Good afternoon, thank you for waiting. Welcome to Magazine Luiza's conference call to discuss the results of the fourth quarter of 2013. We would like to inform you that this event is being recorded, all participants will be in listen-only mode during the company's presentation. Afterwards, we will have a question-and-answer session, when further instructions will be given for you to participate. Should you need assistance during the call, please press star zero to reach the operator. The replay of this event will be available soon after it ends for a week. We would like to remind you that forward-looking statements that might be made during this call related to the business perspectives of Magazine Luiza, operating and financial projections and targets, our beliefs and assumptions of the company's management, as well as information currently available to the company. Forward-looking statements are not guarantees of performance.
They involve risks, uncertainties, assumptions as they refer to future events, therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, other operating factors may affect the future results of Magazine Luiza may lead to results that differ materially from those expressed in such forward-looking statements. For the company's opening remarks, we would like to give the floor to Mrs. Daniela Vergueiro, Investor Relations Officer, who will start the presentation. Mrs. Vergueiro, you may start. Good afternoon, everyone, thank you for our fourth quarter of 2013 results for the year of 2013. Here we are with Luiza Helena Trajano, our President, our CEO, Marcelo Silva, our CFO, Roberto Bellissimo, all the members of the executive board. I would like to give the floor to Marcelo Silva, he will make the initial remarks.
Good afternoon, everyone, thank you for your presence in our call. There are 4 highlights that I would like to mention, that have to do with our consolidated net income for 2013. First of all, the increase in our gross revenues in Q4. We have a 20% increase on a year-on-year basis, 2.9 billion BRL. Same-store sales, 19% increase vis-a-vis that same quarter, 16% in brick-and-mortar stores 39.3% in e-commerce in Q4 2013. Undoubtedly, this is a very positive result, higher than the average for the market one of the major drivers of our profitability. Even more so when we compare with the fourth quarter of 2012, because it's a very tough basis for comparison because we had the same-store sales that were very high as well. We opened 4 new conventional stores, brick-and-mortar stores, being 3 in the Northeast 1 in São Paulo.
For the whole year, we opened 17 new stores we closed 16 stores. We closed the year with 744 stores. I would like to remind you that in 2013, the company grew 14% 13% in same-store sales. According to IBGE, the year of 2013, in our category, grew 9.3% in furniture and appliances. Another important factor was the maintenance of our gross margin, 28.2%, 0.2 percentage points higher than the fourth quarter of 2012, we improved considerably our gross margin in the Northeast. In 2011 and 2012, there's the integration of the two chains that we acquired, the Northeast, the Lojas Maia Lojas do Baú.
Today, the Northeast already represents 15% of the overall sales of the company, we have been able to maintain our gross margin in the other regions as well, thereby preserving our gross margin and to end in Q4 2013. It's also important to highlight the significant reduction in SG&A on a comparable basis. We were able to dilute or to reduce three percentage points, going from 24.9% in Q4 2012 to 21.9% in Q4 2013. This undoubtedly is one of the highlights when we start seeing the results of 2012 and 2013. You can see the significant reduction that we have delivered in our SG&A. Another significant factor in the improvement of our profitability is our equity income. Mainly because of the result of Luizacred, a record result, the highest ever, an all-time high.
We increased our gross margin, delinquency shows that it is totally under control. We saw also a major reduction in SG&As, such as we had in Magazine. Because of that, the EBITDA margin went from 12% in Q4 2012 to 15.4% in Q4 2013. Of course, the net margin had the same increase, 6.2% going to 9.1%. You can see that it's a very major improvement for our profitability. Our consolidated EBITDA has a 5.3% margin, the gross sales grew 14%, as I said before, our operating expenses grew by 6.7%. You can see a significant improvement there as well, a relevant improvement in our profitability. Because of that, our consolidated recurring net income was BRL 33 million with a 1.9% margin and with a consolidated net income of BRL 113.8 million in 2013.
When we talked about the profit-sharing plan, this is a long-standing practice of Magazine Luiza, that we were not able to recognize in 2011 and 2012 due to our results. With the results of 2013, we were able to build this provision this last quarter. By doing that, we are recognizing 5,000 of the 24,000 employees of the company. This includes our distribution center people, our store people, the store employees that went beyond their targets, therefore they, of course, will be receiving this profit-sharing and also the management as a whole. We are talking about the participation of 5,000 employees in our profit-sharing plan. Now, I would like to ask Roberto Bellissimo , our CFO, to give us more details about the operating and financial indicators of the company. Good afternoon, everyone.
