Companhia Brasileira de Distribuicao SA (CBD) 2009 Q2 法說會逐字稿

Good morning, and thank you for waiting. Welcome to the Grupo Pao de Acucar conference call to discuss the results for the second quarter of 2009. This event is also being broadcasted by our webcast, which can accessed at www.gpari.com.br with the respective presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website.

We inform you that the documents related to the subject of this call are also available at the IR at websites www.gpari.com.br. This event is being recorded, and all participants will be in a listen-only mode during the Company's presentation. After GPA's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of GPA management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA, and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I would like to turn the floor over to Ms. Daniela Sabbag, Investor Relations Officer who will begin the presentation. Ms. Sabbaq, you may proceed.

Good morning everyone. Welcome to our conference of the second quarter of 2009. We have Mr. Abilio Diniz with us today, the President of the Board; Executive Vice President, Mr. Eneas Pestana; Jose Roberto Tambasco, Caio Mattar, Ramatis Rodrigues. We will begin the presentation today addressing the main operating and financial results, and in the end we will open for a question and answer session. Before that, I would like to give the floor to Abilio Diniz for his initial remarks.

Good morning. A quick word from the Board, and quick word about the view of the shareholders. Company is going through a very good moment. Nothing new, the same old thing, but the same very good old thing.

The last actions we've taken made us very pleased. The purchase of Ponto Frio, now, two months after the purchase, it seems to have been an excellent deal, a great opportunity. I see that the team is very excited, very involved.

I was at a meeting last week, where we had over 1000 people who were workers of Ponto Frio, very excited. They're very pleased and happy that Ponto Frio was acquired by Grupo Pao de Acucar, and the perspectives that that represents of technologic improvements, logistics improvements, information technology, credit granting, much more advanced systems, purchase synergies.

So everybody is very excited, and of course, here at Pao de Acucar, everybody is also very excited about it. We are also pleased because we completed the purchase of the remaining 40% of Assai. We are very pleased for acquiring that share of the business and it will enable us to bring more dynamics to some of the things that we needed to implement, in the sense that we will take better advantage of the synergies we have between the companies.

The most important point, even more than the results that we are showing today, I believe the results are in line with the better perspectives of the market. They are in line with our budget estimates. For us, it's just meeting our goals, and it's a confirmation that we will have a very good year. There is nothing new in that sense.

But most importantly, I wanted to say to you that I feel -- what I feel about the management. The team is very confident now. There is a great sense of union among all the directors, all the leaders. There is great confidence in the Company, the results, the perspectives, everything we have ahead of us. There is great trust in the country, a certainty that things are happening right here, right now, and that it is worth making an effort because our efforts will be rewarded.

So it's a very good moment for the Company and a very good time for the Company. There is nothing exceptional, nothing that is really new or novel. It's just a little bit of the old things, but very positive old things, which means good results, good involvement, and the satisfaction of people who work here.

I will stay here and if you have any specific questions for the presidency of the Board, feel free to ask them. I will be here to answer that.

So let's move on to the presentation of the result.

Good morning everyone. Thank you for participating on the conference of Grupo Pao de Acucar. This is Eneas Pestana speaking. I will do a quick reading of the results in order to help you interpret them so that we can move on quickly to whatever questions you may have.

Following the presentation that was provided to you, I would go directly to page three, so that we can analyze the sales performance. On the second quarter, we had an increase on gross sales of 15.4%; and net sales, an increase of 18.1%. For the semester it was 10.7% on gross sales, and 13.7% increase on net sales.

It is important to highlight once again, that the continuous migration of products that had a different regime from ST, and moving specifically into this regime in the state of Sao Paulo, has been leading towards this difference in the progression of gross sales and net sales.

To give you an idea, the products that are already under the tax replacements, and the share -- [participation] of sales of the Group already represent 45%. In Sao Paulo, this index is as high as 75%. So increasingly, having the products within this tax regime in this process and this migration curve leads us to this effect of having a greater progression on net sales as opposed to gross sales, considering that that causes a reduction on the line of taxes over sales, versus an increase in the price of merchandize sold in the same proportion.

It also affects the vertical analysis because for the vertical analysis the basis is net sales. But we will talk about it further in the presentation.

On the same-store concept, the increase of sales was 13.1%. So the real growth discounting the inflation is at 7.6%, and 15.6% increase on the same-store sales -- net sales, I'm sorry.

If you look at the categories, Food Products had an important increase in this quarter, also due to the Easter Holidays, reaching an increase of 12.8% and Non-Food products once again had a great performance reaching 14.3% of an increase. Highlights in terms of sales increase; we have Pao de Acucar, Extra, Extra Facil and Assai in this quarter.

Looking a little bit to the whole semester, the half -- first half of the year, the same-store concept increase was 8.9%, which means a real growth of 3.2% above the annual guidance that we set on the GPA Day, which was an annual increase above 2.5%.

The same-store growth in the semester, our net sales was 11.7% as you can see on this chart on page three. In the semester, Food Products increased by 7.9%, and we had the good Easter period on the second quarter. So that favored that and the increase was 12% on Non-Food products.

Moving on to gross profit and gross margin, as you can see on page four, in this quarter we had an increase of 14.6% despite the reduction of 80 bps decrease. In the semester, we had an increase of 10.1%, once again, despite the margin reduction of 90 bps. Here once again, the explanation or the most important explanation for this decrease in the margin is the relationship with the tax substitution on the basis -- on the 100 basis, increasing net sales, and the effect it has in the quarter is 60 bps which also affects the semester. So I am just explaining to you the difference in the margin.

