Via Varejo S.A. Individual and Consolidated Financial Statements for the Year Ended December 31, 2015 and Independent Auditor's Report

Transcription

1 Individual and Financial Statements for the Year Ended December 31, 2015 and Independent Auditor's Report Deloitte Touche Tohmatsu Auditores Independentes

2 Financial statements Year ended December 31, 2015 Contents Message from management... 3 Officers declaration on the financial statements... 7 Officers declaration on the independent auditor s report... 8 Supervisory board report... 9 Independent auditor s report Balance Sheet Statement of profit or loss Statement of comprehensive income Statement of changes in equity Statement of cash flows Statement of value added Corporate information Significant accounting policies Significant accounting judgments, estimates and assumptions Financial risk management Cash and cash equivalents Trade receivables Inventories Taxes recoverable Related parties Investments Property and equipment Intangible assets Borrowings Taxes payable Current and deferred income tax and social contribution Provision for legal claims Lease transactions Deferred revenue Equity Net revenue from sales and services Expenses by nature Other operating income (expenses), net Finance income (costs), net Earnings per share Insurance Segment information Events after the reporting period

3 MESSAGE FROM MANAGEMENT In a year of major challenges facing Brazil, especially the durable goods industry, we worked in a highly focused and disciplined manner to make the necessary adjustments and continue implementing the strategic plan, thus consolidating our market leadership and strengthening our competitive advantages. We accelerated our initiatives to drive operating efficiency, such as optimization of the logistics network and back office synergies among the group companies, in addition to rapidly implementing a structural adjustment plan, which involved optimization of processes and rationalization of expenses. Among the cost-cutting measures are the revision of our store portfolio, with the closure of 39 unprofitable stores, revision of the logistics network, adjustment to the headcount with the reduction of approximately 13,000 positions, and renegotiation of rental agreements. Despite the adverse scenario, we are continuing our strategy of investing in projects aimed at strengthening company s competitive advantages, obtaining sustainable market share gains and meeting the needs of an increasingly demanding and dynamic consumer. We ended the year with 176 stores renovated for the new telephone category, with better assortment, services and layout, 121 stores under the new concept of the furniture category, offering better product design, customized furniture, specialized service and better store layout, and 81 banner conversions to adapt to the company s positioning to customers needs. 27 new stores were opened in We took a step forward in capturing synergies with group companies and concluded the implementation of Click & Collect across all Via Varejo stores, including the sale of Via Varejo products through the websites of CNova, an associated company listed on the Nasdaq and Euronext Paris. We also invested heavily in information technology and logistics, with improvements in the credit approval and collection, logistics routing and back office areas, among others. Investments totaled R$372 million, in line with the amount in previous years. Underlining our commitment to further strengthening our brands, we entered into an agreement with the Rede Globo de Televisão for the 2016 Brazilian soccer league package and a new agreement with Bradesco for the sale of co-branded credit cards under the Casas Bahia banner. Both agreements are aimed at increasingly giving us a greater competitive advantage and our customers with the best offers and payment conditions. Ehics, sustainability and corporate responsibility remain the backbone of Via Varejo s business strategy. In 2015, the following initiatives are worth mentioning: Revision of the Code of Ethics, restructuring of the ombudsman and continuous training of the company s employees on the subject. Increase in the number of employees with disabilities to 1,957, continued structuring of polices and processes that mitigate social and environmental risks and strengthening our culture of compliance, in addition to initiatives and partnerships focused on culture strengthening and inequality reduction, through initiatives organized by the Via Varejo Foundation Thanks to the dedication and motivation of our employees, we reached the end of 2015 better prepared for the future, with solid cash generation and capital structure. For the tenth consecutive time, we ranked first in the Top of Mind survey in the furniture and electronics and home appliances segment (Datafolha Institute) and in the Most Beloved Brands survey (O Estado de S. Paulo). The year 2016 poses numerous challenges and opportunities, and we will remain fully focused on the customer, on discipline and on operating excellence to ensure sustainable growth and strengthen the Company s competitive advantages. We thank our employees, suppliers, customers and shareholders for their engagement and commitment throughout PROFILE Via Varejo is the absolute leader in the retail electronics, home appliances and furniture sector in Brazil, according to specialized consultants in the sector. The Company is also one of the largest buyers in Brazil s electronics and home appliances industry and invests in building close relations with its suppliers so it can offer a wide variety of products, services and, consequently, attractive prices to its consumers. 3

