Earnings Call: Q4 2019

Mar 26, 2020

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Via Varejo's conference call to discuss the results for the fourth quarter of 2019. This call is being broadcast via internet at our website www.theavaresu.com.brir, where you'll find the company's presentation. The slide selection will be managed by you. The replay will be available after the call is finished. The company's press release is also available at its RR website. This call is being recorded and all participants will be in listen only mode during the company's presentation. After Via Vallejo's remarks, there will be a question and answer session with further instructions will be given. Should you need assistance during this call, Before proceeding, we should mention that forward looking statements made during this conference call. Regarding business perspectives of Via Varejo as well as and operating and financial goals are based on the beliefs and assumptions the company's management as well as on information currently available. Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions industry conditions and other operating factors could also affect the future results of Via Varejo and COGS results to differ materially from those present in such forward looking statements. Now, we will have with us Mr. Volberto Fulteberger, CEO of the company and Mr. Rodival De Patriga, CFO and I are Officer. Now, I would like to turn the floor to Mr. Roberto Frutarbora. Good afternoon, everyone. I would like to thank you for being interested in our conference call. And I hope everyone is taking care of yourself and of your families in this moment you're going through. We are going through a very difficult moment, a period of time, differently from all adversities we have already faced. And the team of Via Varejo have a lot of baggage and a lot of steering. And we have faced many crisis, but this is a different one. It's not an industry crisis is not from the city from the state and actually is not even a Brazilian crisis, it's the world crisis. I just would like to say that I want to quote something that is not iPad, but quote now. Those that will come out better off the prices, not necessarily will be the most intelligent or the ones that have the best cash position, but rather the ones that has the greatest ability to adapt to the moment and to prepare to a restart. I know that we're the secret right now will be the ability to adapt in the seniority of the team that is ahead of the decisions and the decision making capacity. I will give you a brief presentation about our company. I is valid because we have been hearing a lot of things about the company in the past 2 weeks. We have taken this company by the end of June of 2019. When we took over, we had over 40,000 consumers trying to get your money back because of deliveries that had not been delivered. For many months. Many were solved problems of the past year's Black Friday. Our stores were horrible in a horrible stage of conservation. Our team here at here didn't believe that much that it would be different now. And would be for real this time. In 2019, the market was sure that we were going to go down during the Friday, that we would not be able to deliver the products we sold on on Black Friday, and that we would take too long in our journey to increase our share in digital sales. And on top of it all, we were also a victim of fraud allegation, which demanded a lot of energy from this management in other to cater to all the governance agencies and, groups that were created in the company so that we could move forward with the investigation. So 2019 has a lot of the diversities and many challenges. And I'm here to tell you that this is behind This is past. This is last 6 months of 2019. What we have done all the time was to adapt ourselves to the need that each moment demanded, but we never lost sight where we wanted to be. And that's where we are now. And in spite of everything that is happening today, I cannot not celebrate what has been done in the last 6 months. And we have done all that facing all the adversities I mentioned and many others that we ended up facing along the way. Imagine what this team will be able to do and is already doing now that we can focus 100% of our energy in the business in our present and in our future. Adaptation ability sit decision making encouraged to face the challenges to make the short term deliveries, but always aiming the future. And I can assure you that here at Via Varejo, we have that in abundance. And the results we are going to bring to you today is proof of that. Having all that in mind, I should mention some things of our current moment. A lot has been said about this company in the past few weeks, and I have some things to say and some facts to mention, our reality with our partners did not start yesterday. Some banks worked with company for decades. And they do know the company and they trust on what is being done in this company. At this moment, in fact, we are actually being able to see who are strategic and long term partners and which are the main ones. The main banks have called us and they told us what is coming ahead is not going to be easy, but we are here will be together and count on us. Our credit lines have been maintained our credit operations that provide service to society and that makes it easier for the underprivileged to have more access that's still operating and we have taken several additives here, for instance, we decided to postpone the installments for April so that consumers would have an extra amount of money in this moment and 3 banks that work with us in our credit operations are already contacting us. And we are talking in order to make all adjustments to adjust our receivables flow through the flow of transfer that we'll have to send them. So we do not have a problem here. We also have financing lines that the company has used for 1 periods of time to extend the terms. From the industry to the bank. We were talking about that. We were not using those lines anymore because we changed the company's trajectory. Trajectory. This company is again generating cash. So we wouldn't need to use those credit lines anymore, but now we are back into using them because it makes sent them the lines where they're available for us. In addition to that, we are also working with the banks all on all the components of that hydroflow that makes sense. We have a strong cash position we have an excellent and let me repeat that. We have an excellent inventory position. We have a healthy inventory level in the fourth quarter we ended the process of clearing our inventories. And the best news of all is that our inventory is at the $3.80 cost. So we have a great inventory in near still receiving merchandise that really makes sense to us. We are also maintaining active contact with all the industry partners And remember what I told you in our first meeting here, one of our first attitudes was to reestablish our strategic relationship with the industry. This is a long