Companhia Brasileira de Distribuicao SA (CBD) 2009 Q1 法說會逐字稿

Good morning and thank you for waiting. Welcome to Grupo Pao de Acucar teleconference to discuss the results of the Company in the first quarter of '09. This event is being broadcast simultaneously through the Internet via the webcast and it may be accessed at www.gpari.com.br where you'll find the presentation. The selection of the slides will be controlled by you. The replay of this event will be available right after its closure.

We inform that the press release on the results is also available on the Investor Relations site, www.gpari.com.br. This event is being recorded and all participants will be just listening to the teleconference during the presentation of the Company. After that, we'll begin with a Q&A session when further instructions will be given. (Operator Instructions).

Before moving on, we would like to clarify that the possible statements made during this teleconference regarding the business prospects of the GPA Group, its projections and operational and financial targets are based on beliefs and assumptions of the Board of Directors as well on current available information.

Future remarks are not guarantees of performance. They entail risks, uncertainties and assumptions because they regard future events and therefore they depend on the circumstances that may or may not occur.

Investors must understand that the general economic conditions, the industry conditions and other operational factors may affect the performance of GPA Group and may lead to results that materially differ from those expressed in such future remarks.

Now we would like to pass the floor to Ms. Daniela Sabbag, the Director for Investor Relations of GPA Group that will open the presentation. Please Daniela you have the floor.

Good morning, everyone. Welcome to our teleconference on the results of the first quarter of the year 2009. Today, we have here with us Abilio Diniz, the President of the Board; Claudio Galeazzi, the CEO of the Company, and the Executive Directors, Eneas Pestana, Jose Roberto Tambasco, Caio Mattar, Claudia Elisa and Ramatis Rodrigues.

Today's presentation will follow the format that we usually adopt addressing the major financial and operational results for the first quarter of 2009, and in the end we'll open for the Q&A session.

Before beginning with the teleconference, I would like to inform you that in June we'll hold the GPA Day once again, introducing our objectives and strategies for the year of 2009. So, as soon as we the defined agenda, you will receive the indication with the complete programming for that event.

Now, I would like to pass the floor to the President of the Board, Abilio Diniz, for his initial remarks.

Good morning, everyone. I agree that more than words our results speak for themselves. The Company is increasingly stronger, more agile. We have been reducing our expenses quite easily. We have been seeking to have more efficiency, and most important of all, we have been increasing our sales.

What makes us believe that we have really a strong and agile company with a very good infrastructure is how we move along in the most difficult moments, how we behave in those most difficult moments.

It's not easy to have good performance when the market is not in favor. It's the most difficult moments when we prove that the Company is really prepared, the Company is really streamlined with very good performance. I believe that our performance, especially in the two last quarters, the last quarter of last year and the first quarter of this year, plus our performance in April really makes us believe that we should be satisfied with the Company, with our team, satisfied with the work that we have been developing.

Brazil as we expected already has suffered less with the global financial turmoil and undoubtedly Brazil will overcome the difficulties more quickly. We are resuming operations in many sites around the world; and here in Brazil, we can notice many improvements. The retail industry in general has been having a good performance in Brazil and we can rest assured, we can say that we are gaining market share because we have performance that is higher than the average performance.

Our performance today is taking us to gain more market share. This year we have opened four Assai stores, five Extra Facil stores. We have much more to do this year yet, but with those measures, we are sure that we are advancing and growing in this market with the already existing stores.

I think that the most important thing to convey to you here too is the soundness of the leading, the management team of our Company. We've made some slight adjustments recently aiming at gaining greater efficiency in our management.

The first thing that we did was inviting Claudio Galeazzi to remain an additional year with us as the CEO of our Group. That has been communicated to the press. Why did we do so? For many reasons. Because we should not touch on a winning team. That's the most important reason of all. We've been having excellent results. But, we have other reasons too.

Although, we have in our team people who are capable of taking over the leadership of the Company, because as we told you, the next CEO will come from this team, the leadership team, this work of preparing the future leader is long-lasting work, and I think it should be done carefully. So, the more time we dedicate to that, the better the results for the Company.

