COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO

CNPJ/MF: 47.508.411/0001-56

COMPANY REGISTRY (NIRE): 35.300.089.901

São Paulo, 28 March 2016.

MANAGEMENT PROPOSALS FOR THE EXTRAORDINARY AND ANNUAL SHAREHOLDERS’ MEETING TO BE HELD ON 27 APRIL 2016

Contents

AT THE ANNUAL SHAREHOLDERS’ MEETING

Proposal for Allocation of Net Profit for the Year

 (Art. 9 Of ICVM 481/2009)

Dear Shareholders: the Board of Executive Officers of COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO (“Company”) proposes hereby to the Extraordinary and Annual Shareholders’ Meeting of 2016, in conformity with EXHIBIT 9-1-II of the Instruction CVM 481, of December 7, 2009 (“ICVM 481/2009”), the following:

1.            Net profit for the year

The Company’s Net Profit on December 31, 2015 was R$ 250,637,121.91. Of this total, R$ 12,531,856.10 will be allocated to the Legal Reserve.

2.            Overall amount and amount per share of dividends, including interim dividends and interest on net equity already declared

3.            Percentage of distributed net profit for the year

Management proposes the distribution of 25% (twenty-five percent) of the Company’s net profit, as set forth in art. 36 of the Company’s Bylaws.

4.            Overall amount and amount per share of dividends distributed based on prior-year net profit

There is no dividend distribution proposal based on prior-year net profit.

5.            Inform, less interim dividends and interest on net equity already declared

a.            Gross profit of dividends and interest on net equity, on individual basis, per share of each type and class

The amount of proposed dividends is R$ 0.013703 per common share and R$ 0.015073 per preferred share, less the amount of interim dividends already distributed. There was no declaration of interest on net equity.

b.            The form and term of payment of the dividends and interest on net equity

Management, as prescribed by the Bylaws, proposes the payment of dividends within up to 60 (sixty) days after approved at the meeting.

c.            Possible application of adjustment and interest on dividends and interest on net equity

Dividends will be paid within the term stipulated above, without any interest between the declaration date and the effective payment date.

d.            Date of declaration of payment of dividends and interest on net equity considered for purposes of identification of shareholders that will be entitled to receive them

6.            Declaration of dividends or interest on net equity based on profits assessed in half-yearly balance sheets or in shorter periods

There was no declaration of dividends or interest on net equity based on profits assessed in half-yearly balance sheets or in shorter periods.

7.            Comparative table indicating the following amounts per share of each type and class:

8.            Allocation of profits to the legal reserve

a.            Identify the amount allocated to the legal reserve

Under Law nº 6.404/76, management will allocate R$ 12,531,856.10 to the legal reserve.

b.            Describe the method of calculation of the legal reserve

9.            If the company has preferred shares with the right to fixed or minimum dividends

a.         Describe the method of calculation of fixed or minimum dividends

The holders of the Company’s preferred shares have priority in the receipt of a non-cumulative annual minimum dividend in the amount of R$ 0.464607 per 1 (one) share. Moreover, each preferred share is entitled to receive dividend 10% (ten percent) higher than the dividend

attributed to each common share, in conformity with the provisions set forth in art. 17, § 1, of Law nº 6.404/76, as amended, including, for purposes of this calculation, in the sum of the total dividend paid to the preferred shares, the amount paid as annual minimum dividend.

b. Inform if the profit of the fiscal year is enough to pay in full the fixed or minimum dividends

Yes, it is enough.

c.         Inform whether a potential unpaid portion is cumulative

There is no unpaid portion of fixed or minimum dividends.

d.         Identify the global amount of fixed or minimum dividends to be paid to each class of preferred shares

e. Identify the fixed or minimum dividends to be paid per preferred share of each class

10.          In relation to the mandatory dividend

a.            Describe the method of calculation set forth in the Bylaws

Under Article 36, §1 of the Company’s Bylaws, shareholders will be entitle to receive, in each fiscal year, as dividends, a mandatory percentage rate of 25% (twenty-five percent) on the net profit for the year, including the following adjustments: (a) the decrease of the sums allocated, in the year, to the recognition of the legal reserve and contingency reserve; and (b) the increase of the sums resulting from reversal, in the year, of the contingency reserves, previously recognized.

The payment of the dividend determined as set forth in the preceding paragraph can be limited to the amount of the net profit for the year that is realized as prescribed in the law, provided that the difference is recorded as unrealized profit reserve.

Profits recorded under the unrealized profit reserve, if realized and not absorbed by losses in subsequent years, must be added to the next mandatory dividend distributed after the realization.

b.            Inform if it is being paid in full

The mandatory dividend will be paid in full.

c.            Inform the amount possibly withheld

Not applicable.

11.          Withholding of the mandatory dividend due to the Company's financial standing

Not applicable.

12.          b. Allocation of income to contingency reserve

There is no allocation of income to the contingency reserve.

13.          Allocation of income to the profit reserve to be realized

Not applicable.

14.          Allocation of income to the statutory reserve

a.         Describe the statutory clauses that establish the reserve

The expansion reserve is set forth in article 36, §2 of the Company’s Bylaws, as follows:

 “Article 36 – (...) Paragraph 2 – The Expansion Reserve is hereby created to raise funds to finance additional fixed and current capital investments and will be comprised of up to 100% (one hundred percent) of the net profit remaining after the allocations set forth in items "a" [legal reserve], "b" [contingency reserve], and "c" [mandatory dividend] of item IV, the total of such reserve cannot exceed the amount of the Company’s capital stock.”

b. Identify the amount allocated to the reserve

Management proposes the retention of profit for the Expansion Reserve in the amount of R$ 12,531,856.10, that is, 5% of the balance of the net profit after dividends.

c. Describe how the amount was calculated

The amount allocated to the Expansion Reserve corresponds to 90% of the Net Adjusted Profit for the year ended 12.31.2015. The Adjusted Profit is calculated as follows:

15.          Profit Retention set forth in capital budget

a. Inform the withholding amount

Management proposes the retention of profit of R$ 119,236,551.63, of which R$ 107,312,896.47 to the Expansion Reserve (as set forth in article 36, §2 of the Company’s Bylaws) and R$ 11,923,655.16 based on capital budget (as set forth in article 196, paragraph 2 of Law n. 6.404/76).

b. Provide a copy of the capital budget

See proposal of Capital Budget on page 9.