4 The Company is the result of the association of the operations of Casas Bahia and Pontofrio in 2009 and is one of the world s largest electronics and home appliances retailers. Casas Bahia and Pontofrio are two traditional retail chains in Brazil, which were born from the entrepreneurial drive of immigrants. Casas Bahia was founded in 1952 by Polish immigrant Samuel Klein, who opened the first store in 1957, while Pontofrio was founded by Romanian immigrant Alfredo João Monteverde in ECONOMIC SCENARIO The year 2015 brought an adverse economic scenario for the durable goods sector. Starting from the second quarter of 2015, sales across the sector declined sharply, as reflected in the Monthly Trade Survey (PMC) of the Brazilian Institute of Geography and Statistics (IBGE), due to the worsening of indicators such as the unemployment rate, the Consumer Confidence Index (ICC) of IBRE/FGV, which was the lowest ever, and the increase in the basic interest (SELIC), which was the highest since The drop in the sales volume across the sector, combined with high inflation as measured by the Extended Consumer Price Index (IPCA), which stood at 10.67% in the year, pressured the expense structure and operating leverage of the company. In light of this rapid change in the scenario, the Company carried out a series of adjustments, mainly to increase competitiveness, operating efficiency, service quality and profitability of stores and to maintain its cash reserves. STRATEGIC PRIORITIES We strive to increase the level of service, satisfaction and feedback from our customers by standing ahead of competition and creating the necessary conditions to increasingly strengthen our industry leadership. Our focus is on initiatives that directly benefit our customers, such as reduction in stock out and delivery time of products, increase in commercial competitiveness, as well as adaptation of assortment, media and offerings according to regional needs. For this, we need a lean and healthy company, with initiatives that always envision operating efficiency. These initiatives include capturing synergies among group companies (logistics, customer service, Shared Services Center, integrated sourcing, and maintenance, IT and security agreements), increasing the productivity of stores based on internal benchmarks, revision of clusters, increasing the sales conversion rate, telemetry and optimization of the portfolio of financial services and products. CAPITAL MARKETS Via Varejo stock is listed on BM&FBovespa s Level 2 of Corporate Governance and its units are traded under the ticker VVAR11. Average daily volume of securities traded on the BM&FBovespa in 2015 was 1.0 million, 8.4% more than in Average daily financial volume of Via Varejo shares traded in 2015 was R$9.9 million, 55.4% lower than in the same period the previous year. Via Varejo s units have been included in the Brazilian stock market indices such as IBRX-100, ICON, ITAG, IBRA, SMLL, IGCT and IGCX. Apart from the units, the Company s less liquid stock VVAR3 and VVAR4 are also traded on the BM&FBovespa but are not included in the above-mentioned indices. OPERATING AND FINANCIAL PERFORMANCE Following are our comments on the operating and financial performance of Via Varejo in These comments refer to the consolidated results of the company. Via Varejo s operations comprise the Ponto Frio and Casas Bahia banners, establishing a portfolio of stores capable of meeting a wide range of Brazilian customers. 4

5 NET SALES Net Sales dropped 15.0% to R$19,268 million, with same-store sales declining 16.4%. The year was marked by a slowdown in the consumption of furniture and electronics and home appliances since the second quarter. The smartphones category was the top performer in the year, while the 2015 January Clearance Sale and Black Friday were the biggest seasonal successes. We opened 27 new stores and closed 50 stores, of which 11 were to comply with CADE s ruling. The Company ended 2015 with 1,014 stores, of which 254 were Ponto Frio stores and 760 were Casas Bahia stores. GROSS PROFIT Gross Profit was R$6,173 million, down 16.1% from Gross Margin stood at 32.0%, down 40 basis points from 2014, mainly due to investments made to improve competitiveness in the fourth quarter. This strategy was possible and was partially compensated by increased profitability from financial services and products, and the reduction in logistics expenses, which enabled the company to recover sales. OPERATING EXPENSES Operating Expenses increased by 1.9% to R$5,293 million in The main factors were Other Operating Income and Expenses, which in 2015 was an expense of R$166 million, mainly due to expenses with restructuring of the Company, and the decline in Share of Profit (Loss) of Investee, from a negative R$64 million in 2014 to a negative R$185 million in Selling Expenses decreased 2.6% from 2014, reflecting the slowdown in sales volume combined with high inflation. Administrative expenses decreased significantly by 5.5% from 2014, despite the inflation in services and the collective bargaining agreement. During the year the company reduced its headcount by approximately 13,000, closed 50 stores, optimized its logistics network and its distribution centers and renegotiated 40% of its rental agreements. FINANCIAL RESULT Net Financial result was a expense of R$627 million, down 7.7% from the previous year, despite the 22.4 % hike in the CDI rate in the period (CETIP). In a scenario of hikes in the basic interest rate (SELIC), the Company adopted the strategy of reducing the sale of receivables during the year, thereby reducing the average term of the portfolio discounted. The effects of this strategy were a 6.2% decrease in Finance Income from 2014, mainly due to the lower average cash invested during the year, and a decrease of 7.1% in Finance Cost in relation to 2014, with a notable 18.6% decline in expenses with the sale of credit card receivables. This strategy enabled the company to achieve a Net Financial Result/Net Sales ratio of 3.3% in 2015, against 3.0% in 2014, an increase lower than the hike in SELIC during the period. PROFIT FOR THE YEAR The restated profit for the year totaled R$14 million in 2015, down 98.4% from Net Margin stood at 0.03%. The key factors for the decline in Profit were the drop in sales across the sector and in the Company, combined with high inflation in fixed costs. Moreover, expenses with restructuring, booked under Other Operating Income and Expenses, as well as lower Share of Profit (Loss) of Investee, contributed to the reduction in Profit. CAPITAL EXPENDITURES Capital Expenditure in 2015 totaled R$372 million. A sum of R$222 million was invested in store openings and renovations, with 27 new stores opened in the period, modernization of the telephone category at 176 stores and furniture category in 121 stores, as well as banner conversion in 81 stores. Another R$91 million was invested in systems and technology, R$23 million in logistics and R$17 million in other projects. 5

