recent performance and outlook2008/03/01 · recent performance and outlook citibank 16th annual...
TRANSCRIPT
RECENT PERFORMANCE AND OUTLOOK
Citibank16th Annual Latin America Conference
March, 2008
2
Agenda
2007 Performance
Main initiatives
2008 Outlook
3
2007 Results: Highlights
Consolidation of the Pão de Açúcar banner performance, posting strong same store sales growth since
2006;
Gross margin improvement: assortment review, better negotiations with suppliers and Shrinkage reduction
program
Non-food: assortment review, store layout, global sourcing, marketing, processes and technology
improvement;
Expenses Reduction (70 bps YoY) generated EBITDA margin improvement;
Recovery of Sendas performance as of 3Q07, due to strict expenses control and clustering, adjustments in
promotion policies, proper communication with targeted public.
FIC (Financeira Itaú CBD): break-even achieved in December 07, with a 12.5% share of Group´s sales;
Reported Net Income of R$ 210.9 million in 2007, 146.6% up on 2006. In the 4Q07, Net Income amounted
to R$ 112.7 million, 306.4% year -on-year.
4
New management initiatives: “Back to basics”
Main Focus
Sales Pillars: assortment, pricing, communication and services
Expenses Committees:
- Marketing
- Personnel
- Store maintenance
- other
Extra
Sendas Distribuidora
Non-food
New Management Model
emphasis on Supply Chain & IT;
Integration: Commercial / Operational & Marketing areas;
Agility, empowerment and focus.
around 70% of total sales
5
New Management Model
6
New Corporate Structure
Board of Directors
CEOClaudio Galeazzi
Commercial &Operations VP
J. R. Tambasco
Supply Chain &IT VP
Hugo Bethlem
Finance/Administrative VP
Enéas Pestana
Real EstateCaio Mattar
Human Resources
Claudio Galeazzi
FICFinanceiraItaú CBD
ASSAI
7
Main Iniciatives: Fast growing segments
Complementary to the current existing formats
Better understanding of customers needs and demands
Distinct groups of customers
Extra Extra FFáácilcil Extra Extra PertoPerto AssaiAssai((AtacarejoAtacarejo))
Proposed ValueProposed ValueProposed Value
Target publicTarget publicTarget public
AssortmentAssortmentAssortment
Sales areaSales areaSales area
Pleasant and cozy food supermarket with a modern non-food solution
Proximity store with convenience assortment.Neighborhood andpassage stores.
Wholesale + Retail
A, B & C B & C B2B & C, D
1500 m2 to 4000 m2150 - 250 m2 More than 2000 m2
Like in Extra-hyper, greatnon-food participation(20,000 itens)
Essentially food and opportunities in general merchandise
Essentially food. 20/80 of each category (3,000 itens)
Purchase Purchase Consortium Consortium
B2B (enter new markets)
Partners
n/a
Essentially food and opportunities in non-food
8
Recent Performance
9
Sales Performance
Recent Performance:Non-food presented strong SSS in January and February due to improvement in electronics and general merchandise
performances;
Extra Fácil, Extra Perto and Extra.com banners presented expressive growth;
Sendas Distribuidora: important recovery from previous periods.
Pão de Açúcar and CompreBem performed above the Company’s average.
Same Store Sales include only stores with at least 12 months of operation
Accumulated
Total StoresSame Stores
2007 7.2%2.8%
16.4%
4.5%6.2%
9.7%
3.2%
7.4% 6.5%3.6%
7.3%
14.6% 15.8%12.2%
3.4%5.7% 5.4%
-1.9%
5.4%3.5%
1.3%3.2%1.0%
4.5%5.7%
1.7%
7.6%4.2%
2.7%0.4%
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 *Nov-07 Dec-07 Jan-08 Feb-08
z
2008 16.1%5.4%
* As of November 2007 the "total sales" concept includes by the Assai stores.
10
Gross Profit and Gross Margin Performance
Highlights:
The price revision and improved competitiveness policy began as of the 2H06 (entire year in 2007);
Shrinkage Reduction Campaign contributed to the better gross margin;
4Q07 reflected the impact of Assai, with margins of 14.7%. The gross margin without Assai would have been of 28.3%.
