Good afternoon, and thank you for waiting. Welcome to Magadena Luisa's Conference Call to discuss the Results of the Fourth Quarter of twenty thirteen. We would like to inform you that this event is being recorded and 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. 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 Magavir and Luisa, 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 and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future results of Magazene Luisa and 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 Berthauer, Investor Relations Officer, who will start the presentation. Mrs. Berthauer, you may start. Good afternoon, everyone, and thank you for our fourth quarter of twenty thirteen results and for the year of 2013. Here, we are with Regalena Trasiano our President our CEO, Matteo Luciuva our CFO, Roberto Bellissimo and all the members of the Executive Board.
I would like to give the floor to Marcelo Silva, and he will make the initial remarks. Good afternoon, everyone, and thank you for your presence in our call. There are four highlights that I would like to mention and that have to do with our consolidated net income for 2013. First of all, the increase in our gross revenues in Q4. We had a 20% increase on a year on year basis, 2,900,000,000.0.
And same store sales, 19% increase vis a vis that same quarter, 16% in brick and mortar stores and 39.3% in e commerce in Q4 'thirteen. Undoubtedly, this is a very positive result, than the average for the market and one of the major drivers of our profitability. Even more so when we compare with the fourth quarter of twenty twelve because it's a very tough basis for comparison because we had the same store sales that were very high as well. We opened four new conventional stores, brick and mortar stores being three in the Northeast and one in Sao Paulo. And for the whole year, we opened 17 new stores, and we closed 16 stores.
So we closed the year with seven forty four stores. I would like to remind you that in 2013, the company grew 1413% in same store sales. According to YBG, the year of 2013 in our category, grew 9.3% in furniture and appliances. And another important factor was the maintenance of our gross margin, 28.2%, 0.2 percentage points higher than the fourth quarter of twenty twelve, and we improved considerably our gross margin in the Northeast. In 2011 and 2012, there's an integration of the two chains that we acquired, the Northeast, the Maya stores and Bau.
And today, the Northeast already represents 15% of the overall sales of the company, and 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 twenty thirteen. It's also important to highlight the significant reduction in SG and A on a comparable basis. We were able to dilute or to reduce three percentage points, going from 24.9% in Q4 twenty twelve to 21.9% in Q4 twenty thirteen. And 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 and A. And another significant factor in the improvement of our profitability is our equity income, mainly because of the result of Liza Preggi, a record result, the highest ever, an all time high, we increased our gross margin.
Delinquency shows that it is totally under control. And we saw also a major reduction in SG and A such as we had in Magadrin. And because of that, the EBITDA margin went from 12% in Q4 twenty twelve to 15.4% in Q4 twenty thirteen. And of course, the net margin had the same increase, 6.2% going to 9.1%. And so you can see that it's a very major improvement for our profitability.
So our consolidated EBITDA has a 5.3% margin, And the gross sales grew 14%, as I've said before. And our operating expenses grew by 6.7%. You can see a significant improvement there as well, a relevant improvement in our profitability. And because of that, our consolidated recurring net income was BRL33 million with a 1.9 margin and with a consolidated net income of BRL113.8 million in 2013. And when we talked about the profit sharing plan, this is a long standing practice of Magadena Luisa and that we were not able to recognize in 2011 and 2012 due to our results.
But with the results of 2013, then we were able to build this provision this last quarter. And by doing that, we are recognizing 5,000 of the 24,000 employees of the company, and this includes our distribution center people, our store people, our store employees that went beyond their targets. And therefore, they, of course, will be receiving this profit sharing and also the management as a whole. And 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 five, where we show our store operating performance. The number of stores, our same store sales growth, our investment BRL146 million last year in new stores and mainly in remodeling of stores. And the average age of our stores, almost 40%, still in the maturation curve or 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 the growth in revenues of Credi in Q4, growing by almost 14%.
And for the year as a whole, Riza Credit, also almost BRL 10,000,000,000 being built, including the expenses made outside of Riza stores with our card. On the next page, we show you our portfolio composition, practically stable, 3,400,000 cards, more and more active, gradually more active and spending more. And 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 4,100,000,000.0 in December. On the next slide, we show you the delinquency indicators. Luisa Credi is a highlight with an increase in gross margin and reduction in provisions.
