Companhia Brasileira de Distribuicao SA (CBD) 2010 Q1 法說會逐字稿

Welcome to the (inaudible) teleconference earnings results of (inaudible) the first quarter of 2010. This event is being broadcast simultaneously over the web, (inaudible) English, press www.gpari.com.br and www.globex.com.br/ri where you will find the respective presentations. The selection of the slides will be controlled by you and the conference will be available after it's finished. Obviously, the results will be available in the RI's website www.gpari.com.br and www.globex.com.br/ri.

This event will be recorded, and all participants will be on a listen-only mode. After the presentation, we will start a Q&A when more instructions will be given. (Operator Instructions).

Before we proceed, we would like to say that possible statements that might be made during this webcast relative to the prospects of GPA, its projections and financial and operational goals are based on the incomes of the Company and on forward-looking statements. They are not [guaranteed income] of materializing and it depends on circumstances that may or may not happen. General economic conditions, industry factors, and operational factors might affect the future performance of the Pao de Acucar Group and might lead to results considerably different from (inaudible).

I would like now to give the floor to Ms. Daniela Sabbag, RI Officer of the Pao de Acucar Group, who will make the presentation. Ms. Sabbag, you have the floor.

Good morning to all, welcome to our earnings conference for the first quarter of 2010. We have with us Abilio Diniz, the President of Executive Board; Eneas Pestana, CEO of the Group, Jose Antonio Filippo, our CFO, besides our other officers and Vice President, Mr. Jose Roberto Tambasco, Ramatis Rodrigues, Caio Mattar, Claudio Galeazzi, Jorge Herzog and (technical difficulty) Padilha, and Hugo Bethlem.

The presentation will follow the traditional format that we normally adopt. We will present the main financial and operating results for the quarter and will be giving some comments on the performance of the impacts. At the end of the presentation, we'll go into move to a Q&A session.

So now, I would like to give the call over to Abilio Diniz, the Chairman, for initial remarks.

Good morning to all. Well, on behalf of the Board, I would like to say that it might be strange to be holding this call today (inaudible) tomorrow; we'll talk about the results for the quarter today so that we're going to have to be able tomorrow to talk about the profits to tell you what is happening in the Company, the development, the (inaudible) and always trying to increase sales and results.

I want to say is that as Chairman of the Board I am very happy with the results, both the sales results and the profit results. The prospects are excellent for this year 2010. We did quite well in the beginning of the months of May, we did very well in April, even taking into account the seasonality. Easter had a stronger impact in March more than in April, but I am quite happy with everything that is happening in the Company, the prospects like I said are excellent.

We'll have the World Cup, the FIFA World Cup coming up. Especially for Brazil we are going to sell -- we are going to sell everything we can from (inaudible) to snacks here. In other words, everything we can do, we are getting ready to do, to sell a lot and indeed to grow our sales, chain store sales as well as well as organic growth that we envision for this year.

Prospects for Brazil are the best possible. Sometimes, the media might say that if there is -- across the (inaudible) interesting to invest; this is not how I feel. Brazil continues to be seen as the most attractive country right now. It is a country that is growing, that is contributing income; it is a country where our citizens are consuming more and more, where the job market is improving and I think the prospects for the country as well are excellent.

I think the most important thing that we have today in, I believe is our team, the people who are running the Company. As Chairman of the Board, I am very happy with our team. Eneas is a very serene man, that serenity is felt by myself, by all of the members of the management team so we are constantly working in a very [aggressive] fashion.

Next Monday and next Tuesday, all (inaudible) will be in Boulder, Colorado for a two-day workshop or (inaudible) I consider the crux business (inaudible) of today. These workshops have been scheduled for the beginning of December, been postponed because of the negotiations (inaudible). But we'll all be back, don't worry we're going (inaudible), but we will all be there all the top members, (inaudible) our journey will bring us to New York where they will be attending the (inaudible) meeting. And we will be talking with our investors aboard.

Okay.(inaudible) about our negotiations with (inaudible) how the negotiations are unfolding (inaudible). All right; we haven't talked to the media, we never talked to anyone because I believe that this is a professional stand that we have taken. This was how we have behaved so far. I'd like to thank our team that has been very serene throughout the (inaudible), and always silent about this.

