Companhia Brasileira de Distribuicao SA (CBD) 2011 Q1 法說會逐字稿

Welcome to the webcast of Grupo Pao de Acucar on the earnings of the first quarter. This event is also being broadcasted via webcasting which can be accessed at www. grupopaodeacucar.com.br/ir/gpa and www.globex.com.br/ir (inaudible) 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 press release is also available at the Company's IR website. 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 Q-and-A session and 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. This involves risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur (inaudible). 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 Mr. Vitor Faga, IRO of the Company. Please Mr. Faga, you can continue.

Good morning. Thank you very much for participating. We are here on the Pao de Acucar earnings release for the first quarter. I'd like to thank Abilio Diniz, President of the Board of Directors, Raphael Klein, (inaudible) all of our other presidents of the business. I will now pass the floor to Abilio Diniz who is going to make the opening remarks.

Good morning everyone. Once again, I highlight the structure of the Company. Management feels very happy working with lots of determination and positive expectation that we will meet all the results and target we have imposed ourselves.

We continue working very hard mainly aiming at enhancing our customers, building loyalties at stores, and therefore continue working with determination escalating the Company's earnings, principles, everything we believe in and on the other hand causing our processes to be increasingly more tailored or better tailored to our activities.

Something else I'd like to point out is the integration work with Casas Bahia and Nova Globex (inaudible) synergies as surprising has justified the hard work. We find lots of opportunities for synergy which makes us believe that this Company will be even better than what we had imagined.

The earnings that are to be presented to you are in line with our expectation and I think it is really very good. It's (inaudible) exceed by a large margin, as the management will face some difficulties in the future. It's important to keep consistency and earnings are according -- planning according to budget.

This on the side, from the part of the Board and shareholders lend credibility to management to those who are responsible for presenting these results. And lastly I'd like to tell you that the good moment that the Group is living is in line with the good moment that Brazil is going through.

Brazil shows no sign of crisis, no slump in consumption, no signs of income reduction, but Brazil shows signs of a country that grows with consistency, with determination, and very strongly relying on governance. And moving a bit away from the script of the earnings, I'd like to tell you that this week I had the pleasure of being nominated by President Dilma Rousseff as one of the four members of the management committee, four presidents from the private sector, production private sector and four ministers, the minister of development, chief of staff, planning minister. I was very honored, and I've accepted the invitation despite the difficulties with time management.

And on the other hand, I was a bit concerned about the size of the job, of the task and the expectations around it. I did hope that God will help me and with the contribution of everybody here and with the vision that this Company gives of Brazil in presently 19 states selling virtually all kinds of projects, a 150,000 employees.

Millions of families, of households and clients. It really gives us an idea, very good idea of Brazil a country that is growing and for which we have the application to work to the best of our ability. So I wanted to tell you that I am very happy at the performance of our Company and those people in charge. I now hand the floor to our Executive Officers so that they will continue talking. Eneas Pestana please.

Good morning everyone. Thanks to Abilio. So first quarter I'd like to talk to you not about these figures. The figures will be explained, but I'd like to start touching on some points that Abilio mentioned. I'd like to personally say that we are very proud that Abilio's part of this committee management policy, or a chamber for management policies, performance and competitiveness is a source of pride for us to be in Brazil at this moment.

And the fact that such a committee or chamber is being set up to improve management performance and competitiveness by the government gives a clear sign that things are changing and that Brazil is changing and wants to change and wants to actually become a big country and robust country and a sustainable country. And we must mention that we must acknowledge this.

Now, regarding the Company, it's been keeping a very steady pace in growth. It is true that you analysts and investors who are responsible for monitoring this performance to you able to make your reports, your recommendation which is a job that entails great responsibility looking at a quarter aiming to check obviously not only the figures, but the signals and trend that this numbers contain.

I invite you all to analyze the context. Here we've had -- we've been having very important meeting, strategic planning and results analysis and it's very important that we put you in perspective to see this result in a broader picture. That is if we look at the numbers of past years and the curve and the momentum of this curve particularly in '09 and '10, I think that the trend analysis become much richer and this quarter can corroborate this analysis.

But it is not enough in such a short period to signal a change in the trend analysis. Also because we're talking about a very roaring complicated quarter to be compared the performance. Owing to this effect and Easter which is something extremely relevant, particularly in the food retail, other issues such as the World Cup last year, tax incentive last year that no longer exist here, the in-house situation that this year we have Globex and Casas Bahia in a consolidation of assets which was not present last year.

So this is a result that should be looked at with lots of care and criteria so that you can obtain the knowledge that you look for, because the data can be read in a number of ways and our task is not to justify or explain anything, because those who do that is because they're not faring well. And this is not our case.

This is why I invite you to look at the trend in a broader context because this is exactly what I do together with Abilio and the other officers. And I can tell you that the numbers are according to our plan, to our budget. There's no interruption or diversion that causes concern.

So this is why I am extremely happy and I will still emphasize this viewpoint that really proves that the Company is on the right track, is under control, and managed by a highly competent team. Obviously you see competent people everywhere, but what makes the difference here is I think not in the individual competence of the managers who are here, but their ability to work in teams and create a lot more value in this collective effort, in this atmosphere of energy, of success, of balance and sustainability.

