Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Huaca de El Luisa's 4th Quarter of 20 18 Earnings Conference Call. At this time, all participants are connected in listen only mode. Afterwards, we will have a question and answer session when further instructions for YouTube participants will be given. Now we would like to turn the floor over to Mr.
Federico Trajano, CEO of Fresnillo. Mr. Trajano, you may proceed. Good morning, everyone, and thank you very much for participating in our earnings conference call about the Q4 of 2018 as well as the full year results. Once again, I'm here with our whole Executive Committee of Magazene Luisa.
I would like to make an introduction. A few words, that is to say, I'm going to talk about some slides about our operations figures, and then we will be opening for questions from you. Talking about 2018, as I said on our Investor Day on December 14, I say that perfection is very hard to achieve, as you talk about. But one day, we got close to perfection, and that was 2018. This is when we had a fantastic outstanding performance.
I would like to highlight the fact that it was very much in balance. We were able to reach a very good performance in all areas of the company, all departments, all areas. We have dozens and dozens of targets to be reached. And the bar is very high, and we had a very high number as well of people who have achieved their targets and they went beyond the target as well. So our team was outstanding in all channels, regional, front office, back office, all the segments, top and bottom line with a good performance.
So we have to celebrate a lot our results. And from the macroeconomic viewpoint, it was not a good year. So this makes this even more outstanding. It was a little bit better, however, very far from the growth potential that Brazil has. We're very happy with the work done by the whole Mata Tele Luisa team.
They really worked very hard. But ultimately, we had the payoff of all this work. And as I said in our annual report, in our message from the administration, from the management, I consider that with everything that we have already achieved and implemented, mainly in terms of the digital transformation of the business, we believe that we have already completed the process. So Magalha Sinivita is already a digital company. So it no longer makes sense to say digital transformation because this is fast.
We are already a digital company. It is already a tech company, a digital platform, however, with human warmth, but physically. And with that, all the work that we did and we have a balanced capital structure, we paid our debt and we are capitalized and we have net cash. Operationally speaking, we are very well structured. We are running with a lot of efficiency, the low SG and A vis a vis the remainder of the sector.
So we work with a lot of efficiency. We have a very good team, very much balanced and also very motivated. So we are entitled to be even more ambitious because we have already delivered and now we want to make the whole project digital after making a delivery digital. So we can afford to do that. This might seem very ambitious, but we are very comfortable with what we did for our company.
And we believe that we can share this with other companies as well and attract more and more consumers to our base in order to share these benefits coming from digital transformation. I would like to remind you that we still have only 17,000,000 active consumers of a total of economically active population of 55,000,000. So the share is very small in the total consumers of Brazil. So we have a lot of room to grow in order to gain scale, in order to grow. And our focus is to scale up the model and share this with other companies in order to help us digitally include more and more Brazilians.
So I know it's a very big challenge, but it is more in the sense of keeping the level of service that we have with an operation in which almost all of the sales are still our own inventory. So one single registration number, a taxpayer number. Most of our sales, most of our revenues still come from 1P, which means that our main challenge now in the process will be to convince and encourage companies that participate in our ecosystem to be included in the same level of service that we provide. And we believe that this will be the major challenge. And also when you grow a lot and when you are very ambitious as is our case, and we call it Chinese growth.
And I presented this in our Megalou Day or Investor Day last year. And with this very high growth, sometimes we have growth pains. So we have to have a lot of balance inside the company to keep a very high service level that we achieved this year and that we call the ear of the client. And we established very high targets, and we went beyond our targets. And this is a big challenge now, that is to say, road will be even more exponential.
Now I would like to focus on our presentation. Already talking about the Q4 and the full year of 2018. The first slide that we have has 4 bullet points about our physical stores. And these are the highlights: 19% increased same store sales in the year. And if we consider new categories, a growth that reaches 25%, 26% to the year and a gain of 2 percentage points of market share on average, but practically in all categories and that had gained in market share coming from other years of growth in market share of our brick and mortar stores, and we added 100 new stores to our portfolio.
And we shut down a few, but the balance was 96 new stores. And the additional revenue coming from the stores and last year's store, 7 percentage points of growth and a very extensive growth in our brick and mortar stores in 2018. And I would like to highlight the fact that brick and mortar stores, as we said, we have a digital platform with physical points of sale. And they are fundamental for sales of ink in e commerce. And we have the participation of physical stores, a lot of them collect, but from now on, to from store.
