UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

________________________________________________
FORM 20-F

Commission File Number 1-14626

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COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO
(Exact Name of Registrant as Specified in its Charter)

BRAZILIAN DISTRIBUTION COMPANY
(Translation of Registrant’s name into English)

THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)

________________________________________________

Christophe Hidalgo, Chief Financial Officer
Phone:  +55 11 3886-0421 Fax:  +55 11 3884-2677
gpa.ri@gpabr.com
Avenida Brigadeiro Luiz Antonio, 3,142
01402-901 São Paulo, SP, Brazil
(Address of principal executive offices)

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Securities registered or to be registered pursuant to Section 12(b) of the Act.

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*The Preferred Shares are non-voting, except under limited circumstances.

**Not for trading purposes, but only in connection with the listing on the New York Stock Exchange of American Depositary Shares representing those Preferred Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:

99,679,851 Common Shares, no par value per share

165,789,276 Preferred Shares, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.

x Yes ¨ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes x No

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non‑accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer x Accelerated Filer ¨ Non-accelerated Filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ¨ Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

INTRODUCTION

All references in this annual report to (i) “CBD,” “we,” “us,” “our,” “Company,” “Grupo Pão de Açúcar” and “GPA” are references to Companhia Brasileira de Distribuição and its consolidated subsidiaries, unless the context requires otherwise, (ii) the “Brazilian government” are references to the federal government of the Federative Republic of Brazil, or Brazil, and (iii) “preferred shares” and “common shares” are references to our authorized and outstanding shares of non-voting preferred stock, designated as ações preferenciais, and common stock, designated as ações ordinárias, respectively, in each case without par value.  All references to “ADSs” are to American depositary shares, each representing one preferred share, without par value.  The ADSs are evidenced by American Depositary Receipts, or “ADRs,” issued by The Bank of New York Mellon.  Additionally, unless the context indicates otherwise, the following definitions apply throughout this annual report:

All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil.  All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars.  All references to “€” or “euro” are to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

We have prepared our consolidated financial statements included in this annual report in conformity with accounting practices adopted by the International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or IASB, in reais.

We have translated some of the real amounts contained in this annual report into U.S. dollars.  The rate used to translate the amounts in respect of  December 31, 2015 was R$3.266 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect as of August 26, 2015, as reported by the Central Bank of Brazil, or the Central Bank.  The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the real amounts represent, or could have been or could be converted into, U.S. dollars at that rate or at any other rate.  See “Item 3A.  Selected Financial Data—Exchange Rates” for more detailed information regarding the translation of reais into U.S. dollars.

In addition, this annual report contains translations of euro amounts into U.S. dollars at specific rates.  Unless otherwise noted, all translations from euros to U.S. dollars and from U.S. dollars to euros in this annual report were made at a rate of $1.0859 per euro, the exchange rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 31, 2015.

FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements, principally in “Item 3D.  Risk Factors,” “Item 4B.  Business Overview” and “Item 5.  Operating and Financial Review and Prospects.”  We have based these forward‑looking statements largely on our current expectations and projections about future events and financial trends affecting our business.  These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things:

·         global economic conditions and their impact on consumer spending patterns, particularly in Brazil and France;

·         our ability to sustain or improve our performance;

·         competition in the Brazilian and French retail industry in the sectors in which we operate;

·         government regulation and tax matters;

·         adverse legal or regulatory disputes or proceedings;

·         credit and other risks of lending and investment activities;

·         ability to expand our operations outside of our existing markets; and

·         other risk factors as set forth under “Item 3D.  Risk Factors.”

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.  In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

EXPLANATORY NOTE

In December 2015, the board of directors of Cnova, one of our subsidiaries, engaged legal counsel and forensic accountants to perform an internal investigation of alleged employee misconduct related to inventory management at Cnova Brazil’s distribution centers.  Subsequently, the scope of the investigation at Cnova Brazil was expanded to include:  (i) an overstatement of Cnova Brazil net sales and accounts receivable; (ii) inconsistencies linked to the amount and valuation of damaged and/or returned items in Cnova Brazil’s inventory; (iii) incorrect entries recorded at Cnova Brazil concerning primarily accounts payable; (iv) altered account reconciliations that were intentionally prepared by Cnova Brazil accounting staff at the direction of former Cnova Brazil personnel and provided to mislead Cnova Brazil’s independent registered public accounting firm; (v) the unsupported capitalization of software development costs related to certain vendor expenses and employee payroll expenses into intangible asset accounts; and (vi) the improper deferral of certain operating expenses at Cnova Brazil (the “Investigation”).  The Investigation also identified (i) a nonrecurring Brazilian Imposto sobre Operações relativas à Circulação de Mercadorias e Prestação de Serviços (“ICMS”) tax credit of 75 million Brazilian reais related to the sale of certain products by Cnova Brazil, which was recognized by Cnova in December 2014, the impact of which on Cnova’s results of operations for the three months ended December 31, 2014, was not previously disclosed; (ii) misconduct by Cnova Brazil IT personnel who intentionally altered records related to user access to certain of Cnova Brazil’s IT systems to mislead the independent registered public accounting firm.

In February 2016, Cnova disclosed that its audit committee, in consultation with its management, determined that Cnova’s financial statements contained in its previously filed annual report on Form 20-F for the year ended December 31, 2014 should no longer be relied upon and would need to be restated in connection with the issues discovered in the course of the Investigation.  Cnova also reported the matter to the staff of the Division of Enforcement of the United States Securities and Exchange Commission (the “SEC”) and to the French Autorité des Marchés Financiers and the Netherlands Authority for the Financial Markets.

In June 2016, Cnova’s legal advisors and external forensic accountants completed the internal review.  Based on their findings, which have been shared with the SEC, Cnova has restated its consolidated financial statements as of and for the fiscal years ended December 31, 2013 and 2014 and selected financial information as of and for the year ended December 31, 2012.  Cnova’s restated consolidated financial statements as of and for the fiscal years ended December 31, 2013 and 2014 were also revised to reflect in the proper periods certain previously recorded out‑of‑period adjustments.

In July 2016, we disclosed that as a result of the adjustments in Cnova’s financial statements for the fiscal years ended December 31, 2014 and 2013, which totaled R$557 million, our consolidated financial statements as of and for the years ended December 31, 2014 and 2013, contained in the previously filed annual report on Form 20-F for the year ended December 31, 2014, should no longer be relied upon and would be restated. We recorded the effect of R$504 million in statement of income and R$53 million directly in shareholders’ equity. For further information on the effect in our consolidated financial statements, see note 1.5, “Cnova’s investigation and restatement of comparative periods in the financial statements,” to our audited consolidated financial statements included elsewhere in this annual report.

As a result of the foregoing, we have identified material weaknesses in our internal controls and procedures. For information on the material weaknesses identified in our internal controls and procedures, see “Item 15. Controls and Procedures.”

Furthermore, the consolidated balance sheet data as of December 31, 2011, 2012 and 2013 and consolidated statement of income data for the years ended December 31, 2011 and 2012  have been derived from our audited consolidated financial statements, which have not been restated as a result of the issues found in Cnova’s Investigation due to overall immateriality of the adjustments made (R$ 95 million on net income from 2012 and previous years).

Restatement of Previously Issued Consolidated Financial Statements

As a result of the internal review of Cnova Brazil, Cnova identified several errors in its financial statements that resulted in the same errors in our previously issued financial statements as of and for the years ended December 31, 2014 and 2013, which have been restated.

We evaluated and concluded that the deferred income tax would not be recoverable and therefore there is no income tax impact on the adjustments to our financial statements.

The total adjustments in Cnova were R$557 million, of which R$504 million were recorded in statement of income and R$53 million in shareholders’ equity, comprising (i) the adjustments resulting from the Investigation, (ii) the adjustments related to changes in accounting practice, and (iii) the evaluation on the recoverability of deferred income taxes at Cnova and its subsidiaries.

The table below reconciles the final adjustments of the Investigation and other related effects that were recorded in our financial statements and their allocation by year:

For a breakdown of the Investigation adjustments and for further information relating to the restatement of our audited consolidated financial statements as of and for the years ended December 31, 2013 and 2014, see note 1.5,

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“Cnova’s investigation and restatement of comparative periods in the financial statements,” to our audited consolidated financial statements included elsewhere in this annual report.

Additionally, as a result of the Investigation, on July 27, 2016 we also restated our consolidated financial statements for the years ended December 31, 2015 and 2014 that had been previously filed with the Brazilian Securities Commission on February 24, 2016.

PART I 

ITEM 1.            IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.            OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.            KEY INFORMATION

3A.               Selected Financial Data

We present in this section summary financial and operating data derived from our audited consolidated financial statements as of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 included elsewhere in this annual report and prepared in accordance with IFRS as issued by the IASB.  Our audited consolidated financial statements as of and for the years ended December 31, 2013 and 2014 have been adjusted for the effects of the restatement more fully described in the “Explanatory Note” on page 2 of this annual report and in note 1.5 (“Cnova’s investigation and restatement of comparative periods in the financial statements”) to our audited consolidated financial statements.

As a result of Cnova Brazil's Investigation, Cnova identified several errors in the financial statements that resulted in the same errors in the previously issued financial statements of the Company as of December 31, 2014 and 2013, which have been restated.