6 BALANCE SHEET ASSETS Total current assets as of December 31, 2015, totaled R$10,671 million, with an increase mainly in the Company s Cash, due to the factors explained in the Indebtedness section. The biggest decreases were in the Inventories and Accounts Receivable of Payment Book, in both cases mainly due to the decline in revenues during the period. Total noncurrent assets amounted to R$5,617 million. The increase of R$752 million mainly refers to Recoverable Taxes, whose estimated monetization schedule can be found in Note 8 to the financial statements, and to Property and Equipment, reflecting the investments in the period. LIABILITIES Total current liabilities as of December 31, 2015 were R$9,468 million, with Trade Payabless increasingly by 17%, reflecting the efforts to improve working capital, and the reduction in short-term debt. Noncurrent liabilities totaled R$2,574 million, with an increase in Deferred Revenues due to the new agreement with Banco Bradesco for the issue of Casas Bahia credit cards. Total liabilities and equity came to R$16,288 million. SHAREHOLDING STRUCTURE As of December 31, 2015, the subscribed and paid-up capital of Via Varejo consisted of 1,291 million shares, of which 656 million were common shares and 635 million were preferred shares. DIVIDENDS The Bylaws of the company stipulate a minimum annual dividend corresponding to 25% of profit adjusted, as applicable, for the changes in the legal reserves in accordance with Brazilian corporate law. There was an initial deliberation on the amount of dividends for 2015 at the Annual General Meeting of April 2016, and there will be a new General Meeting for the residual distribution of the profit determined after the restatement adjustments, to be made through September RESTATEMENT OF THE FINANCIAL STATEMENTS The Company s Management informs the completion of the investigation work conducted in the associate Cnova N.V. and of the work of the auditors of such associate, and assessed the effects finally determined, concluding that the effects attributable to prior years were considered material, after considerations on quantitative and qualitative aspects, restating the balances in the related years. INDEPENDENT AUDITORS The individual and consolidated financial statements of Via Varejo were audited by Deloitte Touche Tohmatsu Auditores Independentes ( Deloitte ).. The engagement of independent auditors is based on principles that safeguard the independence of the auditor, which are: (a) auditors may not audit their own work; (b) auditors may not exercise managerial functions; and (c) auditors should not advocate on behalf of Via Varejo or provide any services that may be considered prohibited by the regulations in force. In compliance with Instruction 381/03 issued by the Brazilian Securities and Exchange Commission (CVM), we hereby declare that for the fiscal year ended December 31, 2015, Deloitte did not provide any services other than those related to the independent audit of the financial statements. The Management 6

7 OFFICERS DECLARATION ON THE FINANCIAL STATEMENTS The Officers of Via Varejo S.A. ( Company ), in conformity with subsection VI of Article 25 of CVM Instruction 480, of December 7, 2009, declare that they have reviewed, discussed and agreed with the Company s restated financial statements, authorizing its completion at this date. São Caetano do Sul (SP), July 26, 2016 Peter Paul Lorenço Estermann Chief Executive Officer Felipe Coragem Negrão Vice-president of Finance Interim Financial Services Officer Alexandre Gonçalves Investor Relations and Controlling Officer 7

8 OFFICERS DECLARATION ON THE INDEPENDENT AUDITOR S REPORT The Officers of Via Varejo S.A. ( Company ), in conformity with subsection V of Article 25 of CVM Instruction 480, from December 7, 2009, declare that they have reviewed, discussed and agreed with the opinions expressed in the independent auditor s report on the Company s restated financial statements, authorizing its completion at this date. São Caetano do Sul (SP), July 26, 2016 Peter Paul Lorenço Estermann Chief Executive Officer Felipe Coragem Negrão Vice-president of Finance Interim Financial Services Officer Alexandre Gonçalves Investor Relations and Controlling Officer 8

9 SUPERVISORY BOARD REPORT The Supervisory Board of Via Varejo, in the exercise of their legal and statutory functions, has examined the Management Report and the Restated Financial Statements. As described in note 1, these financial statements are being restated to reflect the adjustments identified after the completion of the investigation in the indirect associate Cnova Comércio Eletrônico S.A. and also to adopt the CVM determination, through Official Letter CVM/SEP/GEA-5/18 of February 17, 2016, regarding the non-recognition of the gain on fair value remeasurement due to the sale of stake in Nova Pontocom in Based on the examinations made, as well as on the information and clarifications received from Management in 2016, and considering also the opinion of the independent auditors Deloitte Touche Tohmatsu Auditores Independentes dated July 26, 2016, the Supervisory Board declares that such documents, as restated, are in conditions to be submitted for the appreciation of the General Meeting of Shareholders. São Caetano do Sul (SP), July 26, 2016 Vanessa Claro Lopes Chairman Fernando Dal-Ri Murcia Marcel Cecchi Vieira 9