Now, I am talking to you analysts and investors. I want to tell you what is happening, everything. We are renegotiating some important and not so important points especially during the conference, and we're changing the contract. So we decided to change it simply; we don't want to have any talks with (inaudible) following something that I learned in my life. I'd say if the contractor is good, there'll never be a fight. We should take the negotiations to the limit, we have to read, we have to think ahead, and we have to see if the contract reflects what we're expecting.

So what's taking time right now are not material points; these material points, I believe (inaudible), and I think first we are going to be able to overcome all possible conflicts. Now what we are doing is getting the contracts. This is the beginning and it has been my position was as (inaudible) no efforts. After all my professionalism (inaudible) the Company (inaudible).

It is only what we always want (inaudible) negotiated (inaudible). In other words, supported by Eneas, by all the Executive Board, the (inaudible), help me find a negotiated (inaudible). And thank God, I believe we are moving in that direction.

This is what I can tell you now. This is what all of us can tell you right now. We can't just know anything now (inaudible) negotiations that are underway. Do not ask a question from that because I can't tell you anything more than I have read it, but I can tell you only we are often (inaudible) and more than that (inaudible) negotiations. I believe we will all be happy and you analysts, the investors of our GPA will be very happy with this solution that we are pursuing and also believe that with a lot of work, with a lot of effort, we will make up for the time lost, and we will do a lot to create a great company (inaudible). (inaudible) which are the same, the same goals (inaudible) first to conceive this idea last year.

So this is what I have to tell you on this topic. All of the explanations, details that will be on the performance of Pao de Acucar Group, or GPA in the -- my team will be presenting all the data to you. You, as well as myself, I'm sure, will be very happy with the results of the (inaudible). Thank you very much for joining me in this call. I am sure that we are going to see many of you tomorrow in our GPA this year. Thank you.

This is Eneas Pestana now. Good morning to all; thank you for joining us in our earnings result. I am Eneas Pestana. And now, I'm going to give you a new review of the scenario of investment. I'm going to give the floor to Filippo. He will go over the presentation that is still available in our website. I will give you more details on our figures and on our results. And (inaudible) completely differently this year than 2009.

2010 started on a much more (inaudible) the crisis. We are talking about the crisis, (inaudible) FIFA World Cup as well as the elections in Brazil which always is a very positive in terms of shaking up the consumer market which is for us is very able. 2010 started with (inaudible) with the real estate market moving solidly ahead. So this is a very positive scenario; it was different in Brazil last year.

Obviously, we do have competition. And that's why we always have to be attentive and we have to always to be vigilant to (inaudible). I think also we talked about the effectiveness again with the fiscal control given to this, given the spread of and (inaudible) particularly because of the tax regime. Then we have -- tried to migrate our products to this regime. More than 17% of the basket is sold in -- (inaudible) contribute (inaudible) in spite of the tax replacement regime.

The basics for us in the form of Company is that we have more formalization in the market. And this regime, it is impossible now to withhold taxes till the spring, a competitive edge to a former company like ours to -- we are strongly supportive of this measure to improve fiscal restrictions from internal standpoint as Abilio said.

I have to say that our team continues to work in a very (inaudible) fashion. We're all very enthusiastic; we work very much together, a single team with in-depth knowledge about this business and about the Company. And we could (inaudible) strongly, and this year we have a medium and a long-term objective.

And also to (inaudible) our short-term strategy. In terms of the business fundamentals, I always like to mention something which I believe is very relevant. I hope positive, we are in the main fundamentals of a retail business. These are indicators of the health (inaudible) of the Company. So the first point of our competitiveness, I believe, that never was this Company as aggressive or was at such high competitive level in every region, all major region where we are present, which is obviously based on an efficiency gain on the reduction of our expenses.

This is what is making such a strong investment in our competitiveness which brings about relevant sales increases. Net (inaudible) the growth of our Group is 20%, net sale of 23%. The same store sales growth is 15% and real sales growth, net of IPCA of almost 10%. This is the growth that continues and this takes into account our margin improvement, we have constantly an increase in our customer traffic and also increasing (inaudible).

In other words, we have been maintaining our EBITDA margin which means that we are investing efficiency gain (inaudible) balance by expense reduction leading to the efficiency, improving our market share and the cash margin and cash EBITDA showing the growth of over 20%. All these fundamentals are of the retail business are quite positive in our Company today. I follow those ratios very closely as well as I believe in our shareholders. This is the (inaudible) team.