16.          Allocation of profit to the tax incentive reserve

Not applicable.

São Paulo, 28 March 2016.

BOARD OF EXECUTIVE OFFICERS

Capital budget

Dear Shareholders: As set forth in article 196 of Law n.º 6.404/76, the Board of Executive Officers of COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO hereby:

1.         Informs the allocation of the Profit Retention for 2015 (Expansion Reserve and Capital budget) approved at the Extraordinary and Annual Shareholders’ Meeting for 2015, as follows:

(i)      The Investment Plan for 2015 of Multivarejo, GPA Malls and Assaí was up to R$ 1,350,000,000.00. However, the investment made by the Company was R$ 1,383,359,800.13, of which R$ 497,303,175.34 for the opening of new stores and acquisition of land, R$ 521,758,278.47 for renovation of stores and R$ 364,298,346.32 for infrastructure (IT, Logistics and others); and

(ii)     To support the amount invested, the total amount of the Expansion Reserve, in the amount of R$ 813,992,520.55, and of the Capital budget, in the amount of
R$ 90,443,613.40, established at the Extraordinary and Annual Shareholders’ Meeting for 2015, was used. The additional amount was supported using own funds arising from the operating activities of the Company, as well as the obtaining of financial resources raised from third parties.

2.         Propose to the Board of Directors and the Extraordinary and Annual Shareholders’ Meeting the Investment Plan for Multivarejo, GPA Malls, and Assaí for 2016, in the amount of up to R$ 927,378,997.45, with scope of (i) opening of stores, acquisition of land and conversion of stores; (ii) renovation of stores; and (iii) IT, logistics and other infrastructure.

This is the proposal to be presented.

São Paulo, 28 March 2016.

BOARD OF EXECUTIVE OFFICERS

COMMENTS FROM THE MANAGEMENT ABOUT THE COMPANY’S FINANCIAL STANDING

Item 10 of the Reference Form, CVM Instruction No. 480, of December 7, 2009 (“ICVM 480”)

10.1 - General Financial and Equity Conditions

Introduction

The comments below must be read together with our individual and consolidated financial statements for the year ended December 31, 2015, filed with the CVM on February 24, 2016, including the Explanatory Notes related thereto, and other financial information contained in other parts hereof.

(a)           general financial and equity conditions

2015 was a year of considerable challenges for Brazil and a period in which focus and self-control were even more determining to achieve results and overcome obstacles. In this manner, GPA, through its multi-format, multi-channel and multi-region operations, has ensured the implementation of its strategy and, coupled with important adjustments to the Company’s processes for adjustment to the economic environment, has attained its goals.

In 2015, GPA has invested in the integration of business and a solid synergy plan, in particular in the back office areas, so that each business unit could focus even more on its business objectives, growing its operations and strengthening its competitive differences.

It was also a year in which, in spite of a challenging scenario, GPA continued with its organic growth plan and opened 118 stores, specially focused on higher-return, such as self-service retail, through Assaí, and proximity models, in particular Minuto Pão de Açúcar and it has also progressed with governance practices in all business.

GPA is much more prepared for 2016 and will continue to be fully focused on the customer, while maintaining the severity and discipline in terms of investments and actions that will ensure the Company’s sustainable growth, generating value for shareholders.

The international operations of Cnova started to be consolidated in GPA beginning August 2014 and, therefore, the result for 2014 reflect 5 months of such operations only. For purposes of better comparability between periods, the comments below relating to the gross profit, operating costs and profit before interest, taxes, depreciation and amortization (EBITDA) do not take into consideration Cnova’s results (Cnova Brasil and international operations) in 2015 and 2014.

In 2015:

• gross revenue reached R$ 76,933 billion and net revenue totaled R$ 69,115 billion, which represented growth by 5.7% and 5.5%, respectively, when compared to 2014, boosted by the expansion of the higher return formats upon the inauguration of 118 new stores, of which 91 stores in the food segment and 27 Casas Bahia. 2015 was marked by the slowdown of consumption from families arising from the deterioration of the economic scenario and has mainly affected sales in the non-food segment. The food category has posted a solid performance over the year, without any significant changes, even with the changes in the consumer behavior, which seeks even more first-price or promotion products. Therefore, the growth in the food segment was 7.1%;

• Multi-retail: net revenue grew by 1.2%, upon the inauguration of 80 stores in the year (46 Minimercado Extra, 27 Minuto Pão de Açúcar, 5 Pão de Açúcar, 1 Extra Super and 1 gas station). It must be highlighted the continuing market share gain of the Pão de Açúcar brand as a result of the focus on the monitoring and improvement of the service level, differentiated services and variety of products, as well as in Proximity stores (Minimercado Extra and Minuto Pão de Açúcar), as a result of the growth in “clusterization” and adequacy of the varied products in stores. With respect to the Extra brand, it is important to point out the best trend of the customer flow compared to 2014 as a result of the competitiveness, renovation of stores and development of labor specialized in perishable products.
• Assaí: solid growth by 25.5% of the net revenue of Assaí compared to 2014, reaching R$ 10,453 million. The brand has increased its share in the Food GPA portfolio to 28% (compared to 24% in 2014) and consolidated its second position in the cash & carry segment in the country;
• Via Varejo: the net revenue dropped by 15.1%, to R$ 19,196 million. The year was marked by the slowdown in the consumption of furniture and electric and electronic products as from the second quarter. The smartphone category was the highlight in the year and the Sale for January 2015 and the Black Friday were the major seasonal highlights. 27 new stores were opened and 50 were closed, of which 11 are related to the compliance with CADE’s decision.
• gross profit totaled R$ 15,219 billion and margin of 27.0% (compared to 28.1% in 2014). The lowest level of gross profit and gross margin compared to 2014 reflects mainly the lowest contribution of Via Varejo to the Company’s gross profit;
• Multi-retail: gross profit reached R$ 7,508 billion, a drop by 0.5% compared to 2014, as a result of the price competitive strategy during the year, mainly at Extra brand, which was partially offset by the increase in the market share of the formats with higher margin (Pão de Açúcar, Minimercado Extra and Minuto Pão de Açúcar), in addition to the growth in the revenue from the lease of store walkways;
• Assaí: gross profit grew by 27.2% compared to 2014, mainly as a result of the growth of the brand (11 new stores), besides the maturation of new stores;
• Via Varejo: drop by 16.0% in gross profit mainly arising from investments in competitiveness, in particular in the fourth quarter. Such strategy was enabled and partially offset by the increase in profitability from financial services and products, and decrease in logistics expenses, that enabled recovering the sales volume.