The consolidated balance sheet data as of December 31, 2011, 2012 and 2013 and consolidated statement of income data for the years ended December 31, 2011 and 2012  have been derived from our audited consolidated financial statements, which have not been restated as a result of the issues found in Cnova’s Investigation due to overall immateriality of the adjustments made (R$ 95 million on net income from 2012 and previous years).

The following tables present certain of our summary historical consolidated financial and operating data for each of the periods indicated.  Solely for the convenience of the reader, real amounts as of and for the year ended December 31, 2015 have been translated into U.S. dollars at the commercial selling rate at closing for the purchase of U.S. dollars, as reported by the Central Bank, as of August 26, 2016, of R$3.266 to US$1.00 (subject to rounding adjustments).

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(1)   The consolidated balance sheet data as of December 31, 2011, 2012 and 2013 and consolidated statement of income data for the years ended December 31, 2011 and 2012  have been derived from our audited consolidated financial statements, which have not been restated as a result of the issues found in Cnova’s Investigation due to overall immateriality of the adjustments made (R$ 95 million on net income from 2012 and previous years).

(2)   The effects of the restatement on the Company’s consolidated financial statements as of and for the years ended December 31, 2013 and 2014 are described in the “Explanatory Note” on page 2 of this annual report and in note 1.5 (“Cnova’s investigation and restatement of comparative periods in the financial statements”) to our audited consolidated financial statements. 

(3)   Each preferred share received a dividend 10% higher than the dividend paid to each common share.  See “Item 8A.  Consolidated Statements and Other Financial Information—Dividend Policy and Dividends.”

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(1)   The consolidated balance sheet data as of December 31, 2011, 2012 and 2013 and consolidated statement of income data for the years ended December 31, 2011 and 2012  have been derived from our audited consolidated financial statements, which have not been restated as a result of the issues found in Cnova’s Investigation due to overall immateriality of the adjustments made (R$ 95 million on net income from 2012 and previous years).

(2)   The effects of the restatement on the Company’s consolidated financial statements as of and for the years ended December 31, 2013 and 2014 are described in the “Explanatory Note” on page 2 of this annual report and in note 1.5 (“Cnova’s investigation and restatement of comparative periods in the financial statements”) to our audited consolidated financial statements.

(3)   Based on the full-time equivalent number of employees, which is the product of the number of all retail employees (full- and part-time employees) and the ratio of the average monthly hours of all retail employees to the average monthly hours of full-time employees.

(4)   Excludes 78 gas stations and 154 drugstores in 2011, 84 gas stations and 157 drugstores in 2012, 85 gas stations and 157 drugstores in 2013, 83 gas stations and 158 drugstores in 2014 and 83 gas stations and 157 drugstores in 2015.

(5)   Includes revenues associated with rentals of commercial spaces in 2012, 2013, 2014 and 2015.  Revenues of gas stations, drugstores, food delivery and in-store pick-up are included in the respective banner.

(6)   Includes all e-commerce assets of the Company, which, following the e-commerce reorganization described in “Item 4A.  History and Development of the Company - E-Commerce Business Reorganization,” includes our e-commerce operations in France, Latin America (including Brazil) and Asia.  We began consolidating Cnova’s e-commerce operations in France, Latin America (excluding Brazil, which we already consolidated) and Asia on July 31, 2014.  For further information, see “Item 4A.  History and Development of the Company - E‑Commerce Business Reorganization.”

(7)   In 2012, R$152.0 million net operating revenue (R$153.0 million gross operating revenue) was recognized from real estate projects through a barter transaction. The barter transaction revenue is the net result of the book value of the assets swapped.  For further information on the barter transactions, see note 10.3 to our audited consolidated financial statements included elsewhere in this annual report.

(8)   Calculated using the average of square meters of selling area on the last day of each month in the period.

Exchange Rates

Brazil’s foreign exchange system allows the purchase and sale of currency and the international transfer of reais by any person or legal entity, regardless of amount, subject to certain regulatory procedures.

The Brazilian currency has during the last years experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.  Between mid-2003 and 2008 the real appreciated significantly against the U.S. dollar and in August 2008 reached R$1.559 per US$1.00.  Primarily as a result of the crisis in the global financial markets, the real depreciated 31.9% against the U.S. dollar and reached R$2.337 per US$1.00, at year end 2008.  In 2009 and 2010, the real appreciated against the U.S. dollar and reached R$1.666 per US$1.00 at year end 2010.  During 2011, 2012, 2013 and 2014 the real depreciated against the U.S. dollar and reached at year end 2014 R$2.656 per US$1.00. During 2015 the real further depreciated against the U.S. dollar and on December 31, 2015 the exchange rate was R$3.905 per US$1.00.

The Central Bank has intervened occasionally to combat instability in foreign exchange rates.  We cannot predict whether the Central Bank or the Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market through a currency band system or otherwise.

The following tables present the selling rate, expressed in reais to the U.S. dollar (R$/US$), for the periods indicated:

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Source:  Central Bank

(1)   Represents the average of the exchange rates of each trading date using the exchange rates from the first and last day of the month.

3B.               Capitalization and Indebtedness

Not applicable.

3C.               Reasons for the Offer and Use of Proceeds

Not applicable.

3D.               Risk Factors

An investment in the ADSs or our preferred shares involves a high degree of risk.  You should consider the risks described below before making an investment decision.  Our business, financial condition and results of operations could be materially and adversely affected by any of these risks.  The trading price of the ADSs and our preferred shares could decline due to any of these risks or other factors, and you may lose all or part of your investment.  The risks described below are those that we currently believe may materially affect us.

Risks Relating to Brazil

The Brazilian government has historically exercised, and continues to exercise, significant influence over the Brazilian economy.  Brazilian political and economic conditions may adversely affect us and the trading price of the ADSs and our preferred shares.

The Brazilian government has frequently intervened in the Brazilian economy and occasionally has made drastic changes in policy and regulations.  The Brazilian government’s actions to control inflation and affect other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports.  Our business, financial condition, results of operations and the trading price of the ADSs and our preferred shares may be adversely affected by changes in policy or regulations at the federal, state or municipal level involving or affecting factors, such as:

·         interest rates;

·         monetary policies;

·         exchange controls and restrictions on remittances abroad (such as those that were imposed in 1989 and early 1990s);

·         currency fluctuations;

·         inflation;

·         liquidity of domestic capital and lending markets;

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·         tax and regulatory policies;

·         energy and water shortages and rationing; and

·         other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies.  These and other future developments in the Brazilian economy and governmental policies may adversely affect us and our business and results of operations and may adversely affect the trading price of the ADSs and our preferred shares.

Political instability may adversely affect our business and results of operations and the trading price of the ADSs and our preferred shares.

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy.  Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Lava Jato investigation, which is being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment.  Certain members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies are facing allegations of political corruption for officials allegedly accepting bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies.  Profits of these kickbacks allegedly financed the political campaigns of political parties of the current and previous federal government coalition that were unaccounted for or not publicly disclosed, as well as served to personal enrichment of the recipients of the bribery scheme.  As a result, a number of senior politicians, including congressman and officers of the major state-owned companies in Brazil, resigned or have been arrested and certain senior elected officials and other public officials are being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigation.

The potential outcome of these investigations is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy.  We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future.  In addition, we cannot predict the outcome of any such allegations nor their effect on the Brazilian economy.  The development of the cases could adversely affect our business, financial condition and results of operations and the trading price of the ADSs and our preferred shares.

In addition, on December 2, 2015, the Brazilian Congress opened impeachment proceedings against Brazilian President Dilma Rousseff for allegedly breaking federal budget laws during her term. On August 31, 2016, following a trial by the Senate, President Dilma Rousseff was impeached and Vice-President Michel Temer was sworn in as president.  The president of Brazil has power to determine governmental policies and actions that relate to the Brazilian economy and, consequently, affect the operations and financial performance of businesses including us.  The impeachment proceedings have adversely affected and we expect that they will continue to adversely affect the Brazilian markets and trading prices of securities issued by Brazilian issuers, including us.  We cannot predict the effects of the recent impeachment proceedings on the Brazilian economy.

Brazilian government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm us and the trading price of the ADSs and our preferred shares.

Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world.  Between 2005 and 2015, the base interest rate in Brazil (Sistema Especial de Liquidação e de Custódia), or SELIC rate, varied between 19.75% per annum and 7.25% per annum.  Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business.  Tight monetary

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policies with high interest rates may restrict Brazil’s growth and the availability of credit.  Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, which could negatively affect our business.  We may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure.  Furthermore, interest rate decreases may affect our ability to maintain interest margins we charge on installment sales, especially in connection with our home appliance segment, which could have a negative effect on net operating revenue.  Brazilian government measures to combat inflation that result in an increase in interest rates may have an adverse effect on us, as our indebtedness is indexed to the interbank deposit certificate (Certificados de Depósito Interbancário), or CDI, rate.  Inflationary pressures may also hinder our ability to access foreign financial markets or lead to government policies to combat inflation that could harm us or adversely affect the trading price of the ADSs and our preferred shares.

Exchange rate instability may have a material adverse effect on the Brazilian economy and us.