So they are shoppable distribution centers, in fact. And we have remodeling, structurally infrastructure, 100 of these remodelings last year. All the stores that we opened, we already opened with this new concept of mini DCs, 30% of the area for warehousing and EDOZA systems, very well developed systems in order for us to help these stores to serve the clients that are using e commerce as well. So this is a great potential that we have. And if we consider the stores as DCs, we will have approximately 1,000,000 than 100 DCs to supplement e commerce order.
So the multichannel model is very much through the process. And I would like to highlight the fact that we are concluding the digitalization of the pilots that we have Caixa model. That is to say the seller issues the invoice to the consumer directly. He doesn't have to go to the checkout. This is a very complex process.
And we intend to place this in the 17, 19 states where we have stores. And we need the authorization of each one of them in order to use this printing system, that is to say the salesperson having a mobile printer and we are adapting them to all our salespeople for the second half of this year. So the consumer will no longer have to go to the checkout in order to pay if they're not paying cash, of course. If they're paying with a credit card, so they can already use the system and the whole process lasts about 2 minutes. It's very, very fast and it's a very different to the average in the market that sometimes takes $14,000,000 to be completed.
And digital credit show that the consumer doesn't have to go to this island. Most of the clients use cotton wiz in the physical stores. And very often, they are buying for the first time with credit by Magasinouise, these new clients that come with the Magazine de Luiza credit card. So the credit process has to be fast. And now sales people can approve a new card, and we put the card at the store.
So it's very agile, very fast. So the stores in the first half already will already have total digital process. Now I would like to go to the e commerce slide. The app, the company app is a highlight, and I would like to give more emphasis this to the numbers. The total downloads actually placed 24,000,000 downloads of the app, but in Brazil, we have about 30%, 40% of the clients that install the app.
And they remove the app after they make their purchase. And we have been working a lot in order to make it lighter. This is the market standard, and our number is lower than the market numbers. But even so, it's still a very high number. So I would like to emphasize the 6,000,000 active users that we have per month of our app.
People use our app every single month, and this is more relevant than the absolute figure that is mentioned in some reports. So this is a very high number, and fifty percent of the total sales of e commerce are via app. They are very consistent figures that show that we are right in our strategy of investing in our online experience for the client. And it is much higher than the average of the market and we want to continue on this trip. And we have already talked about the soup prep, and we will get into details afterwards.
Then delivery times, it is one of the major drivers last year because we were able to lower much lower than the average of the market lead delivery time for the product that we offer through our website, 30% of the deliveries or the sales that we make on-site, they are promised and delivered in 48 hours. And we even deliver other products in 48 hours. We're pleased that we make a promise to do. We do all of them and click and collect over half of our sales are this way in 48 hours. So this is a very big competitive advantage vis a vis any other player, any pure digital player.
So multichannel cannot offer this amount of product and have this kind of penetration and this number of deliveries in 40 8 hours. So this shows that our model is superior, omnichannel model in order to meet the needs of the Brazilian market. And we know the logistics complexity in Brazil. This lobby is already in 200 cities and accounts for 15% of the deliveries of our total e commerce. But in some markets like Sao Paulo, the share is much more relevant.
And also, I would like to mention the launch of the twelvetwelve delivery model until midnight. If you buy until midnight, you receive until noon. And we improved road out as of this year. And I would like to highlight marketplace because this is very important. There were many doubts about our marketplace operation, and we have exceeded our most bullish expectations over 3,300 sellers in our marketplace and 4,000,000 SKU in the platform, GMV, BRL 800,000,000 GMV.
And last year, it was the year of the defect to rollout. And before that, in 2017, we were experimenting and fine tuning our operations. And already with the Magalu Intregas mode, we have 50% of sellers and 30% orders made through Magalu Integra. This is the basic model with the contracts of carriers, and we are rolling this out, the fulfillment by Magalu and we are going to use the Luisa Mesh and Log B. We have twenty sellers in the pilot, and we will be rolling this out up to the end of this year.