• total operating expenses accounted for 21.2% of the net revenue and  totaled in absolute terms R$ 11,965 billion, which accounts for a growth by 4.8% compared to 2014, substantially below the inflation in the period. The efforts to optimize expenses and improve efficiency implemented during the year in all business resulted in a nominal growth of selling, general and administrative expenses by only 4.4% in 2015, even in view of the higher electric power expenses and costs related to the inauguration of 118 stores in the year. Selling, general and administrative expenses grew from R$11,137 billion in 2014 to R$11,628 billion in 2015.
• Multi-retail: since the beginning of the year, the Company has implemented initiatives to adjust the level of expenses, both in the operational and administrative areas, in order to mitigate the effects from the inflation and higher expenses on electric power during the year. Consequently, selling, general and administrative expenses posted a growth by 7.4% in 2015 compared to 2014, below the inflation in the period;
• Assaí: selling, general and administrative expenses posted a growth by 27.4% in 2015 as a result of the pressure over the inflation-related expenses and mainly electric power-related expenses, in addition to the higher expenses related to the strong organic growth;
• Via Varejo: decrease of selling, general and administrative expenses by 2.6% compared to 2014 as a result of the efficiency measures implemented, in particular the closing of deficit stores, optimization of the logistics network and spaces in distribution centers, adequacy of headcount and renegotiation of lease and other service agreements and expenses.

• EBITDA Adjusted by line item “Other expenses and operational revenues" totaled R$ 3,818 billion, with a margin of 6.8%, compared to R$ 5,168 billion in 2014 and margin of 9.0%. the lowest level in 2015 reflects mainly the lowest contribution of Via Varejo to the Company’s EBITDA. 
• Multi-retail: Adjusted EBITDA reached R$ 2,055 billion, with a margin of 7.7% in the year, which shows a solid margin level for the segment. The difference in the EBITDA margin compared to 2014 reflects mainly the growth in inflation-related expenses, the higher expenses on electric power and expenses related to the expansion of stores (80 new stores in the year).
• Assaí: EBITDA grew by 40.2% and it reached R$ 441 million in the adjusted concept, a growth by 27.5%, above the sales growth. Despite the relevant expansion of stores in the year and pressure on inflation-related expenses and mainly electric power, the EBITDA margin remained stable at 4.2%, as a result of the gain of operating efficiency.
• Via Varejo: Adjusted EBITDA totaled R$ 1,321 billion, with a margin of 6.9%. The lowest level compared to 2014 reflects mainly the slowdown of the sales environment for the durable goods sector.

• The net financial income was negative by R$ 1,648 billion, a growth by 9.3%, significantly below the growth of the interest rate by 26.8% in the period. The ratio between the net financial income and the net revenue grew from 2.3% in 2014 to 2.4% in 2015, a growth by only 0.1 percentage point, which is virtually stable compared to the prior year, even in a more challenging macroeconomic environment. Such performance was possible as a result of the cash management strategy adopted by the Company during the year, which resulted in an important cash optimization. The man impacts on the financial result were: (i) decrease of the cost of sale of receivables from card and discount of receivables from booklet primarily as a result of the lowest level of sales of the non-food categories in the quarter; and (ii) increase in the cost of debt and others, with variation close to the growth of the interest rate in the period.

• the net profit of the Company’s controlling shareholders, as adjusted by Other expenses and Operational Revenues, totaled R$ 595 million in 2015. It must be pointed out the strength of the Food segment, which totaled Adjusted Net Profit of R$ 731 million. In view of the challenges of the macroeconomic scenario mentioned above, the Company’s results were primarily affected by the result of Via Varejo and Cnova. It must be mentioned that the international operations of Cnova started to be consolidated in GPA beginning August 2014, and, therefore, they were not fully reflected in 2014, which influences the comparison basis. The highlights per business were:
  • Multi-retail: Adjusted Net Profit of R$ 559 million. The lowest level compared to 2014 results from the lower gross margin arising from the investments in price competitiveness; sales scenario impacted by the deterioration of the economic environment; pressure of expenses arising from the inflation and increase in expenses on electric power;
  • Assaí: Adjusted Net Profit of R$ 172 million as a result of the strength of the format and discipline in terms of control of expenses, coupled with store maturation;
  • Via Varejo: Adjusted Net Profit of R$ 149 million. The lowest profit level compared to 2014 is due to the drop in sales in light of the adverse economic scenario for the durable goods sector, coupled with the growth in inflation on fixed costs.

• The Company has been posting over the past years a continuous drop in the leverage level to strengthen even further its financial capacity. Even in a year with unfavorable and challenging macroeconomic environment, the Company has reduced the gross debt by R$ 1,348 billion and ended the year with a high level of cash reserves of approximately R$ 11,0 billion, resulting in a net cash position of R$ 5,511 billion, higher by R$ 1,214 billion compared to the prior year. Consequently, net cash / EBITDA ratio grew from 0.87x on December 31, 2014 to 2.06x on December 31, 2015. Including the booklets operation (consumer financing) of Via Varejo, the net cash position reached R$ 3,036 billion on December 31, 2015, an amount 2.1x higher than the prior year. The extension of the debt term, including the booklets operation, was higher by 181 days when compared to December 31, 2014.