The Brazilian currency fluctuates in relation to the U.S. dollar and other foreign currencies.  The Brazilian government has in the past utilized different exchange rate regimes, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.  Since 1999, Brazil has adopted a floating exchange rate system with interventions by the Central Bank in buying or selling foreign currency.  From time to time there have been significant fluctuations in the exchange rate between the real and the U.S. dollar and other currencies.  For the years ended December 31, 2011, 2012, 2013, 2014 and 2015 the real depreciated 12.6%, 8.9%, 14.6%, 13.4% and 47.0%, respectively, against the U.S. dollar, closing at R$1.876, R$2.044, R$2.343, R$2.656 and R$3.905 to US$1.00, respectively.  As of August 26, 2016 the exchange rate between the real and the U.S. dollar closed at R$3.266 to US$1.00. The real may substantially depreciate or appreciate against the U.S. dollar in the future.  Exchange rate instability may have a material adverse effect on us.  Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and result in a material adverse effect on us.  Depreciation would also reduce the U.S. dollar value of distributions and dividends and the U.S. dollar equivalent of the trading price of the ADSs and our preferred shares.

Developments and the perception of risk in other countries, especially in the United States, the European Union and in emerging market countries, may adversely affect our business and the market price of Brazilian securities, including the ADSs and our preferred shares.

The market price of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, the European Union and emerging market countries.  Although economic conditions in those countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in other countries may have an adverse effect on the market price of securities of Brazilian issuers.  Crises in the United States, the European Union or emerging market countries may diminish investor interest in securities of Brazilian issuers, including ours.  This could adversely affect the market price of our preferred shares and the ADSs, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

Any further downgrading of Brazil’s credit rating could adversely affect the trading price of the ADSs and our preferred shares.

Credit ratings affect investors’ perceptions of risk and, as a result, the yields required on future debt issuance in the capital markets.  Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Rating agencies began the classification review of Brazil’s sovereign credit rating in September 2015. Brazil lost its investment grade condition by the three main rating agencies.  Standard & Poor’s initially reduced Brazil’s credit rating from BBB-minus to BB-plus and subsequently reduced it again from BB-plus to BB, and maintained its negative outlook on the rating, citing a worsening credit situation since first downgrade.  In December 2015, Moody’s placed Brazil’s Baa3 issuer and bond ratings on review for a downgrade, and subsequently downgraded Brazil’s issuer and bond ratings to below investment grade, to Ba2 with a negative outlook, citing the prospect for further deterioration in Brazil’s debt metrics in a low growth environment, in addition to challenging political

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dynamics.  Fitch downgraded Brazil’s sovereign credit rating to BB-plus with a negative outlook, citing the country’s rapidly expanding budget deficit and worse-than-expected recession.  As a result, Brazil lost its investment grade status from all three major rating agencies and consequently the trading prices of securities of the Brazilian debt and equity markets were negatively affected.  A prolongation of the current Brazilian recession could lead to further ratings downgrades.

Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, increase the future cost of debt issuance and adversely affect the trading price of the ADSs and our preferred shares.

Risks Relating to our Industries and Us

We face significant competition, which may adversely affect our market share and net income.

We operate mainly in the food retail and home appliances sectors.  The Brazilian food retail sector, including the cash and carry (atacado de auto serviço) segment and the home appliances sector, are highly competitive.  We face intense competition from small retailers, especially from those that operate in the informal segment of the Brazilian economy.  In addition, in our markets, and particularly in the São Paulo and Rio de Janeiro city areas, we compete in the food retail sector with a number of large multinational retail food and general merchandise and cash and carry chains, as well as local supermarkets and independent grocery stores.  In the home appliances sector, we also compete with large multinational chains and large or specialized Brazilian companies.  Acquisitions or consolidations within the industry may also increase competition and adversely affect our market share and net income.

In the e-commerce segment we compete with other large well established players that, similar to us, offer a wide range of products, as well as with specialized retailers that focus on one or a few products.  Because barriers to entry are much lower than in traditional retail, competition in the e-commerce market in Brazil and France is even more intense and if we are unable to respond to changes in these markets our market share and net income may be adversely affected.

The retail segment is sensitive to decreases in consumer purchasing power and unfavorable economic cycles.

Historically, the retail segment has experienced periods of economic slowdown that led to declines in consumer expenditures.  The success of operations in the home appliances retail sector depends on various factors related to consumer expenditures and consumers’ income, including general business conditions, interest rates, inflation, consumer credit availability, taxation, consumer confidence in future economic conditions, employment and salary levels.  Reductions in credit availability and more stringent credit policies by us and credit card companies may negatively affect our sales, especially in the home appliance segment.  Unfavorable economic conditions in Brazil, or unfavorable economic conditions worldwide reflected in the Brazilian economy, may significantly reduce consumer expenditure and available income, particularly in the lower income classes, who have relatively less credit access than higher income classes, more limited debt refinancing conditions and more susceptibility to increases in the unemployment rate.  These conditions may cause a material adverse effect on us.

Since 2011, Brazil has been experiencing an economic slowdown.  The gross domestic product, or GDP, growth rates were -3.8% in 2015, 0.1% in 2014, 2.7% in 2013, 1.8% in 2012 and 3.9% in 2011, compared to a GDP growth of 7.5% in 2010.  According to the Central Bank of Brazil consensus (Focus) as of the date of this annual report, analysts project that the Brazilian GDP will contract 3.20% in 2016.

Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of the Brazilian GDP.  We cannot assure you that the GDP will increase or remain stable.  Developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, us.

Because the Brazilian retail industry is perceived as essentially growth-oriented, we are dependent on the growth rate of Brazil’s urban population and its different income levels.  Any decrease or slowdown in growth may adversely affect our sales and our results of operation.

Restrictions of credit availability to consumers in Brazil may adversely affect our sales volumes.

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Sales in installments are an important component of the result of operations of retail companies in Brazil.  The increase in unemployment rate combined with higher interest rates may result in an increased restriction of credit availability to consumers in Brazil.  Our sales volumes and, consequently, our result of operations may be adversely affected if the credit availability to consumers decreases, or if the policy of the Brazilian government restricts the granting of credit to consumers.

Our business depends on strong brands.  We may not be able to maintain and enhance our brands, or we may receive unfavorable customer complaints or negative publicity, which could adversely affect our brands.

We believe that our Pão de Açúcar, Minuto Pão de Açúcar, Cdiscount, Extra, Extra Supermercado, Minimercado Extra, Casas Bahia, Pontofrio, and Assaí brands contribute significantly to the success of our business.  We also believe that maintaining and enhancing those brands is critical to maintaining and expanding our base of customers, vendors and marketplace sellers.  Maintaining and enhancing our brands will also depend largely on our ability to continue to create the best customer experience, based on our competitive pricing, our large assortment of products, the range and convenience of the delivery options we offer and providing a user-friendly buying experience, including having dedicated customer service teams available, and our ability to provide a reliable, trustworthy and profitable market to our vendors and marketplace sellers.

Customer complaints or negative publicity about our sites, product offerings, services, delivery times, customer data handling and security practices or customer support could harm our reputation and diminish consumer use of our sites, and consumer, vendor and marketplace seller confidence in us.  A diminution in the strength of our brands and reputation could have a material adverse effect on our business, financial condition and operating results.

We may not be able to protect our intellectual property rights.

Our future success depends significantly on our ability to protect our current and future brands and to defend our intellectual property rights, including trademarks, patents, domain names, trade secrets and know-how.  We have been granted numerous trademark registrations covering our brands and products and have filed, and expect to continue to file, trademark and patent applications seeking to protect newly developed brands and products.  We cannot be sure that trademark and patent registrations will be issued with respect to any of our applications.  There is also a risk that we could, by omission, fail to renew a trademark or patent on a timely basis or that our competitors will challenge, invalidate or circumvent any existing or future trademarks and patents issued to, or licensed by, us.  Although we have put in place appropriate actions to protect our portfolio of intellectual property rights (including trademark registration and domain names), we cannot be certain that the steps we have taken will be sufficient or that third parties will not infringe upon or misappropriate proprietary rights.  If we are unable to protect our proprietary rights against infringement or misappropriation, it could have a material adverse effect on our business, results of operations, cash flows or financial condition, and in particular, on our ability to develop our business.

Our sales depend on the effectiveness of our advertisement and marketing programs, which may adversely affect our revenues and profitability.

To promote increased traffic of customers and attract them to our stores, we use substantial resources in our advertisement and marketing campaigns.  Our revenues and profitability depend on our ability to, among other things, identify our target consumers and decide on the marketing message and communication means that we deem adequate to reach them.  If we do not conceive, plan or execute well our advertisement and marketing activities, our revenues and profitability may be adversely affected.

We may not be successful in integrating and capturing synergies from acquired companies and corporate reorganization of our subsidiaries.

As part of our growth strategy, we regularly analyze acquisition opportunities.  Acquisitions involve risks and challenges, such as those related to the integration of operations, personnel, products and customer base of the acquired companies with ours, generation of expected return on the investment and exposure to liabilities of the acquired companies.  The integration of acquired businesses with our business and our capturing of synergies from acquired companies may require more resources and time than initially expected.  In addition, we may be required to obtain approval from Brazilian anti-trust authorities for certain acquisitions.  The Brazilian anti-trust authorities may

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grant the approval subject to restrictive measures, such as sale of part of the assets, or may not grant it in a timely manner.