Vaca Muentegas is already a huge benefit in the package that the seller has. And this gives us a big competitive advantage vis a vis our competitors because they have neither L'Abi nor Maria Luisa delivering for them. So this is one of the major focuses of our operations. The rollout of the fulfillment by so this is a target that is with the hands of many of our officers, and we are going to work a lot in order to have the highest possible number of sellers in this modality. And initially, we contemplate more warehousing by the end of the year.
Magalupada meant it's over 2,000 sellers in the platform, very much focused on services for the seller and not the final consumer, the end consumer. We intend to grow the number of sellers by the end of this year. And we already have a target for 2019. I cannot disclose the target, but we have a very high volume already estimated for 2019. And this the seller because you will have a discount rate that will be below the market, lower than the market and also helping our marketplace continue to grow.
And before giving the floor to that, I would like to repeat what I have been saying the whole year. This was the year of decline. Our bar was very high for KPIs for end customers and there is a trend in the world that in the field that companies be more and more customer centric and balancing KPIs and the level of satisfaction provided to the end consumer. And we are focusing on our active clients, not only GMV and invoices, BRL17 1,000,000 active clients last year, 34% year on year. We are the only retail company that has a very big reduction in the Heiko Miyake.
So our satisfaction compliance satisfaction is much higher than the market. And we intend to have an accelerated growth of marketplace from decreasing any complaints, and we will keep this objectively. So we want to grow as they grow. In their participation of e commerce in the total sales, were reduced 29% of the coupon complaint according to 81,000,000 orders. So our efficiency is much better.
And we are generating less problems to our clients And this resolution when you call in the chat it went from rose 19%. So in the first call, the pipe already solves any problems. And satisfaction, 80%, one of the highest in the market. And I would like to mention the NPS that grew a lot. Our NPS is much higher than the average in our category as well.
And at internationally high levels in our brick and mortar stores and e commerce. Now I would like to hand over to Bertus so that he may talk about our financial highlights. Good morning, everyone. I would like to talk about our figures very quickly, the highlights of the Q4. And I think the figures are very self explanatory, very high growth.
In our figures, dilution of our operating expenses was very important. And for the first time, we reached an SG and A level of 20% of 40 bps and 20 0.8%, the dilution of our expenses. 1.2% of our net revenue was net in our level of service, and this shows the operating efficiency of the company. I would like to mention the ROIC, ROE, 33%, ROIC, 39%, extremely high returns. And we continue to grow with high return and high cash generation in the quarter as well.
We've generated BRL1 1,000,000,000 in operating cash flow. Then we have the 2018 highlights for the full year, very much in line with what we did in the Q4. It was a very consistent year in all the quarters. On Page 8, this shows some operating highlights. One highlight I would like to mention is that we more than doubled our investments.
And we were able to open 100 new stores with investments of only BRL87 1,000,000 in new stores, which means an average of less than BRL1 million per store. And this shows that the new stores, we said this already, they are growing very quickly and with low investment and with inexpensive rentals and with very fast returns. And we give you details about the evolution of our sales on each channel, very consistent. On the next page, the gross profit, the reduction of the gross margin associated to the growth of e commerce over 5% increase in participation and the strong dilution of our administrative expenses and total expenses, BRL 40 reduction in spite of the additional expenses. In terms of equity income, the result was very much impacted of the IFRS 9 of the Luisa Creggi.
And anyway, giving us 40 bps of margin per EBITDA. And on the next page, we show that we closed the year with 8% EBITDA. In the quarter, 7.7%. EBITDA margin impacted by the growth in sales, a very coupon and e commerce and investments in service level and the acquisition of clients that will be helping us continue to grow at a pace, which is faster than the market. And then talking about the financial result, lower than 2% of the net revenue and financial expenses, including the prepayment of receivables, we continue to have net financial revenue and growth in expenses with this prepayment are currently associated to our strategy of focus on Cattel Luiza, the Luiza card, which grew over 50% of the year inside Magazena Luiza, this is our focus.