And we say this in-house and today I decided to open up what's happening to you, to talk about what happens in here because I know that for you who are over there deciding on whether to invest or not and insisting your clients on this decision. When you participate in a call such as this, I imagine, I guess that what can really add value to your analysis is competence and this creative core that actually exists in the Company.

And this is what really makes a difference and this difference can be proved vis-a-vis our competitors here in Brazil and the relative position that Grupo Pao de Acucar has today owing to this great ability in teamwork that exists in the management of this Group. And this is obviously what produces these great numbers in return on capital. We peaked into 10, net income, dividend, distributors and all kinds of indicators that we can mention as very sound capital structure with liquidity and ability of indebtedness and an important improvement in our rating.

And a quarter this complicated could create some confusion but never change the reality of a team that is doing an outstanding job in this Group and in those various lines of business. For instance, the issue of food retail that is faring very well, we are stepping up market share and within the relative position that we hold in each of the regions, our presence is becoming more important.

And this is reflected on market share. In 2010, we had an increase in market share Brazil of more than 3 percentage points, as is reflected on our detail sheet and because (inaudible) incentive are at full blast and what's really cool is not that we are towards conclusion, but the most interesting part that really pleases us is how correct this decision to make the divisions were.

Because Extra Super have shown their strength in terms of sales growth and improvement of the bottom-line also reflecting on a leverage of the capital used by the Group. Integration of Casas Bahia will be thoroughly explained by Raphael and the team. It has been mentioned by Abilio and I'd like to leave my opinion about this. This is being done with extreme competence and dedication.

No effort are measured for this to happen as soon possible and as quickly as possible, but always preserving the values built by the client family over a 60-year period which are very sound and ensures success of Casas Bahia and that can be replicated for the Ponto Frio branch. This will be thoroughly explained by Raphael.

For e-commerce, we have here [Kirog] and his entire team and we are here to answer all your questions and help you have addressed reading of these figures. It's a really sort of pride for us this e-commerce Company. We had Investor Day for the new dotcom. It was a roaring success, something that we were not under an obligation to do, but we feel more or less that we must do it.

And we made a big disclosure of the transaction, of the plan exposing the management. This is a winning team with winning products and brand, a very sound connection with the physical world. So we're here to present and show everything to you, whatever is necessary for you to make your conclusions.

Finally, you have copies of the presentation. Now on page number 3, we have a chart showing the new management model. We have just reviewed the management model. You can see that it remains unchanged. It is going through a consolidation day after day.

We made just minor adjustments to simplify the model or to validate, clarify, and confirm roles and responsibilities. The main target of this review effort and I was very close to the team, Sylvia Leao was our people management executive responsible for this adjustments together with [Paolo Gulfiati]. They worked with a lot of dedication.

We also made adjustments in processes so the Company becomes increasingly more agile, flexible and swift which is one of our differentiators compared to the competition. We are a large Company with different lines of businesses in different regions, but we are swift, we are nimble.

We don't discuss about conflict. We make decisions and ensure their implementation. For that, we have to permanently review our processes so they are a perfect fit to reality. We need people to feel happy. We need choice and motivation to make this Company happen, to make the Company successful, and to attain the results.

The management is consolidated. We made a few adjustments. We are now communicating these adjustments. You can see in the chart that we have simplified and redesigned the six main indicators, EVA, net income, you can see them here. So we will have a variable compensation this year already based on these six indicators which makes the whole process simpler because we have only six indicators.

But they're right here, net income, valuation/EVA, return on capital employed, growth and expansion, customer satisfaction, and satisfaction of our people. These are the six indicators valid for all executives. All executives' performance are measured according to these six same indicators. Only their weight may vary.

So the key work is even more consolidated. We all strive together towards the same target. That is why Pao de Acucar Group is a winning Company, an admirable Company which can produce results and also do good to people. Our people work with joy.

So this is what I had to say. Great trust in Brazil as Abilio expressed and trust in this team and in this Company. We are doing brilliant work. I hope you will find here all the necessary information for the correct understanding and validation of trends. And let me now give the floor to Hugo Bethlem so we continue the call. Thank you very much.

Good morning everyone. Thank you very much for participating in our call talking about earnings in the first quarter of 2011. On page number 4, we can see we will be talking about two separate blocks.

We've segregated GPA Food including Pao de Acucar and Extra Supermarket, Assai Cash and Carry, Extra Hypermarket, Extra Facil Proximity and specialized business lines, Gas Stations and Drugstores.

And in the second block, we will be talking about Eletro, Bahia and Ponto Frio and in the e-commerce business, B2C Pontofrio.com, Casasbahia.com, Extra.com and B2B Ponto Frio Atacado, plus the eHub business.

Now moving on to page 5, sales -- gross sales for the first quarter were BRL12.4 billion, representing a growth of 58.9% compared to the first Q 2010. GPA Food, the same-store growth, we'd like to highlight an analysis of the first four months of 2011 to try and neutralize the Easter effect which is extremely important for food. But Even doing that, the growth is very representative, 8.4% in the same-store concept.