It is also important to stress that we have to closely analyze the consolidated EBIT and the margin. In the vertical analysis, the margins are impacted by the tax replacement regime. Filippo is going to explain that in detail. But more importantly than that, as we invest in business such as wholesale or intensification of investment in the electronic business is well a business of gestation. All vital mixed business portfolio that tweak the historical margins that impact the historical margins of the Company.

So when you analyze the Company historically, you have to look at the margins clearly to understand what's happening. It's important to highlight the improvement in cash margin, which is our ultimate goal. Then that continuity, as a ground (inaudible) region to continue to work with a very strong capital (inaudible). This is not (inaudible) if we want to push the Company's strength to organic growth. In organic growth, our focus will be in the foodstuff format for this year.

We want to resume a balance in the foodstuff and non-foodstuff mix and in the Extra Facio, in the Assai brands and in the commencement of the Extra supermarket format.

We will maintain the focus to create value, and (inaudible) this progress will strongly (inaudible) in the beginning of 2008m and consistently over the quarters, we have been showing significant expense reduction. Obviously, now we're completing our work to adjust -- work on the management model processes, roles and responsibilities trying to consolidate the management of a group of companies because (inaudible) we run different companies, or different businesses.

Each business has a different management. There is no management contamination from one business to another. Having management focus on the food business, and we are strictly focused on that and so on and so forth. Eletro electronics, gas stations, and so each business will have competent, dedicated people to coordinate it at the top (inaudible) from the strategic point of view.

And obviously this year will be marked by much more business integration, trying to improve synergies, and we're going to give you more details the results for Globex, all (inaudible). We will talk about the synergies gap to end the potential (inaudible). Abilio will be giving more on that. Synergies that (inaudible) by far our initial expectation.

And this is how we intend to promote inspiration and synergy among the other business (inaudible). This is a great challenge and the Company is ready for it. More standpoints in terms in cash (inaudible), in terms of having competent people in the right positions, and we are very motivated, enthusiastic (inaudible) achieve our immediate and long-term goals.

It's time now to give the floor to Filippo, who is going to give you more details on our results. Thank you.

Thank you Eneas, and good morning to all. Well, to give you the highlights, the consolidated numbers and then I'm going to give (inaudible) and Herzog is going to talk about the (inaudible).

Starting on page four, sales performance. We have gross sales increase in the first quarter of 19.9% reaching BRL6,343 million in the first quarter of 2010 compared to BRL5,291 million in the first quarter of '09. We include the whole breakup the Company, net of Globex, which reflects a net sales, an increase in 50.2% of net sales.

If we compare the same-store terms gross and net sales, gross sales grew 15%, 9.6% real growth discounting inflations. In this 15% can be broken down into food grew 13.5%. The non-food sales 19.5%. If we look at the consolidated figures including Globex gross sales grew 47.1% in the first quarter of 2010 compared to the first quarter of 2009.

On page 5, regarding gross profit. We reached 19.6% gross profit increase in the first quarter of 2010 compared to the first quarter of '09; BRL1,406 million at the end of the first quarter of 2010. The gross margin (inaudible) profit in gross margin had a drop as Eneas mentioned at the beginning of the presentation because of the tax replacement regime as Eneas mentioned.

This is a technical treatment because it's the adjustment of the effect of tax replacement. Net sales increased and therefore the comparison basis is compared now to higher numbers the margin dropped; this represented 0.7 percentage points in our margins. So net of this effect, we would have a positive result as you see in the negotiations what our supply is or to a more profitable mix.

This is offset by an increase share of Assai sales. It brings into our margin, but it contributes a significantly to EBITDA. The margin is showing 0.2 percentage points. The combination of these factors that impacted our gross margin from 25.3 to 24.9. Gross profit with Globex was BRL1,771 million (sic - see Press Release) in the first quarter with a gross margin of 24%.

Moving on to the next page, talking about operating expenses. We had a growth of 19.1% BRL1,029 million in our operating expenses. This is basically due to the impact of the upturn in the social benefit rates on personnel expenses has impacted all of the companies in the Group. And our costs were higher in marketing and IT. And also with the opening of new stores. However, if we compare operating expenses vis-a-vis net sales, the percentage dropped from 18.6% to 18.0%.

As for the consolidated figures including Globex, operating expenses were BRL1,261 million with the net sales dropped from 18.6% to 18.1% in the first quarter of 2010.