10 (Convenience Translation into English from the Original Previously Issued in Portuguese) INDEPENDENT AUDITORS REPORT To the Shareholders, Directors and Officers of Via Varejo S.A. São Caetano do Sul - SP We have audited the accompanying individual and consolidated financial statements of Via Varejo S.A. ( Company ), identified as Parent and, respectively, which comprise the balance sheet as of December 31, 2015, and the statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards - IFRSs, issued by the International Accounting Standards Board - IASB, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 10

11 Opinion In our opinion, the individual and consolidated financial statements present fairly, in all material respects, the individual and consolidated financial position of Via Varejo S.A. as of December 31, 2015, and its individual and consolidated financial performance and its cash flows for the year then ended in accordance with accounting practices adopted in Brazil and the IFRSs issued by the IASB. Emphasis of matter On February 23, 2016, we issued an audit report without modification on the Company s individual and consolidated financial statements, which are being restated. These financial statements were amended and are being restated to reflect the adjustments described in note 1.a) to the financial statements. Our opinion remains unmodified since the financial statements and the figures corresponding to the prior period were adjusted retrospectively. Other matters Statements of value added We have also audited the individual and consolidated statements of value added ( DVA ), for the year ended December 31, 2015, prepared under the responsibility of the Company s Management, the presentation of which is required by the Brazilian Corporate Law for publicly-traded companies and as supplemental information for IFRSs, which do not require the presentation of a DVA. These statements, which were amended and are being restated to reflect the adjustments described in note 1.a) to the financial statements, were subject to the same auditing procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. Individual and consolidated balance sheets as of December 31, 2013 audited by another independent auditor The figures corresponding to the individual and consolidated balance sheets for the year ended December 31, 2013 were previously audited by another auditor who issued a report dated February 12, 2014, without any modifications. Due to the adjustments described in note 1.a) to the financial statements, the amounts of the balance sheet for the year ended December 31, 2013, considered as opening balances as of January 1, 2014, are presented for comparative purposes. As part of our audit of the 2015 individual and consolidated financial statements, we have also audited the adjustments described in note 1.a) to the financial statements that were made to the individual and consolidated balance sheet balances as of January 1, In our opinion, these adjustments are appropriate and have been correctly made. We were not engaged to audit, review, or apply any other procedure on the Company s individual and consolidated balance sheet balances as of January 1, 2014 and, therefore, we do not express an opinion or any form of assurance on these balance sheets taken as a whole. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil. São Paulo, July 26, 2016 DELOITTE TOUCHE TOHMATSU Auditores Independentes Eduardo Franco Tenório Engagement Partner 11

12 TATEMENT OF FINANCIAL POSITION Via Varejo S.A. Balance sheet (In millions of Brazilian reais - R$) Parent Company - restated - restated Notes Assets Current assets Cash and cash equivalents 5 5,546 4,417 3,478 5,580 4,448 3,509 Financial investments Trade receivables 6 1,915 2,338 2,136 1,915 2,338 2,136 Inventories 7 2,540 2,941 2,278 2,578 2,984 2,336 Taxes recoverable Amounts due from related parties Prepaid expenses Other assets Assets held for sale Total current assets 10,661 10,625 8,854 10,671 10,717 8,984 Noncurrent assets Trade receivables Taxes recoverable 8 1,781 1, ,782 1, Deferred taxes Amounts due from related parties Escrow deposits Other assets Investments Property and equipment 11 1,238 1,181 1,000 1,407 1,313 1,150 Intangible assets ,080 1, Total noncurrent assets 5,494 4,786 4,064 5,617 4,865 4,091 Total assets 16,155 15,411 12,918 16,288 15,582 13,075 Liabilities Current liabilities Trade payables 3,673 4,048 3,078 3,783 4,132 3,150 Suppliers agreement 4 (i) 1, , Borrowings 13 2,679 3,402 3,046 2,679 3,409 3,056 Taxes payable Payroll and related taxes Dividends Deferred revenue Amounts due to related parties Other liabilities Total current liabilities 9,393 9,621 7,718 9,468 9,719 7,810 Noncurrent liabilities Borrowings Deferred revenue 18 1, , Amounts due to related parties Tax payable in installments Deferred taxes Provision for legal claims Provision for losses on investments Total noncurrent liabilities 2,516 1,497 1,657 2,574 1,570 1,722 Total liabilities 11,909 11,118 9,375 12,042 11,289 9,532 Equity 19 Issued capital 2,895 2,895 2,895 2,895 2,895 2,895 Capital reserves Earnings reserves Cumulative translation adjustments (50) 4 - (50) 4 - Total equity 4,246 4,293 3,543 4,246 4,293 3,543 Total liabilities and equity 16,155 15,411 12,918 16,288 15,582 13,075 The accompanying notes are an integral part of these financial statements. 12