And actually, the decision to invite Claudio Galeazzi to be the CEO for another year, an invitation that he accepted, this was the decision taken by the Board, and it is supported by the whole executive team.

Additionally, we made some slight changes. First, Caio Mattar is no longer the Executive VP. He is now taking over the real estate presidency that has been just created. This is a clear sign that the person that has the best knowledge, the best competence about the real estate market will dedicate most of his time to this new position that we are creating. We really want to separate our core business from other different activities and really pursue gain for the shareholders in all of the areas, including the real estate industry.

The other change was effectively hiring Ramatis Rodrigues. He was an Executive Director and he has become the VP now. We'll keep on having four Vice Presidents, because Caio Mattar will now lead the real estate industry, so we'll keep on having four VPs; Eneas Pestana, Jose Roberto Tambasco, Hugo Bethlem, and now Ramatis Rodrigues.

What do we intend to develop with such measures, with the creation of the four VP positions? We wanted to create what Claudio called as a forum of Vice Presidents. You know how we work. We work in a single room, all of us together. We are going to group those four VPs, they are going to work tightly together with Claudio Galeazzi.

And the idea is those four Vice Presidents being less tactical and more strategic so that they can be responsible ones for creating the strategic actions of the Company with a more aggressive dynamic stance, being more agile and being faster in their operations. And that we will attain by having them working tightly together and together with the CEO.

Within their daily routine, within their technical aspects, they will operate like that and then we'll be able to develop the team that reports to them so that they can really develop and grow so that we have more spare parts so to speak so that we can really develop this internal team, the team that has continuously proven that it is highly capable based on the work that they shown so far.

So, this brings us great satisfaction to be really to inform to you to shareholders about the trust, the assurance, and the satisfaction that we have with the management team of this Company.

This is a guarantee for all shareholders that we'll attain good results, so we have promising outlook from a company that is sound, aggressive, and that is quite assured to face up the market and to really promote good moment. Thank you very much.

Good morning to you all. This is Claudio Galeazzi speaking. I would like to comment on our situation and I will start by saying that we are very happy with these results that are aligned with our budget, and I must confess that they are above our expectations considering the general crisis that the world is facing, although it has not reached Brazil with the same strength that is happening in the United States and Europe.

Some highlights. I'd like to mention that our EBITDA grew by 14% year-on-year in the quarter. We also had profits of 185 or 27% depending on the [current] year reportedly or pro forma respectively. And we could not fail to mention sales in the first four months of the year considering that Easter Holiday where we had a growth by 9.2% on same-store sales. Eneas, he will detail these results with you and he will address these and other points that are relevant to the results obtained in the first quarter.

I would like to highlight that one of the premises that guided our budget was the fact that seizing the existing opportunities and our specific conditioning of relationship with the buyers or financial conditions, we were able to gain market share, and fortunately, the first quarter indicates that we were able to increase our market share.

Sometimes the market is a little bit concerned with our margins, our financial profit. The important thing is to analyze the whole equation -- market share, margin, reduction of expenses -- in a way that we are able to gain more competitive edge in the market without losing the focus on results.

We are seeking this competitive edge, this market share in a very cautious way, in a very rational way. The numbers that we have been obtaining are coherent with our budget and our expectations.

I'd like also to call your attention to the performance of our executive team. They are very agile. They have fast actions and have been able to adapt to the mobility of our market situation, the retail market that is. I'd also like to mention that we are constantly reviewing all of our processes in search of efficiency, productivity and reduction of our expenses. This efficiency is also highlighted by the results that we are presenting to you today.

I will also like to call your attention to the fact that we will keep our conservative financial attitude and investment policy based and funded on return on capital, and we will only accelerate our investment process to the extent that the equation borne by the general economy and our results allow us.

We are reviewing this more cautious attitude to study when we will step on the accelerator again in the next quarters. In the equation that is as aggressive as the market allows us, and our results allow us.

Our position is a privileged one, in our relationship with our customers, with the consumers, and above all with our suppliers trying to be more competitive in this very aggressive market.

The bottom line at this moment is that we are always trying to keep our Company financially healthy. This is a goal that we have been pursuing on a daily basis and that will also lead us at the end of the crisis to a more strengthened position. These are my initial remarks I'd like to make, and now I'd like to pass the floor to Eneas.