In addition, we cannot assure that any corporate reorganization of our subsidiaries that we carry out will generate the expected synergies and that we will be able to profit from them.

If we are not able to successfully integrate acquired businesses with ours or to capture synergies as planned, we may be materially and adversely affected.

We may not be able to renew or maintain our stores’ lease agreements on acceptable terms, or at all.

Most of our stores are leased.  The strategic location of our stores is key to the development of our business strategy and, as a result, we may be adversely affected in case a significant number of our lease agreements is terminated and we fail to renew these lease agreements on acceptable terms, or at all.  In addition, as per applicable law, landlords may increase rent periodically, usually every three years.  A significant increase in the rent of our leased properties may adversely affect us.

We face risks related to our distribution centers.

Approximately 80% of our products are distributed through our 56 distribution centers and depots located in the southern, southeastern, mid-western and northeastern regions of Brazil.  If operations at one of these centers are adversely affected by factors beyond our control, such as fire, natural disasters, power shortages, failures in the systems, among others, and in the event that no other distribution center is able to meet the demand of the region affected, the distribution of products to the stores supplied by the affected distribution center will be impaired, which may adversely affect us.  Our growth strategy includes the opening of new stores which may require the opening of new or the expansion of our existing distribution centers to supply and meet the demand of the additional stores.  Our operations may be negatively affected if we are not able to open new distribution centers or expand our existing distribution centers in order to meet the supply needs of these new stores.

In our e-commerce segment, fulfillment is essential to our ability to provide a high level of service to our customers.  If we do not operate, manage, and/or control our distribution centers effectively and efficiently, it could result in excess or insufficient fulfillment capacity, increased delivery delays and an impact on customer satisfaction, inventory shortage or high levels of out-of-stock products, an increase in costs or impairment charges and a reduction in our gross profit margin, excluding shipping cost, or harm our business in other ways.  If we do not have sufficient fulfillment capacity or experience a problem fulfilling orders in a timely manner, such as due to a failure of mechanized equipment at our distribution centers or if certain products are out of stock, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers.  In addition, processing customer returns and cancelled orders add complexity to our logistics operations, which may increase our fulfillment costs and adversely affect customer response times.  An increase in customer requests to return products or cancel orders could have a material adverse effect on our costs of operations.

We are exposed to risks related to customer financing and loans.

Installment sales are widely used in the Brazilian retail market, especially the home appliances sector. We have a partnership with Itaú Unibanco Holding S.A., or Itaú Unibanco, one of the largest privately owned financial institutions in Brazil. Through this partnership we have established Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, or FIC, which exclusively offers credit cards, financial services and insurance at our stores. In addition, our subsidiary Via Varejo offers direct consumer credit through financial institutions (CDCI) to customers.  Purchases are usually paid in less than 12 monthly installments, but may be paid in up to 24 monthly installments.  We charge contractual interests on amounts paid in installments, which we recognize as financial revenue according to the method of appropriation of the interest.

FIC and CDCI are subject to the risks normally associated with providing these types of financing, including risk of default on the payment of principal and interest and any mismatch of cost and maturity of our funding in relation to cost and maturity of financing to its customers, which could have a material adverse effect on us.

Financial institutions in Brazil, including FIC, are subject to changing regulation by the Central Bank.

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FIC is a financial institution regulated by the Central Bank and is therefore subject to significant regulation.  The regulatory structure of the Brazilian financial system is continuously changing.  Brazilian government rules and intervention may adversely affect our operations and profitability more than those of a retailer without financial operations.  Existing laws and regulations may be amended, and their application or interpretation may also change, and new laws and regulations may be adopted.  FIC and, therefore, we, may be adversely affected by changes in regulations, including those related to:

·         minimum capital requirements;

·         requirements for investment in fixed capital;

·         credit limits and other credit restrictions;

·         accounting requirements; and

·         intervention, liquidation and/or temporary special management systems.

Unauthorized disclosure of customer data through breach of our computer systems or otherwise could cause a material adverse effect on us.

One of the main e-commerce issues is the safe transmission of confidential information of our customers on our servers and the safe data storage on systems that are connected to our servers.  We depend on the efficient and uninterrupted operation of numerous systems, including our computer systems and software, as well as the data centers through which we collect, maintain, transmit and store data about our customers, vendors, marketplace sellers and others, including payment information and personally identifiable information, as well as other confidential and proprietary information.

Our cybersecurity measures may not detect or prevent all attempts to compromise our systems.  Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client information, or a denial-of-service or other interruption to our business operations, which could result in a shutdown of our sites for a short or extended period and have an adverse and material effect on our business.  As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate or implement adequate measures to protect against these attacks.

We have in the past been, and are likely again in the future to be, subject to these types of attacks, although to date no such attack has resulted in any breach of our systems, material damages or remediation costs.  If we are unable to avoid these attacks and security breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction.  We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.  Cyber-attacks may target us, our sellers, buyers or other participants, or the communication infrastructure on which we depend.  In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.  Any compromise or breach of our security measures, or those of our third-party service providers, could result in us violating applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have an adverse and material effect on our business, financial condition and operating results.

Failure in the information technology systems may adversely affect our operations.

We are highly dependent on our information technology systems to process, transmit and store electronic data as well as to communicate with customers and suppliers.  Our information systems may suffer interruptions due to factors beyond our control, such as natural disasters, hacker attacks, failure in telecommunication, computer virus, among other factors.  This type of interruption may adversely affect our operations, thereby impacting our cash generation and our financial condition.

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We depend on the transportation system and infrastructure to deliver our products, which may delay or affect our ability to distribute products to our stores and customers.

Products destined for all of our stores are distributed through our distribution centers located in 19 Brazilian states and the Federal District.  The transportation system and infrastructure in Brazil are underdeveloped and need significant investment to work efficiently and to meet our business needs.  In our e-commerce segment, our reputation and ability to retain, acquire and serve our customers are dependent upon the reliable uninterrupted performance of our sites and the underlying infrastructure of the Internet, including fixed-line and mobile communications networks operated by third parties over which we have no control.

Any significant interruptions or reduction in the use of transportation infrastructure or in their operations in the cities where our distribution centers are located, as a result of natural disasters, fire, accidents, systemic failures or other unexpected causes, may delay or affect our ability to distribute products to our stores and may decrease our sales, which may have a material adverse effect on us.  Furthermore, any damage to, or failure of, our third-party communication networks or data centers, whether due to system failures, computer viruses, physical or electronic break-ins or other unexpected events or disruptions, could cause system interruption, delays and loss of critical data, prevent us from providing our services on a timely basis or limit or prevent access to our sites and cause partial or complete shutdowns of our sites, which could have a material adverse effect on our business, financial condition and operating results.

We may not be able to adapt to changing consumer habits.

We compete with other retailers based on price, product mix, store location and layout and services.  Consumer habits are constantly changing and we may not be able to anticipate and quickly respond to these changes.

If we are unable to adapt our store format mix or layout, identify locations and open stores in preferred areas, quickly adjust our product mix or prices under each of our banners and segments or otherwise adjust to changing consumer preferences, such as shopping on mobile devices, our business and results of operation could be materially adversely affected.

Our controlling shareholders have the ability to direct our business and affairs.

Our controlling shareholders, the Casino Group, together with its subsidiary Almacenes Éxito S.A., or Éxito, indirectly through our holding company, Wilkes Participações S.A., or the Holding Company, have the power to, among other things, appoint the majority of the members of our board of directors, who, in turn, appoint our executive officers; determine the outcome of any action requiring shareholder approval, including the timing and payment of any future dividends, provided that we observe the minimum mandatory dividend established by Law No. 6,404, dated December 15, 1976, as amended, or Brazilian corporate law; determine corporate reorganizations, acquisitions, dispositions and the transfer of our control to third parties; enter into new partnerships; and deliberate on financings and similar transactions.  Our controlling shareholders may prevail over our other shareholders or holders of ADSs.

Severe drought conditions could have a material adverse effect on our overall business.

Approximately 70% of Brazil’s installed electric generation capacity is currently dependent upon hydroelectric generation facilities.  In recent years, a severe drought in certain regions of Brazil has reduced hydrogeneration in the affected regions.  In response, the Brazilian government has considered instituting a rationing program; however, no such program has yet been instituted.  If the amount of water available to energy producers becomes increasingly scarce due to drought or diversion for other uses, the Brazilian government could institute a rationing program and the cost of energy, which represented approximately 1.5% of our total cost of sales in 2015, may increase.  These conditions could have a material adverse effect on our sales and margins.

Unfavorable decisions in legal or administrative proceedings could have a material adverse effect on us.

We are party to legal and administrative proceedings related to civil, tax and labor matters.  We cannot assure you that legal proceedings will be decided in our favor.  We have made provisions for proceedings in which the chance of loss has been classified by our external legal advisors as probable.  Our provisions may not be sufficient to

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cover the total cost arising from unfavorable decisions in legal or administrative proceedings.  If all or a significant number of these proceedings have an outcome unfavorable to us, our business, financial condition and results of operation may be materially and adversely affected.  In addition to financial provisions and the cost of legal fees associated with the proceedings, we may be required to post bonds in connection with the proceedings, which may adversely affect our financial condition.  See “Item 8A.  Consolidated Statements and Other Financial Information—Legal Proceedings” and note 22 to our audited consolidated financial statements, included elsewhere in this annual report, for a description of our material litigation contingencies.