Gross profits in the semester, the first half of the year was of BRL2.443 billion. As far as expenses, as it has already been said on previous quarters, since the beginning of last year, we maintain a very stringent control of expenses. This quarter puts a lot of pressure on expenses because of the Easter effect. During Easter, there is additional pressure with additional expenses of personnel and advertising.

But this control allows us to dilute the expenses in the trimester -- and 0.7 percentile points and in the semester, 0.9 percentile points. And this trends remain, if you consider the seasons, the seasonality, the expenses are under control. There is nothing new. We will maintain the strict control on expenses with great chances of reduction on the second half of '09.

The acquisition of remaining shares of Assai that Abilio mentioned will provide us with an intensification of the synergies in Assai, reducing the back-office structure that used to be necessary, as we had a partner and a structured corporate governance, but now we are able to have a greater synergy with a reduction of expenses at Assai, which will also reflect the consolidated.

It is important to mention for those who evaluate retail that this equation, this half-year equation or sustainable equation of increasing sales with aggressive margins, guaranteeing competitiveness and leading to an increase in the client flow and increase in the average EBIT, transforms or leads to a growth in the profitability of the Company, specially reflected in EBITDA where during this quarter we have an increase of 15.7%, reaching BRL345 million of EBITDA in this quarter.

And in the half -- in the first half, we have almost 15% in growth reaching BRL657 million in this first semester. It's important to remember that we had the guidance for the semester in GPA of EBITDA growth of at least 10% for this year, and we have in the semester, 15% growth.

In the page seven, we have the highlights of the financial results that contributed to an increase in net profit or net income because we maintained, as Claudio Galeazzi restated in the last statements for semester, this is a priority to maintain a capital structure with liquidity and low indebting.

So we have -- we still have a very strong structure. The hiring of the debt was made before the crisis when we were preparing to a harder moment. So our debt cost average is about 102%, and with this successful reduction of SELIC tax, we were able to capitalize this gains that leads to a reduction in our financial expenses. And we are also seeking balance in the means of payments between sales with interest, and sales without interest installments. This leads to 80% in the consolidated results for the Group.

Page eight, we can see our debt profile. As I said, the indebtment is 0.68% the EBITDA in the quarter against [1.15] times the EBITDA compared to the previous semester. This also contributed to reduce the cost of the net debt. Our debt in the semester -- in the semester is BRL939 million in the last semester.

Page nine, the results for FIC presents an improvement, an important improvement, reaching BRL3.4 million results compared to BRL[1.4] million last year, and in the semester BRL7.3 million, compared to BRL2.6 million in the last semester, reaching almost 13.8% of the share in sales and 5.8 million in clients, and a portfolio reaching BRL1.7 billion. So our increase in FIC is very important. We are very satisfied with the improvements in the FIC results that are above what we forecast for this year.

For Sendas Distribuidora, we don't have any important highlight. We also maintained gross margin of 25.5%, total operating expenses; we also are aligned with last year with an increase of 0.4%, also related to the seasonal effect of Easter time, and we maintained EBITDA margin from 4.2 to 3.9. So Sendas, we talked about this after the [structuring], and it presents maintenance in the levels of profitability achieved.

Page eleven, we have Assai. Assai in this quarter has an important improvement, and it also presents a growth compared to same period last year, a growth of more than 7 percentile points compared to last year leading to an EBITDA of 2.9% compared to 2.1% last year. So we understand that this intensification in synergies allow us to capture reductions in this expenses and maintain the expansion plan very aggressive for this year for consolidation of our position in this segment of gross sales in retail.

So net income and net margin; if compared to the results last year, we have a very expressive result of 155% -- with 131 in the semester, and 72% in the semester -- I'm sorry, 72% if we consider the adjustment in net income last year, because last year besides restructuring, the issue of 638, it's a problem for the results we stated, considering that last year goodwill was amortized and this year it's not.

And so, we may have adjustments. The growth in the quarter is 72% and last semester is 50%. So considering this accounting difference, the increase on net income is very expressive with a margin of 2.3%, representing a growth of 2.3 or a 130 bps in net income.

Page thirteen, we see that this year, investments were not different in the last quarter -- compared to the same quarter last year, achieving BRL105 million in the last semester, but restating the intention of investing BRL113 million this year. So we will have an acceleration of investment, opening new stores and with refurbishment and restructuring of the new stores.

In the first semester, we opened three new stores for Extra Facil and one new drug store, one conversion of CompreBem, two stores for Sendas, and one new hypermarket in Rio de Janeiro, all of them in the same format of Assai, and a conversion of CompreBem into a new format of Extra Perto. With that, we closed the semester with 603 stores and 1.4 million square meters of sales area.

A very important highlight that we communicate in this block of results is the new policy for dividends that was decided and approved by the Board of Directors of GPA, where we consider that the Company is reaching mature performance, which allows us to implement a more major dividend policy, that allow us to have a better return for shareholders that represent this moment the Company's [leaving] and that also consider the capital structure that allows these anticipation of dividends or prepayments of dividends that we will have each end of quarter.

And for this year, we consider as basis, the results of last year, or the dividend distributed last year, 60 million, with 50 million per quarter in this first three quarters, considered that the payments related to the two first quarters will happen at August 24th.