Good morning to you all. Thank you for participating in our teleconference. My goal is to read together with you our last results in order to bring you more information and so I collaborate with you on the correct interpretation of the figures and our performance.

To that end, we have a presentation that you may have in your hands. Right now, I will start by slide number three starting by sales. As it was already said, we had a good first quarter in a scenario of global crisis. Conclusion of our budget in last year, we planned difference scenarios for '09.

We chose a more aggressive scenario in terms of our budget, and even so we have been positively surprised at least in these four first months of the year and we are going to speak about this quarter-on-quarter that had a seasonal effect, given the fact that last year Easter was in March and in this year it fell in April.

Sales growth in (inaudible) gross sales 6%, net sales by 9.4%. Again, we are facing the effect of the tax institution that happened in the State of Sao Paulo, and it has been a fact in the migration of products. So, this new regime of tax institution, this regime, the Company is for it, it's in favor of it because it brings a new tax control that's more efficient, migrating all [compound] participants to a formal economy.

So, considering the same-store concept gross sales grew by 4.6% and net sales by 7.9% independent of the Easter effect which I just mentioned. Even considering the same-store concept, food products for example grew by 3.1% in the quarter where we most feel the Easter effect, the seasonal effect; and non-food products recorded growth of 9.7%.

In slide number four, we have a vision of the four first months in order to contribute to your analysis, minimizing or eliminating the seasonal effect especially in terms of Easter. In these four months, the Company grew in terms of gross sales by 10.6% and net sales by 13.9%.

In the same-store concept, gross sales climbed by 9.2% year-on-year, and (inaudible) inflation by the IPCA rate we would reach the level of 3.3%. 3.3% is a very good index. Because if you remember in '08, we were able to revert this effect and we reached a same-store growth rate differently from '06 and '07. In '08, we have 2.6% of real growth in same-store concept and in this four months we were able to record 3.3% of real growth.

The same-store sales of food products moved up by 8.6% and non-food products recorded 11.1%, the highlights are for beverages, and hygiene products, cleaning products and also bazaar, and the drug store sales. Very relevantly that it was mentioned by Claudio already and by Abilio also, is that growth of our market share sustained by a very important growth also in the customers' flow. Sales growth plus consumer flow is very positive to the Company. It is what ensured in fact in a retail company this sustainable growth.

And our gross profit in this context and this sustained market share growth. We recorded 26.2% in our gross margin last year and we moved to 25.3% this year. So this growth as I mentioned the tax institution, every quarter in this new year will have to live with this effect still, because in the beginning of this year once again the State of Sao Paulo intensified its migration of products to this new tax regime.

So we will spend the whole year speaking about tax institution and its effects. In the quarter the effect was 0.5% of [the central point] reducing the gross margin in the sense that it increases our net sales as we saw and affecting this vertical analysis or the margin analysis.

We also have the Assai effect. Last year we had been witnessing an effect of 0.9%, and in this quarter the effect was only 0.2%, because in the first quarter of '08 we had already consolidated Assai. So, this is a decrease as of then, independent of that fact that it will always exist. Even the accelerated effect of this chain.

Here in margin effect, we have 0.2 percentage points as a direct relationship with our commercial strategy that has been firmly conducted by (inaudible), where we are trying to gain more market share, increase consumers' flow in different regions of the states and the country, focusing in Rio de Janeiro as we always mention, a very competitive market, but also in the northeast of the country.

In the case of the northeast, where we had been losing sales last year, as we told you, as a reason they remain low in terms of operational actions (inaudible) -- in the first quarter we were able to reverse this trend in the northeast, and in the first quarter northeast has been showing growth in terms of sales and customers flow.

Speaking about operating expenses, total operating expenses, the good news is that we are able to once again show that we have consolidated our expense levels that were conquered, achieved along '08, and as we have repeatedly mentioned last year, it is based on the restructuring, the decision of a new management model that was implemented in the early '08, showing effective results since '08 and in this first quarter is reflected in the reduction of 1.2 percentile points in the level of total operating expenses including administrative expenses, but also expense with sales. So we reached the level of 18.6% of net sales versus 19.8% that were recorded in '08. This represents an annual growth of 3% of total expenses this year to the previous levels.