On page 7, talking about EBITDA. EBITDA was BRL377 million in the first quarter of 2010 compared to BRL312.3 in the previous year without Globex a 20.8% increase. The manufacture are (inaudible) to an increase in sales, better negotiations with suppliers and a rationalization of expenses.

In consolidated terms, including Globex, EBITDA stood at BRL410.4 million in the first quarter of 2010; a 31.4% growth on the first quarter of '09. The EBITDA margin was maintained stable, 6.7% to 6.8% -- sorry, 6.7% to 6.6%.

On the next page, financial results. We had in the Group net financial results some BRL71.2 million to BRL77.40 million in the first quarter of '10 compared to '09 -- the first quarter of '09. (inaudible) the impact of the market to market of the debt generated this difference. Financial results can be considered stable except for the mark to market effect. The EBITDA ratio is close to 1.0 which reflects in the first quarter of 2010. It tends to be adjusted because (inaudible) results along the year.

So a quick comment on Itau CBD FIC, the consolidated results was BRL9.6 million in the first quarter. And of course by factors by the Company in two ways. Firstly, with the direct share of GPA in BRL6.3 million, and the effect comes from the other BRL3.3 million went to Globex because the corporation of Investcred and FIC generated -- two possibilities (inaudible) or directly to Globex. So out of a total of BRL9.6 million. FIC's equity income totaled BRL9.6 million. With that break (inaudible). (inaudible) BRL6.3 million; a 60% increase compared to the first quarter of '09 with when it was BRL3.9 million.

On page 10, net income and net margin. Our net income without Globex was BRL129.9 million in the first quarter of 2010 compared to BRL94.9 million in the first quarter of '09, a 36.9% increase.

The margin has been growing from 2% to 2.3%. This net income was to be considered consolidated without including Globex would be BRL126.2 million; a 33% growth compared to the first quarter of '09 within a net margin of 1.8%.

Page 11, I have some comments on investments. We invested BRL207 million in the first quarter of '10. And this can be broken down into three different items. The first accounts for BRL30.8 million which is related to the opening up of stores and the construction and acquisition of land. The second part BRL92.4 million relates to the renovation and conversion of stores. And a BRL83.9 million is associated with infrastructure, logistics investments mainly due to IT and also logistics.

Therefore we get to BRL207 million investments in the first quarter when compared to BRL100.3 million that was invested in the quarter of the year, the first quarter of the year before. So by the end of 2009, we had 1,089 stores. And lastly, before we talk about Ponto Frio I would like to just to make a comment about Assai.

Assai is a brand that has evolved substantially and every bit of an important market growth outlook. So we had an increase of our gross margin from 13.5% to 15% quarter after quarter with sales reaching BRL660 million (sic -- see presentation) which represents 52% growth vis-a-vis the year before, which was BRL608.7 million.

Operating expenses went down from 13.8% to 12.4% of EBITDA margin was almost zero in the first quarter of the year before. And it is now 2.9% in the first quarter of 2010. Our net income for Assai accounted for BRL4.7 million when compared to a loss of BRL3.2 million in the first quarter of '09.

So these were just my initial comments. And I'd like to give the floor to Jorge Herzog who will have more specific comments about Globex which represents Ponto Frio.

Good morning my name is Jorge Herzog. Before I give the floor to Padilha, who will talk about the results, I would just like to comment a little bit about the Globex process. I think you were introduced to it with more details a little last year and this is a chance for the result (inaudible) that we are just presenting to you now.

Eneas, where he talked about the (inaudible) we see for this year, in a year where we anticipate the World Cup and a lot of growth in terms of construction by the government. All of that is very good in terms of electronic sales, and this is already being reflected in the sales of the first months of this year.

There is maybe a concern which is the IPI for white line. We were reluctant to see the impact of that in terms of the white line. But the truth is that there was no impact in the white line sales because it still has -- it still has a very good sales outlook even though we have the IPI factor, we are still selling very well.

As I said at the beginning, we believe that considering all of the important factors that will impact our business, we will be favorably impacted in our evolution process in terms of sales. Last October, we introduced to you what we call the [Back to Base Q] project.

We have the Back to Base Pao de Acucar project. At first in that, we implemented this project to promote a turnaround of Ponto Frio. And back then, we mentioned as the main focus being the customer and that the customer would be the main focus for all of our stores from then on.