1,091 1,197
3,917 4,178
27.7% 27.7%28.2% 28.0%
4Q06 4Q07 2006 2007
Gross Profit (R$ million) andGross Margin (%)
. %
.8
76
%9
% of Net Sales
11
Operating Expenses Performance *
* Expenses figures refer to negative numbers** Operating expenses before taxes and charges
Operating Expenses (R$ million) andExpenses/Sales (%) **
843
2,946 3,053
20.5%21.2%
19.5%21.3%
4Q06 4Q07 2006 2007
666 702
141174
840
2.419
527
2.553
500
Selling Expenses
G&A expenses
Highlights:
In 2007, operating expenses dropped by 70 bps (40 bps over pro-forma figure);
In the 4Q07, the reduction was even more apparent: 180 bps;
G&A expenses down by 19.1% in 4Q07 and 5.1% in 2007 (or 11.2% and 1.9 in pro-forma figures).
% of Net Sales
3.6%
0.3%
12
EBITDA performance and EBITDA Margin
Highlights:Annual EBITDA moved up 15.7% over 2006, even though the gross margin narrowed by 20bps, mainly due to greater control over expenses in the period;
The 4Q07 EBITDA margin stood at 7.5%, 170 bps wider than in 4Q06 and the highest level of the year.
229 325
886 1.026
5.8%7.5% 6.4% 6.9%
4Q06 4Q07 2006 2007
EBITDA (R$ million) andEBITDA Margin (%)
.7%
421%
15
.
% of Net Sales
13
Historical performance
EBITDA Margin
7.9%
7.2%
6.6%6.3%
6.6% 6.4%
7.5%
6.8%
1Q 2Q 3Q 4Q
2006 2007
Improvement due to:• food assortment review• lower shrinkage level
Gross Margin
29.1%29.7%
27.7%28.0%
28.7%
27.7%28.1%27.8%
1Q 2Q 3Q 4Q
2006 2007
Improvement due to:•lower SG&A expenses
14
“Shrinkage Reduction” Campaign
Jan/07(% Gross Sales)
2007(% Gross Sales)
2.15
1.8Savings:
more than R$ 50 million
15
FIC performance
Equity Income (R$ million)
4Q06 4Q07 2006 2007
(11.3)(2.3)
(53.2)
(28.9)
Highlights:
4Q07 equity income was negative by only R$ 2.3 million, versus a negative R$ 11.3 million in 4Q06 and a
negative R$ 9.9 million in the previous quarter;
FIC (Financeira Itaú CBD) reached the break-even point in December;
Perspective of positive results from 2008 on;
The client portofolio closed the year at 5.7 million, 12.6% up on 2006;
-79.5%
-45.6%
16
FIC Outlook 2008
2008 will be the first year of profitability
Growth in the Private Label card activation levels reinforcing new aggregated benefits:
Exclusive discounts for card holders;Migration from private label cards to MasterCard co-branded cards for heavy and good users (“PL Embandeirado”);Different and better terms of payment (# of installments, lower interest rates); Database marketing initiatives;Reinitiating co-branded cards sales;Incentives and training programs for employees
Evolution in the penetration of Extended Warranty and Insurances
17
FIC – Financeira Itaú CBD
Store Units 545
2006 2007 ΔClients (thousand) 5,093 5,694 12%
Private Label 3,493 3,997Co-Branded 519 595CDC (Consumer Loan) 91 247Extended Guarantee 863 640Personal Loanl
127 216
Receivables R$ (million) 896 1,345 50%
Net Revenue R$ (million) 466.0
Equity Income R$ (million) (53.2) (28.9) 46%
Share in sales 12.5%
340
12.5%
286.0 63%
18
Sendas Distribuidora Performance
Gross Profit (R$ million) and Gross Margin (%)
4Q06 4Q07 2006 2007
Operating Expenses (R$ million)and Expenses/Sales (%)*
EBITDA (R$ million) and EBITDA Margin (%)
4Q06 4Q07 2006 20074Q06 4Q07 2006 2007
28.2% 27.2%
26.7% 26.4%
21.6% 19.6%
22.7% 22.0%
5.8% 6.6%
3.1% 3.4%
* Operating expenses before taxes and charges
Highlights:Better balance between sales and profitability
Gross margin was 30 bps lower YoY (100 bps in 4Q07)
Operating expenses as a percentage of net sales dropped 70 bps in 2007 and 200 bps in 4Q07 due to:
• in-store productivity programs;
• lower expenses from special offers;
• comittee to control store-related expenses
6.6% EBITDA Margin in 4Q is the highest since the begining of Sendas operation.