• net equity totaled R$ 13,655 billion, a drop by R$ 827 million as a result mainly of the result from the non-food segment (Via Varejo and Cnova).

For more information, see item 10.1.h.

(b)           capital structure and possibility to redeem shares

Below is the breakdown of GPA’s capital structure for the periods indicated, considering as a percentage rate of own capital the amount resulting from the total shareholders’ equity divided by total liabilities (current and non-current) and shareholders’ equity, and as a percentage rate of third-party capital the amount resulting from the sum of current and non-current liabilities divided by total liabilities (current and non-current) and shareholders’ equity:

GPA understands that the current capital structure, primarily measured by the Net cash/EBITDA ratio, which was positive in 2015, posted an important decrease in the unleveraged level when compared to the amounts posted in 2014 and 2013, in order to strengthen even further its financial capacity. Even in a year with unfavorable and challenging macroeconomic environment, the Company has ended the year with a decrease in the gross debt by R$ 1,348 billion and high level of cash reserves of approximately R$ 11,0 billion.

Including the booklets operation of Via Varejo, the net cash position reached R$ 3,036 billion on December 31, 2015, an amount 2.1x higher than the prior year. It is important to stress the strong contribution of Via Varejo to the net cash, representing approximately 77% of the Company’s net cash with R$ 2,3 billion. Therefore, the Net cash/EBITDA ratio of the Company posted an important growth in terms of unleveraged, being 3.9x higher when compared to 2014.

The extension of the debt term, including the booklets⁽¹⁾ operation, was higher by 181 days when compared to December 31, 2014.

(1)   Booklets operation of Via Varejo – CDCI

The direct consumer credit transactions correspond to the customer installment sales financing activities, through one financial institution under the CDCI category. In CDCI transactions, the Company assumes the ultimate responsibility for the settlement of the financing and the credit risk of the transaction.

There are no events of redemption of shares issued by us.

(c)           ability to make payment in relation to the financial commitments

GPA’s Officers believe that the cash flow, as well as the currently available funds, ensure to GPA full ability to pay all short and long term financial commitments.

It is important to stress that, due to the Group’s solid cash position, GPA has been showing a trend of decrease, both of the gross and net debt level.

These results show GPA’s capacity to continue to maintain its financial commitments in the short and long term.

(d)           sources of financing for working capital and for investments in noncurrent assets used by GPA

The raising of funds in 2015, 2014 and 2013 was made through: (A) financial agreements that represent: (i) financing denominated in Brazilian reais with obligation to pay the principal and interest rate pegged to the DI rate; (ii) financing denominated in foreign currency, which are immediately “swapped” in full for payment obligations denominated in Brazilian reais and interest rate pegged to the DI rate, through swap transactions; and (iii) financing obtained from the National Bank for Economic and Social Development (“BNDES”), denominated in Brazilian and increased by annual interest; (B) funds raised in the capital market, through issuances of debentures; (C) generation of cash through its operation; and (D) prepayment of receivables;

There are also suppliers that become parties to agreements with financial institutions, through transfer of the cost incurred with the extension of maturities, still within acceptable business parameters. Due to specific characteristics of this transaction, the balance of R$1,055 was reclassified to an agreement suppliers account.

In 2015, 2014 and 2013 there were no problems to obtain financing or refinance the existing debt. For more information on the agreements entered into between GPA and BNDES, see “Significant borrowings and financing agreements”, in letter “f” below.

(e)           sources of financing for working capital and for investments in noncurrent assets that GPA intends to use to cover deficiencies in liquidity:

In the opinion of the Group’s Officers, the sources of financing used in the fiscal years ended on December 31, 2015, 2014 and 2013 are appropriate and will continue to be used by GPA as sources of financing, if necessary.

(f)            indebtedness levels and characteristics of such debts as well as whether the issuer has been compliant with these restrictions

i.          material loan and financing agreements

The tables below show GPA’s debt with financial institutions and the funds raised in the capital market on December 31, 2015, 2014 and 2013.

Debt breakdown (including Loans and Financing, Debentures and Booklets – Consumer financing - CDCI).

In R$ million

Maturity schedule of loans and financing recognized in non-current liabilities.

Direct consumer credit through intervenience – CDCI

Corresponds to the financing through direct consumer credit through intervenience (CDCI) that can be paid in installments in up to 24 months. However, the most used term is below 12 months.

Working capital financing, swap and consumer financing through intervenience

Working capital financing

GPA and its subsidiaries obtain borrowings and financings from the main financial institutions to cover cash requirements for investments.

For these transactions, GPA is required to maintain financial ratios. Such ratios are calculated based on the Company’s consolidated financial statements prepared in accordance with the accounting practices adopted in Brazil, in the respective issuance Company, being: (i) the net debt (debt less cash and cash equivalents and accounts receivable) not exceeding the shareholders’ equity; and (ii) consolidated net debt/EBITDA ratio below or equal to 3.25. On December 31, 2015, GPA had met such ratios

Swaps

In relation to foreign currency-denominated transactions, GPA carries out swap transactions to swap obligations denominated in US dollars and fixed interest rates for the Brazilian real pegged to the CDI interest rate (floating rate). The annual average CDI rate in 2015 was 13.23% (10.81 in 2014 and 8.06% in 2013).

BNDES

The credit facility raised by GPA from BNDES is indexed based on the TJLP (long term interest rate), plus spread, resulting in the final interest rate or fixed interest rate.

Financing is paid in monthly installments after a Lock-up Period, as mentioned below.

GPA cannot offer any asset as collateral for loans to other parties without the prior authorization of BNDES.

