Group’s stores as well as its revenue from the leasing of commercial space.

Cash and Carry stores (Assaí)

⁽¹⁾       As of 4Q12, the Equity Income and Other Operating Income (Expenses) were included in Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM).

⁽²⁾       As of 1Q13, the EBITDA calculation reported by the Company included depreciation appropriated to the cost of goods sold, which is essentially related to the distribution centers.

Gross revenue in the quarter increased 35.6% to R$2.1 billion. Gross margin increased 170 basis points, driven by the sharp increase in the share of sales of year-end seasonal product at both existing stores and at stores opened during 2013. EBITDA grew 68.2%, with EBITDA margin of 5.8%, up 100 basis points from the year-ago period.

The increase in operating expenses resulted from the aggressive plan for store openings in 2013, with the inauguration in 4Q13 of 6 of the 14 stores opened during the year, which combined represented sales area of 32,235 square meters. In the year, a total of 74,837 square meters of sales area was added.

Assaí will continue its expansion plan over the coming years, opening between 12 and 15 stores per year to strengthen its national footprint.

In 2013, EBITDA grew by 32.2% to R$250 million, with EBITDA margin of 4.0%.

Via Varejo and Nova Pontocom

⁽¹⁾       As of 4Q12, the Equity Income and Other Operating Income (Expenses) were included in Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM).

⁽²⁾       As of 1Q13, the EBITDA calculation reported by the Company included depreciation appropriated to the cost of goods sold, which is essentially related to the distribution centers.

⁽³⁾       As of 2Q13, the Company began to disclose adjusted EBITDA, which excludes Other Operating Income and Expenses, thereby eliminating non-recurring income and expenses.

Gross revenue in the quarter grew 15.1% to R$8.7 billion. This growth was driven by Black Friday sales at both the Casas Bahia and Pontofrio (Via Varejo) brick and mortar stores and the e-commerce platform (Nova Pontocom), once again signaling market share gains in the period. Gross margin declined 250 basis points, mainly due to Black Friday promotional activities and the higher share of Nova Pontocom in total sales, whose business model entails a lower operating margin than brick and mortar stores.  

Selling, general and administrative expenses as a ratio of net sales fell by 200 basis points in 4Q13 (18.4%) from 4Q12 (20.4%), due to efficiency gains in processes at stores, the optimization of third-party service agreements, the more efficient delivery of products to customers and the streamlining of administrative, IT and marketing expenses.  

In 4Q13, EBITDA benefited from a positive impact on Other Operating Income and Expenses in the amount of R$ 67 million, mainly related to the following:

·         R$ 157 million gain from the restatement to fair value of the interest held in Bartira;

·         Negative impacts of R$ 91 million from the provision accrued for complying with the terms established under the settlement (Termo de Compromisso de Desempenho - TCD) with Brazil’s antitrust agency CADE (Conselho Administrativo de Defesa Econômica), write-offs of property, plant and equipment, and restructuring expenses.

EBITDA amounted to R$ 703 million, with EBITDA margin of 9.2%. Adjusted EBITDA, which excludes Other Operating Income and Expenses, was R$ 636 million, with margin of 8.3%.

In 2013, EBITDA reached R$1.893 billion, with EBITDA margin of 7.3%. Adjusted EBITDA was R$ 1.900 billion, with margin of 7.3%, up 120 basis points from 2012.

 

 

Indebtedness

Net debt, including Via Varejo’s payment book operation, stood at R$1.102 billion at the end of December. The reduction in net debt was chiefly due to higher cash flow in the period, mainly leveraged by the efforts to improve working capital. Furthermore, the public offering carried out by Via Varejo, which generated a gross cash inflow of R$ 896 million⁽³⁾, also helped reduce net debt.

The Net Debt/EBITDA, including payment book operation, ratio reached 0.29 times at the end of 4Q13, down significantly from 2012.

At the end of December, the Company held cash reserves of approximately R$ 8.4 billion. For more information, please see the section Cash Flow.

⁽³⁾ Income tax related to this amount was paid in January 2014.

Financial Result

In 4Q13, the ratio of net financial expenses to net revenue improved from 2.1% in 4Q12 to 1.9% in 4Q13, despite the increase in the Selic basic interest rate between the periods.

The net financial result of R$ 328 million was basically composed of the following items:

·         Net debt service charges of R$ 55 million, up 5.2% from 4Q12, mainly due to the increase in the interbank overnight rate (CDI), which was offset by the reduction in the debt position during the year;

·         Cost of sales of payment book receivables of R$ 76 million, up 19.9% from the previous period, mainly due to the higher volume of receivables sold, with the average sales term remaining stable. The cost of sales of payment book receivables corresponded to 0.4% of net revenue, the same as in 4Q12;

·         Cost of sales of credit card receivables of R$201 million, up 56.8% from 4Q12. This increase is mainly due to the higher volume of receivables sold, which accompanied net revenue growth, as well as the higher interest rates (measured by the average CDI rate), which increased by over 30% between 4Q12 and 4Q13;

Total receivables sold (credit cards and payment books) increased 14.6%, from R$ 8.9 billion in 4Q12 to R$ 10.2 billion in 4Q13, in line with revenue growth, as mentioned earlier.