So our turnaround projects focused on selling more and will very quickly go over all of the actions that were implemented and that are certainly giving us very good results. But the first point relates to motivating our team.

We conducted very strong work with all of our team; not only the team from the stores, but also the back office team and this motivational work really brought Ponto Frio back into the game, and now it is compared to some of the best stores in the market.

And in terms of communication, we did a lot of work as well. Just to give you an idea, last year, in the first quarter, we had an average of 800 RPs or representatives. Today, we have about 1,200 to 1,300 reps, and not only we are improving them in terms of quality but we are also making substantial improvement in our communication.

Another particular point of interest was providing credit. We just had an integration with FIC and the work is being very aggressive. Our sales share with FIC is stronger, so right at first, we wanted to make our own credit cards; the best payment methods to be used by our clients, and this is the case, and you will see more details about that when Padilha starts his presentation.

In terms of our purchasing teams, we'd integrated GPA in terms of field sales teams and this made us stronger vis-a-vis vendors, not only because of increases in volume but also because we could plan better -- plan our purchases better with the industry.

And this was very unfortunate because we want the industry to supply us in a very systematic way, and we are using that approach with all of our vendors. And because of that new approach, we have better purchasing conditions in terms not only we were able to improve our margins, but also that they're boosting our competitive position.

We also saw a very significant improvement in expenses, and that was due to the better use of synergy. So the synergy was something that we identified from the very beginning. We are trying to pinpoint all the synergies from the very beginning and because of that, we were able to reach better level of expenses, and that has impacted in our EBITDA end results.

Well, the bottom-line is, is that there has been a change in culture and management at the time from Ponto Frio was going through a very delicate phase and due to our very strong approach and management, we were able to have a very strong recovery of our result.

I think we can say that that turnaround work has been underway. I mean it's not yet finished because the aim is to get to a much better percentage of EBITDA than we have today. But however, when we look at the evolution of what was the first quarter of last year, vis-a-vis what we have today, I think we can certainly say that we are in the right track. Now I leave the floor to Padilha who will give you more details about the results.

Good morning. I am Padilha. Let me quickly go over the results from Ponto Frio. The first highlight is sales of BRL1,400 million -- BRL1.4 billion. You see the 49.6% and BRL1,277 million which represents a growth of 67.4% in terms of net sales. The effective net sales is what we already talked about because that reflects ICMST, so gross sales had almost 40% growth.

The second highlight is gross margin growth. The gross profit went to BRL265 million which is 74% increase. This increase has as it's main effects, better negotiation in terms of vendors, also a very positive effect in the mix of sales including furniture and video sales.

Furniture because of the IPI reduction and the video because today though the big highlight is LCD televisions and plasma TV. It is also improving our gross margin and other factor was it gives performance in terms of customer service.

And because of that, gross margin had an increase of 0.8 percentage points. The total expenses were BRL232.1 million which is a growth of 29% when compared to the first quarter of '09 which is lower than the increase in sales which is close to 40%. And that was also represented by the entire turnaround project that was mentioned by my colleague before mainly in terms of IT, personnel, advertising, and logistics.

These are the main elements that promoted synergies and promoted for the growth which caused our expenses to go down 5.5% (inaudible). EBITDA which is the result of this equation is very positive, BRL33 million which is the margin of [2.60.] We had also improvements when compared to the first quarter, the first half of (inaudible) BRL60 million, which is an improvement of plus 6% turns more than 6% turns when you compare quarter-on-quarter.

Next slide, you will see the evolution quarter after quarter. So we went from 5.20 negative points in the first quarter of '09. And then to 0.50 in the third quarter. When we took over with the management in the fourth quarter, the figures were positive and now we more than doubled in the first quarter reaching 2.60.

Once again, the summary of that EBITDA gains reflects that turnaround process that began with leveraging sales, more credit availability and (inaudible) sales mainly when we made that (inaudible) decision together with our partner, FIC, that our credit card had to be the best means of payment available in our stores to customers.

And because of that, our sales jumped -- had an increase of 47% and the share of our cards went from 18.3% to 22% on average in March alone. Thus that figure was close to 28%. Ad in May, we already experienced higher growth in terms of credit cards. We had an increase of 40% of our credit card rates. We have more than 200 million active cards in terms of available cards.