Debentures

GPA is required to maintain financial ratios in connection with the issuances made. Such ratios are calculated based on the Company’s consolidated financial statements prepared in accordance with the accounting practices adopted in Brazil, in the respective issuance Company, being: (i) the net debt (debt less cash and cash equivalents and accounts receivable) not exceeding the shareholders’ equity; and (ii) consolidated net debt/EBITDA ratio below or equal to 3.25. On December 31, 2015, GPA had met such ratios.

In R$ million

Financial lease obligations

The financial and capital lease agreements, which transfer to the Group substantially all risks and benefits arising from the ownership of the leased asset, are capitalized at the inception of the capital lease at the fair value of the leased asset or at the present value of minimum capital lease payments, whichever the lower. Capital lease payments are allocated between financial charges and reduction of capital lease liabilities, so as to obtain a constant interest rate in the balance of liabilities. Financial charges are recognized in the income statement for the year. Leased assets are depreciated during their estimated useful or the capital lease term, whichever the shorter.

The total amount recorded relating to capital lease agreements that are classified as financial are shown in the table below:

ii          Other long term relationships with financial institutions

We currently do not maintain any significant long term relationships with financial institutions, for the fiscal years ended on December 31, 2015, 2014 and 2013, in addition to those described in item 10.1 (f) of this Reference Form.

iii.         Level of subordination between our debts

The Officers inform that the level of subordination between GPA’s debts is determined in accordance with the provisions of the prevailing legislation.

iv.        Any restrictions imposed on us, especially with respect to the limits of indebtedness and contracting of new debts, dividend payouts, disposal of assets, issuance of new securities and disposal of corporate control.

BNDES

The agreements entered into with BNDES are subject to the “Provisions Applicable to BNDES Agreements”, whose borrowers from BNDES, including GPA, cannot, without the prior authorization of BNDES: (i) give preference to other credits; (ii) amortize shares; (iii) issue debentures above the limit established; (iv) issue founder’s shares; (v) assume new debts; and (vi) dispose of or encumber permanent asset items, subject to the exceptions expressly set forth in the “Provisions Applicable to BNDES Agreements”.

Debentures

The debentures issued are not convertible into shares and not collateralized.

The amortization method of these debentures varies according to the issuance. The following types of amortization provide for annual installments (12^th issuance of the CBD) beginning the 4^th anniversary of the issuance and semiannual interest payments. For more information on the issuance of debentures conducted by GPA, please see item 18 of this Reference Form.

The 12^th issuance is entitled to early redemption on any time based on the conditions set out in the issuance instrument. GPA is required to maintain financial ratios in connection with the issuances conducted. Such ratios are calculated based on GPA’s consolidated financial statements prepared in accordance with the accounting practices adopted in Brazil, being: (i) the net debt (debt less cash and cash equivalents and accounts receivable) not exceeding the shareholders’ equity; and (ii) consolidated net debt/EBITDA ratio below or equal to 3.25. On December 31, 2015, GPA had met such ratios.

Other restrictive covenants

There are loan and financing agreements of CBD and its subsidiaries that provide for the accelerated maturity of the debt in case of transfer of the corporate control, including:

• The loan and financing agreements in national and foreign currency;
• The issuance of CBD’s debentures
• The financing agreements for machinery and equipment (FINAME);
• The Agreement for Adhesion to the Hedge System Against Financial Risks – Derivatives (swap, forward and options).

Moreover, the “Provisions Applicable to BNDES Agreements” also prohibit any change in the effective control, direct or indirect, after contracting of the transaction, without prior and express authorization of BNDES.

(g)           limits of use of financing already contracted, percentage already used

Although it has no fixed financing already contracted, the Company has entered into, on December 31, 2015, credit facility agreements in the amount of R$ 1,350 billion.

As set out in the financial statement disclosed by the Company in 2015, the agreements were entered into based on the terms and conditions adopted by the market and are effective through 2016 and 2017.

(h)           significant changes in each item of the financial statements

There are no items that significantly changed the financial statements for 2013, 2014 and 2015.

Income Statement

Fiscal Years Ended on December 31, 2015, 2014 and 2013

Cnova Investigation

As disclosed by the Company and subsidiary Cnova NV on December 18, 2015, the Board of Directors of CNova has hired legal advisors and independent accountants to conduct a review of matters related to irregularities in the conduct of employees related to the management of inventories. The matters identified involve mainly the treatment of products returned and damaged in the distribution centers of its Brazilian subsidiary Cnova Comércio Eletrônico S.A. (Cnova Brazil). The investigation will also assess potential accounting impacts on the financial statements related to the conduct under analysis.

Concurrently, the Company’s Board of Directors authorized on the same date its Audit Committee to monitor and advise the Board of Directors and the Audit Committee of Cnova, whenever appropriate, in connection with the investigation in progress with respect to such matter.

As reported by CNova and reproduced in the Notice to the market disclosed by the Company on January 12, 2016:

a)         The investigations up to the date of the notice to the market indicated a potential overestimation of Cnova in net sales of approximately R$ 110 million accumulated on December 31, 2015 (preliminarily adjusted in the amounts for the 4Q15).

b)         A comprehensive inventory on December 31, 2015 in all seven distribution centers in Brazil was completed with the support of external advisors. The results indicate that no significant adjustment is necessary based on the inventory counting. However, they indicate that a write-off related to the measurement of the amount of damaged/returned items, that account for approximately 10% of total inventories, will be necessary. Moreover, a material discrepancy in the accounts receivable related to the damaged/returned items was also identified. The combined impact, based on preliminary estimates, would result in provisions without cash effects between R$ 110 million and R$ 130 million that would reduce the EBIT of Cnova.

c)         Accounts payable in Cnova Brazil. CNova identified additional balances of accounts payable from suppliers and providers in the approximate amount of R$ 70 million. The accounting for a corresponding provision is also expected, which would reduce the EBIT of Cnova.

d)         Benchmark of the inventory valuation method. As a result of a benchmark work of methods to measure the inventory amount of e-commerce companies, the costs for the receipt and storage in the distribution centers will cease to be incorporated to the amount of inventories as a retail sector practice, being directly charged against results as fully adopted in the e-commerce sector. The non-recurring cumulative impact is € 10 million. *** CNova stresses the analysis of the impact of the abovementioned adjustments in 2015 and potentially preceding periods (annual consolidated financial statements and quarterly financial communications) is in progress. 