13 Statement of income Via Varejo S.A. Statement of profit or loss (In millions of Brazilian reais - R$) Parent Company - restated - restated Continuing operations Notes Net revenue from sales and services 20 19,264 22,662 19,268 22,674 Cost of sales and services 21 (13,067) (15,303) (13,095) (15,319) Gross profit 6,197 7,359 6,173 7,355 Selling expenses 21 (4,436) (4,494) (4,440) (4,557) General and administrative expenses 21 (500) (583) (502) (531) Depreciation and amortization 11 e 12 (171) (134) (173) (139) Other operating income (expenses), net 22 (244) (40) (166) (40) Profit before finance income (costs) and share of profit 846 2, ,088 Finance income (costs), net 23 (626) (686) (627) (679) Share of profit (loss) of subsidiaries and associates 10 (140) (72) (185) (64) Profit before tax 80 1, ,345 Income tax and social contribution 15 (66) (479) (66) (474) Profit for the year attributable to owners of the Company Earnings per share (Reais per share) 24 Basic Common Preferred Diluted Common Preferred The accompanying notes are an integral part of these financial statements. 13

14 Statement of comprehensive income Via Varejo S.A. Statement of comprehensive income (In millions of Brazilian reais - R$) Parent Company - restated - restated Notes Profit for the year attributable to owners of the Company Translation adjustments for the year 10 (54) 4 (54) 4 Total comprehensive income for the year attributable to owners of the Company (40) 875 (40) 875 The accompanying notes are an integral part of these financial statements. 14

15 Statement of changes in shareholders equity Via Varejo S.A. Statement of changes in equity (In millions of Brazilian reais - R$) Notes Share capital Special goodwill reserve Transactions with owners Capital reserves Tax incentives Stock options granted Earnings reserves Legal Capital budget Investments Profit retention Retained earnings Other comprehensive income Total Balance at January 1, original 2, ,951 Restatement adjustment (5) (358) (121) - - (408) Restated balance at January 1, , ,543 Stock options granted Profit for the year - restated Legal reserve (44) - - Investment reserve (604) - - IPO of Cnova N.V. shares Coporate reorganization (34) Translation adjustments for the year Mandatory dividends (223) - (223) Restated balance at December 31, , ,293 Stock options granted Profit for the year Legal reserve (1) - - Investment reserve (10) - - Translation adjustments for the year (54) (54) IPO of Cnova N.V. shares (10) - - (10) Mandatory dividends (3) - (3) Others destinations (3) - - (3) Restated balance at December 31, , (50) 4,246 The accompanying notes are an integral part of these financial statements. 15

16 Statement of cash flows Via Varejo S.A. Statement of cash flows (In millions of Brazilian reais - R$) Parent Company - restated - restated Notes Cash flows from operating activities Profit for the year Adjustments for: Depreciation and amortization 11 e Share of profit (loss) of subsidiaries and associates Deferred income tax and social contribution 15 (10) 196 (12) 187 Interest and adjustment for inflation Provision for legal claims, net of reversals Allowance for doubtful debts (Gain) / loss of disposal of property and equipment and intangible assets (5) 18 (5) Impairment of inventories Gain on disposal of subsidiaries 10 - (16) - (20) Deferred revenue recognized in profit or loss (99) (45) (99) (45) Share-based payment Others Changes in working capital: Trade receivables (116) (657) (116) (657) Taxes recoverable (189) (346) (194) (343) Inventories 341 (731) 344 (716) Dividends received from subsidiaries Financial investments Escrow deposits (74) (32) (76) (37) Other assets (26) 58 (10) 41 Trade payables Provisions (242) (75) (242) (77) Payroll and related taxes Income tax, labor and social contribution paid (74) (227) (76) (230) Amounts due to related parties Deferred revenue Other liabilities (188) 200 (195) 202 Net cash generated by operating activities 2,565 2,222 2,585 2,255 Cash flows from investing activities: Purchase of property and equipment and intangible assets 11 e 12 (343) (576) (352) (576) Disposal of property and equipment and intangible assets Acquisition of associates 10 - (96) - (96) Sale of subsidiary, net of cash Cash of merged subsidiary Cash flows from investing activities (331) (595) (340) (617) Cash flows from financing activities Additions 13 4,617 5,024 4,617 5,024 Principal paid 13 (5,091) (5,337) (5,098) (5,346) Interest paid 13 (408) (375) (409) (377) Dividends paid 19 (223) - (223) - Net cash used in financing activities (1,105) (688) (1,113) (699) Net increase in cash and cash equivalents 1, , Cash and cash equivalents at the beginning of the year 5 4,417 3,478 4,448 3,509 Cash and cash equivalents at the end of the year 5 5,546 4,417 5,580 4,448 1, , Supplemental information on noncash items: Leasing 11 e Capital increase in subsidiaries Capital reduction in subsidiaries 10 (17) The accompanying notes are an integral part of these financial statements. 16