Even if we consider in terms of comparison analysis, the performance figures that we have last year, expenses grew by 5.9% below our sales growth that I just mentioned. The important thing is the equation. So independent of the fact that we (inaudible) here the analysis and performance of the Company in general the situation is that we have sales growth sustained by a larger market share, increased customer flow, and one of the pillars here is a better margin mix, adequate [leads] profile in terms of our audience in general to each (inaudible) in different regions, but this margin reduction is fair by these actions in terms of reduction of expenses.

So, this is [a symbol in] planned actions, we have been increasing our EBITDA margin in comparison to last year. In page seven, you are going to see the chart of EBITDA growth. As Claudio mentioned, our EBITDA has been growing in value by 14.1% and 0.2% in terms of margin. Therefore, this is good news.

Sales have been growing in a sustainable way, we have been able to reduce our expenses and we have been able to increase our EBITDA margin. Even if in this case here we use as a comparison basis the pro forma figures of last year, even so we would be able to record a 5.2% growth.

Also, adding the fact that Assai are consolidated, without Assai we would have a margin of 7.2% in the first quarter of '08 without considering Easter.

In the operating results, we have been trying to increase more and more the analysis along this line, but what we have as relevant comment here, in addition to what was already informed in page eight, is [that unique] effect, that is intensification of payments by installments without any interest. This causes an effect in this quarter and in the financial results that is 7 million higher than what we recorded last year. In fact, we have a reduction of the interest rate in that. So, that also affects our financial investments. So the performance in the pure financial point of view is a good one.

(inaudible) financial payment terms or financial conditions. So, this results in this effect that you can see.

In page nine I comment on our debt. The debt profile is still [adequate] as you can see here. We planned for it in late '07, early '08, when we strongly studied our capital returns and planning for the debt profile into the future; and today we closed the first quarter with 30% in the short term and 70% in the [long] term. Our total gross indebtedness is BRL2.46 billion against BRL2.48 billion last year. The net debt this year closed the quarter with BRL1.2 billion against BRL1.3 billion last year. Last year, it represents 1.16 times the EBITDA and this year it is 0.9 times the EBITDA.

I would like to remind you that the end of the first quarter is the most stressful moment for our cash profile, because the first quarter is where we pay the suppliers that supplied items for the holiday season. So the [impact on the] working capital is the strongest effect of the year. This is what happens in the first quarter.

Then what happens from then on, we have a recovery of the working capital and therefore a very important cash recovery. The cash level, of course, depends on the [exploration] of investment, but it must be around 0.5, 0.6% of the EBITDA.

In the next page, we would like also to tell you about our FIC, our financial institution for CBD, showing a very important growth as you can see. We've recorded a 3-digit growth rate with BRL3.9 million in profit, [buying us] very positive results in the quarter. Last year the result was BRL1.2 million against BRL3.9 million this year. This reinforces the fact that '08 would be the year of investment in this operation, and in '09 we would be able to show very positive results. So, this reinforces the guidelines that we had already when we informed you in the past.

In operational terms, we reached more than 6 million cards -- 5.2 million cards, almost 6 million cards. So, FIC has been responding positively to what we have -- in terms of what we expected.

The (inaudible) I would like to comment with you, we have the consolidation of everything we have been saying last year, the moment we started working with [Gradias in] Rio de Janeiero in '07, that they we were able to reverse the negative results they had been presenting since it was founded.

In page 11, you'll see the maintenance of the gross margin, the maintenance also of levels achieved in terms of expenses, and the EBITDA recorded was 7.2%. And the good news is that, in the quarters in Sendas, independent of the imbalance in the capital structure that [prevented] strong financial results, this quarter Sendas showed a net profit of BRL5 million.

In page 12, and here -- I want to comment more detail, here is Assai. Assai showed a EBITDA close to zero with slightly negative 0.3 negative percentage points. To compare a detailed analysis, it is important we have also complementary information that goes together with all financial information where we detail or we break down these results, highlighting the operation in Rio de Janeiro from other stores. Why? Because in other stores considering two stores (inaudible) positive in 4.6%.