% of Net Sales % of Net Sales % of Net Sales
19
Sendas Distribuidora
Assortment: change in the mix of products (more related to customers purchase power) creating
different clusters;
Pricing: merchandise display and better balance between promotions and regular prices
Marketing: higher differentiation based on the clusters
‘Cash outflow’ Committee: reduction in operating expenses;
Working Capital: lower inventory levels and better layout management (head-offices moved to the
Distribution Center)
Results:
Higher specialization & agility
More integration between Operational & Commercial areas
Improvement in EBITDA margins (higher gross margin and lower expenses)
20
Net Income and Net Margin performance
Net Income (R$ million) andNet Margin(%)
113
28
85
211
2.6% 0.6% 1.4%
0.7%
4Q06 4Q07 2006 2007
Highlights:Grupo Pão de Açúcar posted an annual net income of R$ 210.9 million, 146.6% up on 2006;
Net income totaled R$ 112.7 million in 4Q07, 306.4% up year-on-year.
306.4%
146.6%% of Net Sales
21
210.9 28.9 53.3
101.0 394.1
Equi
tyIn
com
e
Con
tinge
ncie
s
Goo
dwill
A
mor
tizat
ion
Rep
orte
dN
et In
com
e
Cas
h Ea
rnin
gs
Main effects to Cash earnings consolidation(net of Income Tax)
Cash Earnings
Non-cash impacts
22
2007 Capex
37 new stores + 14 Assai:08 Extra hypermarkets*04 CompreBem +1 Rossi01 Pão de Açúcar13 Extra Fácil6 Extra Perto + 4 RossiAcquisition of 14 Assai stores1 new Assai store
9.9% growth of sales area
Dec2007
153 91178 42
1,338,329 m2
575 62 19 15 15
Stores by format
261.5471.1
182.6
181.1292.4
215.6120.8
112.8
2006 2007
Capex(R$ million)
Openings Acquisitions Renovations Infrastructure
980.6857.3
* One supermarket converted into hypermarket.
23
6 stores 9 stores3 stores 2 stores
2008 Capex: Focus on Conversions
24
Reviewed Organic Growth: we are estimating the opening of 1 hypermarket, 6 Pão de Açúcar stores, 2 Comprebem stores, 1 Extra Perto store and 80 Extra Fácil stores.
2008 Openings
OPENINGS PER FORMAT(not including conversions)
5 73 69 3
115 1
104
13 80
91
51
21
0
20
40
60
80
100
2006 2007 2008EXTRA PÃO DE AÇÚCAR COMPREBEM / SENDAS EXTRA PERTO ASSAI EXTRA FÁC
15
25
Non-Food Challenges
26
Extra.com
R$ billion sales
in 2010
33% of the sales in 2010 (TECWord, Home, Entertainment,
Drugstores and Gas Stations)
Important challenges
Expand non-food Extra Perto
(25% non-food)
Restructuring
Extra Eletro
Global Sourcing
27
Non-food
• New organization structure team and processes/logistics
• Improve products exposure and Assortment (Global Sourcing)
• New Layout Concept: “Solutions”– ‘Home World’; ‘Entertainment World’ and Textile/Sports
• Review of consumer credit strategy
• Assisted sales and services
• Private Label: Develop a brand for each non-food segment
• General merchandise, textiles and home appliances & electronics account for 25% of total sales
2010 GOAL: 30% of total sales
2010 GOAL: US$ 300 MM
28
... in four enabling areas
SourcingSourcing
Visual merchandising
Visual merchandising
Processes, tools and personnel
Processes, tools and personnel
Assisted sales and service
Assisted sales and serviceAssortmentAssortment Pricing
and creditPricing
and credit
FICFICPrivate-label brands
Private-label brands
Focus on changing consumer perceptions: ...
• Fashion content• Coordinated
collections• Perception of high
quality• Wider assortment in
drugstores and gas stations
• Select and strengthen one brand in each segment
• In Brazil: effective partnering with key suppliers
• International: – Competitive, differentiated
products (quality and packaging)
– Synergies with Casino– Eliminate middlemen– Continuous provisioning
• Integrate non-food into food areas
• Integration of business lines (MundoCasa, MundoAutomotivo, etc.)