They were nominally lower than last year, in fact, on a year on year basis and as a percentage of the portfolio going from four point 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. Then we have the financial performance. On the next page, on Slide 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 11, we show 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, three percentage points without the effect of the ANSS, two percentage points of expense reduction practically. We show you the equity income also going up for the quarter and for the year, mainly from Luisa Cregi. He 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 Luisa Credit, the ROE of Luisa Credit. On the next page, we have the EBITDA. And I think on Page 15, it's more clear that is to say how we went from a 4% margin in Q4 twenty twelve to a 5.3% margin in Q4 twenty thirteen. You can see we had an increase of margin dilution of SG and 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%.
And you can see the same indicators here, margin, sales, etcetera, equity income, etcetera. On the next slide, we show you our adjusted financial expenses for the year, stable in Q4, slightly higher than Q4 twenty twelve 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 improvement, gradual improvement. And over this year, we reached R114 million dollars 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. And we also reduced the net debt of the company in the year, million dollars in reduction. And with the growth in our EBITDA, we reduced from 2.3x to 1.3x our leverage. On Page 19, a summary of our cash flow.
Million from the operation, the operating cash flow plus the sale of assets minus investments in assets and the acquisition of Aboca, interest payment, repurchase or share buyback. And we were able to reduce our debt to that level of BRL140 million. And then BRL346 million were paid, and we raised BRL412 million. And total cash flow, BRL226 million. And our initial cash was R545 million and we end with a final cash of R772 million dollars Now I would like to give the floor back to Marcelo Sciuva, who will talk about our expectations
We are very bullish about 2014. We expect to continue growing our sales over 20% on real growth for the last twenty years. In 2014, the first half will be higher than the average for the market. Again, our participation in the World Cup is going very well. And the initiative that we had in terms of participating with HEDIC Global or the global network in the World Soccer Cup is already giving very positive results.
And the Northeast also growing slowly but surely and with a very good expectation. This has to do with sales, okay? And once again, we will be working with two digits of growth in our 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.
And 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. So 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. And we will be offsetting with higher margin products, the higher participation in e commerce and also the TV sales for the World Cup.
And we our projection is to keep the gross margin that we achieved in 2012 and 2013. And of course, our EBITDA will be going up. The margin will be going up because what we saw in the second half of twenty thirteen was this, and we should have additional gains. And the projects that are implemented will be consolidated and will start to consolidate other opportunities for cost reductions. And as Roberto said, we almost have almost 40% of our stores in the payout of curve, that is to say, still maturing.
We have been seeing this in the Northeast and Ribau stores, and we have the opportunity to further reduce our logistics costs, and we have a multichannel project. PDCs are already delivering directly the product for our e commerce. And now we are going to complete the two last ones in the Northeast. And we continue to have our efficiency, operating efficiency is a credit. And that has given us a very good efficiency, very good profitability.
So 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, 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. And 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, and then we had two years of integration, then 2013. And as Roberto 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 in a very special moment right now.
We are very motivated in Magazeni Luisa, and we will certainly be offering delivering better results to our shareholders. Thank you very much. And now I would like to open for questions from you. And we will be very pleased to answer any doubts that you might have. Thank you.
Now we will start the Q and A session for investors and analysts. Questions asked on the Internet will be answered afterwards by e mail, and we will be available to you to answer any questions that you have later on or solve any doubts. Mr. Guilerme, I see from Brazil Rudolph. I have two questions.
The first one has to do with the payment of IRR. What were the criteria that you used in order to reach this amount? And what can we expect? Because for some years, you were not provisioning. And from now on, I understand that you believe you will be having more and more positive results.
So how can we project this? And 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? Well, the first one has to do with the in 2010, we had profit participation distribution.
And we the profit sharing program is something that the company has been paying for many, many years based on merit. That is to say, it's not only for the executive board or executive committee or management in general. So it's like an award that we give to the stores and the distribution centers that hit the target 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 ten years, in fact. So every time we hit the target, we exceed our targets.
We receive this as like 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. No, 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.