The negative EBITDA happens as a function -- exclusive function of Rio de Janeiro stores. Rio de Janeiro stores, these are news stores that were opened very recently and our policy is to recognize all pre-operational expenses in the opening of the store in the quarter that a store is opened. So, we had a very important growth of expenses as a function of these pre-operational expenses.

It's also important to say that it has all been planned. Assai has been showing results that are absolutely in accordance to what we planned and with the expected growth rate, both in terms of sales and results. This is part of a process of branding, of construction of brand that tries to deal with the various parts of image in terms of price and products for this segment of retail plus wholesale, what we call Atacadista here.

So, this had been planned. And when you cut one single quarter, you have the intensification of the growth process; and this may happen also in other future quarters, according to our [right place] expansion plan for this banner.

In page 13, concluding the results analysis we have the net income. The net income that was reported here grew by a 185%.

And of course this year we have the complete effect of the Law 11.638, and we suffered adjustments last year according to this law, but it did not reflect any amortization of goodwill because it was not provided by this law for last year, because this new amendment of the law was approved this year and it affects our pro forma figure. So, here in page 13 we show you both charts so that you may analyze this from all points of view.

So even considering the full effects of Law 11.638 of last year and the pro forma impact, which is the reversion of restructuring costs the first quarter of '08, even so our net income would grow by 27.3%. So, by any point of view, we have reached a growth rate in terms of our net income in the bottom line.

In page 14 finally, we speak about our CapEx. This was a quarter where we invested BRL100 million against BRL120 million last year. This resulted in the opening of five new stores of Extra Facil banner. This is our convenience store. This is one of the formats that we have been prioritizing for this year; and also opening four new stores of Assai banner, and a new store of ExtraPerto banner which was a conversion from CompreBem different to other store remodeling.

So, we are closing the quarter with 600 stores and with 1.3 million square meters. So, with this I conclude my comments on our results and I think we can pass now to questions-and-answers. Thank you.

Now we will open for the Q&A session. (Operator Instructions). Gustavo Oliveira from Citigroup.

Good morning, everyone. I have three questions. The first is about understanding the variation that you had in inventories. There was an increase in inventory as compared to the third and fourth quarters for last year. Is this related to the Easter? What was the reason for the increase in stock?

The second question is about the impact of the IPI in your sales in the third and fourth quarters of '08, especially talking about the non-electronic items.

And the third question. I would like to understand what is the comparison basis to discuss the Sendas results? I understand that you've converted some of the stores; and if you take the Assai results they had a negative result of minus BRL5.7 million. Do you think we may compare? I would like to understand that effect as well.

Gustavo, good morning. Thank you for your questions. They are quite good questions. As for the inventory I am going to address that, then I am going to pass on to Tambasco and maybe to Ramatis so that they can provide further information.

But the inventory effect, you concluded by yourself and correctly we have a seasonal issue there. Easter happened in early April, so we closed the quarter with Easter in stock, the Easter product in stock. So, the increase in inventory is virtually fully dedicated to this effect of the seasonality. I am going to pass on to Jose Roberto who is going to talk about the IPI, and then I will answer your last question.

Good morning everyone, good morning Gustavo. This is Jose Roberto. As for the reduction of the IPI, it is more linked to the white line, the washing machines and fridges and so on. Undoubtedly, that was an additional opportunity for growth in this sector, and right now, I think that, the GPA Group was the first company which promoted very strong action in that area, because this was announced over a weekend, and on the weekend itself we began reducing our prices on account of this tax reduction, and that allowed us not only to obtain the benefits of the tax reduction, but also to have a head start as compared to the competition.

This contributed to the increase in market share in this sector. We had been growing in this sector even more than the competition. But we believe that right now, we have really intensified our growth. The impact is highly favorable in our sales.

As for the results from Sendas, the stores that have been converted into Assai, if we consider the results of these stores within Sendas, of course, the impact would be on Sendas Distribuidora. The impact is at Assai, because analyzing in a different format; we have three stores that have been converted in this (inaudible).