term relationship and with interest in mutual benefits. This relationship is more than established and it is extremely strong. Yes, we are going through a very difficult moment, but I am sure that will come out of this moment much stronger and much more digital than when we came in to this moment. Today, thinking about the health of our employees, our back office has over 95% of people working in the home office. Steve said that this company was much more productive having everyone at home. And that's true for us as well. We are more more functional and even more objective than what we used to be. And I can tell you that when everything goes back to normal, our operating way is not going to be the same. We are already designing a new way of operating based on this moment. Our sales team from the stores, they are all at home because 100% of our stores are closed. That would be Well, this thing could be at home and not thinking about sales because you cannot sell anything when the stores are closed, but that's not how we think here at the our ability to adapt allows us to developing one way to solution so that our salesperson could sell without leaving their homes, we started the test with 80 sales reps by yesterday. We had over 1000 sales reps in all the regions and we are already we already have this tool ready to go so that in the next coming days, over 20,000 employees and sales persons will be able to from their homes. And this is possible because our CRM is very functional. It uses all our base with over 80,000,000 customers and its treasures that 2 of our sales persons offers was possible needs adjusted to each one of our customers, our sales reps start with our conversation. And when the sales are concluded, of that using our system, then they send a link to our customer. The customer will click on that link that will take this customer to our homepage by the end, the conclusions page of that sale, they only have to add the payment and the credit information. So we have sales reps that are happy because they're still making their commissions. The customer is happy because they were able to buy from a sales rep that they know for years and not leaving their homes. And we have our logistics fully prepared for delivery. Our logistics is operational and is stronger than ever. Another initiative that we learned from a diversity is that we have 2 sites for customer service and none of them have been closed last week. Even knowing that customer service sites should not be closed. We ended up having to close that. It it has been reopened, but when we had the problem, we also for solid solution. We adopted our system for those that understand the most about customer service to cater to our customers These are our 1050 managers that are at home. They are prepared and ready to cater to consumers in all of demand, boat sales that they might have. So we already have prepared our emergency plan. For customer service. And that is being done for those that better understand about customers who are our stored managers. And these are just some of the initiatives that many others will come, and I have no question about it. About our CapEx. Of course, it's frozen right now, but there is something in this company that has not come to a halt our IT team that has over 1200 professionals, they are working their homes and they are focusing in expediting our transformation initiatives. We have not removed a $0.01 from our IT investment. I know I took a little bit longer in this opening work, but I thought it was important to say to tell you about what we are, what we have so that you better understand. And, another comment before I turn the floor to Wabigail. We'll be able to really have a problem, or are we going to adjust ourselves and come out of this moment much better than was one repayment. For me, the answer is simple, and you will be able to see the response and the operating results. That Padilla is going to talk about right now. So I'll turn the floor to Padilla. Thank you. Once again, thank you very much for participating and for being interested in our earnings results for the fourth quarter. Starting by the investigation slide, I think that all of you know that the company have received a fraud allegation, which was then sent by the Board of Directors special investigation committee was formed. And this committee hires, lawyers, and specialized companies and that would take care of this type of subject. And as Roberto said, that has taken a lot of the time of this management. And also, there was a high cost to it, and we talk more about the shortly. We have been able to maintain the market up to date in the in all the different stages of this investigation. And in fact, this week since yesterday actually, the report was submitted to the board of the and then we consider this subject solved and all the impact. Of these allegations and all the context is already posted. And this and a year in this quarter. So among all the impacts, in addition to fraud, we also adjusted in the results of 1,400,000,000 So, this is a very complex and technical subject. The company recommends that you read carefully the material fact that was published where you will find all the information the company can, the closed at this moment. So after this first topic, Let's start on the results of the 4th quarter. This next slide, we have the fourth quarter of 2019. The operating aspects. We have removed all the types of adjustments in the fourth quarter that we consider to be non operating or nonrecurring. And here, then we have just an operational assessment. Well, having said that, these are our highlights. The main relevant and highlighted the reversal when we compare this to the fourth quarter of the prior year, we have a reversal of loss of $282,000,000 to operating income of $78,000,000. Gross margin of $30,200,000 was then up of 3.7 EPS when compared to 4Q 'eighteen and that amounted to 2,300,000,000. I just EBITDA margin of 8% in the 4th quarter, almost 2 times more than fourth quarter of 2018. And in the end of the quarter, with cash, including, and so, credit card receivable in the amount of 4,400,000,000. So these are the initial highlights, financial highlights. On the next page, we have operating highlights. All of you know that we had the largest Black Friday in Brazil selling in 20 4 hours, 1,100,000,000 and all of that has been delivered in 7 days, 48% of what was sold on that day were online sales. In the quarter, I mean, December, we had our direct online or 1P having a very robust growth, 68% in December. To 29% in the 4th quarter. And remember, all the improvements the platform With all the improvements that we have made, that has worked for 32 days in the quarter. That's why we are highlighting the effect of 1P in December of 68% growth vis a vis 2018. 3P as well, 69% growth vis a vis December 18, 58 in the quarter. 