Let's go to page number five, where we show our store operating performance. The number of stores, our same-store sales growth, our investment, BRL 146 million last year in new stores and mainly in remodeling of stores. The average age of our stores, almost 40%, still in the maturation curve, in the payoff curve. On the next page, we show you our product mix, practically stable, with a slight increase of third-party credit cards and a growth in revenues of Luizacred in Q4, growing by almost 14%. For the year as a whole, Luizacred also almost BRL 10 billion being built, including the expenses made outside of Luiza's stores with our cards. On the next page, we show you our portfolio composition, practically stable, 3.4 million cards, more and more active, gradually more active and spending more.
Because of that, we were able to increase our loan portfolio on a year-on-year basis at 12.9%, a portfolio that reached BRL 4.1 billion in December 2013. On the next slide, we show you the delinquency indicators. Luizacred is a highlight with an increase in gross margin, a reduction in provisions. They were nominally lower than last year, in fact, on a year-on-year basis. As a percentage of the portfolio, going from 4.2% to 3.4% of the overall portfolio, which shows the quality of the portfolio at a very good trend because of the conservative stand that our company takes and the new consistent data and short-term NPL improvement. We have the financial performance on the next page. On slide number 10, we show you the evolution of our gross revenue. The highlight, well, our growth was accelerating at every quarter, both for the company and internet.
On slide number 11, we show you the evolution of our gross margin. We were able to increase our gross margin again by 0.2 percentage points on a year-on-year basis. On slide number 12, we show you the dilution of our operating expenses, higher than the one that we had already achieved in Q3, 3 percentage points. Without the effect of the INSS, 2 percentage points of expense reduction, practically. We show you the equity income also going up for the quarter and for the year, mainly from Luizacred. It had a record EBITDA margin, 15%, and the return on equity was 22% for the year. In Q4, it was more than 30% return of Luizacred, the ROE of Luizacred. On the next page, we have the EBITDA. I think on page 15, it is more clear.
That is to say, how we went from a 4% margin in Q4 2012 to a 5.3% margin in Q4 2013. You can see we had an increase of margin dilution of SG&A, equity income. Before the profit-sharing program, 6.2%, and after the profit-sharing program, 5.3%. For the whole year, we went from 3.7% to 5.9%, you can see the same indicators here: margin, sales, equity income, et cetera. On the next slide, we show you our adjusted financial expenses for the year. Stable in Q4. Slightly higher than Q4 2012 because of the increase in the CDI rate. However, with the net debt, lower than the previous year. On page 17, we show you our net income since the beginning of 2012. You can see that we have been achieving gradual improvement, and over this year, we reached BRL 114 million in net income.
On page 18, we show you our working capital. In Q4, we were able to improve our inventory turnover and the relation between inventory and suppliers, decreasing our need for working capital, just 1% of the gross revenue. We also reduced the net debt of the company in the year, BRL 142 million in reduction. With the growth in our EBITDA, we reduced from 2.3 times to 1.3 times our leverage. On page 19, a summary of our cash flow. BRL 220 million from the operation, the operating cash flow, plus the sale of assets, minus investments in assets and the acquisition of Africa, interest payment, repurchase or share buyback. We were able to reduce our debt to that level of BRL 140, then BRL 346 million were paid, we raised BRL 412 million, total cash flow, BRL 226 million.
Our initial cash was BRL 545, we end with a final cash of BRL 772 million. Now I would like to give the floor back to Marcelo Silva, who will talk about our expectations for 2014.
We are very bullish about 2014. We expect to continue growing our sales over 20% in real growth for the last 20 years. 2014, the first half will be higher than the average for the market. Again, our participation in the World Cup is going very well. The initiative that we had in terms of participating with Rede Globo or the Global Network in the World Cup is already giving very positive results. The Northeast also growing slowly but surely and with a very good expectation. This has to do with sales, okay?