So, they had a very weak first quarter in terms of sales. And the first quarter, we mentioned that we are operating at only 50% in terms of sales potential of such stores. And we have three stores in Rio de Janeiro that are closed to be remodeled, plus in effect we acknowledge these pre-operational expenses in our results without having the sales from these very stores.

These stores were inaugurated by the end of April, beginning of May. So, after second quarter, we should really have not only a more significant sales level from these stores, but also a better result that will impact less in the results of Assai.

As for the new Assai stores, you say that they are operating at their 50% potential. When will they grow mature?

Well, in Rio de Janeiro, we began operating in January, and the operations were quite low, 50% is very low. Usually, we operate at 70% of the expected potential for a certain store. But when you are introducing a new model, we know that we have this longer ripening period that should take from six months to one year.

In Rio de Janeiro, we are having quite a pleasant surprise, because I mentioned 50%, we began the quarter actually with 50%, but we grew at about 60% from that initial rate. There is much room for growth yet, but we are operating at a level of 70% and 80% which is quite nice, because it shows a very strong growth right in the first three or four months. And this confirms to us that the Assai model format in Rio de Janeiro has been having a great success vis-a-vis the consumers.

Of course, Rio de Janeiro having just three stores it's not much to build a new image on this new format. As of now, we will have six stores and we will start gaining more strength to further communicate this format and even to reveal the sales potential of these stores Rio de Janeiro.

I would say that although today we are operating at 70%, 80%, I would increase the sales expectation for such stores in Rio. It is quite positive.

As for the IPI, I wanted to know if you were seeing the benefit for the other categories, because they have greater flow in the stores. So do you believe that this increased flow may be sustainable to the future?

Of course, you cannot consider that the traffic per se will increase the sales of other products, but of course it contributes because we have more people circulating at the stores and it helps.

But there is a very important factor in this IPI reduction. That is, the consumer is no longer so cautious. The consumer is no longer postponing the purchase to a better future moment because of the prices for instance.

With a measure like this, we can really foster the willingness of the consumer to really buy, so we have an additional benefit to really offer the consumer and we break, so to speak, the resistance from the consumer, their resistance from purchasing in installments or from (inaudible) cash.

In fact all of that has brought more movement within the store in factors that had been facing difficulties. So, we have an additional encouragement, yes; the store as a whole gained from all that.

Okay. Thank you.

Our next question is from Juliana Rozembaun from Itau.

Good morning, everyone. Please talk in detail about the creation of the new real estate company. We have the CEO already, but when are you going to separate both companies? What kind of strategy will this new company follow?

Juliana, good morning. This is Eneas. I will try to answer part of your question. Then I will pass on to Claudio. We have been working in structuring this new company. Of course, in this first moment that may last, I don't know how much time it will be. But our major concern is to really separate this business, so that it maybe managed as a business and no longer as a division or a department from GPA Group that is focused on supporting the retail growth.

What we expect is to have management oriented to the real estate sector to really seize the opportunities, seize the values of the real estate industry. That's why we are separating the companies. We are establishing a new company that is going to be a 100% owned by Grupo Pao de Acucar.

So we are performing a transaction, maybe we are going public, but our first objective is to really separate them as two different companies, so that we can have all the financial instruments, all of the management instruments to subsidize a management that is totally focused on capturing the value from the real estate industry. This is already going on.

Of course, we are concerned about the corporation, the structure, so that we don't have higher taxes, to make the business feasible. This is about to be concluded; perhaps in the beginning of the third quarter, we'll have the operations separated. Claudio, will add on to what I said.

Juliana good morning. Supplementing what Eneas said, today -- our focus in the last few years have been the retail industry. We are focused on selling electronic products, rice, bean, potatoes. That is our target. And throughout this years, we've built a great real estate equity that has major potential, especially now with the reorganization of the real estate with the real estate boom that we had before the crisis.

So, we have a major potential to really explore these real estate. Today, we have pieces of land that are wonderful, and we may use them, and this may bring added benefits for the Group as a whole. So, now we have a team that is going to be focused on the real estate industry, including new investments for the new stores. So we intend to build the new stores, looking into the real estate sector.