And we will have another quarter with the prepayment of 15 million and the dividends related to the year will be adjusted in the final dividend payment with dividends above, considering the results that we are considering so far, and that will be considered for this year of 2009.

So with that, we have a very quick overview of the results, and to take advantage of the time in the Q&A session, now I pass the floor to Q&As. I open the floor for Q&As.

Thank you, and now we will have Q&A session. (Operator instructions). So we will have our first question now. The first question by Ms. Andrea Teixeira, JP Morgan.

Good morning, JP Morgan. Good morning. Basically, I will focus in [price] investments that is highlighted in the press release. I think, it's 0.1% improve in investments, but this quarter it was favored by Easter in the gross sales -- gross margin, I'm sorry. And what should we expect for this year in terms of gross margin?

Good morning, Andrea. This is Jose Roberto. In terms of margin, we consider for this second quarter, despite the second quarter is a period of promotions with the birthdays of the several different brands, where we have anniversary promotions in the second half of the year, and usually we have this trend of a drop in margins. Our expectation is maintaining this margin level.

So we won't have a reduction, despite we are seeking to improve negotiating with suppliers, negotiating debts. But we have a very strong policy towards the improvement of competitiveness of our stores in all brands. So our objective, our goal remains this level of margins.

So, perfect. Mr. Roberto, so just to understand, when we say maintaining margins including the purchase of Assai and conversions of Assai, proportional to the average growth of the company?

Well, this is a very good point you mentioned. We are commenting that when we have an expansion of new stores that are more focused in Assai, more model, formats that operates with lower margins, so we can have reduction in percentage due to the inclusion of Assai format. But for cash margins, the margin in terms of cash, this will be maintained within the guidances we presented.

So it's important to mention, it's important to highlight we should not do this analysis based on the history we have, considering that the mix of stores might suffer differences due to Assai. So we should exclude the effect of Assai and see the margin on the second quarter, and work the margins in the current mix and [steady] Assai as it increases.

Exactly. All the gains that we've been seeking with our suppliers and our promotional activities. We always have the concern of increasing the level of competitiveness of our stores. So we don't expect any major increase on the margin.

Okay, perfect. Thank you. And when [one part] is completely implemented now in the second half of the year?

Andrea, good morning, this is Ramatis. We are on the final process of implementation that shall be concluded by October. Today, we have pretty much 70% of optimizable sales already under that system. Our expectation is to conclude it by the end of October.

Perfect, Ramatis, thank you. Have a good day.

Our next question is from Ms. Daniela.

Good morning. Congratulations on your results. I have two questions. In the first half, the Company's strategy was to hold the investments given the uncertainties of the economic scenario. So I would like to explore the strategy of moving again to retaking the expansion plan of the Company, because I think it's been holding it too much maybe on the last semester; even more than next -- than last year. So that's the first part of my question.

Daniela, good morning this is Caio. This was the guideline we've provided on GPA Day. In the first half, we always hold back on the investments a little bit because especially when we analyze that we're coming from a global crisis that has been improving and we decided for the second half to implement it. So we have a series of stores to be opened, and we will finish this year with 97 new stores.

What's the breakdown of these 97 stores, or is it all on the smaller formats like Extra Facil, Extra Perto?

No, it's 50 Extra Facil stores, 8 Assai stores, 6 Pao de Acucar and 4 Extra stores. We also have 10 gas stations and 15 drug stores.

So we probably won't reach by BRL1 billion of CapEx this year, right, with this plan?

No, what we forecast is BRL750 million this year for CapEx.

So, and do you have any visibility or any idea for next year?

No, we're still studying it. We are making our programs and plans for next year. We have strategic meetings to take place in the second half of '09, and then we will have the guidance for next year, but not yet.

Okay, thank you. And about -- I don't know, about Ponto Frio, what can you tell us on the short period that it has been there?

Good morning, Daniela. This is Jorge. As Abilio said in his opening, within this integration process, we are moving along quite favorably. We have until the end of August to conclude our diagnosis study, and we are actually very pleased and very optimistic with what we've been seeing, not only in terms of the motivation of the whole team of workers, which was very positive for us as it does make our work easier, but also with the analysis of the synergies we'll be able to capture.

And this will all be included in the business plan that we will prepare and present to the Board. But overall, the works are moving along in a very positive way, and we really are very satisfied, very pleased with everything.

In terms of sales, is there anything you could say? I saw that about Father's Day this week, they can buy in [14] installments in the Ponto Frio card, and you don't usually work with installments above 12 payments. And overall, would you say that the sales of July and early August, would you say they're going well?

Well, Daniela, in terms of sales, we have started to work and reverted in only 20 days. But there is a reversion already. However, all the measures that we will implement and that will have an impact, a direct impact on sales are not -- are still going to take place during the second half.

All right, thank you.

The next question comes from Gustavo Oliveira.

Good morning, everyone. You talked about Sendas, that they were a fact in the city of Rio De Janeiro. You were able to maintain the EBIDTA margin and the extended margin if it hadn't been for that.

When you look at Sendas today, when you talk about the turnaround of Sendas, before implementing the changes, you were implementing on turnaround at all other Pao de Acucar stores, do you believe there's still space to gain in costs at Sendas. Also, do you believe Sendas is at a more advanced stage compared to the rest of the group?