We may be unable to attract or retain key personnel.

In order to support and develop our operations, we must attract and retain personnel with specific skills and knowledge.  We face various challenges inherent to the administration of a large number of employees over a wide geographical area.  Key personnel may leave the Company for a variety of reasons and the impact of these departures is difficult to predict, which may hinder the implementation of our strategic plans and adversely affect our results of operation.

A substantial part of the population in emerging markets relies on cash payments, which may impact our ability to grow our e-commerce business in those markets.

In Brazil, as in other emerging markets, including certain Latin American countries, a substantial part of the population relies on cash payments, rather than credit and debit card payments or electronic banking.  Since our e-commerce business is dependent on customers’ use of electronic payment methods, a reliance of cash in any of the markets in which we operate could impact our ability to grow our business in that market.  Although we expect that over time the prevalence of cash payments will decline as a greater percentage of the population in emerging markets adopts credit and debit card payments and electronic banking, this may not happen quickly or at all.

We could be materially adversely affected by violations of the Brazilian Anti-Corruption Law, U.S. Foreign Corrupt Practices Act and similar anti-corruption laws.

Law No. 12,846, of August 1, 2013 (the “Brazilian Anticorruption Law”) introduced the concept of strict liability for legal entities involved in harmful acts against the public administration, subjecting the violator to penalties both in administrative and civil law.  Similar to the Foreign Corrupt Practices Act of the United States, to which we are also subject, the Brazilian Anticorruption Law considers that an effective implementation of a compliance program may be used to mitigate the administrative penalties to be applied as a consequence of a harmful act against the public administration.  Failure to comply with anti-corruption laws or any investigations of misconduct or enforcement actions against us could subject us to fines, loss of operating licenses and reputational harm as well as other penalties, which may materially and adversely affect us and the trading price of the ADSs and our preferred shares.

Negative publicity regarding the Company or the manner in which we conduct our operations may harm our business.

Media coverage and publicity generally exercise significant influence over consumers’ behavior and actions.  If we are subject to negative publicity which causes our customers to change their purchasing habits, there may be a material adverse effect on our business, results of operation, cash flow or financial condition.  Negative publicity which significantly harms the reputation of one or more of our brands may have a detrimental effect on the value of our brands, which may have an adverse impact on our sales.

We cannot guarantee that our suppliers do not use irregular practices.

Given the decentralization and outsourcing of our suppliers’ production chains, we cannot guarantee that suppliers will not have issues regarding working conditions, sustainability, outsourcing of the production chain and improper safety conditions, or that they will not use these irregular practices in order to lower product costs.  If a significant number of our suppliers engage in these practices, our reputation may be harmed and, as a consequence, our customers’ perception of our products may be adversely affected, causing thereby a reduction in net revenue and results of operations as well as the trading price of the ADSs and our preferred shares.

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Some categories of products that we sell are acquired in large part from few suppliers.

Some categories of products that we sell are acquired in large part from few suppliers.  If any supplier is not able to supply the products in the quantity and at the frequency that we normally acquire them, and we are not able to replace the supplier on acceptable terms or at all, we may be unable to maintain our usual level of sales in the affected category of product, which may have a material adverse effect on our business and operations and, consequently, on our results of operations.

We may be held responsible for consumer incidents involving adverse reactions after consumption of our products.

Products sold in our stores may cause consumers to suffer adverse reactions.  Incidents involving these products may have a material adverse effect on our operations, financial condition and results of operation.  Legal or administrative proceedings related to these incidents may be initiated against us, with allegations, among others, that our products were defective, damaged, adulterated, contaminated, do not contain the properties advertised or do not contain adequate information about possible side effects or interactions with other chemical substances.  Any actual or possible health risk associated with these products, including negative publicity related to these risks, may lead to a loss of confidence among our consumers regarding the safety, efficacy, and quality of the products sold in our stores, especially “exclusive” brand products.  Any allegation of this nature made against our brands or products sold in our stores may have a material adverse effect on our operations, financial condition and results of operation.

We may be unable to obtain or renew the operational licenses of our stores or distribution centers in a timely manner.

The inability to obtain or renew the operational licenses for our stores and distribution centers may result in the imposition of continuous fines and, as the case may be, the closing of the premises.  Given that the discharge of operations in our stores and distribution centers are a critical factor in the success of our business strategy, we may be negatively affected in the case of a closing of these premises as a result of our inability to obtain or renew the necessary operational licenses.

We are subject to environmental laws and regulations.

We are subject to a number of different national, state and municipal laws and regulations relating to the preservation and protection of the environment, especially in relation to our gas stations.  Among other obligations, these laws and regulations establish environmental licensing requirements and standards for the release of effluents, gaseous emissions, management of solid waste and protected areas.  We incur expenses for the prevention, control, reduction or elimination of releases into the air, ground and water at our gas stations, as well as in the disposal and handling of wastes at our stores and distribution centers.  Any failure to comply with those laws and regulations may subject us to administrative and criminal sanctions, in addition to the obligation to remediate or indemnify others for the damages caused.  We cannot ensure that these laws and regulations will not become stricter.  In this case, we may be required to increase, perhaps significantly, our capital expenditures and costs to comply with these environmental laws and regulations.  Unforeseen environmental investments may reduce available funds for other investments and could materially and adversely affect us and the trading price of the ADSs and our preferred shares.

Losses not covered by our insurance policies may result in damages, which could have a material adverse effect on our business.

Some types of losses, such as losses resulting from wars, acts of terrorism, or natural disasters, generally are not insured because they are either uninsurable or it is not economically practical to obtain insurance.  Moreover, insurers recently have become more reluctant to insure against these types of events.  If a material uninsured loss or a loss in excess of insured limits occur,  our business, results of operations and financial condition could be adversely affected.

Natural and other disasters could disrupt our operations.

Our business and operating results could be negatively impacted by social, technical or physical risks such as flooding, fire, power loss, loss of water supply, telecommunications and information technology system failures, cyber-attacks, political instability, military conflict and uncertainties arising from terrorist attacks, including a global economic slowdown, the economic consequences of any military action and associated political instability.

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Risks Relating to the Preferred Shares and ADSs

If you exchange the ADSs for preferred shares, as a result of Brazilian regulations you may risk losing the ability to remit foreign currency abroad.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the Banco Itaú Corretora de Valores S.A., or the Custodian, for our preferred shares underlying the ADSs in Brazil, which permits the Custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad.  If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the Custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal.  Thereafter, upon the disposition of or distributions relating to the preferred shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration.  If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner.  The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.  See “Item 10D.  Exchange Controls.”

You might be unable to exercise preemptive rights with respect to the preferred shares underlying the ADSs.

You will not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, or the Securities Act, is effective with respect to those rights, or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement or to take any action to make preemptive rights available to holders of ADSs.  Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will lapse and you will not receive any value for them.  In addition, we may issue a substantial number of preferred shares as consideration for future acquisitions or for any other fund raising needs and we may choose not to extend preemptive rights to holders of ADSs.

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in more developed markets, and these investments are generally considered to be more speculative in nature.  The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than more developed securities markets.  The top 10 stocks in terms of trading volume accounted for approximately 39%, 46% and 44% of all shares traded on the São Paulo stock exchange (BM&FBovespa S.A. – Bolsa de Valores, Mercadorias e Futuros), or BM&FBOVESPA, in 2013, 2014 and 2015, respectively.  Accordingly, although you are entitled to withdraw the preferred shares underlying the ADSs from the depositary at any time, your ability to sell the preferred shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited.

Holders of the ADSs and our preferred shares may not receive any dividends.

According to our by-laws, we must pay our shareholders at least 25% of our annual net income as dividends, as determined and adjusted under Brazilian corporate law.  This adjusted income may be used to absorb losses or otherwise appropriated as allowed under the Brazilian corporate law and may not be available to be paid as

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dividends.  We may not pay dividends to our shareholders in any particular fiscal year if our board of directors determines that such distributions would be inadvisable in view of our financial condition.

ITEM 4.            INFORMATION ON THE COMPANY

4A.               History and Development of the Company

We were incorporated in Brazil under Brazilian law on November 10, 1981 as Companhia Brasileira de Distribuição.  Our principal executive offices are located at Avenida Brigadeiro Luis Antonio, 3,142, São Paulo, SP, Brazil (telephone:  +55-11-3886-0421).  Our agent for service of process in the United States is CT Corporation, 1633 Broadway, New York, New York, 10019.

We have been a pioneer in the Brazilian retail food industry, opening our first store, a pastry shop, in 1948 in the city of São Paulo under the name Pão de Açúcar.  We established one of the first supermarket chains in Brazil, opening our first supermarket in 1959, and opened the first hypermarket in Brazil in 1971.

Brazilian economic reforms implemented in 1994, including the introduction of the real as the Brazilian currency and the drastic reduction of inflation rates, resulted in an unprecedented growth in local consumer markets.  This increase in available income and the resulting increase in consumer confidence broadened our potential customer base and provided us with growth opportunities.