Net financial result as a ratio of net revenue decreased in 2013, from 2.3% in 2012 to 2.1%, mainly due to the better financial result at Via Varejo.

Net Income

⁽¹⁾ Net Income adjusted by total Other Operating Income and Expenses, thereby eliminating non-recurring income and expenses.

In 4Q13, net income amounted to R$ 687 million, growing 40.9% on the prior-year period, with net margin of 4.1%. Both segments of the Group posted net income growth in the quarter (26.4% at GPA Food and 56.6% at Via Varejo and Nova Pontocom), despite the impact from Other Operating Income and Expenses in the quarter. Net income adjusted by Other Operating Income and Expenses grew 71.9% to R$ 864 million, with net margin of 5.1%.

In 2013, net income grew by 39.4% to R$ 1.396 million, with net margin of 2.4%. The increase was due to sales growth in the period, as well as to the store openings at GPA Food and the higher profitability at Via Varejo. Net income adjusted by Other Operating Income and Expenses grew 79.2% to R$ 1.842 billion, with net margin of 3.2%. 

In 2013, income and social contribution tax expenses were impacted by two items related to Bartira: i) Reversal of deferred tax liabilities of R$106 million on the call option exercised last quarter; and ii) Non-taxation of the gain from the revaluation of Bartira, amounting to R$157 million, generating a comparable gain of R$ 53 million in relation to 2012.

Simplified Cash Flow

As of December 31, 2013, the cash balance was R$ 8.367 billion. The increase of R$ 1.281 billion from December 31, 2012 is mainly due to the gross cash inflow of R$ 896 million related to the Via Varejo public offering. As mentioned in prior periods, the Company did not have to refinance its existing debt or take out new debt.

Capital Expenditure

Consolidated capex amounted to R$ 536 million in 4Q13, of which R$ 399 million was at GPA Food and R$ 136 million at Via Varejo and Nova Pontocom.

At GPA Food, 43%  of capex went to store openings and acquiring lots, in line with the strategy to accelerate the organic growth of the business. In the full year 2013, the sales area of GPA Food expanded by 6.5%, which is significantly higher than the growth recorded in previous years.

In the year, capex reached R$ 1.850 billion, with the highlight being the investments in new stores and lot acquisitions, in line with the aggressive expansion plan of the Company, which in 2013 opened 128 new stores.

 

 

Dividends

The Management proposed the payment of dividends, calculated as shown below, considering the prepaid dividends of R$ 99.4 million made in 2013. The dividends payable for the fiscal year ended December 31, 2013 will amount to R$ 150.5 million, corresponding to R$ 0.535395 per common share and R$ 0.588935 per preferred share.  

¹ Excluding 232,586 shares in treasury.

² The interim dividend payments related to 1Q13, 2Q13 and 3Q13 totaled R$ 99.4 million, which were made on 05/16, 08/13 and 11/07/2013, respectively. This amount corresponded to R$ 0.118182 per common share and R$0.13 per preferred share.

Appendix I - Definitions used in this document

Company’s Business: The Company’s business is divided into four segments – food retail, cash and carry, electronics and home appliances retail (brick and mortar) and e-commerce – grouped as follows:

Same-store sales: The basis for calculating same-store sales is defined by the sales registered in stores open for at least 12 consecutive months. Acquisitions are not included in the same-store calculation base in the first 12 months of operation.

Growth and changes: The growth and changes shown in this document refer to the variation in comparison with the same period of the previous year, except where stated otherwise.

EBITDA: As of 4Q12, the results of Equity Income and Other Operating Income (Expenses) were included along with Total Operating Expenses in the calculation of EBITDA. This means that the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM). In 1Q13, the depreciation recognized in the cost of goods sold, which essentially consists of the depreciation of distribution centers, began to be specified in the calculation of EBITDA.

Adjusted EBITDA: Profitability measure calculated by excluding Other Operating Income and Expenses from EBITDA. Management uses this measure in its analyses as it believes that by doing so, it eliminates nonrecurring expenses and revenues and other nonrecurring items that could compromise the comparability and analysis of results.

Adjusted net income: Profitability measure calculated as net income excluding Other Operating Income and Expenses, excluding the effects from Income and Social Contribution Taxes. Management uses this measure in its analyses as it believes that by doing so, it eliminates nonrecurring expenses and revenues and other nonrecurring items that could compromise the comparability and analysis of results.