Globex, when we talk about same-store growth, we are referring to Ponto Frio including e-commerce minus Casasbahia.com and we are not yet considering Casasbahia here. With that the same-store growth was 10.9% despite the seasonal effects already mentioned by NAS.

So we had the end of IPI tax incentives which existed until the end of last year. Actually we had the rent of the stores in February because of this and also sales of television sets for the World Cup.

Gross profit BRL2.8 billion, growing 70.5% compared to first-quarter 2010 and it is important to highlight that GPA Food margins were 25.7%, i.e., growth of 110 basis points or 1.1% compared to the first quarter last year.

Now on Globex, margin has already attained 26.9% not comparable to last year's margin. EBITDA BRL609 million, 40.5% growth and margin specifically in GPA Food 7.2% representing a growth of 20 basis points compared to the first quarter last year and Globex margin 3.6% not comparable to the first quarter last year.

The figures presented in this document already reflect the IFRS change in 2010 and 2011 and it changes the Company's already published figures we had already published last year.

Now going into details and I am now on page number 6. But let us move on to page number 7 where we have gross sales of BRL6.6 billion and same-store sales growth of 8.4%. We had already announced figures on April 12th this year. It is also important that for the 11th quarter in a row we are growing above the second player in Brazil. And the same-store growth is above 15% in three of our formats, Extra Facil, Assai, and Extra Supermarkets.

Now on page 8, gross margin of GPA Food has advanced by 110 basis points, but it's extremely relevant to see that a gross profit has grown 9.3% in the quarter, so above the sales growth meaning we've gained margins.

As we look at the chart with retail growth, retail is 180 basis points from 25.8% to 27.6%, thanks to the full implementation of our pricing tool which is playing an important role in the hypermarkets and supermarket category. A mixed improvement, more participation of perishables in the conversion of Extra Supermarket and also we have to talk about a factor of higher purchasing power of the population and better relationship with suppliers.

All of this, with maintenance of our competitiveness in relation to the competition, we never take our eye away from the price. To have the right pricing is key to win in this game.

Now, the impact on GPA Food going up 1.1% or 110 basis points despite the share of Assai going from 10.3% to 13.9% contributing with a lower margin.

Now, in page 9, operating expenses in the quarter totaled BRL1.1 billion. We had a slight increase from 17.6% in the first quarter last year to 18.5% this quarter. If we look at the chart below where we neutralize seasonal effects, then it goes down to 18.1%.

We also had two other impacts that contribute with 0.5 percentage points. Our decision in 2009 to transfer all our data center to IBM, it was called the IT outsourcing where the effect last year was capitalized for amortization because the transfer had not been concluded operationally.

Now this year, we have included an operating expenses, the overall expense, which is smaller than the previous addition of OpEx plus CapEx we had before.

In addition, we've opened many stores. Assai alone we opened seven stores only in December. We increased our headcount. This has not yet been diluted by sales because we're still in the ramp up. They produce an effect of 2 percentage points.

Now on page number 10, we can see the EBITDA margin 7.2%, which means a growth of 7.7% year on year. In food retail it grows from 7.4% to 8.2% and when we look at the overall GPA Food, it has grown from 7% to 7.2%. Let me one more time confirm the importance of Assai participation. Its margin is smaller because of its business model. So it has this participation of 10.7% to 13.9%.

In slide number 11, you will see one of our challenges, the financial result. The GPA Food suffered a distortion because it worked as if it was a business holding with all the acquisition and all operations, they are accounted for in GPA Food. For that reason, financial expense has gone up from 2% to 2.7%.

Some effects are well known by the market. The important impact of the Selic rate which moved from 7.75% to 11.25% (sic - see press release). Also interest on the restatement of contingency, Refis, which is no longer in the provisioning line, it is now considered interest expense of contingency. The impact was BRL38 million.

Now in terms of interest on debt, BRL76 million, this has been maintained. And another important piece of information, it is the same level of receivables that we had in the fourth-quarter 2010.

Before we go on to slide number 11, where we will be talking about the electric -- electronic household appliance results, let me advise Raphael Klein, CEO of Globex, to speak about the business.

Good morning everyone. On behalf of Globex and the Klein family. We are participating in one more call. It's important to give you a brief overview of our electronics business. But first let me say we are working in union, joy, and high motivation for this year.

In the first quarter, we are reporting a full quarter in this line of business, but we are also analyzing macro prudential measures levied by the government. In our management message, we have already spoken about some of this impact. However, we believe this is going to be surpassed and we will have an excellent year ahead of us.

The acceleration of our integration and focus on capturing synergies has taken us to more union. It's a great union, something we never saw before.

We have changed 600 corporate taxpayer registries. It was a huge effort. We changed 6,000 IT programs without impacting daily operations. This is a clear sign of the united team we have between Globex and Pao de Acucar.

We have a committee in Globex to look at our credit business. We hired a consulting group (inaudible) to help us in this process. But it is also important to talk about everything we did in the financial and commercial areas.

We are using a lot of commercial intelligence to be able to reduce our average term and increase installments with interest increase -- interest-bearing installments and try to decrease non-interest bearing installments. We have been able to reduce number of receivables, the cost of discounted receivables, despite the higher Selic. We have also started a process to reduce general and administrative expenses which shows that we are right on the curve of capturing synergies.