2 other important data that are very interesting exponential growth of active users in our app of 1,400,000 and June to 5,300,000 in December of 'nineteen. This was the most downloaded app on Black Friday, both for Casa Faya as well as Aquantofrio. On the next page then, we'll start talking about the results Lisa, here we have the accounting results to we're comparing the accounting results to IFRS 16 to was a year where the company had a lot of transformation. It's very difficult to look at it as a whole because there was there was a difficult performance in the first quarter. And then all the impact of the results accounting and all the adjustments made on the fourth quarter. So the accounting result is sales of $31,200,000,000 in 2019, $122,000,000 better than 20 18, a gross profit of 28.6 percent SG and A 25.3 percent adjusted EBITDA 4.2 and loss of 1.4%. And remember here, we have all the effects of the adjustments that we already mentioned on the next page. We go back to 4th quarter once again. And here, we reconcile that relieve the accounting result when we do the nonrecurring adjustment and reaching what we believe to be the operating result. So, here are the adjustments. And we've had a total contingency and write off of the digital deposits. As you can see here, credits of space and COFINS 19,000,000, your litigation expenses, 13,000,000, T Mobile 12 vision, 16,000,000. Impairment of PP and A, 76,000,000. And the total impact of the EBITDA is 1,300,000,000. That way on the next page, we start on the operating results. And perfectly can compare the operating results of the 2 quarters 'eighteen and 'nineteen okay, in terms of operating results for 4Q 2019, the company had $9,300,000,000 as of gross sales and includes of $635,000,000, a growth of 7% gross profit of $30,200,000 in recruitment of $3,700,000 in BPS. Reaching $2,193,000,000, an improvement of $320,000,000 SG and A as a company in the site of higher revenue of BRL 665,000,000. There was a reduction to 22.7 percent. A drop of 0.4. And $89,000,000 less. Adjusted EBITDA was 8% $605,000,000, an improvement of $289,000,000, 91 percent better. It seems to be the same quarter of the prior year. 3.8 percentage points of improvement. And in the left line, the net revenue, 78,000,001 percent of margin, 1,000,000 in improvement. On the next page, we are going to break down the gross revenue. So we are already talking about total GMV both years under the same concept. So we were at $8,728,000,000 to $9,000,003 $63,000,000, up to 7% in brick and mortar stores. We have one from $7,000,000,000 to $7,091,000,000. 1% growth. And remember that once again, we have the largest Black Friday in Brazil, 48% of the online sales, 52% of the offline sales, GMG, 1P plus 3P of once again $684 to $272,000,000, an increase of 35% highlighted that in the quarter and also December, which had a growth of 68%. Visavis December of 2018. Next page, we have the breakdown for our GMV business. We have net GMPL1684 in 'eighteen going to 2 to 'seventy two in 4Q 'nineteen. Of 35%. GMV 1P reached the 1724, up 29%. And also we have 78% growth in December and 3 vehicles of 50% 58% in the quarter. I remember that. Throughout the whole year, 2018 had strong numbers. And in the quarter, it reaches 58%. And also highlighted the member, it reached a 69% growth. Next is light. Swacapal's gross profit, SG And A and adjusted EBITDA. Gross profit, as I mentioned, we had 2.92 30.2%. The highlight here that shows that really This was a gross margin, very important, but in this quarter, we concluded the process that we had started in the first quarter of clearing and adjusting our inventory levels. We have higher sale of 400,000,000 products that have a slow turnover, obviously, with a margin that was almost 0. If we have a normal margin in products, we would have reached in the quarter to a margin of 31.2%. And the next chart also We go back to expand the next chart. In revenue, part of our expenses is variable and index to sales. And even then, we were able to reduce 0.5% with a nominal reduction. Therefore, EBITDA of $605,000,000, 8% an EBITDA margin that is very robust, obviously considering a more relevant quarter in terms of sales was a significant increase of 3.8 percentage points. Next page. Next page, just highlighting what we said before, a positive result in EBIT, BRL546 1,000,000 better in EBIT, visavis the previous year, moving from a negative into a positive one at $130,000,000. And lastly, We have net income of 1,000,000 and that's the operating concept with a total reversal compared to what we posted in the We can show that there was a growth of R1 billion dollars in our cash position compared to Q4 2018, but still very robust of R4.3 billion dollars I'll explain on the next slide the reason why we had a reduction. Debt from $924,000,000,000 to $2,155,000,000 and other net cash, 4,400,000,000 to 2,200,000,000. Detection of 1,000,000,000 in our net cash position. The explanation is on the next slide. There was nothing more important, except for that the company burned cash in the 1st 3 quarters, and starting to generate cash in Q4. And then the net cash position in 3rd quarter and 'nineteen an improvement of 1,500,000,000 vis a vis the same period of the previous year, a reduction of 2.2. Mainly explained by a reduction of payment terms involving suppliers via bank. In reality, we have this strategy like Roberto explained well and all cash generation was used to pay additional lines via bank suppliers via bank. These lines were not reduced. They keep on being available and can be accessed by the company. On the next slide, our inventory position, a priority in this management ever since we arrived. So a lot of care with the cash position, inventory position, high quality inventory, more low turnover items and SKUs with a huge potential for sale. So in the second quarter of 2019, We had nearly $5,000,000,000 in the 2nd or third quarter, a reduction of approximately $500,000,000 and now we are flat. In a position of 77 days at 4,500,000,000. Now when compared to the fourth quarter of 2018, also a reduction of 5 points and stable at 77 days. So basically these are the points that are the highlights, the financial highlights. I turn the floor back to Roberto. So just coming back and to explain our cycle, starting from number 1. We had a strong recovery and renovation in our brick and mortar experience. We provide a lot of stability in our online platform we greatly improved our conversion rate. We improved the flow and about 5% growth in our GMV. What about marketing? Like Padilla said before, we posted growth of 175% in the app hits in December, 27 percent sales already happened on app. More than 7,000,000 active users now in January. So this is the latest information in January. February is growing right now. And it was the most downloaded app on Black Friday and our social media engagement is very intense with our payment book like we said before, we started increasing the share of credit and payment book, increasing 1.6 in our share. It keeps on being our goal. In the commercial and product area, we had a big rise in our margin. Even though we had to sell a significant part of our