Net revenue

2015 x 2014

GPA’s consolidated net revenue grew by 5.5% in 2015, from R$ 65,525 billion in 2014 to R$ 69,115 billion in 2015.

The Group’s main revenues derive from GPA Food operations, comprised of Multi-retail and Assaí; electric and electronic operations (physical stores of Via Varejo) and e-commerce (CNova). The net revenues are shown in the table below in relation to the fiscal years ended on December 31, 2015, 2014 and 2013:

 (1) Not including the revenue arising from intercompany transactions; (2) Extra and Pão de Açúcar brands. Including the revenue arising from store walkways; (3) Cnova: Cnova Brazil + Cdiscount Group. Includes only the revenue from marketplace commissions, without considering the total revenue from goods; (4) Includes the revenue arising from intercompany transactions

The growth in 2015 was boosted by the expansion of the higher return formats upon the inauguration of 118 new stores, of which 91 stores in the food segment (46 Minimercado Extra, 27 Minuto Pão de Açúcar, 11 Assaí, 5 Pão de Açúcar, 1 Extra Super and 1 gas station) and 27 Casas Bahia. 2015 was marked by the slowdown of consumption from families arising from the deterioration of the economic scenario and has mainly affected sales in the non-food segment.

Highlights of GPA Food

It must be highlighted the solid performance of the food category in 2015, without any significant changes, even with the changes in the consumer behavior, which seeks even more first-price or promotion products. Therefore, the growth in the food segment was 7.1%, due to the following factors:

 (i) Solid growth by 25.5% of the net revenue of Assaí, reaching R$ 10,453 billion. The brand has increased its share in the Food GPA portfolio to 28% (compared to 24% in 2014) and consolidated its second position in the cash & carry segment in the country;

 (ii) Continuing market share gain of the Pão de Açúcar brand as a result of the focus on the monitoring and improvement of the service level, differentiated services and variety of products, as well as in Proximity stores (Minimercado Extra and Minuto Pão de Açúcar), as a result of the growth in “clusterization” and adequacy of the varied products in stores. With respect to the Extra brand, it is important to point out the best trend of the customer flow compared to 2014 as a result of the competitiveness, renovation of stores and development of labor specialized in perishable products.

Highlights of CNova

In 2015, the participation of the marketplace in total GMV grew 916 base points in 2015 reaching 20.5% compared to 11.3% in 2014. The participation of the marketplace in the GMV of Cnova Brazil reached 10.8% (+725 pb). The number of active sellers in the marketplace grew by 43.6%, reaching almost 10,200, while the number of offers of products in the marketplace grew from 12 million to 28 million (+137%). The net sales of Cnova Brazil grew by 5.1% (at constant exchange rate) and the marketplace commission grew by +252%.

Highlights of Via Varejo

2015 was very challenging for the durable goods sector, and in view of such scenario, Via Varejo has worked with focus and discipline to make the necessary adjustments and continue to implement its strategic plan, ensuring its leading position in the market and strengthening the competitive differences. Via Varejo has accelerated operating efficiency initiatives, such as optimization of the logistics network and backoffice synergies with companies of the Group, and adopted process optimization and expense rationalization measures. Among the measures are the review of the store portfolio, upon the closing of 39 low-performance stores, review of the logistics network and spaces in the distribution centers, adequacy of the number of employees with reduction of about 13 thousand positions and renegotiation of lease agreements.

2014 x 2013

The consolidated net revenue of GPA grew by 13.3% in 2014, from R$ 57,854 billion in 2013 to R$ 65,525 billion in 2014.

The highlight in 2014 was the substantial organic growth upon the opening of 212 new stores, of which 124 were inaugurated by GPA Food (Multi-retail and Assaí) and 88 by Via Varejo. The consolidation of Cdiscount which was made as from August 1, 2014 has also boosted the growth in sales, as disclosed below in item “Highlights of CNova”.

Highlights of GPA Food

The organic growth was significantly reflected on GPA Food. There were 97 new stores in the proximity format, including units of Minimercado Extra and Minuto Pão de Açúcar. In the premium supermarket sector with the Pão de Açúcar brand, the growth in revenues was boosted by the differences in the format, with an even more innovative assortment, besides the opening and conversion of units, totaling 17 new sales points of the chain.

In the Extra brand, a series of measures were adopted to recover the sales of the hiper format, mainly after the second semester, which includes the improvement in the store operation, adequacy of variety of products, communication and continuing strengthening of the competitiveness strategy. Consequently, there was a better trend in the flow of customers at the stores and recovery of market share.

In the Assaí brand, nine new stores were inaugurated, besides the expansion of operation in the Northeast region, strengthening the growth strategy of the Cash and Carry operation. Such growth in operation has been strongly contributing to the expansion of sales of Assaí, which posted a growth by 32.7% in the year.

Highlights of CNova

In 2014, CNova was created, as a result of the combination of business between Nova Pontocom, already operated by GPA, and Cdiscount, operating in France and ten more countries. In November 2014, CNova has listed its shares at Nasdaq and, in January 2015, it has listed its shares at Euronext Paris.

In 2014, the net revenue of CNova grew by 90.2%, since it included, as from August 1, 2014, the results of CDiscount. On comparable basis, the growth was 28.1%, a level above the market rate. The strategy adopted in the year was the search for the balance between competitiveness and growth, with efficiency gains and market share.

Highlights of Via Varejo

In 2014, the company was focused on the expansion, with the opening of 88 stores and launching of pioneering initiatives, such as the opening of 20 mobile stores¹, including the Casas Bahia and Pontofrio brands and expansion of the furniture segment with the opening of units focused on the sale of planned environments, a growing segment.