New positioning for Ponto Frio brand; we've opened the first concept store in Sao Paulo in Shopping Iguatemi. I'd like to invite you all to taste a bit more of our new layout in the Ponto Frio stores.

We also opened a new concept store for Ponto Frio in Rio de Janeiro in the (inaudible) Shopping Mall. But I think this is important that all synergies we can identify we -- to capture, we have a process in Globex not only to monitor how we can capture this synergy, but how it is going be shown in our balance sheet. And the new dotcom, it's a very pleasant surprise to all of us. Integration has been concluded.

In the next slide, we will be talking about something extremely important, the new Ponto Frio format which will take Ponto Frio and Globex to where they deserve to be. We have changed the windows, it's a completely new layout.

The environment is much more inviting for consumers. We are using Ponto Frio brand inside the store too, not only on the outside. We have a more welcoming and cozy environment, better communication. You can actually touch and feel the products.

They are no longer behind a counter. We have worked with lighting to make a more pleasant environment. It is an aspirational store and with that we will be able to meet this market niche which is not fully tapped.

Here in slide 16, you can see an old format traditional store Ponto Frio. This and the Ponto Frio Casas Bahia knows that this store was designed to fight Casas Bahia. The next slide we can see the new concept. Obviously this store in not fighting with Casas Bahia, it is an improvement from Casas Bahia, particularly at a mall.

But it's not only the store, it's entire team. Last year we invested more than 1.4 million hours to train our team and we can say the following that we are capturing our synergies, we are retaining our DNA, our differentiator of serving clients with full dedication.

And now I will again pass over to Hugo to then talk about the detail.

Before we go into the numbers, I'd like to say the following. This quarter is not comparable to last year, either the first or the fourth quarter, owing to the full integration of Casas Bahia this year. This is why we've only compared Globex without Casas Bahia and we're also showing Globex figures for the first quarter.

Therefore, gross sales amounted to BRL5.7 billion and same-store, as has been shared, grew by 10.9%. In total sales, Ponto Frio and e-commerce, we grew 43.1% and e-commerce grew 33%. It's important to point out that despite the removal of IPI tax last year, this growth is very significant.

The following slide 19, we see gross profit of BRL1.3 billion in this quarter with margin of 26.9%. I point out that this margin is at the top guidance that was given to you September of last year as our target for as the model year referring to 2012.

Therefore Globex adjusted margins grew from 19.2% to 20%, 50% growth despite the participation of the dotcom and although it grew in its participation with Globex without Casas Bahia from 25% of first-quarter 2010 to 38% in first-quarter 2011.

The improvement in margin already shows the beginning of commercial synergy gains mentioned by Eneas and ratified by Raphael. Ponto Frio, despite all with in those 20% we have an 8.4% adjustment that had a negative impact on this margin owing to the conversion of 44 stores of Extra Eletro to Ponto Frio where we had to liquidate these (inaudible) those stores.

This margin is being recovered with a refreshment of the appropriate enforcement for the new Porto Frio positioning.

Slide 20, we see that operating expenses for the first quarter amounted to 23.2% of net sales. It's important to say that in the comparable expenses there is a decline in the dilution between first-quarter 2010 to the first-quarter 2011 where we moved from 17.7% of net sales to 17.3% of net sales.

As has been said by Raphael, the expense synergies have been identified and under (inaudible) captured within the yearly curve as we said on our Investors Day last year. Additionally the seasonal effect of the first quarter has brought a different impact from the fourth quarter of last year owing to the dilution of expenses.

In slide 21, EBITDA is BRL187 million first quarter with margin of 3.8%. In what is comfortable again we see a growth of 1.5% to 2.7% again despite the dotcom contribution that went from 25% to 30%. Our EBITDA comes from a greater gross margin, shows the seasonal effect which was not favorable and greater share of Nova Pontocom. But we wanted to ratify the guidance given last year and this year our margin will be -- we'll reinforce the guidance for margin from 4.5% to 6%.

Slide 22, financial results. One of the main focuses of the Company as regards Globex, it is doing very well thank you. We can see the downward curve from 5.8% to 5.9%, 4.9% and 3.4%. I want to ratify that the 3.4% expense is within our guidance given to you September last year.

The reduction in the first quarter brings about a few consequences of the strategic decisions made such as the reduction in the average payment period in two months, reduction in the share of non-interest bearing sales without losing sales growth where we lowered 17 percentage points yesterday. We operate with no interest below 50% of participation in sales.

Lower discounted receivable rates through Selic and an increase in the share of interest-bearing sales from the first integration in the third quarter of last year. Casas Bahia had 16% and now grew to 24% of Ponto Frio which was virtually inexistent at 3% now has 15% and both moving up.

Financial expense of 3.4% of net sales has an important emphasis. Whatever refers to the business that is discounted receivables from credit card operations is only 2.4% of net sales.

Let's now see the consolidated results where we see on page 24 the effects of FIC which is not yet reflected in total sales because it's not applicable to the operation of Casas Bahia. Therefore, we have a 17% share of total sales without Casas Bahia, more than 8 million active clients and under the acquisition method for the first quarter we have BRL10.5 million, BRL7.5 million for GPA Food and BRL3 million for Ponto Frio in Globex.