So exactly as our agreement was signed with the labor unions. And 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 and A and it will not cause any kind of reaction that we are going to provision on a quarterly basis for that. And the fact is that in the first quarter, we didn't have the best profitability ever. But as of the third quarter, then we start to see our results increasing.
And this led us to provision for that in Q4. But 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 and A, and this is part of the company's compensation as a whole. I'm Luisa.
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 and offer to acquisitions. We were not able to distribute or to this profit for two years. But this has been part of the company ever since our inception. So our salespeople, when they were compensated only normally, they just put the money in their pocket and that was it.
But now we have three sixty degree participation in the sense that they have to be very good in sales in Luizacre, in cards and insurance, and they have to be very good with clients as well. We work on a win win situation. So it has to be in your mind, in your heart and in your pocket. So 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, that is to say, the salesperson is compensated as the company becomes more and more profitable. So this is very consistent with our culture. So this will always happen when the company is profitable. And 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 three sixty degrees. So they have to be good at everything and not only one thing. And I was very happy to see this. We acquired Bauu because we thought it was very good business.
And many people from Bauu and from Maya, they are present here, and they are participating in this. So 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. So thank you very much.
This is Fabrizio. I'm the commercial officer. Regarding the product mix, the trend in Q1 is the growth in TV because of the World Cup and smartphones as well. The law regarding smartphones was enacted last year. So 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.
So the change in the environment helped the portables category, air conditioning and tan. Brazil for thirty, forty years hadn't we had such a warm season as we had now. But we are a company that sells pens and toys, and we tend 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.
And 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 it's the strength of the Mia Casa Mirador is incredible because this new middle class, they have no access to credit. So cities such as Sao Paulo, they do not have Mia Casa Mia Vida, the program by the government, the housing program.
But in The Netherlands of Brazil, mainly in the Northeast, it's impressive because the program will continue to grow. And some of our stores already represent 67% of the overall sales. And where Mia Casa Mia is strong, we will continue to be strong. And 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, this is strong already as well as in the Northeast, in Sergipe, Rio Grande do Norte and Bahia, Pira De Santa Ana, it's incredible. It's another reality. It's another world. And furniture is the second thing that they buy.
First, they buy a refrigerator and a store. Have to buy beds and tables. And I believe in furniture because this is something that everybody needs. But first of all, they buy, let's say, refrigerators and they buy stuffs and not washing machines so much, only 54%. 15% growth in furniture in 2013 and two digits higher than two digits also in 2014 is our estimate.
Thank you. Anika Croce 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 Luizacreto 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? And 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 in the Northeast on the Northeast. So 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 BRL140 million last year, and we should keep more or less the same amount in investments for 2014.
This is the first point. Regarding Luisa Carreje, I would like to ask Roberto and Marcelo Quellera to answer your other questions. The first point, this is the yes, it's Bernardo. Bernardo asked the question. Bernardo, okay.
So You asked about consumer credit vis a vis growth in our portfolio. Was this your question? Yes. There was a mismatch there. So I would like to know the reason for that.
How can you explain the difference? It was also different. The growth in consumer direct credit was about 18% and the portfolio, 22%. And the average terms are the same, eleven, twelve months. What happens is that the portfolio is very new.
And when it starts growing, you start to include more clients, and some of these clients delay their payments. And 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 that the 18% growth in direct consumer loans is higher than the growth of Macazini as a whole because we focused on that since 2012, not only us, but the whole market, mainly the new clients. So we stopped focusing only on credit cards, and we started to focus more on the direct loans. So 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, 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 and our portfolios, our revenues and the results of Luisa Cregi that evolved on a quarterly basis going upwards. And provisions were a big highlight this year, practically equal to the previous year with a portfolio that was 12% bigger. So the provisions on the over the portfolio dropped quite a lot due to the very conservative stand that we have been taking for the last couple of years. And 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 grimdling 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 Lueda Credit increased quite a lot with a lower risk because our credit card policy is much more stringent.
Mr. Fabrica from any time who would like to ask a question. The evolution of the EBITDA margin. I understood the reasons that you explained the drivers for 2014, the EBITDA margin. But 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.
So do you agree with that? And 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 margin because the sale of TV sets in the Q1 would be offset by other categories in the first half and also the increase in the margins coming from the Northeast. And because of all that, our expectation is to have or our target here is to maintain the same gross margin, and we expect to increase our sales.