And we derive many benefits from that, both in our sales and our margin and our EBITDA. Working capital, we had already talked about the results of the 3rd quarter and the trend of working capital for the 4th quarter was very positive. And for the year as a whole, working capital contributed BRL150 1,000,000 of cash generation by the company. We increased our net cash production for 188,000,000 dollars 100,000,000 cash generation net cash generation of October. When we end with RMB60.2 billion debt cash position of in December
2018. And
our cash flow of the operations was $1,100,000,000 more than enough for investments and for the payment of BRL400 1,000,000,000 in debt and interest and all the dividend payout that we made with BRL2.6 billion in cash at the end of December 'eighteen. In terms of net income, in the 4th quarter, We had a major growth in our net income, ROE 33%, again ROIC 39%, very high. And now talking about Riz de Kredge, in the last quarter, we sold over 400,000 new cards. For the year, we increased our base in almost 1,000,000 new cards already well, the biggest growth that we have ever had on our card base. And with that, we grew the revenues from Gruyza Credes as well.
In the quarter, 45% increase, 1,600,000,000 and with the cad for the year as a whole, exceeded BRL 20,000,000,000 in total sales and total revenue. So an excellent year for Luisa Caregi. And at the same time, we were able to keep the quality of our portfolio, the quality of our clients, a very stable situation regarding our portfolio. So we show you the portfolio, 7.2% only, 2.7% from 15 to 90 days. And with the coverage ratio, that was very high as well, almost 200% over delinquent cards.
The result of Luigi in the quarter was lower for the year was lower than the previous year in IFRS 9. And here, we highlight in the quarter 36% higher here, BRL47 1,000,000 in net income compared to BRL 34,000,000 in 2017. And for the year as a whole, RMB151 net income in BR GAAP. We placed BR GAAP because this is the way the banks report results And this is the way that is taken into account for BIS ratio purposes. And it is more comparable to the previous quarters.
IFRS 9 was adopted in 2018 And it anticipates provisions both. It thinks that clients that are controlling also the limits for the clients that have not even used their limits yet. So the results from one to the other is was almost double their GAAP at IFRS, almost BRL100 1,000,000 in IFRS 9 compared to Doctor GAAP, which is rather conservative in this evaluation. And if the result of Agaizina Alisa were to be used according to the Central Bank accounting practices, year on year to be over BRL635 1,000,000 just for comparison purposes. So these were the financial highlights.
And now we would like to open for questions. Thank you very much.
Our first question comes from Robert Ford from Bank of America Merrill Lynch. Good morning and congratulations for your results. I was really impressed with same store sales growth based on a 15% foundation. Could you talk about 2019? And what is your view in terms of the next coming growth since
it will be difficult to
run a comparison visavis what you had already posted? Good morning, Bob. Thank you very much for your question. I will initiate the answer and then Fabrizio will give you a follow on. As I said, we haven't yet seen a very strong economic recovery.
In fact, the economy was mostly moving sideways, But we saw some signs of recovery in the last quarter. We hope that looking forward for the first time maybe in 3 years, I would say, we will be serving good ways. There is a suppressed demand in several categories and the one that was more resilient during the crisis was telephony. And now we will see a more balanced growth per category looking forward. But we are also gaining a lot of market share.
Crisis was very hard on a lot of people, but particularly it was harder for smaller players because they had several difficulties, many of them wouldn't be able to overcome the crisis and that's why we are gaining a lot of share. And I still see a lot of room for further gains in market share. Depending on the category, we may even get 15% share gain, especially in the brick and mortar stores. That's why Stock management, we are reducing stock out, credit is very balanced. Stock management, we are reducing stock out.
Credit is going well. The purchasing experience is also very good. The team is well motivated. That's why I still see great opportunities to gain further share. In the first half of the year, we have the base of comparison of the World Cup, especially in the Q3.
Having said that, we started the year on the right foot. And this year, we started off well in terms of categories. And in the Q2, I think we have to compensate, especially in the image area with other categories. In May June, which are stronger months because of the World Cup, we sold a lot of image products. Yes, and you've been very disciplined in terms of the growth and refurbishing of stores.
What is your CapEx plan for 2019? And what is your plan for the opening of new stores and refurbishing of old ones? Well, I cannot give you any guidance, but what I can say is that last year, we refurbished 100 stores and we opened another 100. We intend to be just as aggressive both in terms of refurbishing and the opening of new stores. Our capital structure is very solid, very good and that's why I say that not only we should maintain but also expedite our investments.