Now, the net consolidated result is BRL141 million adjusted 1.3% of net sales. The greater impact on financial expenses is very significant, BRL161 million net of income tax from the last year to this year. We have to remember that our business is totally different from what we had last year and therefore they are not comparable.

The effect of IFRS of BRL40 million have affected the equity income and depreciation. If we recover the result of BRL141 million and taking into account that the business would be different if we didn't have BRL160 million of financial expenses, our income would be BRL340 million, more than 3% of net sales.

In terms of consolidated net debt also answering questions from the other call we have details on this figures that can be seen. The effect of BRL800 million between the fourth-quarter 2010 to first-quarter 2011, part of that is absolutely natural because it's the seasonal effect on working capital.

In the previous quarter because of Christmas we had exact same situation in the first quarter. This year obviously the situation is different owing to the payments we made on business purchases.

Now summing up payments that were made for the acquisition of Assai and Sendas BRL592 million that is 82% are explained in the difference of BRL800 million.

We thank you very much for your attention and invite you all to participate in the questions-and-answers session.

Thank you very much. We will now start with questions and answers.

We would like to ask you kindly to ask all your questions waiting for the answer of the Company. (Operator Instructions).

Tobias Stingelin, Banco Santander.

The first question is looking at the first result of March increased relatively well, but financial expenses were the great villain of a result. If you didn't have tax credit, a very strong change in the tax rates the results would have been different.

We know that this is because the holding has a debt, but even in line with Eneas, what you have said about the strategy on capital employed and income, when do you believe you will start seeing your debt leveling or falling so that the operational results can go to the bottom-line? This is the first question.

Hi, Tobias, this is Eneas. I'm going to pass on to Tobias who -- another person, Tobias. Well, the concern that we have is to monitor our debt and vis-a-vis these indicators. Obviously we have the indicators, obviously the debt and we have some targets. But what we have tried to balance, first of all, is the investment level vis-a-vis the debt. So investment must be validated so that you can try to balance in your debt, not increase it, so that the investment, it creates EBITDA.

So you have to get that investment at least to future EBITDA. If we issue -- look at past EBITDA, there must be a situation in -- well, you may be advancing your vision, because particularly EBITDA, the stock in your stores will have a security in the future. Now the sales program, installment sales program has been monitored.

And Hugo talked about the percentage vis-a-vis installment sales and we are always concerned about not losing competitiveness. We want to reduce non-interest-bearing sales. We had some wins on the tranche because the third factor, which is the taxation, defined as taxation, I mean, taxation of the tax that end up taken as expense.

So this can be positive because it's a way of paying taxes within the debt and so financing the tax. Also it imposes interest expenses and this is the perception, this is the strategy regarding interest expenses, strategic factors that we are monitoring and we are looking at the indicators. The indicators are guiding us, and we have a big discussion to monitor this and to see performance of installment and sales.

So this is our monitoring strategy. So -- but if you will (inaudible) one investment at loss and as the return becomes consistent. And I don't know whether he wants to give us a guidance about when we should expect this stabilization. But in terms of investment, can we expect that investment will suffer a significant reduction because we see going up owing to acquisitions in a number of payments you've done.

So when this tops and if your take-back is lower, perhaps we'll be able to see improvements now.

I'd like to understand there's something that happens?

Well, as regards the guidance we will have opportunity to talk about it throughout the year. We're preparing it and it will be a more specific indication with further information.

But as you say it very well, we are also carrying the payments for investments that we made in acquisitions, and we've had a last tranche on Assai and we've had a first tranche on the acquisition of Sendas that was (inaudible) made last year. In all of that, we're reflecting future gain.

Now, 100% of Sendas will be enable us to expect future gains from the Company in tax terms that will bring about benefits from this investment.

Going back to the guidance, our intention is to have a specific event where we will have to -- we will address this. I think this is not the right time to talk about it.

I would like to add two brief comments. First, I'd like to ask (inaudible) who is our Vice President in charge of the commercial area and operational area, he works here with Raphael, we would like him to say a few words because about financial expense or interest expense, we do have the influence of CapEx.

I will speak about this immediately after Roberto, but we also have the issue of non-bearing installment sales and interest-bearing installment sales, and this produces even more impact than the CapEx itself.

The impact is bigger. I mean, if you can maximize interest bearing sales and minimize non-interest bearing sales, of course, this has to be sustainable, you cannot miss sales, but this is even more important than the reduction of CapEx.

Let me ask Roberto. He is conducting a very interesting work on this. Actually, we've already seen the results, a very good trend we can already see in the first Q. So please, Roberto.

Hello, Tobias, good morning. Thank you, Tobias, for your question. In fact, what are we doing? Well, in time, we are reducing in a strategic session the participation of non-interest-bearing sales.

It used to represent 70% of our businesses. Today, we're below 50%. Obviously, we are doing this as carefully as possible and as smartly as possible so as not to lose sales, but looking at our market positioning, the competition is actually doing the same thing. They are following suit on this movement of reducing non-interest-bearing sales.