inventory, which was not adequate to our assortment, increasing 8.7 points in gross margin and increased by 8% our furniture sales. What about delivery terms and deadlines? We keep on improving our performance in delivery. We already have 24 hours with 28% of deliveries and 48 hours with 47%. And we are already pretty close to give another leap in these indicators. We doubled the volume shipped by our mini hubs, which makes all the difference to last mile, And as soon as we go through this period that we are right now, we expect to double the number of mini hubs. We are ready to do that. Our plan, our expansion plan is between 70 to 19 stores. Actually, it is frozen right now naturally. But we already have the points of sale and maybe even better points than location for the future. As for people, we radically changed the attractiveness access of the company. So we have the cool project project legale is a winning battle. New talents were willing to come to our transformation project. And the cool thing about it is that many people said, well, Sanghao Thermo City may be a barrier. We know now that we know how to work home office. So that was the last wall that has to fall. So now we have extremely significant talent attraction. And Epicor is our customer. This is the reason why we're here. That's why we're doing everything we're doing, and we want to delight our customers every day to make On the next slide, let me tell you more about the exponential growth in our apps. So if you think about June 'nineteen to January 'twenty, we grew more than 400% in number of MAUs And at the bottom of the chart, we can see the monthly active user in January 7,400, And in sales, the share in Q4 'nineteen was 17%. And now in February this year is already with 27% of our GMV. And please note that we have deliveries expected for near future maybe midyear. Like I said, we have an issue today. We're going to have new apps. And unique usability. And I have no doubt that it's only going to strengthen our improvement. Visit growth in Q4, we have 175% and in February, we exceeded 300% growth. So I have no doubt that we are on the right track. And we have a lot of room for improvement. There is a lot of out to come but I say the whole team is involved, home officers are connected, virtual squads. We are strongly engaged to benefit from this moment in which we can all focus more strongly. So we can expedite our transformation process. On the next slide about the evolution on the platform and digitalization. Like I said before, we already have more than 1200 employees in our technology in Brazil. We also have our lab with the Air Fox team based in the U. S. So it's a big attraction hub to us. Both in terms of new technologies and also new startup companies that can plug to our system and also teams to run our business. So this is going fine very well, and we're already reaping the fruits of these connections. What about online? Like I said, new apps up to June, focusing on usability and speed, and offline brick and mortar stores or physical stores are growing more and more digital. A BMI or via plus by midyear or July, we expect to start doing a marketplace seen by all our sellers. On the store. So it makes a huge difference. We'll have more than 20,000 sellers boosting our marketplace. And also newer mobiles, POS, it's going to be in our sellers' hands, and it's going to bring significant improvement because it will add a lot of functionality. And much different from what we see in the market today. So when you experience and use our Wi Fi in the store, help us understand who our customer is, who is getting to the store. And we can follow the customer from the moment you walk through the door. And we can already activate the seller. We usually feed this customer. And then the seller will have the sales history of the customer, a customer's needs based on our CRM. So that's a connection the brick and mortar, seller, contacting the customer by the name and being supported by technology. So the seller can go to the store door and say hello, Mrs. Smith. What about the TV that I sold you 6 months ago? Maybe it's about time we buy a new fridge, so intelligence in the hands of our sellers and also the marketplace. We have significant improvement on the way in order to make our sellers live easier when they interact with our business. On the next slide, we have data culture and intelligence applied to business. We have other fronts that are ready Doing well. Pricing is one of them. We'll have new update processes and also new business rules with much more variables. At variation when it comes to the limit of SKU by region. In logistics, we also have demand forecast, so we can also work on inventory advance to all our stores over 1071 stores. A lot of intelligence involved. In freight, we have new business rules for costs and delivery times. So we still have a lot of novelty coming in. And in payment book, we are getting ourselves ready. The IT team is leading the credit area, the payment book, already working on new payment book engines to our business. We clearly have a lot of opportunity a lot of headway here, and it's going to be the point of uniqueness, even greater now at Via Validation. And in marketing, we have a full revision of the contract rules involving attraction, activation, loyalty and customer recurrence. We are very much engaged in following our customer's journey. On the next page, the rollout in Brazil was already started. Today, 5 11 stores and obviously it is on hold now. And then once we start again, we can have the rollout 100% covered by year. So what about news? We already have Android and iOS version available. Integration with Akada's Baya app. And we have a lot of news coming in the Air Force team in Boston is very active in the lab, so that they will promptly bring a package of improvement Hey now, I would like to give you the chance to ask us questions. So we can answer them. Thank you very much for questions and answers, we kindly ask you to make all questions at once and wait for the company's The first question Good afternoon, everyone, and congratulations on innovation. A little bit on the extended warranty book. What is going to be like the service revenue in the long term fees? And also can you tell us what you're doing to mitigate the pending issue of the credit operations when this quarantine is over? Thank you. Hello, Robert. Thank you very much for your question. No, we have not reduced And anything, the salary of extended warranty, we are very active. This is an important revenue for us, and we are still working on those sales and driving those sales as they are very active. If I well understood, Well, I understand I think I did not understand your second question. I'm sorry. What are you doing to mitigate The problem of when the quarantine is over. Okay. We do not have a major concern. Of course, that we are concerned, but we have one of the lowest of delinquency rates in the market. Our consumers are loyal to us, and they have a long term relationship to us. This