Eneas mentioned that the company is being established and this will have a corporate implication. I would like to understand that corporate implication. What do you mean by that?

And for the tax regime, if you have two separate companies you will have taxes that are [met on] separately. How would you handle that tax issue?

Well, I mean, no, there is no issue regarding the partners. The controlling structure of the Company, there is no issue here exactly because of this issue that has happened where it's understood that that there will be a wholly subsidiary company to GPA Group.

In the tax field, what we have been trying to implement is a structure that is able to mitigate the effect of the tax burden. And when we separate this and we separate the assets from then on the retail may pay rent to this real estate company, independent of being within the Group. This may elevate our tax burden.

So we have been analyzing all possibilities, all strategies, so that we mitigate (inaudible) effects of tax burden. And we (inaudible) may help then to have this kind of effect.

So I am not going to answer into detail of all the alternatives that we have been studying. I think this is not the case, but we will present all of this to you as soon as we announce the result of the next quarter.

My last question. In terms of Assai, I would like to know what are your future plans for Assai in Rio de Janeiro? How many stores do you think would fit into the state of Rio de Janeiro, how many conversions, how many new stores, and are you going to take up a broader state?

Assai for us is a priority in terms of growth. Here is Jose Roberto speaking. And we will continue to invest in Rio de Janeiro. As I told you previously, this is a city that has been accepting this model very positively. This may come through new conversions; conversions of stores that we consider that could have a better performance as Assai in comparison to Sendas; and then it may come through new stores.

We have been analyzing all of these alternatives on all the lines that Claudio has been exposing to you. We have been using our criteria, very strict criteria to analyze the conversion of stores or the acquisition of new [points].

Whereas in Rio de Janeiro it is a very important state to grow our sales chain, but we should also keep up with our investments in Sao Paulo. We are present now in Porto Alegre (inaudible) to strengthen our position in the northeast as a whole. But these are strategic locations of defining new points and communicating as soon as the store is ready to operate.

But this is a priority to us, not only Sao Paulo and Rio de Janeiro, but also the northeast, the central west, and all regions where [Contrecot] is already present. Thank you.

Next question from Irma Sgarz from Goldman Sachs.

Good afternoon. I have two questions. Excluding the impacts of expenses for the first quarter comparing to '08 and the reduction of operational expenses in the first quarter of 60 points, comparing to last year you were able to reduce your expenses in a very significant way. So, now for future reduction of expenses it will be very hard to achieve a future reduction of these expenses. Are you expecting [as a symbol of other] expenses along this year along '09? How do you see that?

This is Eneas. We have been consolidating, the four, of expenses control. We have here a number of different mechanisms that are still operating the cash flow of '08. A group that verifies and checks every cash expense, be it in terms of investments or any other kind of expense. We have also specific groups that are also working on the expenses reduction.

Yes, we believe that there is still room for reduction, reducing our expenses and it will happen along this year as it was already proved by our first quarter. We still believe that it's possible to reduce our expenses even further.

There is still room and possibility for reductions still in our headquarters, in the corporate areas, the [college], that may result in gains originated in process improvements, synergies, the consolidation of shared services.

We have implemented SAP in January for all the financial models, it was also implemented. This will reflect in savings and rationalization of processes. So, at this moment, we cannot measure it. But, in our work and our diagnosis, we have an indication that we still have room for further reduction still in '09.

Thank you. The second question, Claudio has already mentioned the fact that for new investments, you expect a minimum return rate for new investments. I remember that the last time you talked about this, this rate was up around 16%. So, I'd like to know, if this has changed so far, and if you have a different return rate, minimum return rate for different banners. For example, if it's different what you expect for Assai, or for Extra Facil? Thank you.

Irma, this is Eneas again. Our rate, average cost rate for the capital, speaking Sao Paulo, considering our specific indexes and our own capital cost, this is around 10% in real terms, not in nominal terms. Our goal is to grow this rate to a level above 15% in the medium and long-term. We would have a real internal return rate on employed capital above 15%.