Once again, we will be working with two digits of growth in our big brick-and-mortar stores and also e-commerce, such as we had in the last few years. Now let's talk about our gross margin. Some loss that we would have in terms of loss of margin this half will be offset mainly from the Northeast stores. We must keep in mind that 2012 and 2011 were two years of a lot of work in integration, and we were able to carry out a very good integration for 2013. We already start to reap the results of this integration. We will continue to keep our margin. Our price management project aims to increase intelligence in pricing and families of products, and this all will be giving us the preservation of our gross margin in general.
We will be offsetting with higher-margin products, a higher participation in e-commerce, and also the TV sales for the World Cup. Our projection is to keep the gross margin that we achieved in 2012 and 2013. Of course, our EBITDA will be going up. The margin will be going up because what we saw in the second half of 2013 was this, and we should have additional gains, and the projects that are implemented will be consolidated, and we'll start to consolidate other opportunities for cost reductions. As Roberto said, we have almost 40% of our stores in the payoff curve . That is to say, still maturing. We have been seeing this in the Northeast, in the Baú stores, and we have the opportunity to further reduce our logistics cost, and we have a multi-channel project.
Three DCs are already delivering directly the product for our e-commerce. Now we are going to complete the two last ones in the Northeast. We continue to have our operating efficiency project. It accretes. That has given us a very good efficiency, very good profitability. You can see this in our results that we have just referred to in our equity income. We are very bullish about 2014, and our expectation is to exceed the results achieved in 2013. We are strongly working in this direction. Our January was very special, with excellent performance in our fantastic sales, as we call it, and the same in February. Our glass is really half full. We are very positive about it, regardless of the market conditions, whether we have more challenges or not. We have to do our homework.
2010 was very good. Then we had two years of integration, then 2013. As Roberto Bellissimo Rodrigues said, over the quarters, we have been achieving better and better results, and this is what we expect to achieve in the foreseeable future. We are living a very special moment right now. We are very motivated in Magazine Luiza. We will certainly be offering and delivering better results to our shareholders. Thank you very much. Now I would like to open for questions from you. We will be very pleased to answer any doubts that you might have. Thank you.
Now we will start the Q&A session for investors and analysts. If you have a question, please press star one.
Questions asked on the internet will be answered afterwards by email. We will be available to you to answer any questions that you might have later on or solve any doubts. Ms. Guilhermina, from Brasil Plural. I have two questions. Good afternoon.
Good afternoon.
The first one has to do with the payment of IRR. What were the criteria that you used in order to reach this amount? What can we expect? Because for some years you were not provisioning. From now on, I understand that you believe you will be having more and more positive results. How can we project this? What about the background for sales? You showed that smartphone sales are going up by 50%. Could you give us more color about furniture and other products so that we could project the margin in a better fashion?
The first one has to do with the. In 2010, we had a profit participation distribution. The profit-sharing program is something that the company has been paying for many, many years based on merit.
It's not only for the executive board or executive committee or management in general. It's like an award that we give to the stores and the distribution centers that hit the targets. As our results in 2011 and 2012 did not allow us to distribute this, we now intend to do this, as we have been doing this for many years, for 10 years, in fact. Every time we hit the target, we exceed our targets. We receive this as a prize, which is the profit-sharing program that we have. I would like to make it very clear that this is not a bonus that is received by the executive committee or the management. This is something that is consolidated with the labor unions as well, and it includes 5,000 people.
In 2013, we will have 5,000 people, many people in our distribution centers, many people who work in stores and office managers, and also executives and officers that have hit their targets and gone beyond the targets as well. Exactly as our agreement was signed with the labor unions. The fact that we highlighted this maybe sounds a little bit strange to you, but in 2014, on a quarterly basis, we will be doing this, and this will be included normally in our SG&A, and it will not cause any kind of reaction that we are going to provision on a quarterly basis for that. The fact is that in the first quarter, we didn't have the best profitability ever. As of the third quarter, we start to see our results increasing, and this led us to provision for that in Q4.
If you look over the year as a whole, it is nothing very significant, and there is nothing different from what other companies do in this regard. The companies that have a profit-sharing program. In 2014, we will be provisioning this. Normally, this will be under our SG&A, and this is part of the company's compensation as a whole.