We went from BRL500 million to BRL2 billion of available credits. We saw figures; the figures are very good. There was a drop of 10% in our portfolio. So the effect of equity income was already mentioned by Filippo, and certainly this is one of the main aspects explained -- that can be explained by this synergy and that reflects -- that's a reflection of our turnaround program.

The next slide. Slide 15, still shows some losses. But the loss is much lower than the year before; it's BRL3.7 million yet, but we hope to conclude the year with positive figures.

So I think now we can go to our Q&A.

Thank you. We will now begin the Q&A session. (Operator Instructions).

Our first question comes from Mr. [Olivetti] from JP Morgan.

Good morning. I have two questions. First has to do with sales performance. Removing the comparable basis effect, I want to know whether that performance is a recurring performance when we compare it to the performance of the previous years. And the second has to do with the Easter effect and the gross margins.

Good morning, Felipe. My name is Jose Roberto. Sales performance in the first quarter had that effect as Abilio mentioned at the beginning, had the effect of Easter sales because this year, Easter was more heavily concentrated in the month of March, so that's why we saw the reflection of that in the performance for the quarter.

But in January and February, we also experienced consistent growth in all different brands and then all of the different geographies. That when compared to last year which was already a very good year, the only exception was January of last year of 2009 when things were a bit slower, but Jorge Herzog can maybe elaborate more about that.

So adding to what Tambasco said that says -- Herzog. On details is the focus now. We have to take into consideration also that the first half of last year particularly, with Ponto Frio, that's where we had the worst performance and that's why in the first half of this year, we see much higher evolution.

But regardless of all of that and all of the situation that we mentioned before like the World Cup and the growth in the housing policy of the government we do believe that the non food sales growth will continue to prevail and reach these levels. Thank you.

Our second question is from [Daniela] from Raymond James.

Good morning. My question may be -- it's not really a question. It's more like an observation from a Pao de Acucar customer. But what I've noticed is that there are many products that are not in your shops anymore.

There is a lack of products, and sometimes when you ask the manager of the store why the product is not in stock, they say well, maybe the truck didn't come on time. They always give us some excuse.

So my question to you is that maybe the supply chain is not ready to face the growth that you will experience in this first half of the year. So I -- my question is both for -- under the food side and also the non-food side.

Will you have enough products to fulfill the demand? Sometimes, there's no (inaudible), sometimes there is no orange juice, sometimes there is no milk, so I see that a lot of products are missing from the shops in the supermarkets. So could you please tell us a little bit about that?

Daniela, this is Jose Roberto Tambasco. I will just say a few words and then my colleague will add up to that answer.

This is one of our main focus. We are really concerned about the supply. We have seen an improvement in the past two years in terms of the rupture index that we measure in the stores. Certainly, there may be one or another product that's missing from the shops and that can also be due to mistakes from the stores. But we haven't seen any worsening of the figures.

On the contrary, we've seen some improvements. But this is still the challenge of ours that we have to ensure the supply. We want zero-rupture index. Just to give you an idea retail works with a rupture right that is much higher than Pao de Acucar has. So we have been benchmarked in this regard, but now I will give the floor to my colleague.

In fact, the rupture rates are about 9% in general in the market, and ours is below 3%, and this has been the case throughout the first quarter of this year. At the end of last year, there was a large volume was above expectation.

We had some problems with supply but all these problems have been solved. We also see the market picking up quite fast in being very heated up, and this happened because the industry is not capable of delivering on time.

And then I mean you -- I'm talking about (inaudible), but I think Jorge can also reinstate that at the end of the IPI reduction the industry said that they will produce more, and we and not only as a Group but other companies have problems to deliver everything according to the schedule.

But the market is very much heated up. The market is very good. And we had meetings in Brazil last week and the situation that we had post-crisis today, the situation is totally the opposite. Certainly, clients are buying and we are selling a lot, and some products may not be in the shop, but there is no logistic problem in terms of supply, despite all of the preparations we have to be ready for this new momentum.

I am referring to Assai; the opening of new stores of Assai, and Assai is now operating with a centralized logistics operation rather than what happened in the past which was decentralized. We have some fraction deliveries which is an attempt that we are pursuing to guarantee supply.

Daniela, you mentioned (inaudible). There is the movement in the market in terms of (inaudible) in terms of orange juice. These products are delivered by Coca Cola and they have a delivery problem. They have logistics problems and in fact they are losing market share.