We are very enthusiastic. And whenever we open a new store, we are not only looking at the sales potential of that physical store, but we also want to improve the delivery term because one thing is linked to the other. And it helps us then in both fronts. Thank you, Fred. And also you said that over 30% of our e commerce sales can be delivered before 2 days.
How do you see the evolution this year? And what kind of investment you're doing to ensure an even faster delivery free of charge? We intend to increase our share in shipment in the Q3, we intend to expand our share in terms of delivery. And we have to look at the rollout of Logi B. We have Luiza grid, which is very adequate.
We have a lot of people working. There are more than 1800. They are very adequate to deliver product and they can add up to that grid using another kind of fleet to deliver smaller products. Usually, we would use the postal service, but now we will spend Log B and we are doing a lot of other things to improve the delivery or store pickup considering all the 2 new distribution centers and all of the other ones that already had, we want to have the right product at the right location to be able to deliver fast enough to 2 days or even 12 by 12. And as you know, this will depend on a very strong replenishing and supply job.
One of the main goals of our team, e commerce team and even on the lab side, we still have a lot to develop. There are many initiatives that will help us boost that quick delivery facility. Our next question is from Mr. Joseph Giordano from JPMorgan. Hi, good morning and thank you for taking my question.
You didn't give a lot of details, but can we expect some more concrete timing for the first half of the year or the second half? And also I want to get a better understanding about your strategy or how much capital the company wants to allocate to that. When you look at the super apps that we have in the market today, they have certainly demanded a lot of investments in acquisition costs for new customers, especially to bring onboard the high frequency part. And my second question is how are you going to bring your card which is in partnership with Itau so that you can benefit from the full potential of the Super App and use the wallet as a means of payment. Hi, good morning.
Thank you for your question. This is a very good opportunity for us to elaborate a bit more on our vision, which is very simple to understand. But this year or the long term view is not just the super app. As we said today, the frequency in our view is low in terms of the use of apps in general in Brazil, vis a vis what you see in China, like the Alibaba app, they use it like 8 times a day. And then you look at the most used apps, people use it 4 to 5 times a day.
So on average, it's very low. Our mission therefore is to help consumers to do everything in the environment of the Magalu app. This is a biannual view. It will take us several years to reach the level that China is today. And I know it took him several days to reach that level.
I mean, for the super app in India, both the Alibaba and the WeChat app, The view for this year, just to be more objective, is that we have to tackle 2 important areas or 2 important initiatives to increase the frequency of active users in the not so active users. First of all, we have to expand the category and also expand asking you and available offers. We already evolved a lot because we went from 40,000 items to 4,000,000 items. We are just challenging people because everybody that talks to us would say, okay, look for a product in our app. If you don't find it, I mean, it's very difficult for you not to find a product in our app.
The exception is only in a few categories. We already have 4,000,000 offerings. And with the growth of Marketplace, December will escalate further. So that's why very seldom you will not find the product in the app, but there are just some categories that needs to grow. These are categories of higher frequency.
We already said that we want to get into fashion, not particularly through 3P, but this is a very strong category and we are going to look at it. This year we already inaugurated the Magalu market, which is a very high frequency category. It doesn't give us a lot of GMV, but it gives much more frequency. Non perishable supermarket items, this is something we ventured in about 1.5 years ago, and we want to go into like 2 and 3P and then there are other categories to be launched throughout the year to increase utilization frequency. This per se generates new users, so we don't have to invest a lot in marketing because our installed base is one of the largest in Brazil and in terms of the app, we can only all we have to do is to encourage this installed base to be more to use the app more often.
So it's what you said, payment and credit. Today, we have 3,700,000 active customers of our cards. And very soon, we will reach the market 4,000,000 of active credit card customers and they are not using that product a lot digitally speaking. That's why we want to migrate these are the cards to our app. All we have to do is to integrate our systems.
We have the API from the apps and that is the transactional based on the card lies with Itau. So what we want is to help customers make further use of the card through the app and at the same time to make some payments through the app as well. In addition to that, there are other payments that as we said during our Amagaloo Day, we went to launch our digital wallet and digital account. So these are things that are still in our pipeline and this will certainly encourage users to use our apps more often. So we have we want to increase payment credit and expand views in different categories.