On the other hand, we are increasing interest-bearing sales. So that is why we have this bigger impact in the financial expense, and this is sustainable. It is not only an isolated effect only in this quarter. In addition, we have a better fix between payments to suppliers and that also helps reduce our interest expense. Let me give the floor back to Eneas.

Thank you, Roberto. I would like to ask [Phillipo] to say a few things about GPA Food, because in this first quarter, we had results a bit worse, but I want him to speak about this too, because in fact at the origin of financial expenses, this issue is the most important, the single-most important issue.

So Roberto spoke about this, but I'd like Phillipo to say a few things about this in regards to GPA Food.

Well, in sales of electronic products in the hypermarket, we are also trying to keep our competitiveness while we reduce interest expense.

Also, in this quarter we had between 55% of our sales, the non-interest-bearing sales, we've reduced the number of installments. Now, fewer than eight installments and on average, which also helps reduce interest expense.

We actually have a credit committee, which meets regularly to discuss this initiative without, of course, changing the strategy in each line of business, but we try to share best practices in terms of market view and competitiveness. So what do we do?

Although the percentage is a bit higher of non-interest-bearing sales -- so now we have also been able to reduce the number of installments, which means we have also reduced the interest expense. And our competitiveness has been protected.

Just two follow-ups, because Roberto and Raphael are here, I'd like to hear from them. So you feel comfortable with sales for this year. You are not concerned about perhaps losing market share or losing sales, because you are monitoring this from closely, and I think we will be able to attain our goals this year without changing this strategy? This would be my first question.

And the second is about Casas Bahia. When will we see a reduction of operating expense? And thank you for the opportunity.

Tobias, thanks for your question, this is Raphael. Now, looking at macroeconomic measures, we are monitoring them and so far things are under control. Of course, if we have new government, financials, they may produce an impact and then the situation might change.

However, regarding sales if the market remains as is, we will maintain our guidance, which we presented at Investor Day, the GPA Investor Day last year. I apologize, but they're not changing the term.

Can everybody see this improvement in interest expense? Do you believe that you will be able to meet the guidance and you still have this trend of improvement? Don't you think you can be a bit more aggressive?

Okay, Roberto will speak about this.

Hello, Tobias, this is Roberto. We feel quite comfortable in maintaining the control we have on interest expense as we have done in the first quarter. We have already conducted a big change and we have maintained our sales as you can -- I don't see future problems in sales because of this initiative, because we are doing it in a very strategic fashion.

It's very well controlled process. The whole commercial area is involved. So trying to answer your question attractively, I do not see risk for sales because of this initiative.

Now, I'll give the floor to (inaudible).

Hello, Tobias. Good morning. Thank you again for your question about expenses. I'd like to say three things. First, the expenses are within our expectation as we announced in our guidance.

We are working on different fronts. We have consulted helping us in our day-to-day work to identify the main synergies not only in the merger of Pao de Acucar and Casas Bahia and Casas Bahia with Ponto Frio, but also we want to be sure that we will have a curve of synergy captured that is exactly as we announced in the beginning. So that's something we spoke about from the beginning.

Let's be very careful with our clients, with our customers. Whenever we reduce expenses, whenever we identify synergies, we want to capture them, but without losing the essence of this Company which is that it provides a very special treatment, a very special service to clients and customers. We have already captured some synergies and we know that this curve will happen, it will be implemented in the next few months.

And we feel safe, we feel comfortable that we will be able to deliver our guidance. Thank you one more time. Thanks for the opportunity.

[Andrea de Suader], JPMorgan.

I'd like to know -- the operational result was very good one more time, but I'd like to isolate the effects of non-recovering items of interest expense and also the profit of Globex, the profit contribution.

Also the credit update in the negotiation of credit for Casas Bahia. First on interest expense, you talk about a marked-to-market effect, the BRL8 million GPA Food, and I'd like to know if this is going to be repeated with Globex BRL10 million. This is the first part of my question.

Second part would be about the accounting methods because in the second quarter last year it changed for Globex. So that is also going to have an effect. Will it be a positive or negative effect for the comparison in the next quarters when we look at interest expense?

And next second part of my question about the contribution of profit of Globex, [BRL17] million I think in the first Q. So -- but I think this is something new at least looking at projections for the next quarters and finally an update on the negotiation of Casas Bahia. That's it, thank you.

Andrea, good morning. This is Padilha, CFO from Globex.

Thank you, Padilha for replying.

Well, I took note of three questions. MTM, marking to market, the debt was marked-to-market. This is actually an accounting procedure. It does not affect cash at this time.

So we will have the recovery of this number until the end of the debt, which is I think the end of 2011, beginning of 2012. So this is going to disappear in the next three or four quarters.

Now, a change in the accounting procedure of interest expense in 2009; even before the first quarter of 2010 and 2009 and in 2008, our accounting methods acknowledged expenses as they were paid in installments especially for cards. Now, as of the first quarter last year we posted expenses in this format, but in the last three quarters of 2010 we make the adjustment so that it's retained.

And we started to post 100% of the expense in the months when the receivable is received, that is when the expense on the receivable is actually cashed. This was changed last year. So for the first quarter this year, you don't have any carry away from last year.