17 Statement of value added Via Varejo S.A. Statement of value added (In millions of Brazilian reais - R$) Parent Company - restated - restated Notes Revenues Sales of goods and services 20 21,813 25,737 21,818 25,752 Allowance for doubtful debts 6 (552) (466) (552) (466) Other revenues ,281 25,287 21,286 25,302 Inputs purchased from third parties Cost of sales and services (13,505) (15,570) (13,351) (15,526) Materials, electric energy, outsourced services and others (2,242) (2,425) (2,246) (2,442) Recovery of assets (15,714) (17,917) (15,565) (17,890) Gross value added 5,567 7,370 5,721 7,412 Depreciaton and amortization 11 e 12 (211) (165) (231) (179) Net value added generated by the Company 5,356 7,205 5,490 7,233 Share of profit (loss) of subsidiaries and associates 10 (140) (72) (185) (64) Finance income Others Value added received in transfer Total value added to be distributed 5,555 7,489 5,641 7,535 Distribution of value added 5,555 7,489 5,641 7,535 Personnel 2,852 2,861 2,915 2,982 Salaries and wages 2,232 2,234 2,290 2,318 Benefits FGTS (Severance Pay Fund) Others Taxes and contributions 953 1, ,879 Federal 577 1, ,134 State Municipal Lenders and lessors 1,736 1,799 1,738 1,803 Interest , ,036 Rentals Shareholders Dividends Retained earnings Total value added distributed 5,555 7,489 5,641 7,535 The accompanying notes are an integral part of these financial statements. 17

18 Notes to the f inan cial st atement s 1. Corporate information Via Varejo S.A., directly or through its subsidiaries ( Company or Via Varejo ), operates in the consumer electronics, home appliance, mobile phones and furniture retail segments through Casas Bahia and Ponto Frio banners. Its registered office is located in São Caetano do Sul, State of São Paulo, Brazil. The Company s shares are traded at Level 2 of Corporate Goverance on the São Paulo Stock Exchange under ticker symbols VVAR3, VVAR4 and VVAR11. The Company is controlled by Companhia Brasileira de Distribuição ( CBD ), which in turn has Casino Guichard Perrachon ( Casino ) as the ultimate parent company through its holding companies. The Company s ownership interests in subsidiaries and associates are summarized in note 10. a) Restatement of the financial statements i) Change in the recognition of sale of stake in Nova Pontocom in 2013 On October 17, 2013, the Company sold 6.20% of the shares in Nova Pontocom Comercio Eletrônico S.A. ( Nova Pontocom ) to its parent company Companhia Brasileira de Distribuição ( CBD ), changing the interest in Nova Pontocom then held by Via Varejo from 52.10% to 43.90%. Subsequently, through a corporate reorganization undertaken in 2014, the interest in associate Nova Pontocom was contributed to Cnova N.V ( Cnova ) and from the reorganization date the Company started holding interest in Cnova. The transaction was originally recognized as the Company s transfer of control of Nova Pontocom to its parent company CBD and the following was recognized: (i) a realized gain of R$ 71 represented by the difference between the sale price of R$ 80 and the carrying amount of the interest transferred, and (ii) a gain on remeasurement of the portion held in Nova Pontocom at fair value of R$543 (R$358 net of income tax and social contribution). The Company recognized the gain of R$ 543 considering that CPC 36(R3) determines that if the parent company loses control of the subsidiary keeping an interest in it, the remaining interest should be remeasured to fair value. The gain on remeasurement resulted in an increase in the carrying amount of the investment in Nova Pontocom of R$ 543 and the effect on profit for 2013 of R$ 358, net of income tax and social contribution of R$185, used at the end of 2013 for recognition of a Capital Budget Reserve. The increase in the carrying amount of the investment was attributed partly to the amount of the customer portfolio of Nova Pontocom (R$ 31) and the amortization of this amount was recognized in profit or loss as part of the share of profit (loss) of investee, and the remaining amount was recognized as an investment appreciation (R$ 512) and was not subject to amortization or recognition of an impairment. As required by CVM through Official Letter CVM/SEP/GEA-5/18 of February 17, 2016 ( CVM Official Letter ), we are restating these financial statements to adopt the CVM's understanding that there was no transfer of control to the extent that CBD already held the indirect control of Nova Pontocom through the Company's control. Therefore, the gain on remeasurement of R$543 should not have been recognized. These financial statements are being adjusted to eliminate the increase in the carrying amount of the investment of R$ 543, net of the accumulated amortization of the amount attributed to the customer portfolio of R$5 through December 31, 2015 and the corresponding effect of deferred tax, as well as to revert the Capital Budget Reserve recognized in Additionally, they are being adjusted to recognize the realized gain of R$ 71 as a capital transaction rather than in profit or loss, considering that there was no transfer of control under the terms of CVM Official Letter. ii) Adjustments to the financial statements of the associate Cnova As disclosed to the market by associate Cnova on December 18, 2015, an inquiry conducted by law firms into certain practices of employees in inventory management at the distribution centers of Cnova Comércio Eletrônico S.A. ( Cnova Brazil ), subsidiary of Cnova, was started. During the course of their work, other matters related to accounting differences in line items trade payables and other receivables were analyzed and disclosed to the market on January 12, 2016 by Cnova in the total amount of R$177, with effect of R$39 on investment in this associate held by the Company. In the preparation and original disclosure of these financial statements, published on February 23, 2016, the Company considered all information available on that date. Subsequently, the scope of the investigation was expanded to include an assessment of new facts identified about the differences related to trade payables, trade receivables/products in transit with carriers, 18