Gustavo, hi this is Tambasco. We believe that there still is room for improvements. But I wouldn't talk as much of synergies for the reduction of costs of the operation. I believe that Rio de Janeiro for us has been the market that is gaining importance increasingly.

Now, we have the Assai flag there as well, and our main expectation is for the improvement on the increase of sales of the existing stores. We've been doing an integration work with the national commercial departments, as well as investments in stores so that we can have a better physical apparatus, and with that be able to increase the productivity of the stores.

I believe this is the main room for improvement and growth in real, and we'll probably intensify this more in the second half of '09.

So you are talking that Sendas is topline. But what about the rest of the group, the other Pao de Acucar stores? Do you still see room only in topline and productivity, or do you see any possibility of gains in cost?

There is always room for growth. This is a great challenge. Unfortunately -- I'm sorry, fortunately, we've been able to get very positive results. We've been giving notice to the growth on Pao de Acucar stores. This year, we started intensifying the increase of new Pao de Acucar stores again as Caio already told you about the opening of six new Pao de Acucar stores this year.

So I think that for each of the flags, which are the formats, we are -- the Company's main purpose is to improve the performance of same store, despite an expansion or an aggressive expansion plan.

The second question I'd like to ask about the financial expenses. You had a very positive result in terms of mark-to-market, but could you explain in more detail how you reached this benefit considering the negative value you had last year? Just some clarifications about that.

Gustavo, good morning, it's [Imar]. Our mark-to-market is only for the swap share of our debts. Regarding the first quarter, the differential of the current CDI and future CDI had a great reduction. So that's why we had this gain in mark-to-market in this quarter.

But it's simply an accounting effect because the only share that is left to mark-to-market in our current procedures is the passive share of our swaps. In CDI, we don't do mark-to-market of the other instruments. So that was due to the reduction that we had on CDI; that's why you had the positive results. Yes, exactly.

Okay. So if it hadn't been for that, it would've been a different result?

Yeah, the idea is for a constant CDI, or that fluctuates less, this mark-to-market of the passive share of swaps really tends to be very close to zero.

Okay, perfect.

Gustavo, hi. It's Abilio, how are you?

Hi Abilio.

Okay, so after the GPA Day meeting, you had a very good conversation with me here at the headquarters, and I would like to ask you if you're surprised with our results --- if you are pleased with our results?

I think that you are showing great stability, Abilio. I think that's very important and the market really needs that. So certainly I think you're making the investors very happy, especially with the shares going up strongly and I think that was a great concern that you had. And I believe the market is very happy with this result, certainly.

I think that's important. Thank you, Gustavo.

And congratulations, your results and the stability are much better than -- and I believe your investors are pleased. A final question, I know that the e-commerce aspects of the Company is included in this results -- financial results. But in my math, I believe that that the values we're talking about, 50%; with 160 stores it's close to 8.9%. Is that an acceptable figure to justify excluding the increase on e-commerce?

Gustavo, hi, it's Tambasco again. Well, we always expect more. But these figures, I wouldn't say they're in line because we're above the guidances that we presented as Eneas already said in the presentation, and our results is not concentrated in one mode of business model or another, or even in terms of a geographic region, per se.

Fortunately, we have been having very good sales performance in all our formats with some highlights as Eneas said for Assai and Pao de Acucar, as well as Extra on non-food products that does have a greater impact of e-commerce. We always have the expectation of reaching figures that are higher than what we have today.

But what the figures have been showing is that we are in line with the guidance that was presented for this year, and we have the perspective of even overcoming and exceeding these numbers regardless of the e-commerce performance as you mentioned, which is the main highlight.

Do you plan to give more opening, more space for the e-commerce results, at least in sales so that we can separate this effect?

Hi Gustavo, it's Caio, good morning. We do not intend to have a disclosure of e-commerce separately. And it's strategic, it's inside the Extra format, and we will not separate it. Okay, thank you very much.

And next question comes from (inaudible).

Good morning, congratulations for the results. I have three questions. The first one is very short. Considering the estimate of opening new stores this year in its format, you have an extension of area for this year of around 5% of those 10% that was put as guidance on the GPA Day; is it a review of the 10% number reducing it down to 5%, or am I doing the math wrong?

Your math is right. But on the GPA Day, our guidance was of an increase of sales of 4.6%, excluding Ponto Frio. If you include Ponto Frio, this -- the math will change and go above 10%, but our objective is 4.6%, and we will reach it.

Okay great. My second question about the guidance is from the GPA Day of the BRL40 billion in revenue for 2012, I would like to know if you will provide more details how you reach that figure, if you have a daily control over this period of four days of around 30%. What you're waiting on for the next four years, there should be a lot left for the improvement of sales per square meter according to my math over 30% a year to reach 40 billion.

I would like to know if you can tell me more about how you are going to reach the BRL40 billion, and if those figures still stands, or if after your last meetings over the last few months, if this figure has changed at all?

Cristina, this is Eneas. Good morning. Well it is complicated to give you details. We put this in GPA Day with objective of creating a context from where we are coming from, where we are going to, based on what we are doing today. So the goal is not to have a detailed disclosure including, because this is part of our strategic planning updated in our annual basis that involves beside organic growth, it involves intense growth in different business segments.

So we have normal growth of business, we have a very aggressive expansion, and we have an intensification of businesses, for instance with a strong dotcom for next year. But I cannot say much more than that. This is a long-term target. This is not a unsustainable target -- unsustained target.