Gross Profit

The international operations of Cnova started to be consolidated in the GPA as from August 2014, therefore, the results of 2014 reflect only 5 months of these operations. For better comparability between periods, the comments relating to the gross profit and operating expenses did not consider the results of Cnova (Cnova Brasil and international operations) in 2015 and 2014.

In 2015, the Company conducted a work of adequacy to the consumer needs through the strengthening of competitiveness of prices, strengthening of offers and assortment adjustments. The gross profit totaled R$ 15,219 billion and margin of 23.3%, the lowest level when compared to 2014, mainly reflecting the lower contribution of Via Varejo and Cnova to the Company’s gross profit. The highlights by business were:

ü Multi-retail: The gross margin reached 28.1% in the year, a level slightly below 2014, as a result of the price competitiveness strategy during the year, mainly at Extra brand, which was partially offset by the growth in the market share of the formats with higher margin (Pão de Açúcar, Minimercado Extra and Minuto Pão de Açúcar), besides the growth in the revenue from lease of store walkways;

ü Assaí: The gross margin grew by 0.2 percentage point, from 14.5% to 14.7%, mainly as a result of the growth in brand (11 new stores) and maturation of new stores;

ü Via Varejo: The gross margin reached 32.2% due to the higher participation of services in total sales and operating efficiency gains. Accordingly, the Company was able to strengthen the pricing policy and strengthen offers, which contributed to increase the company’s competitiveness and accelerate the market share gains.

In 2014, the gross profit grew from R$ 15,104 billion in 2013 to R$ 16,945 billion in 2014, a growth by 12.2%. The gross margin totaled 25.9% in 2014, while it was 26.1% in 2013, as a result of the continuing price competitiveness strategy, in addition to the higher participation of the formats that operate with lower margin. The highlights by business were:

ü Multi-retail: growth in the margin by 0.8 p.p. in the year, primarily as a result of the growth in revenues from lease of store walkways; higher participation in the mix of sales of Pão de Açúcar and Minimercado Extra formats, that operate with higher margin; and lower participation of the electronic products sales in the mix, impacted by the macroeconomic scenario in the year;

ü Assaí: maintenance of the gross margin in 2014 when compared to 2013 (14.5% and 14.6%, respectively);

ü Via Varejo: improvement of margin by 9.8%, primarily as a result of the logistics and assembling efficiency improvement initiatives, growth of services and also of financial services  and synergies with the group.

In 2013, the gross profit reached R$ 15,104 billion compared to R$ 13,807 billion in 2012, a growth by 9.4%. Such growth in gross profit was in line with the growth in sales in the same period. The gross margin was 26.1% in 2013, a drop by 1.0 percentage point compared to 2012.

Operating Income (Expenses)

The comments below did not consider the result of Cnova (Cnova Brazil and international operations in 2015 and 2014, as mentioned in item “Gross profit”.

In 2015, the efforts to optimize expenses and improve efficiency implemented during the year in all business resulted in a nominal growth of selling, general and administrative expenses of only 4.4%, below the inflation, even in view of the higher expenses on electric power and costs related to the inauguration of 118 stores in the year. The selling, general and administrative expenses grew from R$11,137 billion in 2014 to R$11,628 billion in 2015.

ü  Multivarejo: In terms of operating efficiency, the highlight was the growth in operating expenses (selling, general and administrative expenses) of only 3.6%, significantly below the inflation for the period. Such result reflects the initiatives focused on the reduction of expenses implemented since the beginning of the year, primarily related to the optimization of expenses on advertising, renegotiation of leases and operating improvement in stores (review of logistics processes and efficiencies), which permitted adjusting the staff without impacting the quality of the service offered at the stores;

ü  Assaí: Even in view of the opening of 11 stores during the year, selling, general and administrative expenses on net revenue (10.5% in 2015 compared to 10.4% in 2014) posted a slight growth by 0.1 p.p, as a result of the expenses related to inflation and mainly electric power

ü  Via Varejo: Via Varejo has accelerated operating efficiency initiatives, such as optimization of the logistics network and backoffice synergies with companies of the Group, and adopted process optimization and expense rationalization measures. Among the measures are the review of the store portfolio, upon the closing of 39 low-performance stores, review of the logistics network and spaces in the distribution centers, adequacy of the number of employees with reduction of about 13 thousand positions and renegotiation of lease agreements. Such measures adopted during the year contributed to reduce SG&A by 2.6%, even in view of the inflation rate (IPCA) of 10.67% in the year.

In 2014, total operating expenses reached R$ 12,121 billion in 2014, a growth by 6.6% when compared to operating expenses in 2013, in the amount of R$ 11,368 billion. Selling, general and administrative expenses totaled R$ 11,787 billion, a growth by 9.7% compared to 2013. As a percentage rate of net sales, selling, general and administrative expenses dropped from 18.6% in 2013 to 18.0% in 2014. The main effects were:

ü Multivarejo: growth by 0.7 p.p. of selling, general and administrative expenses on net revenue (19.7% in 2014 compared to 19.0% in 2013), mainly as a result of the impact of the bargaining agreement in 2014; higher expenses with healthcare benefits, that were subject to adjustments higher than inflation rate; higher marketing expenses, so as to expand the disclosure of sales initiatives; and expenses related to the opening an renovation of stores;

ü Assaí: drop by 0.2 p.p. in selling, general and administrative expenses on net revenue (10.4% in 2014 compared to 10.6% in 2013) arising from operating efficiency gains, even with the aggressive store opening plan;

ü Via Varejo: drop by 0.3 p.p. in selling, general and administrative expenses on net revenue (22.4% in 2014 compared to 22.7% in 2013) mainly related to the efficiency gain of store processes, optimization of the hiring of third-party services, higher logistics efficiency and rationalization of administrative, IT and marketing expenses.