installment of April that we postponed for the last installment of that customer. So that this customer does not need to go back to the store and you have to pay 2 installments at once because probably customers will not be prepared for that. So for now, that's what we have done. We understand and trying to understand how this quarantine will go and how long we'll have the stores close. And we'll be analyzing our actions depending on the needs from now on. Thank you. Is from Fabias Stinger from Citibank, Mr. Fabias, of course yours. Good morning. Thank you very year. At the time, you were talking about a credit of BRL600 1,000,000 fees or tax credits that you thought that might be able to recover in a slight short term, if this would be a counterpart to the provision. So how is the credit, the tax credit? This is my first question. And my second question, I would like to know Roberto that one of your first initiatives was to renovate the stores. And we see the clear results, especially in the online, but it's difficult to see that and the stores, the sales in the fourth quarter. Of course, it's difficult to say now because the stores are closed. But can you tell us how the store sales were up to, you know, January, February, and mid March so that we can have an idea of the performance of the brick and mortar source before anything, everything that was happening. And finally, another question. You talked about what you're doing about your cash and maybe Padilla could tell us a little bit more how we were working with suppliers, your cash position by the end of the year might be a little bit different, especially, considering your suppliers. So if you can tell us a little bit more about that. And I would appreciate and sorry for so many questions and congratulations on your results. Tobias, Thank you very much for your three questions. I will answer 2 of them. The tax credits that we mentioned and the material facts that we disclosed in December are still available. There are legal issues involved so that we can post those credits to our books. But this is right that we have, but that's going to depend on this legal condition. It's a little bit over BRL600 1,000,000. So, it's still fair, yes. In the short term in legal commissions may be a few quarters. So it might happen in the quarter because one of them would depend on the final ruling. Well, right now our judiciary is also closed, right? And the other one also depends on some legal issues or some legal conditions so that it would become active in the company and be posted as credit in our cash. So this could happen in the next quarters. So now the cash question, I know this is something that the market also questions and we have posted some information last week to all investors. So that we could already address possible questions that you could have at that time. About our cash position. So obviously, since this coronavirus crisis started in the beginning of the year, the company is taking several protection measures in terms of results and cash. The first one, as Roberto said, was not accepting a dollar denominated increase. So all our inventory is at the dollar at the prior rate. We did not buy in dollar denominated currency. All our orders are placed in the notes in realms, we do not have any exposure or anything that is related to FX variation. Also, we worked a lot in the past weeks to ensure full availability of our inventory levels as well as providing a lot of quality. So related to that moment, the focus was to maintain the supply and inventory levels and the negotiated commercial conditions. Our cash position and it's obvious that I think that we need to have a deeper knowledge about the market and on how the Abadejo operates. Of Via Varejo has a complexity because with our balance sheet, We also have several financial operations and sometimes it's difficult to evaluate the balance sheet in the dynamic fashion. What is really happening? So it's banks we have, for instance, in CBC, and we receive from customers and we transfer to the bank So this is a process where we receive and transfer to the bank. And that is a natural flow of payments. And the prior question, and this is how the delinquencies of the stores are closed, 95%. Of our direct consumer credit. It happens in the store. So in April, we already anticipated ourselves and have authorized our customers to postpone a business settlement to be end of the payment. But of course, the strength we will not be having in the bank to the bank. The flow will be interrupted and accelerated or accelerated and interrupted. And as customers go back to paying, the payment token in the stores, also 5% of our customers pay in the bank or on the internet. And so this number could should go up to 10%. And we are also making several system adjustments and also via banking so that our customers can do the electronic payment. So starting on May, therefore, we are going to skip April's installment. But then in May, our customer will also be able to make payments in the payment book via electronic in some electronic product here electronically. So about direct consumer credit, it's a significant amount in a lot of the analysts, it's just seasonal liabilities, but I have an access also for and I received from customers and I transferred to the 3 major banks that help us there. Now, We have payment account to suppliers. I have 2 major accounts. You can see that in our quarter maybe in return. I have what I call pure supplier, direct supplier owners, and that's where I got 69,120 days to pay and also payment postponements via banks of the suppliers or via banks from Via Varejo. So the limit, the limit with the bank's rotating limit It's it's never due. It is maintained. And so I pay a receipt, I pay a receipt, and I add other payments to suppliers in a regular turnover and we don't have a problem of maintaining that whole amount because on the asset, I have BRL5.1 billion in inventory in our current position $4,500,000,000 in the position we had in December and that as a retail price, and that's important for analysts to know our inventory is in the book at no tax cost or the cost free of tax. So when I turn that, into sales by either 30 percent of gross margin and 10% of taxes. That turns into a receivable $5,000,000,000 of inventory turns into a receivable or cash or sales of $8,000,000,000. So I have the sum the payables to suppliers and payables to banks, which is lower than the inventory converted to sale price. Of course, when the whole country came to a halt, this flow also stops So depending on how long this crisis will last, that's going to be the period of time in which the process will not be working will be stopped as well. So the cash position is just as robust as it was in December 31, We do not have any problems. We have not interrupted anything so far. All our accounts are being paid on the due date and there's nothing that has been done by the company so far because we are waiting for the credit to roll over as soon as possible. Yes, just to