Our analysis of feasibility or feasibility study, as Jose Roberto was saying a while ago, it has a very strict filter in terms of leveraging our return on employed capital. So in fact, we seek investments that could leverage the return on employed capital, so that we may reach a level that is above our average cost of (inaudible).

There are things that contribute to that. The [comtocom.com], it has a direct relationship with our invested capital, because it does not employ any capital at all virtually. So the return, it leverages our return. There is Assai and ExtraPerto, they also have this characteristic.

So, it's not by chance that we have been prioritizing this investment, both in ExtraPerto and Assai, and also with comtocom. It has showing amazing return rates. Last year it generated a 3 digit growth rate and this year 2 digit on a very strong base that had been built last year.

So, it's a very good question that you made. Our main job here in terms of strategy, goals and objectives is to increase dramatically the return on employed capital, as a service to our shareholders.

Thank you.

(Operator Instructions) Now from Banco Espirito Santo, Mr. Luis Cesta. Mr. Luis, you may proceed with your question.

My question in terms of the [commercial pressure] that you applied in the first quarter. You told us that you will try to gain more market share through the combination of promotion and product mix and [progress] in this quarter.

You had a growth of 0.2% in the gross margin. Was this the combination of promotions and product mix? I'd like to understand, if you can expect the same levels for the next quarters.

Or is there a certain dependency of how much you reduce your expenses or find new promotions? I would like you to indicate how much we can estimate this evolution in terms of reduction of gross margin, combination of reduction of operational expenses, for how long more can we expect this?

This is Ramatis. In terms of this point, the trend is maintaining this commercial strategy. We were able with the strong work in 2008, we started a very strong partnership with our suppliers. Today, we have very structured plans with our suppliers to develop businesses with a future vision for the next quarter.

So, the trend is to maintain the promotional action consistently and aligning the banner strategy -- aligned to the banner strategy. So, this is a winning strategy and we are going to keep up with the same fair growth level.

Another question, a more conceptual question. In terms of the tax institution, how are you accounting for the impact of this in your accounts? You are considering the results in the gross margins. But is there any other impact in terms of the percentage of expenses with net sales?

Because there is an evaluation here of the net revenues considering this tax institution, but this will also increase your net revenues we assume. Where is the effect on cost? So, when we see this reduction of 0.2% [apply] in global operational expenses, maybe it underestimates this effect. Do you confirm that or no?

Luis, this is Eneas. Good morning. What's happened to it, let me make it clear because it's a good question and we are always trying to clarify it even further. This is not in effect only for companies; it's in effect for all companies that sell this kind of products that are subject to this new tax regime. They are all suffering the same effect. This is affecting (inaudible).

It affects all the vertical analysis in the sense that it affects the base as you are calculating the net revenues. If you have an increase of the net revenues provoked by a reclassification of this tax that [you rely on], it taxes all sales and now it is part of the sold merchandise. It affects the whole vertical analysis consequently.

Normally, we mention the gross profits, because this is a very sensitive line, which is analyzed only exclusively according to the margin, not due to the [schedule]. So, we also mention this effect. Of course, the expenses also affect the bottom line as any other line. These are percentages on the net sales, but the effect on the margin is greater than the effect on expenses.

If I were to produce performance figures here considering or not considering these effects, the margin would still be greater than what we have today. Expenses are a little bit higher; but they are lower than the effect on the gross margin. Therefore, it has a positive effect on the bottom line.

So, we can conduct this analysis considering -- always considering this effect on net profit, and you can see, I will not say that 0.2% is overestimated, because in fact it's not only for sales figures that we calculated the impact of the expenses reduction. So it's a quick analysis, so you can calculate its effect. In general, the effect on expenses is something around 0.3%. So, if you consider 1.2, we reach 0.9% of reduction on expenses.

That's it. Thank you.

(Operator Instructions). We close right now the Q&A session. Final remarks from the Company now.

This is Claudio Galeazzi. Good morning, everyone. I would like to thank you all for participating. We hope we have answered the questions and provided the clarifications that you needed.

We are all at your disposal if further clarifications are needed. Daniela Sabbag is also available to coordinate possible future meetings and chats through which we may further clarify other questions that you may have. Thank you very much. Have a nice day. See you next time.

This teleconference is closed.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.