19 manipulation of provisions for freight and other expenses, and improper capitalization of software development expenses. The total effect of the adjustments determined at Cnova was R$557, comprising the adjustments arising from the investigation process started on December 18, 2015, the effects of the change in accounting practice and the reassessment of the recoverability of the deferred tax assets at Cnova, Cnova Brasil and Cdiscount. These amounts include the effect of the share of profit (loss) of investee on the Company, and in the financial statements and disclosed on February 23, 2016, part of these effects had already been recognized. The table below reconciles the final amounts determined, the effects of the additional share of profit (loss) of investee that were recognized in these restated financial statements: Final calculation Adjustments arising from investigation 357 Change in accounting practice 18 Reassessment of deferred income tax Cnova Brasil 84 Reassessment of deferred income tax Cnova and Cdiscount 98 Total effects on Cnova 557 Effect of share of profit (loss) of investee on the Company (i) 114 Effect of share of profit (loss) already recognized in 2015 Adjustments made and disclosed on 12/31/15 (ii) (39) Other adjustments made (iii) (7) Change in accounting practice (iv) (4) Provision for deferred income tax (v) (5) Additional effect restated 59 (i) Considering the Company s interest in the associate in each year. There is an additional effect of R$12 on the Company s equity, R$10 in the line item of earning reserve and R$2 in the line item of cumulative translation adjustment. (ii) Adjustments identified by the investigation team and recognized in the financial statements originally published on February 23, 2016, disclosed in note 1.e. (iii) Adjustments already identified and made on December 31, 2015 in the normal course of operations, out of the investigation process and already included in the calculation of share of profit (loss) of investee in the financial statements originally disclosed. (iv) Change in accounting practice related to recording of warehousing costs in inventories, already recognized in the financial statements originally disclosed as of December 31, 2015 of Cnova Brasil and included in the effect of share of profit (loss) of investee. (v) As of December 31, 2015, Cnova Brasil had already made the partial write-off of the deferred income tax based on the facts and circumstances available at that time, the effects of which have already been included in the calculation of share of profit (loss) of investee by the Company in the financial statements originally disclosed. 19

20 iii) Effects of the restatement of the financial statements The effects have been adjusted in each line item of the financial statements impacted, as summarized below: Adjustments Increase / (Decrease) in the line item Balance sheet Parent Company and Deferred taxes Investments (380) (607) (567) Total noncurrent assets (197) (422) (382) Total assets (197) (422) (382) Dividends payable Total current liabilities Provision for investment loss Total noncurrent liabilities Capital reserve Earnings reserve (*) (552) (551) (484) Cumulative translation adjustment (2) - - Total equity (425) (422) (408) Total liabilities and equity (197) (422) (382) (*) In the financial statements originally issued, the profit for each year was allocated according to the Board of Directors proposal, resulting in a zero balance in the line item of retained earnings. The adjustments presented herein have been subject to a new management s proposal for distribution of profit. Adjustments Increase / (Decrease) in profit or loss and comprehensive income Statement of profit or loss and comprehensive income Parent Company Share of profit (loss) of subsidiaries and associates 13 (67) 13 (67) Income tax (deferred) (2) - (2) - Profit (loss) for the year attributable to owners of the Company 11 (67) 11 (67) Comprehensive income for the year attributable to owners of the Company 11 (67) 11 (67) Earnings (loss) for the year per share (Reais per share) Basic Common 0,00611 (0,05187) Preferred 0,00611 (0,05187) Diluted Common 0,00869 (0,05093) Preferred 0,00867 (0,05273) Adjustments Increase / (Decrease) in the statement of value added Statement of value added Parent Company and Share of profit (loss) of subsidiaries and associates 13 (67) Value added received in transfer 13 (67) Total value added to be distributed 13 (67) Distribution of value added Taxes, fees and contributions - Federal 2 - Lenders and lessors Dividends 3 - Retained earnings 8 (67) Total value added distributed 13 (67) The restatement has not impacted the total cash flows generated by operating activities, used in investing activities and used in financing activities in each of the restated years. 20