follow-up, this transfer from the 3 banks, you said that the A2 installment is going to go to the end of the payment book. And having negotiated back to the bank facility as we add and the banks have agreed with that. We are just working on transition, technical details, transmission of information because all of its flow is controlled, customer by customer, installment by installment. So it's fully matched flow. And when I said that the bank called and said that we we are with you and count on this. This is not just something that they said. It really happened and it's happening. The great interaction is happening. I say it again, this is not a problem in the industry. This is not a problem at Pia Verdejo. This is a problem that the market has, the market has come to an halt. Now about your second question, the sales performance in brick and mortar stores. Unfortunately, all of happened because we were gaining traction in the brick and mortar stores and our figures for the first quarter. The figures were nice for brick and mortar stores, but unfortunately, we have been impacted by the stores closing. Perfect. Thank you. Okay. So is that in line to what you imagine in the beginning of the year? It was above what we have thought. Our next question is from Andrew Wootley from Morgan Stanley. Please hold while we come for your line so you can ask your questions for the question. Good afternoon. Thank you for your question. There is an interpreter who is going to translate it back to you in English online was positively affected. Online sales are growing. And our main goal was to maintain our logistics which is very strong and we wanted to be active right now, putting everything in our power. So it can be possible also health wise and we have been successful. So yes, online, we becoming more relevant, more significant right now and also being countered by our logistics area. The next question is from Mr. Joseph Gordon from JPMorgan. Please go ahead, sir. Good afternoon, everyone. Thank you for taking my question. When you think about the change in the commercial strategy, and the inventory gross margin, considering the 3rd quarter and the 4th quarter, I'd like to better understand from you. Owing to the activity to clean up the low quality inventory. So should we consider a stronger operation And my second question has to do about the base former base of customers I would like to understand if these are new customers because when we look at the industry, particularly traditionally online traditional and online behaviors. This is slightly different. So I'd like to understand supply in online? How many items can you measure that are on the list? And also to understand if in this one period or noncore? And how could this all contribute to sellers right now? There's more challenging moment And lastly, if we consider this sensitive point in the market with retail closing the doors, could you help us quantify the operating cost at the base of the company? It would help and understand how you've been negotiating the lease and rent because one of the major partners of the company hold a significant share of it. Joseph, thank you for your questions. So answering 1 by 1. When it comes to the quality of the inventory, and Padilla showed you a calculation in the presentation showing that inventory by the end of the year net of the impact of the health measures, the gross margin would be around 1.2 As for the future we are within the previous guidance. About how greater the margin can be. But I can tell you that we are very confident that we have the right inventory in house and that we are becoming more and more operational and If we can have more IT implemented, maybe we can have even more opportunities, but it's hard to say anything right now. As for the customer base, if we have new customers or not, I think we have both. We have 85 new customers in our base have already walked through our stores. So that's the bulk of the population. So there's a lot about customer recovery as well. If we consider all our problems from the past, We lost some customers, and now we're strongly recovering our base. We can clearly see customers that are coming back. And we also have a lot of new customers in our base. So we have a little bit of everything taking place right now. There is a mix. As for categories, the answer is yes. We are improving. However, there is still a lot of room for improvement. We are had a lot of improvement in assortment. And now we are fine tuning this improvement. We still have a couple of things to add There is no doubt that the long tail of huge thing will be marketplace. From the moment we can deploy the improvements that are necessary to our sellers. So our relationship with sellers today is more challenging. Our platform is old. So there is a lot of improvement to come in the following months. So I believe this is going to help us a lot in the long tail and we managed to activate even more sales based on the assumption that 100% of our sales force in brick and mortars will soon sell marketplace, long tail. And I can anticipate something. It will be really hard at the company to measure what is GMV and what is sales. There is this discussion is brick and mortar sales GMV or not, we are trying to have a limit experience at the limit in the threshold, things would be a little bit confusing. What would be a huge benefit of the company considering this combination between online and brick and mortars as for rent? Obviously, now that the stores are closed, it's true that you have to do something about the value paid for the rents many shopping malls already given signs of what the directions will be, and we also be proactive in our decision making process. And just one comment about the shelves, our shareholders' stores, everything we do for all rents, there are not owned by the client family and to be the same as we have line family. So to be honest with you, I hope the family will be keeping the eyes open. And also very much engaged in these turbulent times because closed stores don't bring any benefit to our revenues. Okay. So can you help us quantify the fixed cost of the company so we can better understand the impact. About 35% of our cash expenses are fixed expenses All the rest are directly related to the sales volume. And just to support the data, a big share of it or significant part of it is personnel. Firstly, we are keeping an eye on our social role of not to bring more damage to the country additionally to what we already have. So we're very much concerned with our employees. So they can keep up And the government already issued an order and expected to have another provisional measure soon So maybe there will be incentives to lower the cost while these operations are closed. Incentives, both in terms of taxes related to the payroll and also maybe incentives with the payroll per se, but we don't have an answer right now. We already have an action plan, but we're just awaiting for the new provisional measure that is expected to come up soon. Comment from Roberto