We responded to these changes by strengthening our capital structure, increasing our logistics and technology investments and implementing an expansion strategy focused on the different consumer preferences of the Brazilian population.  To support our expansion strategy, consisting of acquisitions and organic growth, we defined the format of our stores to tailor them to the expectations, consumption patterns and purchasing power of the different income levels in Brazil.  Our stores have operated under different banners targeted at the various income segments of the Brazilian population.  For further information on our banners, see “Item 4B.  Business Overview—Our Company” and “—Operations.”

In order to implement that strategy and to increase our market share, between 1981 and 2003 we acquired important supermarket chains such as Coopercitrus, Lourenção, Barateiro, Peralta, ABC Supermercados, Sé Supermercados, Sendas and small chains, such as São Luiz, Nagumo and Rosado.  These chains were later and gradually converted into our current banners.

In 2004, we entered into a financial partnership called FIC with Itaú Unibanco.  FIC exclusively offers credit cards, financial services and insurance at our stores.  For further information on FIC, see “Item 4B.  Business Overview—FIC and Investcred.”

In 2007, we acquired a 60% ownership interest in the Assaí chain.  This acquisition enabled us to enter the cash and carry segment in the State of São Paulo.  In 2008, we started cash and carry operations in the State of Rio de Janeiro through Xantocarpa, a company that assumed the operation of three Sendas stores, which were converted into Assaí stores.  In July 2009, we purchased the remaining 40% interest in Assaí and became owners of 100% of the chain.

In July 2009, we purchased a 70.2% ownership interest in Globex (which later changed its corporate name to Via Varejo), a company which operates in the home appliances sector under the brand name Pontofrio.  In this annual report, the term “home appliances” refers to sale of durable goods, i.e., electronics, furniture and other items for the home.  In a tender offer triggered by the acquisition, our Company increased its ownership interest in Globex to 98.8%.

In 2010, we consolidated our leading position in the retail segment in Brazil and we believe we became the largest home appliance retailer in the country as a result of our association with the partners (represented by the Klein Family) of Casa Bahia Comercial Ltda., or Casa Bahia Comercial, a Brazilian home appliances retailer which operates under the brand name Casas Bahia, or the Casas Bahia association.  Pursuant to the association agreement, by means of a corporate reorganization, we and the partners of Casa Bahia Comercial merged our respective businesses in the home appliances and e-commerce segments under Via Varejo.  As a result we then owned 52.4% of Via Varejo.

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In April 2013, we and Via Varejo entered into a term of undertaking (Termo de Compromisso de Desempenho), or the Term of Undertaking, with the Brazilian antitrust authority (Conselho Administrativo de Defesa Econômica), or CADE, for the approval of the Casas Bahia association.

Our main undertaking under the Term of Undertaking was to divest 74 stores, distributed across 54 cities and seven states, representing approximately 3% of Via Varejo’s consolidated gross sales in 2013.  In 2015, we did not complete the selling process of 19 stores (of a total of 42 stores) due to failed negotiations between lessors and buyers, generating for Via Varejo a fine payment in the amount of R$7 million to CADE and a provision for disposal of property and equipment of R$7 million.  Of the 19 stores, four were closed and 15 stores still remain to be closed.  In 2015, Via Varejo sold and transferred 15 stores, with a gain on the sale of stores of R$8 million, recognized in other operating expenses.  The transfer of eight remaining stores is still in the process of negotiation.  CADE has been monitoring the fulfillment of our obligations under the Term of Undertaking.

On October 17, 2013, we, Via Varejo and Nova Pontocom entered into a stock purchase agreement pursuant to which we acquired 6.2% of Nova Pontocom’s capital stock from Via Varejo for R$80.0 million and 1.95% of Nova Pontocom’s capital stock from minority shareholders for R$25 million.  As a result, Nova Pontocom became our direct subsidiary of which we hold 52.06% of the capital stock, Via Varejo holds 43.9% and the remaining 4.04% is held by minority shareholders.  This transaction had no impact on our consolidation of Nova Pontocom’s results of operations and financial condition on our financial statements, since we previously held, through Via Varejo, the indirect control of Nova Pontocom.

In addition, in October 2013, Via Varejo and Nova Pontocom entered into an operational agreement relating to the terms and conditions of their relationship, synergies and complementary operations (the “Operational Agreement”).  Pursuant to the Operational Agreement, Via Varejo and Nova Pontocom would, among other things, share logistics and marketing costs for their mutual benefit as well as an electronic catalog of products from which they would negotiate in good faith purchases between them.  Via Varejo and Nova Pontocom also entered into a shareholders’ agreement that establishesd the corporate governance framework and other property rights for Nova Pontocom.

On December 27, 2013, our subsidiary, Via Varejo, concluded its public offering in Brazil with selling efforts to qualified institutional buyers in the United States and to institutions and other investors who were not U.S. persons elsewhere.  The offering raised approximately R$3 billion in proceeds.  The public offering was structured as a secondary public offering of Units, each Unit consisting of one common share and two preferred shares of Via Varejo.

We sold a total of 38.9 million Units for approximately R$897 million, which reduced our shareholding in Via Varejo to 62.25% of the common shares and 43.35% of the total capital stock.  No gain was recorded as a result of this transaction.  The Klein Family sold more than 23.64% of shares of Via Varejo’s capital stock.  As of the date of this annual report, the Klein Family owns 27.42% of Via Varejo’s total capital stock.  Via Varejo has 29.2% of its total stock capital in the free float.

As a consequence of the reduction of its participation in Via Varejo’s capital stock, the Klein Family no longer has certain rights under the shareholders’ agreement entered into by and among us, the Klein Family and Via Varejo, among which are Mr. Michael Klein’s appointment to the position of chairman of the board of directors of Via Varejo and the right to consent with respect to Via Varejo’s vote at shareholders’ meetings of its subsidiary Nova HoldCo or by members of the board of directors of Nova HoldCo regarding certain matters.  In addition, the Klein Family has the right to appoint only two members of the board of directors of Via Varejo.

E-Commerce Business Reorganization

On July 11, 2014, Casino, CBD, Via Varejo, Nova Pontocom and Cnova Brazil entered into the Framework and IPO Agreement, to which Cnova became a party on July 24, 2014.  The agreement provided for the reorganization of the e-commerce businesses of Casino and its affiliated entities in France, Latin America and Asia under the common ownership and/or control of Cnova for the purpose of Cnova’s initial public offering.  The 2014 Reorganization was effected in accordance with the Framework and IPO Agreement, through the steps described below.  Following the completion of the 2014 Reorganization, Cnova owns, directly or indirectly, or has the right to

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use substantially all of the assets that were used, or held for use, in the e-commerce businesses of Casino and its affiliated entities in France, Latin America (including Brazil) and Asia.

We refer to the transactions described in clauses (i) through (vi) below as the “2014 Reorganization” and we refer to the transaction described in clause (ii) below as the “Nova Pontocom Reorganization.”  On or shortly prior to July 24, 2014, (except for clause (v) below, which was completed on November 17, 2014):

(i)    Casino effected a contribution in kind of all issued and outstanding shares it held in Cdiscount Group, the holding company through which Casino conducts its e-commerce business in France, Colombia and Asia to Cnova, as a result of which Cnova owns the majority (approximately 99.8%) of the shares of Cdiscount Group and as a result controls the Cdiscount business in France and abroad;

(ii)   Nova Pontocom effected a contribution in kind of substantially all of its assets and liabilities to Cnova’s wholly owned Brazilian subsidiary, Cnova Brazil, as a result of which Cnova owns the Brazilian e‑commerce businesses of CBD and Via Varejo;

(iii)  Nova Pontocom reorganized the ownership structure of Cnova Brazil, such that, prior to the completion of step (iv), 100% of the share capital of Cnova Brazil was held by Dutch HoldCo, which is in turn a wholly owned subsidiary of Lux HoldCo, 100% of the share capital of which was held by Nova HoldCo;

(iv)  Following the completion of the preceding steps, Dutch HoldCo contributed all of the issued and outstanding shares in Cnova Brazil to Cnova, as a result of which Cnova owns the Brazilian e-commerce businesses of CBD and Via Varejo;

(v)   Casino transferred 30% of its indirect interest in C Distribution Asia Pte. Ltd, which controlled Casino’s e-commerce subsidiaries operating in Thailand and Vietnam to a subsidiary of Cdiscount Group, resulting in Cnova obtaining indirect 60% control over C Asia; and

(vi)  Cnova obtained control over the e-commerce business of Casino in Colombia, operated through Cdiscount Colombia.  In connection with this step, Almacenes Éxito S.A. contributed a 21% stake in Cdiscount Colombia to Cnova in consideration for newly issued ordinary shares of Cnova representing 0.15% of its share capital.

Pursuant to the Cnova Framework and IPO Agreement, on July 24, 2014, CBD, Cnova Brazil, Cnova and Via Varejo entered into an amendment to the Operational Agreement, or the Amended Operational Agreement.  Pursuant to the Amended Operational Agreement, Via Varejo must procure for Cnova Brazil common products from its suppliers at the same price and on the same commercial terms and conditions as it procures such products for its own business.  Additionally, the Amended Operational Agreement requires that CBD and Via Varejo conduct any e-commerce related activities in Brazil exclusively through Cnova Brazil, and prohibits CBD and Via Varejo from purchasing any equity interest in any legal entity that operates e-commerce activities in Brazil.  Cnova is required to align its prices with Via Varejo with respect to certain products sold under Via Varejo and CBD’s brands (i.e., Casas Bahia, Extra and Ponto Frio).  For further information related to the Amended Operational Agreement, see “Item 7B.  Related Party Transactions—Operational Agreement.”