21 As a result of the impacts of the restatement, the Executive Officers proposed to the Board of Directors the approval of additional dividends for See Note 19 (f). b) Performance commitment agreement On April 17, 2013 the Company, its shareholders CBD and Casa Bahia Comercial Ltda. ( CB ) and the Brazilian Antitrust Agency ( CADE ) entered into a Performance Commitment Agreement ( PCA ) for the approval of the association between Ponto Frio and Casas Bahia businesses carried out in As the main purpose of such PCA, the Company and its shareholders were required to sell 74 stores located in 54 cities distributed in six States and the Federal District. Of the 74 stores, 32 were not sold. Therefore, in compliance with the PCA, the activities of such stores were discontinued between May and June 2014, with the payment of a fine of R$12, recognized in As authorized by the CADE, after six months closed, 16 stores were reopened in November As for the remaining 42 stores, all of them were sold between October 2013 and January 2014 through direct sales to other companies and open auctions. These sales were properly approved by the CADE. Of these 42 stores, 19 sales were not completed due to the unsuccessful negotiations between lessors and buyers, generating for the Company the payment of a fine to CADE of R$7 and a provision for disposal of property and equipment of R$7.Of the 19 stores, 4 stores were closed and 15 stores will be closed in the next months. The Company completed the transfer of 15 stores, generating a gain of R$8, recognized in profit for this year. The transfer of the other 8 stores is still in process of negotiation. This process has been monitored by the CADE, which has overseen the fulfillment of the obligations assumed in the PCA, and the Company is subject to the presentation of data and information that such agency deems necessary. c) Disposal of subsidiary - Casa Bahia Contact Center Ltda ( CBCC ) On December 30, 2014, the Company sold to third parties the control of CBCC, currently Atento 1 Ltda.. The consideration received was R$20. Additional information in note 10 (c). d) Acquisition of investments - Marneylectro On December 22, 2014, the Company acquired 2.22% of the total and voting capital of Marneylectro based in Luxembourg. Marneylectro is solely engaged in holding the indirect interest of 49.96% in Cnova. Considering the importance of Cnova for Marneylectro and for the Company, Via Varejo s interest in Marneylectro will be named as Cnova in these financial statements, unless otherwise indicated. Additional information in note 10 (a.ii). e) Spin-off of subsidiary and merger of spun off portion - Nova Pontocom Nova Pontocom, a close corporation and subsidiary of the Company, was a holding company engaged in holding the control of the electronic commerce operations of CDB in Brazil and abroad. On December 22, 2015, the Extraordinary General Meeting approved the merger of the spun off portion of Nova Pontocom into its shareholders, CBD and Via Varejo, with 53.2% and 43.9% interest, respectively. This is part of an organizational strategy to optimize the CBD s corporate structure and absorb the economic and tax benefits of Nova Pontocom. The details of the merged net assets and additional information are provided in note 10 (a.iv).. f) CVM Official Notice On February 18, 2016, the Company received an Official Notice (No. 18/2016-CVM/SEP/GEA-5) containing the interpretation of the Office of the Superintendent of Relations with Companies (SEP) of the Brazilian Securities and Exchange Commission ( CVM ) regarding certain transactions and accounting records related to corporate operations carried out by the Company in The CVM s technical area expressed an interpretation different from that adopted by the Company in the financial statements for that year regarding (i) the gain on remeasurement of the investment held in Nova Pontocom Comércio Eletrônico S.A., owing to partial sale of the stake therein to Companhia Brasileira de Distribuição; and (ii) the accounting treatment applied in the additional acquisition of 75% of the capital of Indústria de Móveis Bartira. 21

22 The Company appealed from such decision to the CVM's Collegiate Body requesting suspensive effect pursuant to CVM Resolution 463; however, it decided to restate item (i) of CVM Official Notice, as informed in note 1(a) above. The Company awaits the Collegiate Body's response to the arguments presented for item (ii) related to the effects of the acquisition of Indústria de Móveis Bartira. To date, no effect has been recorded in the Company s restated financial statements regarding the inquiries made by the CVM in such Official Notice related to the acquisition of Indústria de Móveis Bartira. 2. Significant accounting policies The individual and consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), issued by the International Accounting Standard Board (IASB), and accounting practices adopted in Brazil, issued by the Brazilian Accounting Pronouncements Committee ( CPC ) and the Brazilian Securities and Exchange Commission ( CVM ). The individual and consolidated financial statements adopt the Brazilian real (R$) as the functional and presentation currency, are stated in millions of Brazilian reais (R$), and have been prepared based on the historical cost of each transaction, except for certain financial instruments measured at their fair values. The financial statements as originally issued were approved by the Board of Directors on February 23, These restated financial statements were approved by the Board of Directors on July 26, 2016 and reflect the effect of adjustments on the financial statements described in Note 1. New revisions and interpretations to accounting standards In the preparation of these financial statements, the Company s management considered, when applicable, the new revisions and interpretations to IFRSs and the standards issued by the IASB and the CPC, respectively, which are mandatorily effective for accounting periods beginning on or after December 31, These new revisions and interpretations to IFRSs did not have impacts on the Company's financial statements. In 2015, the Company applied the annual improvements to IFRSs and Cycles, issued by the IASB, which are effective for accounting periods beginning or on after July 1, The application of these improvements did not have material impacts on the disclosures or on the Company s individual and consolidated financial statements. The IASB issued amendments to IAS 27 and Separate Financial Statements to include the equity method as an accounting option to account for investments in subsidiaries, joint ventures and associates in the individual financial statements. For IFRSs, these amendments will be effective for annual periods beginning on or after January 1, In December 2014, the CPC amended and the CVM approved the standards CPC 18 Investments in Associates and Joint Ventures, CPC 35 - Separate Financial Statements and CPC 37 First-time Adoption of International Financial Reporting Standards, incorporating these amendments into the accounting practices adopted in Brazil. As the equity method in the individual financial statements was already adopted in Brazil, these amendments did not have impact on the financial statements, eliminating the difference between the standards issued by the CPC and the IFRSs for preparation of individual financial statements. Revised standards and interpretations issued and not yet applied The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: Effective for annual accounting periods beginning on or after 01/01/2016 Standards and impacts Amendments to IAS 1 Disclosure Initiative Improvements regarding the application of the concept of materiality in practice. Annual Improvements to IFRSs: Cycle Amendments to IFRS 5 - Situations of held for sale or held for distribution; IFRS 7 - Clarification about whether a service agreement represents continuing involvement in a transferred asset. 22