in the beginning about the ability to recover operations once everything goes back to normal. Can you tell us a little bit how was this the store closing process and how this recovery will be? How fast you will be able to reopen the stores? And another question, and that's for Padilla. You have a hard time recontinuating the non recurring adjustments on Page 7 to this total. And now also to the income statement. And I don't know if Gabriel can call me later on to talk about that or if you can comment on it. Some things are in the income statement, some things are in the balance sheet and a little bit confused. Hello. And thank you for your question. We had a process to telcosores On Saturday, we have 65% of the stores that have been closed because that was how it was determined. And by 11, and then we decided at 11, and we decided to close all the stores because there was no spare to keep them open. And decided then in 2 hours, we were able to close all the stores in 3 or 4 hours. Our marketing team created a video so that on Saturday night, we could disclose that and also with the decision of postponement for our April Thanks for the phone. Also, we were able to remove the most dangerous inventory from the store. We removed a high added value item. We picked them up from most of the stores considering we have NCC and there is a risk of people breaking into other stores. So we have done that already. But now the recovery, as soon as the recovery decision is made, we are able to recover operations on the same thing So our logistics, cargo is ready to go back to replenishing the stores in the a minute of this recovery decision is made and the team is fully prepared. And we are standing at home. We are actually working. We are of their sunning at home so that, you know, the engines are still warm. So we go back as soon as this is defined as this recovery is defined. And also, we have our inventory levels fully prepared to go back to working in an accelerated pace. So about your second question. I think they will call you after this. Is that right? And they can give you the details. Yes. For you, Danielle, and for the other ones that would like to understand that, as I said, there is a technical legal accounting process there and there are too many details in Gabriela also our finance team can help you to go over further details. And I would like to take this opportunity to say that since day 0 that we have taken over here this company, we are fully transparent and we talk to all analysts and investors that call us. So I would like to ask him if you have any questions, questions about our figures, Please call us. We are here to provide you the best understanding possible about our business everything that is possible to be said, we will be telling you so that the report has the best quality possible. And that information really states the company's reality. Next question from Gustavo Oliveira from UBS. Mr. Gustavo? Good afternoon, everyone, and thank you. Everything is very clear. But I would like to understand about your strategy right now. And the strategy that you are choosing to reduce payment terms for suppliers And in the beginning of the conference call, you also said that you're talking to a lot of people before helping you talked about the bank and the operations for the payment book. And I would like to understand how what is the conversation like with your suppliers? I know that you're not buying all the stores are closed. Do you have the right level of inventory? But you will have to talk to the suppliers when the stores reopen. And how is that going? Hello, Gustavo, and thank you for your questions. And questions actually the first one. We are not reducing payment terms with suppliers. We were during the following, the usual postponement that we had with the bank, and this was an operation that the company was doing recurrently in the past, considering that company is already back to generating cash. We were in a very calculated fashion. Little by little, reducing that need and using the company's cash to support that, not needing to extend that with the banks because that would generate an additional So what we have done right now as a protective manager is that we reestablished the use of these credit lines of the bank. Now about suppliers and manufacturers, we did not cancel our replenishment, our commitment with the suppliers for March having maintained, and we are starting to talk about what brings them after March. So we're still in the beginning of the conversations with all of the manufacturers. First, we are trying to understand and I think the market is giving us signs in terms of timing. And we need a few extra days to understand how far this lockdown will be happening so that we can have a more structured conversation and that's going to happen starting next week. About the provisional measures coming from the federal administration. And with being more clear in the labor side of it, when do you expect to have that definition coming from the government? And what are the main things that you would expect to have? Oh, actually, we are we understand that at any moment, this should be published. We understand that the government federal administration is worried about this and they are worried about people. No. What we expect is that we will need help right now. We need help to in order to avoid any risks regarding people's employment. So I think a lot has been done. There was postponed in the of taxes, both payroll taxes have been postponed. So I think other things will come out. I don't know what and as soon as things come out and if you want to know, you can call us and we can tell you how we are going to proceed based on the provisional measures that was published and what is the path that we're taking. Thank you very much. Our next question is from Thiago Bustoluci. Hello, everyone. Good afternoon. Thank you for taking my questions. We have three questions and some follow-up questions. First, Rebecca's comment, in the future, you see a mixture, an overlap between brick and mortar sales and GMV. So if you think about the negative aspects in Q4, do you see any unification of the channels or not yet? Second question, Adal Padira's comment, you mentioned the breakdown between fixed and variable SG and A we want to understand also for the poor more specifically to the cost of production. And the third question We know things can change anytime, but bacteria was a strong focus when you took over the operation. So as we think about COVID, what are the auctions and the strategy for this new category? Can you just repeat the 3rd question? We couldn't get it well. The 3rd question is about Bakeda. We know things are very fluid and it also depends on what will happen. In the next couple of days, but we were focusing a lot on furniture. It was one of the strategic pillars of the company. So considering that production, stocked and stores are closed, what you see for this category? Let me start by answering the last question. The good surprise is