We have a detailing of all the strategic points and values or models, so we can achieve long-term targets and this is detailed and discussed with shareholders. So to maintain this context of long-term targets, long-term goals, we cannot have a larger disclosure right now because this would imply a disclosure of absolutely strategic [themes] and movements that we will have in the coming times.

So, this might include some minor extensions, this is not necessarily organic growth. This might have purchase of drugstores or a big chain. This might include non-organic growth -- might, but it does not include. When we have a strategic planning and budgeting, we do not include acquisitions. If acquisitions happen, it might substitute organic, considering there are limits for investments due to cash generation, but no.

In our planning, we are not considering acquisitions, but it might happen. It might happen and substitute some organic growth.

Okay. Well, the last question you were talking about July, beginning of August in terms of sales. We know that the third quarter is more difficult to compare, if you are feeling that the deceleration in terms of sales, if it is following the trending line with guidance?

Well, Cristina. This is Ramatis.

Good morning, Ramatis.

Well, the trend we are feeling in this beginning of the second half is that we are inline -- aligned with our guidance. The market is warming up. We have a trend of gain in market share in the first half. We have a growth compared to our competitors, of to [two-fold] and we believe this will remain for the second half.

Next question is from Juliana Rozembaun from Itau Bank.

Good morning, you all. In your presentation, you mentioned that the current percent -- with the 40% of Assai, we can accelerate the format -- in this format, because what we were not -- what was not possible to achieve before that we can achieve now with Assai?

Juliana, good morning. Well, for sure, as we have a partner or used to have a partner there, we maintain the company open with committees, with board of directors, with chairman or with board meetings, accounting was carried out over there. The controlled reports were made over there.

All the systems where from the original partners, the original Assai. We maintained all the management system of original Assai because managers were the partners, and they are used to make the management based on the tools and the instruments they build.

But as long as we have Pao de Acucar, our GPA management taking the advantage of the consultancy of the partners, we are able in the terms of transactional back-office controlling, accounting, IT, and several other areas, we can find a better synergy taking advantage of Pao de Acucar structure, including sharing services, and this will lead to savings for Assai and a reduction on the back office using Pao de Acucar structure.

So just to clarify, we have the savings in GMA. So how much on the 12% of sales that operational expense shows -- lead to savings in GMA?

Well, I will try to think on a better answer, and meanwhile Roberto will talk about the synergies in term of purchases.

Juliana, considering this topic of expansion, this movement of Pao de Acucar by acquiring 40% of the shares from the previous partner and having now all the management for Pao de Acucar on the hands of Pao de Acucar allows us to seek the expertise of [Adolfo] especially and [Louis], in what they didn't have -- they didn't have time available to do so, which is the case of expansion.

They are both strongly involved in this project with us to have a strong expansion of Assai, helping us now with more time to do that. This allow us to speed up this process. And now in the commercial area and logistics, we have maybe the greatest opportunity of gains in this Assai acquisition, leading to an improvement on the operations, both in the existing stores as well as the new stores of Assai.

Juliana, looking at the breakdown is hard, or I will be disclosing too much if I give you exactly where we have those reductions because when Roberto talks about logistics or marketing, and when I talk about management control, TI, when we're talking about SG&A, both the expenditures with sales, as administrative, and probably a reduction of CMP considering a better or more efficient management of purchasing, and by using the better parameters on each sides, for each case for product category.

So what we can affirm and follow-up in the following quarters is a reduction in Assai reductions. As Assai, this will lead also to a reduction in CBD, but CBD considering the Assai will be a minor reduction, but for Assai expenditures this will be significant. So still in this topic of consolidation.

If there anything about the integration of financial operations in terms of credit cards with CBD, and is there any model on the online platforms of both. And in the same lines, how do you solve the problem of minority shareholders?

Well this is Eneas again. Well, first, considering -- well, nobody asked but let's clarify. We are now consolidating Globex as of July because the CBD assembly happens July 7. So consolidation will happen as of July.

Considering shares, the implementation of what we disclosed as acquisition process or the engineering of acquisition, both in the controlling side as in the minority side is in places. So we are in the middle of the period, capital increase, to allow that both controllers as minority shareholders that want to have swap for [PMBs] can happen.

This is ongoing. And then we will have open, that is another possibility of -- for the minority shareholder. This is happening, this is going on, but it will take another 90 days to be concluded, and for us to be able to tell you as minorities increased or decrease, or went out through OPA. So as soon as we know it, we will inform you.

But is there any decision about the integration or financial operations in all line operations?

Considering the financial part this is also ongoing. The Universal Cred -- or [Investor Cred] is a joint venture; half Globex, half Unibanco and now it's Itau Unibanco. And there is an agreement of Globex exclusivity where they invest private bank, that is in force out to October 2, 2011.

So up to this moment, there is not much to do. We are happy with our partner UniBanco, and we certainly will be happy with our partnering invest credit. There is a lot of synergy to happen between FIC and Investor credit. We all have all the -- we would careful with any synergy and any integration between companies or business GPA and Globex, as long as there minority shareholders or different shareholders in both companies because we have -- we have to be extremely transparent.

This does not mean that we aren't taking the advantage or capturing economies and synergies, but this has to have -- this must be very transparent and with cost contracts very clear that have to be disclosed as they happen. So, the financial side we are discussing, this is ongoing and as soon as we are able to present, we will present how Invest Credit will work.