I'm Luiza, and I would like to explain that since 1996, 1997, we have been working on this win-win situation. Our salespeople, they are compensated because of their sales and the margins. After two acquisitions, we were not able to distribute this profit for two years. This has been part of the company ever since our inception. Our salespeople, when they were compensated only normally, they just put the money in their pocket, and that was it.
Now we have 360-degree participation in the sense that they have to be very good in sales, in Luizacred, in cards, in insurance, and they have to be very good with clients as well. We work on a win-win situation, it has to be in your mind, in your heart, and in your pocket. For in the last quarter, we placed a challenge that this is not just for the executives of the company. It's 5,000 people in the company, and this is part of our culture ever since we were able to change this with the labor union. The salesperson is compensated as the company becomes more and more profitable. This is very consistent with our culture. This will always happen when the company is profitable. Our percentage is much higher because we give this to 5,000 people.
Some companies only distribute profits for 100 people or 200 people. Our managers are invited to meet with us all the time. We have this culture that we call 360 degrees. They have to be good at everything and not only one thing. I was very happy to see this. We acquired Baú because we thought it was very good business. Many people from Baú and from Maia, they are present here, and they are participating in this. This is part of the culture of our company, and I find it very strange that people are asking questions about that. Okay, I do accept that, but that this is part of the company's culture. Thank you very much.
This is Fabrício. I'm the Commercial Officer.
Regarding the product mix, the trend in Q1 is growth in TVs because of the World Cup and smartphones as well. The law regarding smartphones was enacted last year. In order to keep our gross margin, we count on the growth of smartphones, of course, but also the more profitable categories, such as furniture and portable electronic equipment, IT. The change in the environment helped the portables category, air conditioning, and fans. Brazil, for 30, 40 years, hadn't had such a warm season as we have now. We are a company that sells fans and toys, and we intend to grow in all categories. By reading the news, we have the impression that the sales of the market are lower than the initial expectation. Of course, you have this maturation curve with the new stores, but the expectations seem to be higher.
What about furniture?
Could you tell us how much furniture has grown as a category in your company and in the market?
I went to 18 stores in the Northeast recently, and the strength of the Minha Casa Melhor is incredible because this new middle class, they have no access to credit. Cities such as São Paulo, they do not have Minha Casa, Minha Vida, the program by the government, the housing program. In the hinterland of Brazil, mainly in the Northeast, it's impressive because the program will continue to grow, and some of our stores already represent 6%, 7% of the overall sales. Where Minha Casa, Minha Vida is strong, we will continue to be strong. The same, if it were not for that, these new middle-class consumers would not able to have access to credit.
This is a program that grows gradually, and the expectation is very good, but the growth is gradual. In the interior of Minas Gerais, it is strong already, as well as in the Northeast, in Sergipe, Rio Grande do Norte, and Bahia, Feira de Santana. It's incredible. It's another reality. It's another world. Furniture is the second thing that they buy. First, they buy a refrigerator and a stove. After, they buy beds and tables. I believe in furniture because this is something that everybody needs. First of all, they buy, let's say, refrigerators, and they buy stoves and not washing machines so much, only 54%. 15% growth in furniture in 2013, and higher than two digits also in 2014 is our estimate. Thank you.
Irma Sgarz from Goldman Sachs would like to ask a question.
This is Bernardo. I have two questions. Are you going to give a guidance about CapEx regarding opening of new stores in 2014 or growth in areas? About Luizacred now. Why did we see a mismatch between the growth in your installment sales and the receivables portfolio, 22%? I see a mismatch there. Are you extending the terms? Are you renegotiating your installment sales or what? The second part is why your personal loans portfolio dropped so steeply. Was it because you stopped assigning credit or what?
Well, the first question. Our expectation is to open from 30 to 40 new stores this year with emphasis on the Northeast. This is the guidance that we can give you about CapEx, and we will continue to invest in logistics, technology, remodeling of stores. We invested BRL 140 million last year, and we should keep more or less the same amount in investments for 2014.
This is the first point. Regarding Luizacred, I would like to ask Roberto and Marcelo Ferreira to answer your other questions.