that part of the increase of 8% that we had in furniture sales came from the online operations. So being very successful, selling online too. As for the furniture uptake, Well, it depends more on brick and mortars. So it will depend on when we go back to our brick and mortar's operations. We have some speed up processes. Some processes were already swift and The plant, the manufacturing facility belongs to us, so we can make any immediate decision to make things happen again. As for the mix or cannibalization of customers, like I said, we have 85,000,000 customers in our base with 1,000,000, it is impossible to present then from changing from brick and mortars to online and the other way around. Fortunately, we see both ways online customers who are migrating into brick and mortars and brick and mortars migrating into online. And like I also said a while ago, we have a lot of inflow of new customers in our online base So a lot of the app downloads are related to new customers. So I don't believe there is a concern about cannibalization. We are already increasing same store sales in Q1. Unfortunately, we were impacted right now. But when it comes to brick and mortar's performance, Actually, we took the company over in June. And like I said, in previous calls, we have so many customers at 1500 stores and employees, a physical structure that we have to manage So it takes long. But in the first quarter, while we say Q4, it was doing well. And in the first quarter, we were above the number that we expected to achieve. So it is positive. Answering your question about SG And A. Thiago, sorry, I didn't understand your question about the breakdown of SG And A. Adelia, I think you mentioned the breakdown of G And A and COVID as well. I'll ask Gabriel to answer the question. I don't have all the data with me. Okay? Our next question is from Pedro Hagungis, XP Investments. Please go ahead, sir. Good afternoon, Roberto and Padilla. Thank you for taking my question. I have two questions only. The first question is the following: I'd like to better understand from you the more recent evolution of progress of the commercial strategy and competition in the online channel. What do you see right now that all retailers are fully Focusing on this channel. Did you see any radical change? I know this channel already has a more aggressive commercial strategy but I'd like to understand our recent trend. And my second question is just about the guidance. Do you foresee any change in the guidance? As for the newest evolution when it comes to commercial online and margin. We don't see any big Any big difference. Nothing worth commenting. Things are doing well. As for the guidance, We have no condition whatsoever to think about it. We have no idea how things will evolve or unfold. First, we have to understand how long this is going to take. And once everything is resumed, maybe we can gauge again and assess the real impacts on our guidance and also how we can set it up again if necessary. As for store renovation this year, to maintain the previous outlook when it comes to the number of renovations? Like I said, everything is on hold right now. Firstly, we have to understand up to when the circumstance will go. One thing, if it takes only 15 or 20 days, totally different is if it takes 3 months. So as this book is too early to say anything. What is happening right now is that things are on hold. The only thing that we didn't stop doing when it comes to investments is investing in our IP force. Next question from Felipe Leardo from Vanco Suffer. Please, Mr. Felipe. Good afternoon, everyone. Thank you very much for the opportunity of asking just a follow-up, you said that the sales team is focused in selling from their homes. I would like to know if you have a metric, how much they are being able to tap into in terms of the online, when compared to back in water sports, just to have an idea. Thank you. We do not have any metrics, but we can tell you that this is a promising, line, and we will have 100% of our sales rep in that mode of sale. And the next twenty 4 hours, 100% of our sales force should be up and running and prepared for that. The test was very promising. That's what I can tell you right now. Next question from Victor Sargiotto from Credit Suisse. Please go forward to your sir. Good afternoon. And I have a quick question. There was an announcement with the market few months ago, and now has been confirmed about the accounting process. We would like to know how much of that was it a fraud? How much was that? Was it narrow? And also, we would like to know if the company will seek for any type of repair with that. As I said in the beginning, the explanation is published in the material If you need help understanding it, please let me know, or you can also talk to Gabrielle. We do not know yet how the future will be and what will be the next step of this process. We do not have a final evaluation from our legal advisors. Next question. Our next question is from Paula from Thank you for taking my questions. I would like to know if you could further explain the inventory levels now that brick and mortar stores are expected to be closed for a couple of months. Do you think you can work on the inventories? And secondly, do you think in the short term you need a capital increase which And if so, what are the reasons that might lead to this cash increase or cash call? When it comes to the inventories, it is not possible to set something yet. We don't envisage a scenario for months But if it happens, please remember we don't have perishables and we don't have collections in our inventory. Unlike all the retailers with significant stock inventory levels. But the maximum that might happen is to be longer to sell if we stick only to online. So that's the only risk to our inventory. With regards to follow on, the company doesn't see any window nor possibility for it right now. And considering all the projection measures that I mentioned before. So we are confident that we'll be overcoming this moment with a current cash position at the company right now. This concludes the Q And A session. We'd like to give the floor back to the company's management for the final remarks. Thank you all for the interest in our company also for your questions. I would like to stress what I said in the beginning. Will not become on time. The office is not office at this moment, but we have a team that is fully prepared. To faith and to deal with everything that is not obvious, which is what we have already done in the we are a head of the company. I also would like to thank the members of the board of directors who have supported us fully so that we can maintain our agility and the flow to the operations at the moment required. Thank you all very much. I hope you all stay healthy and take care. Thank you very much. This conference call for the results of Via Varejo has ended. The IR department is available to address any further questions you might have. Thank you very much for your participation and have a nice day.