And in terms of figures it's much better because now you bring to the same quarter the financial impact in the quarter when the sales were conducted. So this is much better for commercial control. As Roberto said it also means a benefit for interest expense. So we believe it's the right way to do it.

Okay, Padilha, so after this is done the effect will be positive then for the next quarters?

Yes, I understand there will be favorable effect. Actually in the first quarter, we have already concluded the adaptation. There are no carryovers from last year. It's just this quarter. So this is how we will present, we will state these expenses from now onwards very much in line with what the commercial area is doing in terms of sales and strategy.

Right, so if it was 3.8% of sales in the first quarter in the next quarters you may even see a reduction, 3.4%, it's actually below the guidance. And there are a few other factors that may exercise pressure, for example, higher Selic rate.

We believe this percentage will be maintained. Roberto is showing his agreement. So the whole financial commercial and operational area of the Company agree on this.

About your third question, we spoke about this expense of BRL17 million. This is related to the PLR, the profit sharing scheme. And this BRL17 million basically refer to an agreement signed with the union including the union for distribution centers, the Casas Bahia and the other stores.

And with this agreement with the union we will pay approximately 80% of a 14 annual rate. This is the agreement. This is what we are doing. And it is recurring. It's going to represent approximately BRL10 million in the next three quarters, not the overall BRL17 million. So for the next quarter we can expect BRL10 million, not BRL17 million.

And in terms of guidance we have already considered, we have already included this in our expense guidance. So for us, in terms of projection we have just changed the line or replaced that. We are not going to reduce the net profit or the net income position because of this.

And the other -- I mean, along the same lines you also have a negotiation with another union which affect GPA Food. Do you see any pressure there in terms of labor cost which might affect EBITDA not only yours, but also GPA Food?

No I don't -- I think I did not understand your question. Could you please repeat?

Yes. I understand from previous conversations that you also have negotiation, a bargaining collective agreement for CBD including Food. So it's not really your area, but is there any other negotiation about which we don't know and which might bring further pressure on margins from now onwards?

Hello, Andreas. Good morning, this is Hugo Bethlem. Thank you for participating. No, we don't have this information, Andrea. No, there is no pressure from union related to the Food area. Every year we have the regular negotiation. Usually, line about productivity is negotiated.

Sometimes the union would like to have that above inflation. And we also want our associates to contribute with more productivity in their work. So yes, we have provided adjustments of our inflation, 7.5% last year whereas the inflation was 5.5%. But should they -- Roberto Tambascois also here from retail. But these levels they are adjusted looking for more productivity from our associates.

Thank you.

And the next negotiation will be October this year in detail. For Sao Paulo it will be December, Rio was May and every state, every city has a different date which changes throughout the year. But the most significant really occurs in September.

And lastly if you could talk about the negotiation of the credit side.

Good morning, Andrea. I think in this credit negotiation, it's important to say that we have two strong partnerships, the partnerships by (inaudible) and Ponto Frio with Etau. So this eases the pressure.

These partnerships are faring very well. What we want is obviously to move ahead with these partnerships. We want to sign a new contract really the leading (inaudible) to us. It is like I said, it can be clean, or created with (inaudible) several specifications together with [Signa Tuda]. It's a consultancy helping us out.

And we believe that it's extremely important to delve into details about what will be the impact of the short, medium and long term. Hence until we have absolutely clear information on the medium- and long-term impact, no decision will be made and it will be made in the right time, peacefully, calmly. So we have this credit committee that is actively working on it and we haven't got a specific deadline.

Okay, thank you very much.

Just so as to have an idea, we shouldn't expect the decision by the committee this year? Do you have any idea of timing?

This decision lies with the Board. Obviously we want to make a decision on that, we want to.

Is it likely to happen this year?

This is likely, but I wouldn't be surprised if it happened next year.

Perfect. Thank you very much for your attention.

And lastly, it's Hugo, I'd like to ratify. In no moment, not in the guidance or the GPA did we provide any financial consideration to the conclusion or non-conclusion with any financial operator. So this impact we have applied. In fact I believe that this impact should be looked at very carefully, bearing in mind everything that is going on in the market and what would be the best way to capture this result.

: Well, thank you very much. I know that the financial part doesn't have anything to do with the potential joint venture.

[Andrea Bechaver] , Raymond James. [Daniella], I'm sorry. Daniella, I'm sorry we got your name wrong.

I'd like to talk about the increase in expense, not in Ponto Frio. Well, Ponto Frio expenses have grown 48% from last year to this year. So I was surprised because I overestimated Ponto Frio's results and Bahia's results. I did exactly the same -- exactly the opposite because Bahia had a profit. So what is going on at Ponto Frio that the return is dropping and Bahia is climbing? Was it a localized episode? What happened?

Good morning, Daniella, Hugo, thank you for your question. I will pass on to Jorge in a minute but it's important to say the following. We have to start --

Ladies and gentlemen, do not disconnect. Okay, you can continue.

I don't know whether you heard me. I'd like to thank you for your question and say that we have to start little by little, implicating ourselves and the market. Not to make a separate comparison between Ponto Frio and Casas Bahia because they're no longer companies. They're now brands with different positioning. And this synergy lies in the unification of the back-office. The front-office is the differentiator to customers.