Bernardo, good afternoon. The first point. Yes, it's Bernardo. Bernardo asked the question. Bernardo, okay. You asked about consumer credit vis-a-vis growth in our portfolio. Was this your question? Yeah, there was a mismatch there. I would like to know the reason for that. How can you explain the difference? It was not so different. The growth in consumer direct credit was about 18%, and the portfolio, 22%. The average terms are the same, 11, 12 months. What happened is that the portfolio was very new, and when it starts growing, you start to include more clients, and some of these clients delay their payment. After a certain period, the portfolio grows slightly more than the sales, but this is just a matter of time.
We didn't do anything regarding-- The 18% growth in direct consumer loans is higher than the growth of Magazine as a whole because we focused on that since 2012. Not only us, but the whole market, mainly the new clients. We stopped focusing only on credit cards, and we started to focus more on these direct loans. This grew more, and because of that, we had a growth in this portfolio, but it was almost in line, 18% vis-a-vis 22% in the portfolio. No, we didn't do anything regarding payment terms, and the approval rate in our direct consumer loans is more conservative and has always been more conservative since the beginning of 2012. There has been no change there, and this has some impact on our provisions, on our portfolios, our revenues, and the results of Luizacred that evolved on a quarterly basis, going upwards.
Provisions were a big highlight this year. Practically equal to the previous year with a portfolio that was 12% bigger. The provisions over the portfolio dropped quite a lot due to the very conservative stand that we have been taking for the last couple of years. Regarding the personal loans, it's exactly the same reason. This is a product that is very profitable. However, it's slightly more volatile, and according to our risk policy and volatility limitation as well, we reduced The approval rate of our personal loans, and this is the reason why this portfolio has been dwindling slightly from 2012 up to now. This is Marcelo Ferreira. In the card portfolio, you have something called personal credit. If you put the two together, the personal loan of Luizacred increased quite a lot with a lower risk, because our credit card policy is much more stringent.
Okay. Thank you.
I would like to remind you, in order to ask a question, please press star one. In case you have a question, please press star one. This is from [Marcia Fabrica] from [Anita], who would like to ask a question.
The evolution of the EBITDA margin. I understood the reasons that you explained, the drivers for 2014 EBITDA margin. With a challenging macro environment, it seems to me that it will be very difficult for the company to deliver a significant improvement, if you compare 2014 to 2013. Do you agree with that? The second question is, what about income tax for 2014? Could you give us some guidance?
Regarding guidance, we said that our expectation is to maintain our gross margin because the flat TV sets in the Q1 would be offset by other categories in the first half, also the increase in the margins coming from the Northeast. Because of all that, our expectation is to have, or our target here is to maintain the same gross margin. We expect to increase our sales. This is what I said.
Yes, I'm talking about the EBITDA margin. Sales growth, the maintenance of, operating expenses dilution, the ones that are still underway. Of these three drivers, we believe that we will be able to deliver the EBITDA margin better in 2014 than 2013. The second half last year was much better than the first half, we believe that the same thing will happen with the first and the second half of 2014. We will have an opportunity to dilute our costs and reduce expenses. We have a logistics program that is already underway, we will be able to have gains from that, an efficiency project of Luizacred that is also underway, we will be able to have very good results. As stores mature, as the operating income becomes better and better during this payoff curve.
What about income tax rate for this year?
Good afternoon, Inacio. In retail, we have a 34% tax rate on our operating income. The equity income is already net of income tax, but they are subject to 40%, and in the case of retail, 34%, in Luizacred, 40%. We had a tax benefit this year because of interest on our own capital that brings down. We declared BRL 12 million of interest on equity, and we had a reduction of BRL 4 million in 2013 of income tax. This is something very healthy, and this is just a normal practice as these BRL 12 million of interest on capital that will be paid to investors. They are subject to 15% individual investors. These are the tax rates that we have.
I don't know whether you have any specific doubts about income tax or whether this is the answer that you were expecting. Have I answered your question?
Yes. Thank you.
[Pedro ] from GTI would like to ask a question.
Good afternoon. About Guilhermina's question, what can we expect in your profit-sharing program?
Well, the same as we had in 2013, Pedro. I don't know whether you're thinking about this as a bonus. This has nothing to do with a bonus. Everybody is entitled at the company. DC, stores, offices, 5,000 people, they are all entitled, provided they go beyond their targets. They achieve the targets and go beyond. We had BRL 22 minus BRL 7 of effect on income tax. Net for the company, BRL 15 million. I cannot talk about future figures, but it will not be very much different from that.