On December 30, 2014, Nova HoldCo transferred 5,838,233 shares in the capital of Lux HoldCo to CBD and 4,902,270 shares in the capital of Lux HoldCo to Via Varejo in connection with a restructuring of an intercompany debt owed by Nova HoldCo.  As a result of those transfers, CBD, Via Varejo and Nova HoldCo directly held approximately 2.65%, 2.22% and 95.13%, respectively, of the issued and outstanding shares in the capital of Lux HoldCo and CBD, Via Varejo and certain management and minority shareholders indirectly held approximately 26.1%, 21.9% and 1.80%, respectively, of the issued and outstanding ordinary shares in the capital of Cnova.  These shareholdings subsequently changed after the corporate reorganizations described below.

On November 25, 2014, Cnova concluded its initial public offering of ordinary shares on the Nasdaq Global Select Market and raised approximately US$204.1 million in gross proceeds.  On January 23, 2015, Cnova also listed its ordinary shares on the Euronext Paris.

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2015 Corporate Reorganizations

In 2015, our controlling shareholder, the Casino Group, carried out a reorganization of its activities and businesses in Latin America to consolidate its platform in the region and capture synergies.  Pursuant to the reorganization, the Casino Group transferred 50% of the shares of our common stock to Éxito, corresponding to approximately 18.8% of our total capital stock.  Éxito is also controlled by the Casino Group and, therefore, after consummation of the transaction, the Casino Group remained as our sole controlling shareholder.  For further information on the shareholdings of our principal shareholders and shareholders’ agreements, see “Item 7A.  Major Shareholders.”

In addition, as part of our strategy to simplify our corporate structure to gain efficiencies and thereby reduce costs, in December 2015 we and Via Varejo completed the spin-off of all of Nova HoldCo’s assets and liabilities, including its share capital.  With respect to Nova HoldCo’s assets and liabilities, 53.2% were transferred to us, 43.9% to Via Varejo and 2.9% to minority shareholders of Nova HoldCo.  Following the spin-off, Nova HoldCo was liquidated.  We also carried out the merger into us of our subsidiary that held the stores Sé Supermercados and subsequently thereafter liquidated the subsidiary.

E-Commerce Business Proposed Transaction

In August 2016, Via Varejo and Cnova entered into a reorganization agreement related to the reorganization of Cnova Brazil within Via Varejo (the “Reorganization”).  Pursuant to the reorganization agreement, in exchange for all its ownership interest in Cnova Brazil, Cnova will receive approximately 97 million of its own common shares currently held by Via Varejo (representing approximately 22% of its share capital) and cash consideration of US$5 million, subject to customary adjustment at closing as set forth in the reorganization agreement.  In addition, Cnova will receive the repayment of a shareholder loan granted by Cnova to Cnova Brazil, valued at US$156 million as of end of July 2016.

The Casino Group intends to launch a voluntary cash tender offer for any and all outstanding Cnova common shares at an offer price of US$5.50 per share, following and subject to the completion of the Reorganization, which is expected to occur during the fourth quarter of 2016.  Pursuant to a separate agreement, we have agreed not to tender our Cnova shares into Casino’s tender offer or otherwise transfer or dispose of our shares prior to the completion of the tender offer.

As a result of the Reorganization, Via Varejo will become the sole shareholder of Cnova Brazil, which operates Extra.com.br, Pontofrio.com and Casasbahia.com.br websites, and will no longer be a shareholder of Cnova.  Cnova will continue its e-commerce activities outside of Brazil, focusing entirely on Cdiscount.

According to the terms of CBD’s Policy for Related Party Transactions, our board of directors formed a special committee composed by the board members Eleazar de Carvalho Filho, Maria Helena S. F. Santana and Luiz Aranha Corrêa do Lago (the “CBD Special Committee”) to issue a recommendation to our board of directors on the vote to be cast by CBD at Cnova’s shareholders’ meeting relating to the Reorganization and the terms and conditions of a new operational agreement between CBD and Via Varejo. The Reorganization was conditioned upon CBD not selling its shares of Cnova in the tender offer. Thus, our board of directors has submitted to the CBD Special Committee the analysis of (i) the Reorganization, (ii) the condition not to sell CBD’s shares of Cnova; and (iii) the new operational agreement, all as one single transaction.

In August 2016, the CBD Special Committee, having received the commitment letter from Casino according to the terms described in the following paragraph, submitted its unanimous recommendation to our board of directors in favor of the vote for the approval of the Reorganization that we will cast at Cnova’s shareholders’ meeting.

Casino submitted a commitment letter to CBD, pursuant to which it grants us certain governance and liquidity rights in relation to the interest held by CBD in Cnova, including:  (i) CBD’s right to designate at least one member to the board of directors of Cnova, taking into account the number of members proportional to CBD’s interest; (ii) in two years as of the commitment letter, CBD may request the engagement of a financial advisor to assess the opportunity of carrying out an initial public offering of Cnova shares, in case Cnova is delisted, or a primary or secondary offering to increase the free float and liquidity of Cnova’s shares, in case Cnova’s shares remain listed (“Offering for the Distribution of Shares”); (iii) CBD will have priority over Casino to sell its shares in an Offering for the Distribution of Shares with respect to 90% of the total shares to be offered in the secondary offering;

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(iv) CBD will have partial tag along rights in case Casino sells its Cnova shares and the sale does not constitute a change of control; in case of change of control, CBD will have the right to sell all of its shares; (v) CBD will be treated pari passu in relation to Casino in any transfer of Cnova shares to any third party or in case of any reorganization or corporate transaction resulting in any exchange, redemption or another issuance of Cnova shares; and (vi) in case of any reorganization or corporate transaction involving Cnova, Casino will use its reasonable measures to cause CBD to receive securities in exchange for Cnova shares that are as liquid as the Cnova shares currently held by CBD.

In addition, our board of directors approved, in accordance with the recommendation of the CBD Special Committee, the execution of a new operational agreement between CBD and Via Varejo, which establishes the terms and conditions for the commercial and strategic alignment of their retail and e-commerce activities, especially regarding the joint acquisitions of common products and the e–commerce activities under the brand “Extra,” which will come into effect as of the implementation of the Reorganization.

The implementation of the Reorganization is conditioned upon the approval of Via Varejo’s minority shareholders and Cnova’s shareholders.  We will not exercise our voting rights in the resolution concerning the Reorganization at Via Varejo’s shareholders’ meeting.

The charts below illustrate the corporate structure of Cnova before and after implementation of the reorganization.

Capital Expenditures and Investment Plan

As part of our capital expenditures and investment plan, we have invested approximately R$6,106 million in our operations in the three years ended December 31, 2015.  Our capital expenditure and investment plan for 2016

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contemplates capital expenditures and investments for 2016 in the total amount of approximately R$1.5 billion relating to (i) the opening of new stores, purchase of real estate and conversion of stores, (ii) the renovation of existing stores, and (iii) improvements to information technology, logistic and other infrastructure-related capital expenditures and investments.  The Company has historically financed its capital expenditures and investments mainly with cash flow generated from its operations and, to a lesser extent, funded by third parties.  The Company plans to continue financing its capital expenditures and investments principally with cash flow from its operations.  Our investments in the last three years have included:

Opening of new stores and purchases of real estate – In the food retail sector, we seek to rent or purchase real estate properties when there is an opportunity to open new stores under one of our banners or local supermarket chain acquisition opportunities that suit one of our formats.  We have opened 458 new stores from 2013 through 2015, including those in the food retail sector and those in the home appliances retail sector.  The total cost of opening these new stores and the purchase of real estate from 2013 through 2015 was R$1,757 million.

Acquisition of retail chains and companies – We have paid an aggregate of R$417 million from 2013 through 2015 for the acquisition of equity interests in other companies, including Sendas, Assaí, and, more recently, Indústria de Móveis Bartira Ltda., or Bartira, a furniture maker that produces exclusively for Casas Bahia.

Renovation of existing stores – We usually remodel a number of our stores every year.  Through our renovation program we updated refrigeration equipment in our stores, created a more modern, customer-friendly and efficient environment, and outfit our stores with advanced information technology systems.  The total cost of renovating stores from 2013 through 2015 was R$2,086 million.

Improvements to information technology – We view technology as an important tool for efficiency and security in the flow of information among stores, distribution centers, suppliers and corporate headquarters.  We have made significant investments in information technology in an aggregate amount of R$1,072 million from 2013 through 2015.  For more information on our information technology, see “Item 4B.  Business Overview—Technology.”

Expansion of distribution facilities – Since 2009, we have opened distribution centers in the cities of São Paulo, Brasília, Fortaleza, Rio de Janeiro, Recife, Salvador and Curitiba.  The increase and improvement in storage space enables us to further centralize purchasing for our stores and, together with improvements to our information technology, improve the overall efficiency of our inventory flow.  We have invested an aggregate of R$774 million on our distribution facilities from 2013 through 2015.