• Creating shopping experience and stimulating purchase
• Product sampling stations
• Teams and business processes characterized by agility, discipline and creativity
• Technical training with fashion content
• Review supply model for stores outside São Paulo
• Improved credit terms and approval procedures, especially for Eletro
• Visible and efficient credit product
• Adjustment in price positioning
• Interpersonal contact
• Sales approach• Specialization• Differentiated
services
CommunicationsCommunications
• Increase media frequency, with supplier funding
• Improve in-store product information
• Fewer restrictions on credit approvals
• Competitive payment terms and conditions
• Turn credit into a viable product
The Non-Food Division has revised the strategic objectives for its five business lines –Household, Textile-Sports-Children’s (TEC), Entertainment, Automotive and Drugstores
29
Extra.com.br
2006– Technology: new system to support the operation – Logistics: New Distribution Center
2007– Exclusive and differentiated assortment– Extensive change in website layout and visual communication– Strengthen marketing– Wider range of payments
Results– 1.1% of total sales– Sales performance:
• 2006: 167% growth• 2007: 90% growth
2010 GOAL: 4.5% of total sales
30
Appendix: Company Profile
31
CBD Highlights
Scale/Negotiation Power
Brand Positioning /Segmentation
Differentials
Infra-structure
Strong cash generation
Largest retailer in Brazil, with R$ 17.6 billion gross sales in 2007
Multiformat structure/ well located stores in the main marketsof Brazil
Assortment, store environment, services and consumer knowledge
Largest distribution chain of the country
One of the highest EBITDA margin among its peers and a solid capital structure
32
Market Share 2007 (1)
– Formal Sector: R$ 131,4 billion (estimated figure) (1)
– Informal Sector accounts for approximately 50% of total food consumption
– Fragmented Market: small/medium chains
– Lack of department stores: opportunities for hypermarkets
Food retailing Sector
14.7%
14.3%
11.4%
1.4%
1.2%
56.9%
Carrefour GPA Wal-Mart
Gbarbosa Zaffari Others
5 largest10 largest20 largest
(1)Source: Brazilian Supermarket Association
200743.1%48.3%54,6%
33
Growth since the IPO (1995-2007)
218
575
1995 2007
2,912
1995
271
1,337
1995 2007
7.2%
14.3%
1995 2006
2007
17,643
Number of Stores Total Sales (million)
Market share (%)Sales Area m2 (thousand)
34
LT drivers to increase returns
27.416.5
2006 2010
Gross Sales(R$ bn)
15.010.0
2006 2010
ROIC (%)
Organic Growth Organic Growth Strengthen Strengthen CompetitivenessCompetitiveness
Increase Assets turnover*
Improve operational Improve operational efficiencyefficiency
Increase Increase ee--commerce commerce
salessales
Increase Increase nonnon--food food
salessales
Recruitment, Recruitment, Career plan and Career plan and
retentionretentionStockStock OptionOption
GPAGPA
*Net Sales/ Capital Employed
Double Double Private Label Private Label participationparticipation
35
Business Structure
36
Supermarkets
21%*153 stores
17%*178 stores
7%*62 stores
*of total sales
37
Extra and Extra Perto
52%*91 stores
15 stores
*of total sales
38
Extra Eletro and Extra Fácil
2%*42 stores
Convenience stores19 stores
*of total sales
39
Stores Localization
Ceará
São Paulo
Bahia
Rio de Janeiro
Paraná
Distrito Federal
Minas Gerais
Mato Grosso do Sul
15 5
5
1
24
3
Piauí4
9046
164
42
17 3
917
14
Paraíba3
Pernambuco9
Goiás1
62
2Rio Gde do Norte
Sergipe1
Alagoas2
2
2
19
Dec2007 153 stores 91 stores 178 stores 42 stores
1,338,329 m2
575 stores62 stores 19 stores
14
15 stores
1
1
15 stores
15
40
CBD’s Distribution Structure
85%of centralization
01 FortalezaMulti-Category
02 BrasíliaMulti-Category
03 Rio de JaneiroMulti-Category
02 RecifeMulti-Category
02 SalvadorMulti-Category
Built Area:385,000 m²
08 São PauloSpecialized
01 CuritibaMulit-Category
41
Extra Perto, Extra Fácil, Cash-and Carry (“atacarejo”) & Purchasing Center
New businesses
42
New formats: Extra Perto
Target Public:• Directed at classes B and C• Without inhibiting A• Should be attractive to D• Food – 1/3 of sales area,limited to 1,300 m2
• Non-Food – 2/3 of sales area
Image
Low Price
Nearby (Neighborhood) and Easily Accessible (Streets and Parking)
Practical for shopping (Optimizes customers’ time)
Efficient and courteous service
Non-food assortment sufficiently ample to impart a specialist’s image, with a pleasant grocer’s supermarket suitable for quick day-to-day shopping
43
Reduces Costs and Expenses
Make it Simple
Multifunctional performance of the store team
Benchmarking in the productivity indicators
Structure of operations limited to sales (model centralized in internal processes - CSC, etc)
Do not have some services (Gift List, etc...)