Every year as our net income goes up, we will proportionally increase our profit-sharing program. We do not have a model of very big scale or anything. This is very well distributed, and all the employees of the company are entitled. They can have access. We are talking about the office people, store people, DC people. If you think about this as a bonus for the executive committee, I'm so sorry. It has nothing to do with the executive committee. We are talking about all the employees that are entitled. We do the calculation exactly according to the agreement that we have signed with the labor unions, and we sign every single year an agreement with our labor unions in São Paulo and other states. It has to do with profit sharing.
This is a profit-sharing program, a PSP, such as is normal in all companies that comply with the good practices. Are you talking about 20% of the net income? No. 0.3% over the net revenue. It's another way you can calculate that in Q4. We did this for 2013. I would like to understand the math. It was BRL 17 million. We are talking about a profit sharing of BRL 15 million. This means 20% of your net income. If the net income goes up, the profit-sharing program will not grow proportionally because you have one salary for certain functions. You have two salaries for other functions in the company. It's not proportional to the net income. We place a challenge to everybody, but this has nothing to do with percentages. This is a challenge. As I said before, our policy is a meritocracy.
That is to say, an award-winning policy. We place this challenge for people, we say, 60% or 70% or 80% growth because in the past we still have the residues of a merger, so to say. You came here so often, I have already shown this to you, I can show you and everybody how we have done that. It is a way we have to reward our people. It doesn't mean that if I have BRL 100 million today, it's going to be. Our target is higher than 70%. Last year, we fought for 60%. It's not a percentage of the net income. Pedro and I and everybody, we would like to show you our model. Based on what I know about the market, I can tell you that it's a very austere model. It's not going to be 70%.
It's going to be on the result that we are estimating. It's not on BRL 100. Higher than our net income, than our target, we start to distribute. It's not 15% or X percent. I do understand your rationale, we could have explained better, this is so normal for us that we thought it was enough. If we have BRL 17 million in this time frame, it's going to be so much. Our target this year will be much higher to give the same that was given in 2013. It's based on our target, not a percentage. It's not based on a percentage. You came here quite a few times already, I would like to invite you to come as often as you want, we can show you our model.
I would like to remind you that in order to ask a question, you should press star one. If you have a question, please press star one. As there are no more questions, over to Mr. Marcelo Silva for his closing remarks.
I would like to ask Luiza Helena to do this.
I wrote our message from the administration with great pleasure. The company always consolidates, when we bought Maia and Baú, people raised quite a lot of questions, I'm 100% sure that we made these acquisitions at the right time, at the time that the company needed to do this. Traveling throughout the Northeast, I would like to invite you all to go to the Northeast.
We would never have 140 stores, even if we had a lot of money, if we didn't believe 100% in our presence in the Northeast, now we are very strong there. Competitors who want to go there now, they will need a lot of time, a lot of money. Baú consolidated a capital in which we really needed more stores. Consolidating and growing has always been part of our DNA, such as happened in Rio Grande do Sul, in Santa Catarina, with other acquisitions, consolidations. It took more time for us to do this in the Northeast. However, we are very pleased with the results, it's like going back on track. Now we can deliver everything that we promised. We have always been very transparent to you, both to small investors and big investors.
Marcelo and Beto and myself have always been at the disposal of all our investors, regardless of the size. We are celebrating the results of December, also January. Of course, we have a very big competition, and we are celebrating the results achieved in December and January. This year, the market is very good for some retail areas, such as TVs, and some segments of retail will benefit from that. People prepare even their homes to receive people and friends to watch the 2014 FIFA World Cup. The first quarter was very difficult last year. However, this year, we are sure that we are on the right track, and we are doing our homework, and we thank you all very much for participating. We are here. We can answer any question that you might have. We can disclose any figure that you wish to see.
Please come here anytime. We want to listen to you. We want to give you access to everything, and we want you to come here all the time, every time that you want, and we are open to any suggestions or to show or to disclose any figure that you wish. Thank you very much, and you may be sure that 2014 will be great for Magazine Luiza. I am absolutely sure of what I'm telling you here. Thank you very much.
Thank you very much. Magazine Luiza Q4 2013 results is closed, and you may disconnect your lines, and we wish you all a very good afternoon.