But on the other hand, there were (inaudible) experience a (inaudible) growth in the market. So this is just due to market movement which is not something very localized. It is not something that only refers to Pao de Acucar.

Okay, so I have another question. What about reductions in terms of operating expenses. If you separate it CBDN, Pao de Acucar, I think you are giving more -- the more of -- a higher focus on operating expenses giving to may be counsels you, but could you please elaborate more about the two companies and how the performance is?

Daniela, this is Eneas. Well, we do have room to make more improvement in terms of efficiency gains, process reviews. As I said before we're doing that now and we're trying to consolidate our business management structure as part of the portfolio of the Company, we want to tackle the different brands in the Company. We are trying -- there are instances where we can hold the costs and then we gain more positions because we can promote significant sales gains.

And we also -- we will also achieve our goals through efficiency gains. Our service is something that is getting more and more mature. We are using new tools. We implemented SAP last year, and it's only this year that we were able to capture the benefits of having an integrated system.

The purchasing area that purchases indirect materials, there are too many categories that will be expended in terms of the scope for this year. I mean there are many synergies that are yet to be promoted and cost reduction is one of our focus. So I mean there is room to improve further.

I can't say exactly how many percentage points we will improve, but when we brought the expenses from 21 to 22 to 20 and then from 20 to 19 and from 19 down to 18, I mean the analysts think it's more right, you know that.

And we feel that we are here to deliver that class. So my answer is very clear, I mean there is room to improve. But I mean, of course that if there comes a day where we will say there is no more room then we will say it but there is still room for further improvement, and we will go after it.

Our next question is from [Fabio Montero] from BTT.

Good morning. I would like you to elaborate a little bit more on Globex.

We were taking a closer look at what was done in the past. And we were not only looking at the margins, gross margin and EBITDA margin year-on-year, but it was also very clear that in terms of sales per square meter at Globex, we saw a growth of 51%. Employee per store that was a drop of 11%. But there were a few things that we are trying to identify. I mean how did you get that report.

So my question relates to some particular items of that equation. I want to understand where else you can get better margins. How long it would take until you get a margin of 5% at Globex (inaudible).

Fabio, this is Jorge Herzog. You might recall that in October we introduced you to Globex guidelines, and then the objectives for the end of 2012 is to reach EBITDA between 5% to 6%, and this is what we have in terms of the best benchmark in the market in general.

We've had turnaround programs. The main guidance or objective is to reach that figure and we want to get there quickly. The 2.6 figure that we gave you is already very satisfying because as you said it yourself it's not just geared towards one single line.

The works that we've been conducting has had positive effects in many elements. The sales are improving, KPIs are getting better, even gross margin vis-a-vis expenses is improving. So everything that has been designed and is in the pipeline because there are things that are still in the pipeline but have not yet been totally implemented or deployed because we are still trying to capture further synergy. This will lead us through that 5% or 6% which is our ultimate goal.

Very good then. Thank you very much.

(Operator Instructions). And please ask all your questions at once.

Our next question is from Gustavo Oliveira from UBS.

Good morning. I have just three questions. First related to the integration with (inaudible) by year and the new negotiations round. In that integration program, you had to stop the process, but once the negotiation is finalized, what else can you tell me about the integration process?

Good morning, Gustavo this is Abilio. As I said in the beginning, I mean since I talked about at the beginning, I will be the one answering that question.

The integration process is still underway. It's not happening as quickly as we had anticipated or as we expected. And one of the points that we will focus on is we want to recover to make up for lost time and to make up the necessary fine tuning, this is I think what I can tell you at the moment.

I have two more questions. With the increase in interest rates, I think you have a fixed spread vis-à-vis CDI; do you intend to expand that program?

Hi, Gustavo, this is Eneas. We do, yes, we do. We are already doing that. That (inaudible) operation for Globex, ours was renewed until next year. In fact, that can also be extended to 2013. It's up to us to decide, and once we expand the home appliances business we will certainly also expand that program into other lines.

This is a very good operation. I mean that the rate is good, and that's why I think this is something that we will truly we will expand it. This would also depend on negotiations with (inaudible) or certainly independent of that.

The Globex negotiation which started last year, it has already concluded in terms of launching a fund that will be good for Globex. It has nothing to do with the process (inaudible) maybe the next (inaudible) which is not in place today will also depend on the rollout of the business or of the negotiation.