Now to answer your question about other investments, I don't see the need to invest a lot in the super app. We may introduce 3rd party services by opening APIs to the market, but I don't have myself to build all of these services. I can just integrate to other bases and use that in the mindset of market frontline. And this is pretty much what the Chinese is doing. If you take some of the services and there are some apps, some are proprietary and other services are offered through many apps inside the super app.
So this I don't think this will be our case, but this is a very capital intensive strategy. In fact, all of our strategy looking forward, not only the super app, but other platforms like Magaloo sales, etcetera, all of our strategy is more asset light compared to previous decades. Because when I talk about how much the market is investing in opening DCs and stores, we are talking about API. So it's much more asset light. Some other competitors are investing more heavily in difficult assets because they don't have that base that we have.
Next question is from Thiago Macros from Itau BBA. Next question from Huubin Kautu from Santander. Still talking about the super app, you have that number of 6,000,000 active users, but just to run a period of basis, could you give me that number that you had at the end of 2017? And when we talk about 6,000,000, this is don't
you think this is a
good enough critical mass that would allow you to have a subscription model to have Clobidolu, which is something close to that, but not necessarily the same thing. I just want to know your just want to understand your mindset in terms of having a different subscription or different format or whether that is a possible path forward? Okay. Thank you for your question. Good morning.
I already talked about the subscription. Sometimes we try to import a model from abroad. In China, there is no subscription. So there is another model in the U. S.
That maybe could apply better to Brazil. So we are offering free shipping in 24 hours for those who buy through the app. So I'm not charging anything, it's free shipping. And the purchasing power of Brazilians is much lower than that of Americans. So they have their subscriptions of $100 a year for credit packages or whatever benefits are involved.
Here, the subscription model will be for certain features of products or maybe products that do not appear so frequently and not necessarily for a loyalty program because in Brazil, no paid loyalty program has succeeded. So you have to just give rewards for purchase frequency. So I do not want to emulate the products or models from abroad because there are other platforms that are Brazilian that we're able to grow without applying the Amazon model in their countries. So I'm not going to copy other models, okay? So that 6,000,000 base, that does also include returns.
The growth was about 140%
visavis
the end of last year in comparison with what we had. Our next question is from Thiago Macruz from Itau BBA. Good morning. In fact, here is Marco. Fred, my question is a bit more subjective.
When we read the message from the management, even though you had an exceptional growth in 2018, maybe I think that the company decided to hold on to its growth just to give a bigger leap, particularly in market place in 2019. Is my interpretation correct? Thank you. Could you repeat the end of the question? Well, our understanding is that despite your exceptional growth in 2018, maybe more recently, the company made few decisions to hold back that growth in order to give a bigger leap this year and maybe this leap would be focusing more on marketplace.
I just want to know whether my reading is right, my interpretation is right. I'm just curious to learn what led you to think that because it's just contrary. But we wanted to say in our management report is that the site we grew so much last year as we grew 35% or 60% growth in e commerce and 19% growth in same store sales and physical stores. So we still believe that we can grow even more in the future. Especially because of the nature of marketplace, because marketplace has been very relevant for growth last year.
But looking forward, it tends to be even more relevant to increase the total GMV of the company. So what we mean is that we want to grow even more looking forward.
We want
to grow more than what we grew in the past few years. So certainly 2018 was an exceptional year and the base becomes even more difficult every time. But I want to say that whenever I talk about growth, I'm not really talking only about GMV growth. I'm talking about our integration with consumers. My focus is not to grow total GMV that was close to €20,000,000,000 last year, but is to grow the number of 17,000,000 active customers and their frequent of shopping, shopping frequency.
So that's what we want. We want to grow our customer base and how much they buy from us. So this is the focus. This is our KPI. This is how we are moving towards the future.
What I wanted to say is that looking forward, what will allow us to continue to experience even higher rates when compared to the past, even though it will be hard to run a comparison is marketplace. This is the focus. Perfect, Fred. Very clear. Thank you very much.
Now we close the Q and A session. I would like to give the floor back to Mr. Federico Tarzano for his closing remarks. Thank you very much for participating in our call. I would like to congratulate the whole team of Argentina Luisa for the results obtained in 2018.
Thank you very much. Magasin Ibiza's conference call is closed. Thank you very much for participating. We wish you a good day. Thank you.