In 2013, total operating expenses reached R$ 11,368 billion, a growth by 11.6% when compared to 2012, which totaled R$ 10,186 billion, a growth below the growth of the net revenue.  Selling, general and administrative expenses totaled R$ 10,742 billion. As percentage of net revenue, selling, administrative and general expenses reduced from 19.9% in 2012 to 18.6% in 2013.

Other Expenses and Operational Revenues

In 2015, other expenses and operational revenues totaled an expense of R$ 684 million, a growth by 54.9% when compared to 2014. The growth was mainly due to the expenses with severance amounts paid to the Group executives and employees as a result of the restructuring and write-off of fixed assets.

In 2014 other expenses and operational revenues totaled an expense of R$ 441 million, a drop by 34.4% when compared to 2013, in the amount of R$ 673 million. The drop was due to lower expenses with lawsuits in 2014 when compared to 2013.

Depreciation and Amortization

In 2015, depreciations and amortizations totaled R$ 963 million, representing a growth by 17.3% compared to depreciations and amortizations of R$ 821 million in 2014. Such growth was mainly due to the depreciation and amortization of new investments made during 2015.

In 2014, depreciations and amortizations totaled R$ 821 million, representing a growth by 4.2% compared to depreciations and amortizations of R$ 787 million in 2013. Such growth was mainly due to the depreciation and amortization of new investments made during 2014.

In 2013, depreciations and amortizations totaled R$ 787 million, representing a growth by 4.8% compared to depreciations and amortizations of R$ 752 million in 2012. Such growth was mainly due to the depreciation and amortization of new investments made during 2013.

Net Financial Income

In 2015, the net financial income totaled an expense of R$1,648 billion, a growth by 9.3% compared to 2014, significantly lower than the growth in interest rate of 26.8% in the period. The ratio between net financial income and net revenue grew from 2.3% in 2014 to 2.4% in 2015, a growth by only 0.1 percentage point, which remained practically stable compared to the prior year, even in a more challenging macroeconomic environment. Such result is due to the cash management strategy conducted by the Company during the year, which generated important cash optimization. 

The Company has been posting in the past years a continuing drop in the leverage level, in order to strengthen even further its financial capacity. Even in a year with unfavorable and challenging macroeconomic environment, the Company ended the year with high level of cash reserves of approximately R$ 11.0 billion. The extension of the debt term, including the booklets operations was higher by 181 days when comp ared to December 31, 2014.

In 2014, the net financial income in 2014 totaled an expense of R$1,508 billion compared to R$1,193 billion in 2013, a growth by 26.3% compared to 2013, below the growth in the CDI rate in the period (33.9%). The man impacts on the financial result were: (i) growth by 12.0% of charges on the net bank debt, below the growth in the CDI rate, reflecting the improvement of working capital in the period; (ii) growth in the cost of prepayment of receivables from booklet and sale of receivables from credit card by R$ 220 million, in line with the growth in the net revenue, besides the growth in interest rate; and (iii) growth in the adjustment of other assets and liabilities of R$ 68 million, primarily related to the variation in cash profitability, offset by the higher adjustment of provisions for contingencies.

GPA ended 2014 with a net cash position of R$1,421 billion, compared to a net debt position of R$1,104 billion in 2013, arising mainly from the higher cash generation in the period, improvement of working capital. GPA has posted cash reserves of approximately R$11,1 billion at the end of December 2014 compared to R$8,4 billion in 2013, which demonstrates an important strengthening of the capital structure of GPA, mainly during higher volatility period of the economic scenario.

In 2013, the net financial income totaled R$1,193 billion, the same amount as 2012 (R$1,193 billion). As a percentage of net sales, the net financial income dropped from 2.3% to 2.1%, due to the following reasons: (i) drop of the effect of interest on net debt of R$ 14 million, mainly related to the slow reduction of the debt during 2013; (ii) increase in the cost of prepayment of receivables from booklet and sale of receivables from credit card by R$106 million, in line with the growth in net revenue, besides the growth in interest rate; and (iii) gain in the adjustment of other assets and liabilities of R$92 million, mainly caused by the prepayment of REFIS during the year, besides the higher prepayment of suppliers, generating a higher financial income in 2013 when compared to 2012.

The net debt totaled R$1,104 billion in 2013, a drop by R$2,302 billion compared to 2012, mainly due to the higher cash generation in the period, which was specifically boosted by the efforts to improve working capital. Moreover, the public offer of distribution of Units comprised of one (1) common share and two (2) preferred shares issued by Via Varejo, which represented a cash inflow in the gross amount of R$896 million, has also contributed to the reduction of the debt position.

Net Profit

In 2015, as a result of the challenges of the macroeconomic scenario, the Company’s result was mainly affected by the result of Via Varejo and Cnova. It must be mentioned that the international operations of Cnova started to be consolidated in the GPA as from August 2014, therefore, they were not fully reflected in 2014, which influences the comparison basis.

The Company has ended 2015 with net profit of controlling shareholders, adjusted by Other expenses and Operational Revenues, of R$ 595 million. It must be highlighted the strength of the Food segment, which totaled Adjusted Net Profit of R$ 731 million. The highlights by business were:

ü Multivarejo: The lower level compared to 2014 results from the lower gross margin arising from the investments in price competitiveness, sales scenario impacted by the deterioration of the economic environment and pressure of expenses arising from the inflation rate and growth in the expenses with electric power. Hence, the Adjusted Net Profit totaled R$ $ 559 million in 2015.

ü Assaí: the assertivity of the format and discipline in the control of expenses, coupled with the store maturation resulted in an Adjusted Net Profit of R$ 172 million.

ü Via Varejo: The lower level of profit compared to 2014 is due to the drop in sales in view of the adverse economic scenario for the durable goods sector which, coupled with the increase in inflation rates on fixed costs, resulted in an Adjusted Net Profit of R$ 149 million.

Balance Sheet

Fiscal Years Ended on December 31, 2015, 2014 and 2013

Consolidated Balance Sheet - Assets