And I can anticipate that the model will remain, the model Investment Credit, for obvious reasons, FIC pass through learning curve, important learning curve. So this model will remain and prevail and discussions are ongoing, and now I turn the floor to Caio to talk about dotcom.

Good morning, this is Caio. Considering dotcom., we are working on this topic. There is still a lot of synergies to absorb between both dotcoms, extra.com and Ponto Frio dotcom., they have good operations, good work and we are working jointly in a workgroup to see what we are able to improve and what we can do better together. So thank you very much.

Next question by Goldman Sachs, by Ms. Irma Sgarz.

About margins, you said that operational expenditures dropped. And I believe, I think, that this also had the impact of the changes in resources in terms of gross margins, 60 bps, and now with higher net revenue and the difference between operational expenditures, the net revenues will decrease due to the tax changes. So I would like you to clarify this issue?

Hi Irma. This is Eneas, good morning. As we said in the beginning, the increase of net sales caused by the change on the tax system and the continuous migration of products to this tax system causes an increase on net sales, as well as an increase on the cost of products sold compared to a line of taxes over sales.

This increase on net profit, (inaudible) vertical analysis, it does not affect only gross margin. We highlight the gross margin because it's a very sensitive line, which has an important factor, requires explaining. But if it were the case, there would be a need for an explanation of this in all lines because the effects takes places on the base of what's used for the vertical analysis.

Of course, there is also the effect of expenses of around 0.3 or 30 base points as you said, which also has an effect on EBITDA and our other lines of the analysis. So you are correct in your analysis. I tried directly to summarize that in the beginning when I said that it affects the 100 basis, so it affects the entire vertical analysis of the result.

Not only for our company, but for every company that has a position in the states that are undergoing this migration to this different tax regimen. I hope this is clear now, but yeah, that's what happens.

Okay, thank you. That's exactly what I wanted to know. I have another question, when you talked about the dividend policy, the more mature dividend policies, what do you mean exactly? It was then based on net profit; are you going to change that with the acquisition of Globex or you feel comfortable with the position on the balance sheet?

Do you have any perspective to maybe increase that percentage from hereon, or are you more focused on expenses or in CapEx side of that balance?

Irma, It is Eneas again. It's a great question. I think it's important for us to talk about this dividend policy. When I talked about it being mature, what I mean is a company that is willing to prepay dividends must be presenting, first of all, consistent sustained results to the point that the Company believes it can prepay dividends, because it will have results in the year that are higher than the dividend prepayments that it's incurring on.

So with this consistency and with this increase on profitability for the Company brings us a level of maturity, or to put it differently, a level of confidence in the generation of future results to the point that we say, I can prepay dividends because I know I will have profit this year that will be superior to that so there will be no problem prepaying.

But of course, that's not the only thing that counts. The Company must have a very solid capital structure with liquidity and a cash generation that allows it to incur on those prepayments in benefit of shareholders, but not in detriment of a reduction of investments or CapEx or anything that maybe important for the growth of the Company.

So if we combine this confidence level reached by GPA with the increasing, sustained solid results we've been reaching, we've been achieving, combined with a solid capital structure, liquidity and low level of indebtedness, we understand that it's a service provided to the shareholders, this prepayment of dividends that can guarantee liquidity to our shareholders as well as the economic gain.

That has no relationship with Globex or with any other specific fact, except for a concern with our shareholders, with our investors; this concern of creating a transparency policy that works for the shareholders of this company. So that's exactly and precisely and only that that is behind the new dividend policy, okay?

Thank you.

The next question comes from Marcel Luna from [Benitz].

Good morning, congratulations once again for the result. I have two or three quick questions. First about the topline. On gross sales, I noticed that the gross in the quarter was directed mostly by the Pao de Acucar, Extra, Assai and CompreBem formats. I would like to know if you can talk a little bit more on the trend of volumes versus prices on the quarter.

I would to understand; we may have seen that prices were stable or a slight decrease, and volumes were growing quickly -- and I would like to know if you can confirm that about the second quarter? And if you can talk about the scenario for the second half, if you expect these formats to lead the topline increase.

And I know you've talked about guidance maintenance and so on, but if I am not mistaken, you have the cross-guidance of 2.5% actual growth for 2009. And on the first half, it's already beyond 3%. So I would like to know if you expect the topline increase to be higher than what was provided for on the guidance.

Marcelo, this is Tambasco. First, this is not a correction, it's a confirmation. Our guidance is to have an actual sales increase above 2.5%. So 2.5%, for us, was the basic. It should be above that, and that's what we are doing.

I believe that the data remain as I said, and talking again about Sendas and Pao de Acucar, we still see great opportunity to seek better performance on the existing stores with a greater integration of the regions, in the case of Rio de Janeiro, with our commercial structure, as well as have an improvement of the stores considering the investments we've been making in the renovation of stores.

So our expectation is to maintain this level of sales and from that up the increase in the performance in all of the Company's formats in all regions. Ramatis can talk more to us about this price pressure, and the increase in volume versus price variation. Ramatis, would you like to talk about that?

Marcelo, today, when we speak in terms of price variation, our price variation is in line with the inflation. We don't have significant deviations. In terms of volumes, there is a natural reduction in certain categories that are compensated by other categories.