I only have a last question related to Assai. Did EBITDA margin increase year-on-year to 2.6%, but there was a slight reduction in the quarter. I would just like to know whether that was due to any seasonal events or this is just a normal seasonal effect that can be expected from the business. Maybe in the first quarter, the margins are not as high because this is historically the case, so what should we expect?

Hello Gustavo, this is Jose Roberto Tambasco. Indeed when you compare with the end of last year, there is a slight decrease in the EBITDA margin. But the EBITDA margin of Assai has been slightly impacted by the fact that we have a very large number of stores which were recently opened to the end of the year, had a significant number of new openings.

I mean in the first quarter, another two stores. You see (inaudible) stores reached more significant sales levels (inaudible) expense and EBITDA is lower, but our expectation (inaudible). Whenever you open a new store, the impact is lower and lower. Given the number of stores that we have today. So our expectation is that this effect will be felt less and less and that we will stabilize EBITDA margins over 4%.

Thank you very much.

Our next question comes from Marcel Moraes, from Credit Suisse.

Good morning to all. My first question is related to Globex. Herzog, I would like to understand the improvement we expect (inaudible) margin result, would that be coming from the gross margin or the improvement which come from a better operating expenses? And how dependent is this improvement?

On the improvement (inaudible), and hello, Marcel, Well, you can always get out and (inaudible) very significant improvement in expenses 5.5. (inaudible) increase help us to reduce our expenses where days have an improvement in the margin breakdown line as Padilha mentioned. We improved quite a lot, and I'm sure this is (inaudible) our business. We strongly worked to reduce rupture and other factors.

We invested part of this improvement in complex equipments, with also gross sales, net sales, and we believe that there was a continuum in that area.

Many of the synergies that we identified were through an exhibition (inaudible) with Pao de Acucar, many of which went (inaudible), many arrangement was implemented, many other (inaudible) are being implemented. That's how the improvement in (inaudible).

(Technical difficulty), without considering cause of failure. When we integrate the cause of failure, then that's going to be on a new chapter, a new result (inaudible). Prior to (inaudible) the margin that we (inaudible) by the end of 2012 is exclusively with the current setup, Ponto Frio and GPA together.

Perfect. (Inaudible) with relating to CapEx, infrastructure CapEx (inaudible). There was an increase in CapEx this quarter with the quarters of 2008 and the first quarter of 2009. (Technical difficulty) correctly, what are the main projects that explain this as you just mentioned from (technical difficulty). But I would like you to elaborate a little bit more if you can please.

Hello, this is Caio Mattar. Good morning. Comparing to last year, we withheld investments quite a lot in the beginning of last year because of the global economic crisis.

We were a lot more cautious. Now, this year we are expediting investments including all the renovation of stores infrastructure, and these stores of course have quite an aggressive plan (inaudible) and, it was more than 100 new stores they've mentioned.

And with all the technology piece and the regular (inaudible) plans, when will it back in 2008? We see some outline in the curve. I don't know it's perhaps the right number, but things struck me (inaudible) speak in a hundreds of millions in the beginning of the quarter, you also reached that much, a reduction of investments is (inaudible) compared to 2008 to now. (Inaudible) what I would like to understand so that I can have that as forecasting for the future.

Well, in 2008, we also held with the help of the investment, we were (inaudible), and we wanted to understand more directly where to invest, that was in 2008. For last year, we were very cautious as a nation, and now, this year we invest. So for 2008 and 2009, you can consider those at the same level.

So what you're saying is with a more normal year. So we captured the first quarter. Can we annualize it and we (inaudible) invested [BRL140] million in store renovation. So we are talking about BRL700 has (inaudible) in infrastructure. (Inaudible) of another BRL100 million per quarter, so another BRL400 million, is that correct?

: Well, we have going to give you more detailed guidance tomorrow regarding that. So if you can (inaudible) question a little, that would be great.

All right, thank you

This will be the last infrastructure.

(Operator Instructions). Thank you. We are closing the Q&A session. I would like to give the floor back to the Company's management for their final remarks.

Well, again thank you for joining us in this conference call. Again, we are always available if you have any questions tomorrow. Hope to see you in our GPA Day. To remind this, we have a (inaudible) basically (inaudible) video casting so you can join us over the web as well. You are all invited. Thank you very much.