This is what I said. Yes, I'm talking about the EBITDA margin, sales growth, the maintenance of and operating expenses dilution, the ones that are still underway. Because 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, and we believe that the same thing will happen with the first and the second half of twenty fourteen. So then we will have an opportunity to dilute our costs and reduce expenses.
And we have a logistics program that is already underway, and we will be able to have gains from that and efficiency projects of Luisa Cregu that is also underway, and we will be able to have very good results. And as stores mature, as the operating income becomes better and better during this payoff curve. And what about income tax rate for this year? Inatu. In retail, we have a 34% tax rate on our operating income.
And then the equity income is already net of income tax, but they are subject to the 40%. And in the case of retail, 34% in Luisa Credit, 40%. And we had a tax benefit this year because of interest on our own capital that brings down we declared R12 million dollars of interest on equity, and we had a reduction of R4 million dollars in 2013 of income tax. This is something very healthy, and this is just a normal practice as these 12,000,000 of interest on capital that will be paid to investors, they are subject to 15% to individual investors. So 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, yes. Edith Pizulla from GTI would like to ask a question. Good afternoon.
About Gilani'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 the bonus. Everybody is entitled at the company, D.
C, stores, offices, 5,000 people. They are all entitled, provided they go beyond their targets. They achieve the targets and go beyond. So we had BRL 22,000,000 minus BRL 7,000,000 of effect on income tax. So net for the company, 15,000,000.
And 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 proportionately increase our profit sharing program. But 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 is 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.
So we do the calculation exactly according to the agreements that we have signed with the labor unions, and we signed every single year an agreement with our labor unions in Sao Paulo and other states. So 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. So are you talking about 20% of the net income? No.
EUR 300,000,000.0 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 17,000,000.
So we are talking about a profit sharing of BRL 15,000,000. 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 meritocracy, that is to say, an award winning policy. So we place this challenge for people and we say, well, 60% or 70% or 80% growth because in the past, we still have the right to use of a merger, so to say. You can hear so often, and I have already shown this to you, and 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 100,000,000 today, it's going to be our target is higher than BRL 70,000,000. Last year, we fought for BRL 60,000,000. It's not a percentage of the net income. Berto and I and everybody, we would like to show you our model.
And 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 100%. So higher than our net income, then our target, then we start to distribute.
It's not 15% or x percent. I do understand your rationale, and we could have explained better, but this is so normal for us that we thought it was enough. So if we have BRL 70,000,000 in this time frame, then it's going to be so much. But our target this year will be much higher to give the same that was given in 2013. It's based on our target and not a percentage.
It's not based on a percentage. You came here quite a few times already, and I would like to invite you to come as often as you want. And then we can show you our model. I would like to remind you that in order to ask a question, you should press star one. As there are no more questions, hand to Mr.
Marcelo Suvo for his closing remarks. I would like to ask Luis Elena to do this. Well, I wrote our message from the administration with great pleasure. The company always consolidates. And we when we bought Maya and Bagu, people raised quite a lot of questions.
But I'm 100% sure that we made these acquisitions at the right time. At the time that the company needed to do this and 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. And now we are very strong there And competitors do want to go there now. It will they will need a lot of time and a lot of money.
And Bagu consolidated the capital in which we really needed more stores. So consolidating and growing has always been part of our DNA, such as happened in Rio De Janeiro, in Santa Catarina with other acquisitions and consolidations. It took more time for us to do this in the Northeast. However, we are very pleased with the results. And it's like going back on track.
And 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 site. We are celebrating the results of December, also January. And 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. And people prepare even their homes for to receive people and friends to watch the World Cup. And 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.
And we are here. We can answer any questions that you might have. We can disclose any figure that you wish to see. So please come here anytime. We want to listen to you.
We want to give you access to everything, and we want 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. So thank you very much. And you may be sure that 2014 will be great for Magazione Luisa. I am absolutely sure of what I'm telling you here. Thank you very much.
Magazine Luizo's fourth quarter of twenty thirteen results is closed. And you may disconnect your lines, and we wish you all a very good afternoon.