That really depends a lot in the aspects of commodities. For example, milk, right now has an increased tendency, but it's already starting to decrease. We have our other categories with similar behaviors, but in our product mix, that does not have an impact on the total.

On the second half, with our strategies especially focusing on the anniversaries, we are now in August with the anniversary of the Pao de Acucar format, and we have the anniversary of all the other formats, and we still have the Children's Day in October and have Christmas sales, our trend is to maintain the strategy of increasing the flow of clients or customers in our stores.

We notice that this effect is gradually increasing in the sense that it's continuous. The client comes back and buys again and keeps purchasing at our stores. So we notice this higher frequency of client visits in our formats. That's a very important -- that has an important reflection on our sales.

Excellent. In terms of the price of food segments and non-food segments, if you can talk about the second half, especially focusing on white goods and other items versus food segment. Do you expect a similar price behavior for these two major segments, or can you talk a little bit about that?

Ramatis again. The trend is of stability. There is a new variable as of the end of October, which is the end of the reduction of the IPI sales tax on white goods products. This is being discussed still and it might be prolonged, and this type of movement is important because, for example, with IPI -- we in the white goods IPI, in white goods, we were increasing 15% as the market was dropping.

With the IPI reduction, we started growing 30 to 40% and the rest of the market started growing around 15%. So we noticed that this fluctuation, especially with the impact of tax regimen changes, has a greater impact on sales. But as far as price trends due to increase of prices in the industry, that is very stable.

Great. And you mentioned about IPI; you believe it's going to be prolonged? Is it something you know or something you hope?

There are a lot of discussions, governmental discussions; the retail sector is aligned with the industry discussing with the government about the importance of the reduction of this IPI, the tax over manufactured products. There are meetings going on with deep discussions of the impact that that has.

Excellent. Just another quick question about the performance of stores that were converted into the Assai format. I would like you to remind us of the objective of the conversion of Assai stores. I understand that the conversion is what we saw the stores on GPA Day; you had an Extra Assai store. Stores where we normally see an increase from same-store sales that is much higher.

So I don't know if you can talk a little bit about the objective. How many stores, how many Pao de Acucar stores you intend to convert in the next year, and what the performance of the converted stores is compared to the Group's average?

Hi Marcel, it's Tambasco. I believe that most of the conversions that should be done have already been done, and we did that on the stores where we believed that Assai could bring a better performance to the stores, and in fact we confirmed that.

I have been saying that these conversions have been bringing an average increase of 2.5 times or 2 to 3 times the sales increase on those stores. We have been experimenting, as in the case of the Extra store, Extra (inaudible) putting next to the hypermarket store, the Assai model. So that's not a conversion, it's using the same site to explore both models, and that has also been very positive.

And what we have today is a constant, ongoing study of stores that we may believe could benefit from the conversion having this great number of sales.

Whenever we have this evaluation, we will convert it. But right now, I don't have the number of conversions and which stores will be converted. They can come from any of our formats. They can be Pao de Acucar, CompreBem, Sendas, or even Extra.

The fact is that for this year, we have -- for the next year-and-a-half, we have a greater focus on the organic increase of new Assai stores. We already disclosed that information for the next year-and-a-half; we expect to open 30 new Assai stores -- not considering conversions in that number.

And my last question then about the consolidation of Ponto Frio. If I understood you correctly, as of the third quarter, we will see consolidated results. Was that earlier, and if that happens or if doesn't happen, I don't know if you can already talk a little bit more about what we may be able to see in the consolidation.

I think it hasn't been discussed yet, the expenses of [restructuration], what you expect. And I understand it was mentioned earlier in the call that it is being done. So if you are not able to talk about the level, of what's it to be for 2009, what is your forecast? How much -- when do you think the market will be able to receive information or detailed information the impact will have on the consolidation? Thank you very much.

Marcelo, this is Eneas. Good morning. Considering consolidation, what you understand is correct. We will start consolidating as of July. So the fist quarter for consolidation of Globex will be the third quarter actually. And we will have a disclosure allowing this analysis separately. So you can have your -- you can carry out your own analysis with no problem.

What is going on now is that in the second quarter, Globex is closing the statements, the last Globex's statement before acquisition. So this is a financial statement that will be published in the following days, and as of that, it will be within the scope of GPA, as of the third quarter.

Now I will pass the floor to Herzog to answer the other questions.

Marcelo, this is Jorge. As I said previously, the moment we are leaving now is carrying out analysis, identifying potential synergies, always considering what Eneas mentioned that this should happen with great transparency, considering the shareholders of each company.

And within this plan that we defined with the Board, we will determine the analysis. We will finish the analysis after the end of August, and present when we will have a better overview or better understanding of Globex results, so we can present this in about 60 days. So thank you very much once again.

Our next question Mr. [Alex Cardozo] from [Agura].

Actually the first question was already made.

Next question Mr. Luis Cesta from Banco Espirito Santo.

Good morning. I have two questions. I will try to be very brief. First, considering real estate operations, I would like you to disclose --- mention the advancements to define real estate within GPA in the first quarter, and what we might expect to have separate figures of those operations and for the Group retail.

And the second question is about the participation that Sendas S.A. still has, considering that the facts does not provide that. So I would ask if you believe that Sendas' participation will improve GPA results for this year or we should expect that for only ---only for the next year?

Luis, considering the state GPA (inaudible) products, properties; we are working --- our team is working on this topic. There are some internal adjustments we are carrying on considering internal rentals between formats and the new company.