The following table provides a summary description of our principal capital expenditures for the three years ended December 31, 2015:

4B.               Business Overview

The Brazilian Retail Industry

The Brazilian retail food industry represented approximately 5.4% of Brazil’s gross domestic product, or GDP, in 2015.  According to the Brazilian Supermarket Association (Associação Brasileira de Supermercados), or ABRAS, the food retail industry in Brazil had gross revenues of approximately R$315.8 billion in 2015, representing a 7.1% nominal increase compared with 2014.

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The Brazilian retail food industry is highly fragmented.  According to ABRAS, the five largest supermarket chains represented approximately 51.5% of the retail food industry in 2015, as compared to 52.2% in 2014.  Our consolidated gross sales represented 24.4% of the gross sales of the entire retail food industry in 2015, also according to ABRAS.

In 2015, Brazil faced an economic recession, adverse fiscal developments and political instability, which have continued in 2016.  Brazilian GDP declined by 3.8% in 2015 and unemployment increased to 6.9% in 2015 from 4.3% in 2014.  Inflation for 2015 was 10.67% compared to 6.41% in 2014 as reported by the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or IBGE.

According to data published in February 2016 by the IBGE, the volume of sales in the food retail sector decreased by 2.5% in 2015 compared to 2014.

The cash and carry segment was created in order to serve customers within a market niche that was neither reached by self-service retail nor by direct wholesale.  According to the Brazilian Association of Wholesalers and Distributors of Industrial Products (Associação Brasileira de Atacadistas e Distribuidores de Produtos Industrializados) and Nielsen Holdings N.V., or Nielsen, the wholesale sector in Brazil had gross revenues of approximately R$218.4 billion in 2015, representing a nominal increase of 3.1% over the previous year.

The household appliance market has been shrinking in Brazil since 2013 and according to the IBGE, the volume of sales in furniture and house appliances sector in Brazil decreased by 14.0% in 2015 relative to the previous year.  The deterioration of the Brazilian economy and key drivers for consumption in 2015 resulted in the lowest historic level in consumer confidence reached in December 2015 of 75.2 compared to 107.8 on average in the last 60 months, according to the Getúlio Vargas Foundation (Fundação Getúlio Vargas), or FGV.  This data is related specially to durable goods consumption.

According to the IBGE, the total population of Brazil was approximately 205.3 million in 2015, a 20.9% growth since 2001.  Given that more than 85% of the population lives in urban areas (where most of our operations are located) and the urban population has been increasing at a greater rate than the population as a whole, our business is particularly well positioned to benefit from Brazil’s urban growth and economies of scale related to urban growth.  According to an IBGE estimate for 2014, the city of São Paulo has a population of approximately 11.9 million and the city of Rio de Janeiro has a population of approximately 6.5 million.  These are the two largest cities in Brazil.  The State of São Paulo has a total population in excess of 44.0 million, representing 21.7% of the Brazilian population and is our largest consumer market.  The State of Rio de Janeiro is our second largest consumer market, with approximately 336 stores.

According to IBGE, gross income in Brazil decreased approximately 4.6% in 2015 compared to 2014.  During the same period, private consumption decreased 4.0%, and Brazil’s GDP decreased 3.8%.  Among the reasons for the decrease are the 5.8% decrease in average real income and the 6.6% increase in household credit as a percentage of GDP.

According to the FGV, the Gini index, a measure of income inequality, in Brazil has worsened for the first time after 13 consecutive years of improvement.  From 2001 to 2014 the index decreased approximately 0.6 basis points per year but in the fourth quarter of 2015 there was an increase of 0.8 basis points compared to the same period of the previous year.  The inequality increased due to a reduction in per capita income, which grew on average 3.3% per year from 2001 to 2014, while in the fourth quarter of 2015, per capita income decreased by 2.2% compared to the same period in 2014.

The following table sets forth the different income class levels of Brazilian households, according to the Consumption Potential Index (Índice de Potencial de Consumo), or IPC, Maps 2015.

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According to a study by IPC Maps 2015, class A households account for only 2.3% of the urban population and classes B1 and B2 households account for 23.1% of the urban population.  Classes C1, C2, the most representative in Brazil represent 48.0% and classes D and E collectively represent 26.6% of all urban households.  In recent years, the number of class C, D and E households has increased in terms of total urban households and their average purchasing power has increased.

We expect that increased consumption by the lower income class levels will occur over time as a result of gradual salary increases and a steadily growing population.  The Brazilian monthly minimum wage increased 11.7% from R$788.00 in January 2015 to R$880.00 in January 2016.

Our Company

We are the largest retailer in Brazil, with a market share of approximately 24.4% in 2015, according to ABRAS.  As of December 31, 2015, our total gross sales, including the food and non-food categories, totaled R$77 billion.  On the same date, we operated 1,941 stores, 83 gas stations and 157 drugstores in 20 Brazilian states and the Federal District, in addition to a logistics infrastructure supported by 56 distribution centers and depots located in 19 Brazilian states and the Federal District.

We classify our various business segments into four operating segments as follows (see note 33 to our audited consolidated financial statements included elsewhere in this annual report):

·         Food retail segment, which consists of sales of food and non-food products to individual consumers at (i) supermarkets through the banners Pão de Açúcar and Extra Supermercado, (ii) hypermarkets through the banner Extra Hiper and (iii) neighborhood stores through the banners Minimercado Extra and Minuto Pão de Açúcar.  The food retail segment also includes the revenues related to rentals of commercial spaces.

Food products include non-perishable food products, beverages, fruit, vegetables, meat, bread, cold cuts, dairy products, cleaning products, disposable products, and personal care products.  In some cases, these goods are sold in the form of private label products at our food retail stores.  We also sell non-food products, which include clothing items, baby items, shoes and accessories, household articles, books, magazines, CDs and DVDs, stationery, handcraft, toys, sports and camping gear, furniture, mattresses, pet products, gardening and also electronics products, such as personal computers, software, computer accessories, and sound and image systems.  Some of the products listed above are also offered in the form of our private label products.  We also sell our products in the food retail segment through our websites www.paodeacucar.com.br and www.extra.com.br.

In addition, we include in the food retail segment the non-food products we sell at our drugstores, such as medications and cosmetics, and the non-food products we sell and the services we provide at our gas stations.

·         Cash and carry segment, which consists of sales of food and some non-food products to resellers, intermediate consumers and retail customers through the Assaí banner.

·         Home appliances segment, which consists of Via Varejo’s operations in the sales of durable goods (i.e., electronics, home appliances, furniture and other items for the home) and the provision of products and services, such as specialized and convenient sales and after-sales service through Casas Bahia and Pontofrio stores and “mobile stores,” a new format focused on selling mobile phones, tablets, accessories, services and post-paid plans of Brazil’s leading mobile carriers.

·         E-commerce segment, which consists of Cnova’s operations mainly through Cdiscount websites in France and Brazil, and Extra.com.br, Pontofrio.com.br and Casasbahia.com.br websites in Brazil, offering consumer electronics, home appliances, home furnishings, computers, personal goods, leisure and other categories of products.

In the food retail, home appliances and e-commerce segments we also provide extended warranties to our customers upon the sale of home appliances at our stores.

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Segment Revenue and Income Distribution

The table below shows the breakdown of our consolidated gross and net operating revenue by operating segment.  Results of the operating segments, the measure used by management in evaluating the performance of and strategy for the four segments listed below.

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(1)   Eliminations consist of intercompany balances.

Apart from revenues generated by the e-commerce segment, all of our operating revenue is generated in Brazil.  In the e-commerce segment, Brazil is our largest single market.  The table below shows the percentage breakdown of Cnova’s net operating revenue by geographic region for the period from January 1, 2015 to December 31, 2015.

The table below shows the breakdown of our consolidated net income (loss) by operating segment.  Results of the operating segments are presented in conformity with IFRS, the measure used by management in evaluating the performance of and strategy for the four segments listed below.

For more information about our net operating revenues and net income (loss) by operating segment, see “Item 5A.  Operating Results—Results of Operations for 2015, 2014 and 2013.”

Number of Stores

The following table sets forth the total number of stores at the end of the periods indicated per store format:

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Geographic Distribution of Stores

The Company operates mainly in the Southeast region of Brazil, which consists of the states of São Paulo, Rio de Janeiro, Minas Gerais and Espírito Santo.  The Southeast region accounted for 79.3% of the Company’s consolidated net revenue for the year ended December 31, 2015, while the other Brazilian regions (North, Northeast, Center West and South regions) in the aggregate accounted for the remaining consolidated net operating revenue for the year ended December 31, 2015.  In addition, none of these regions represents individually more than 10.4% of the consolidated net operating revenue.

The following table sets forth the number of our stores by region as of December 31, 2015:

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(1)   Consists of stores in 136 cities, including Campinas, Ribeirão Preto and Santos.

(2)   This area comprises the states of Espírito Santo, Minas Gerais, Paraná, Rio Grande do Sul and Santa Catarina.

(3)   This area comprises the states of Alagoas, Bahia, Ceará, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, Sergipe and Tocantins.

(4)   This area comprises the states of Goiás, Mato Grosso, Mato Grosso do Sul and the Federal District.

(5)   Excludes 83 gas stations and 157 drugstores.

Operations

The following table sets forth the number of stores, the total selling area, the average selling area per store, total number of employees and the net operating revenue as a percentage of our total net operating revenue for each of our store formats as of December 31, 2015:

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