New formats: Extra Perto
Culture: Privileges the low structure of costs and human resources
Respond to the need for investment x spacex profitability
44
New formats: Extra Perto
45
New formats: Extra Fácil
46
GPA Strategy in Cash and Carry
“Atacarejo” (Cash-and-Carry Segment):
Segment growth: 9.4% (actual) in the past 5 years;
Assai:
Independent Management/ Management Experience (33 years in the
cash-and-carry business);
Low operating costs;
Low investment in new stores;
Potential Group’s store conversions;
Acquisition based on acceptable multiples (35% of net sales or 7x
EBITDA).
47
Gross Sales Trend
350
560
721
991
1.150
2003 2004 2005 2006 2007
Gro
ss S
ales
(R$
mill
ion) CAGR: 36%
Assai: Main Highlights
Founded in 1974, Assai Atacadista is a food distributor focused on serving food product resellers in
general, as well as retail customers
Assai operates in the segment which mostly grows in Brazil, known as cash & carry. This is a low-
investment business, with high sales volume and low operating costs
With 14 stores located in the State of São Paulo, workforce of 2,700 employees and sales area
totaling 34,750 m², the chain’s gross revenue reached R$ 1.15 billion in 2006
Assai’s monthly sales/m² amount to R$ 2,650,
which represents more than double the Brazilian
average for the retail food segment, according
to ABRAS (Brazilian Supermarket Association)
In the past 5 years, the chain posted 36% CAGR
over its gross sales
48
Purchasing Group
Partnership with União Brasil and start-up of the pilot project of activity in the Purchasing Group segment.
Without the need for investments in assets, the Group offered its commercial and logistic knowledge with
the objective of increasing its profitability by means of a retail segment that is growing at high levels in
Brazil.
In this initial stage, the partnership will exclusively serve Multishow (purchasing group affiliated to União
Brasil), with 52 associated stores and annual sales of R$ 200 million.
The initial sales are estimated at R$ 3.0 million/month and should double after the first six months of
2008. By the end of next year, the amount traded should be equivalent to the average amount of a
hypermarket store.
49
Appendix: Results
50
Food and Non Food
3.9%
1.2%3.3%
8.8%
0.5%
6.2%5.7%
3.7% 3.9%
3.2%
3.7%
0.4%-1.0%
2.1%
10.1%
-4.7%
10.3%
4.4%
-1.1%
1.0%
-6.7%
0.8%
4.2%
6.0%
3.5%
6.9%7.1%
0.4%
Jan-
07
Feb-
07
Mar-07
Apr-0
7
May-0
7
Jun-
07Ju
l-07
Aug-
07
Sep-
07
Oct-07
Nov-0
7
Dec-0
7
Jan-
08
Feb-
08
2007Food 3.1%
Non-Food 1.8%
Accumulated(Same Store Sales in Nominal Terms)
Non FoodFood
Same Store Sales include only stores with at least 12 months of operation
20083.8%
10.2%
51
25.1% 25.2% 26.7% 27.1% 27.0% 27.5% 27.9% 28.0% 28.2%29.2% 29.7%
28.2% 28.0%
3.1% 3.2%4.5%
5.7%6.7% 6.9% 7.3% 7.5% 7.9% 7.8% 8.2%
6.4% 6.9%
21.5% 21.6% 21.6% 20.9%19.7% 19.6% 20.0% 19.7% 19.8%
20.9% 20.9% 21.2% 20.5%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
1 EBITDA: Gross Margin – Op. Expenses – Tax & Charges2 SG&A expenses (does not include tax & charges)
Historical Margins
Gross Margin
Operating Expenses2
EBITDA Margin1
52
Income Statement
53
Common % Preferred % Total %
65.4 65.6% - - 65.4 28.7%
28.6 28.7% 3.8 3.0% 32.4 14.2%
2.8 2.8% 32.0 25.0% 34.8 15,3%
0.1 0.1% 73.1 57.1% 73.2 32.1%
99.7 100.0% 128.1 100.0% 227.8 100.0%
2.8 2.8% 19.2 15.0% 22.0 9.7%
Wilkes(1)
Casino Group
Abilio Diniz
Others
Total
Diniz Family
million of shares(1) Co-control 50% Abilio Diniz and 50% Casino Group
Shareholders Structure