There are still some adjustments to be carried out. But we are working some ventures that will be launched. There are two or three ventures, undertakings that will be launched. And we believe that this figures once you have them separately, you can understand them as of fourth quarter.

Luis, this is Eneas. About your question considering the participation of Sendas or Sendas share, I cannot answer you if that-- this happens this year. I would say that probably it won't. What happened is that we are talking to them, and if we follow the contract -- and also when they had a notification of the exercise, but considering the evaluation of the Company, we and them, especially them; preferred some type of deal or talk about this issue.

So we don't have anything concrete to present. We've been discussing this issue about the acquisition of Sendas S.A. or Sendas. But this discussion will probably take longer due to the contract, the Brazilian Company of [Distribution Candidad] with distribution of shares and of cash.

And with lockups already released, one-third, three years later, and the remaining shares six years after that year. This is what we have stated in the agreement, but we are not considering just the agreement. We are discussing with them a more adequate way out, and but so far we don't have anything concrete.

What does not change anything in terms of operation, in terms of the life of the Company; its relationship with partners is very good. There is no type of discussion or argument or lawyer's talk. The talk is happening between -- among us, myself and Caio with (inaudible) directly in a level of friendship and mutual respect, a very high level of mutual respect and we believe that we'll find the balance in this agreement, and I have nothing to add, to inform you right now. Thank you very much.

Our next question Mr. Marcel Moraes from Credit Suisse.

Good afternoon. My question is about Ponto Frio. So it's both for Herzog and Pestana. The first is how much you imagine to invest to refurbish Ponto Frio stores? How many of them should be refurbished so they become modern 100, 150, 200. So this is the first -- 250 -- this is first question.

Marcelo, this is George. And answering your question as it's been discussing previously. We are in this process of diagnostics and evaluation and considering the necessity of --- the need for refurbishments. Now we have a more concrete overview of all of the stores, and this will be concentrated in the business plan we will present in the next 60 days.

I don't know Herzog, I believe we still have time to have answers for those questions, but I will ask anyway, maybe they are --- they follow in the same group. So in theory, from Ponto Frio, what would be the sale for square meter and what is the EBITDA the Company should have to have a return on the investment?

Considering sales per square meter, we currently have in our internal benchmarking, in Extra Electro and what we will carry out now is defining the better parameter. So we have this proposal for a business plan. So again, this figure shouldn't be considered now for the analysis of the numbers. This will be jointly presented. Margin is probably -- this works probably the same way.

Next question for Pestana. General expenses, they have dropped compared to any of the previous quarters, but due to seasonal effect where last year we have recurring effect. So in which stage the economy has an impact on that compared to last year.

Just a second, Marcel. Marcel, good morning. I am sorry, I was analyzing the figures. You said a 100 million of reductions in -- no, no 100 million is the total general expenses when compared to 120 or something like that.

Okay, thank you for clarifying.

So 100 million in savings, I was looking for that here and couldn't find it. Well, actually, the economy is very concentrated if we compare to previous quarter and this has nothing to do with recurring or nonrecurring from previous year.

This is a good comparison. The expenses with sales has an increase of 120% and the other expenses, a drop of 20%. Expenses with sales due to pure seasonality, Easter time and so and so forth. For general and administrative, no. This is where we can exercise the power of controlling expenses. This is exactly the profit of expenses.

This gain in efficiency, this achievement of general and administrative should remain consistent and eventually with some gains, due to everything we mentioned so far. Expenditures with sales in the next semesters, in the next quarters, it will drop a little bit because there is no Easter in the third quarter, and but there is the anniversary of the formats.

And it will increase again in the fourth quarter. And so what I can anticipate in terms of expenditures, and we have a structured process of control. So there is no miracles, there is nothing, there's no top-down. This is the hard work carried out by workgroups in a [metricial] fashion, controlling expenses as [Claudio] mentions, where everything is questioned, any type of cash disbursements are questioned.

So this is being incorporated to the culture of the Company. And in parallel the culture of budgeting was strengthened in the last two years, and what I can say is that the result on expenses control is due to that, it's not top-down, it's not any project, it's not firing, cutting people. It's just that -- I hope it is consistent for the coming times.

In general lines, it's just an initiative. But if I compare '08 with'09, we add to this savings. This allowed to have the expenses constant.

Just to clarify, I would say that if you consider the zero nominal increase I would say it's reasonable. I expect it or I hope it to be even better than that, but as you see in the performance of the half, if you look at SG&A, it had a reduction of 7% during the first half. So I would say that in terms of G&A there has no effect, it doesn't suffer any effects from variables, I would say that considering nominal as zero is conservative.

Okay, excellent. Thank you very much.

Thank you. We now close the question -- Q&A session. I would like to give the floor to the Company for its final considerations and closing remarks.

This is not Daniela. This is Eneas. But I would like to thank you once again very much for your attention and patience and your interests. I would like to thank you for all the questions you've asked. We are here very strong, very motivated at your service to make this Company, the Company that we deserve and the Company we've been hoping for a long time.

I have a message [for] Claudio Galeazzi; he is on his well-deserved, well-earned vacation. But he sends you all a warm embrace. Have a good day.

The translation of the result Grupo Pao de Acucar is now closed. The Investor Relations department of the group is at your disposal to any further questions. We thank you all for your participation and wish you a great day.

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.