Therefore, from now on we'll start looking at a single Globex figure. What may happen between quarters, between result are trade off in expenses that were not posted to one company or the other. So Jorge, please if you could explain a bit further.

Daniella, hi. Thank you very much for your question. Hugo gave you a very good explanation. It's exactly that. First of all, I think we cannot state that Ponto Frio has gone sour.

We've had an increase in the expenses obviously owing to the sale, the one we talked about (inaudible). The sales growth was also important. We've reported a very important growth in the LP and today, we are actively looking for synergies in the Ponto Frio brand and Casas Bahia as well. And obviously, a few synergies have been captured in not just Casas Bahia, but Ponto Frio.

So we are very comfortable vis-a-vis the action being presented. We don't see any problems on the guidance capture and we will work that as in the coming months we will continue to be reporting first again looking at the Company as a whole, the consolidated Globex, because it will become really impossible to look at each of the brands.

This is Hugo again just to stratify . The titles that we have a dilution of Ponto Frio expenses vis-a-vis its sale. If we take a look at the indicators that you yourself have mentioned which is an expense growing 41%, gross profit grows 50% and therefore with the dilution of expenses and the net EBITDA line it will grow 107%.

Perfect. So my point is that Ponto Frio was trending upward with EBITDA margin of 4.5% and all of a sudden it was half.

But it no longer exists as a company Daniella. I think we have to start looking at this reality. Otherwise the effective capture of synergies and the positioning of brand is more important than to look at details. I know it may be hard upfront, but our objective is to say here that we are an integrated business and the results will bring this benefit in the consolidated Globex EBITDA that will add to (inaudible) of shareholders.

Thank you.

(Operator Instructions) Carlos Albano, Citibank.

With regards to Globex I'd like to know if that's a concern whether Ponto Frio today is already buying and the same position as Bahia and can we imagine a margin expansion that you see for the business? Will we see a lot coming from the gross margin or is the bigger margin coming from expense controls and SG&A?

Thank you very much for your presentation. If we take a look at the gross margin as already said in this call, we are at 27% which represents or sees that we have achieved the guidance for the model years that will give us the EBITDA at 7.5%.

Obviously what is missing is to show the synergy of expenses capture. This is just moving okay. Roberto is going to ratify with you when the businesses are being done under the same condition. However, we're expecting what has been determined by the traditional agreement of the long-term transition.

In fact the negotiation is under way. According to the APRO we have captured synergies, but we haven't seen the Porto Frio brand with a full quarter with all deficits in the last quarter. We were sorting out -- we were resolving the assortment of the Porto Frio brand in the first quarter.

We are tailoring the assortment of the Extra Eletro stores. They have become Ponto Frio. We haven't had a quarter with full benefit. But if I understood your question if purchases can be comparable between Bahia and Ponto Frio, yes, they buy together. They have joint purchase.

And Hugo what -- I think that you will be able to answer this about the CI report, when do you think you will have a decision by the CADE? And how do you feel about it?

Will you have to sell any part of assets -- of permanent assets? How will this affect margins in the future?

I'll pass this on to Jorge, because he is the one dealing with CADE.

Hi, this is Herzog. Thank you for your question. As regards the CI reports it's important to say that this is part of the process. It's not a final decision. So our case is still before the CADE. We have a group of two lawyers who are supporting us and we are totally confidant that there's a lot of room to be negotiated with CADE, because that will have a final report that meets our original expectations as in (inaudible) that we have a APRO, the positional agreement that enables us to make decisions on our guidance.

So whatever comes our way that is more positive than what is the agreement obviously will be passed on to our result. So we're very confident. We're working with CADE, concerning demands they have to analyze the case.

But we believe a week before last the new Board Member (inaudible) was nominated, appointed after [Venizios] departed. So I think that they'll gather speed again, and we are confident that before the year is out, we will hear the final decision.

Thank you, Herzog. For me to understand all the guidance numbers that you've given us take into account that you will not have to sell part of your (inaudible) if there is a more negative position or decision. You won't have to bring salvage numbers?

Well, these numbers take the APRO into account. It has certain restrictions concerning shutting down stores and negotiations with the APRO doesn't have anything that talks about shutting down stores. And I said that we consider what is in the APRO.

Yes, but the guidance you've given us for 2011 and 2012 understood that your not thinking about in your protection it is not envisaged a very unfavorable decision by the CADE?

No, obviously we didn't.

Okay, thank you.

Juliana Rozenbaum, Itau CPA.

I'd like to understand what kind of follow up do you do of the trade off between your induction of non-interest sales, net sales performance. What size of metrics you usually compare with budgets? What would have to happen for you to decide to sit it out or to slow it down towards as regards non-interest bearing sales?

Well, in fact it's part of our strategy the same way we decide the pricing policy. The payment curves are part of pricing and this is part of sales strategy.

We're looking at the market in full, sales terms and conditions. I could be here for an entire day listing all the items that we use to make our professional decisions. They are closely connected to product price.

But in addition to this pricing fine-tuning, I think you have a more strategic guidance that is I am going to decrease non-interest sales so that the guidance will be met. Is it just the fine-tuning you don't have this market vision?

Obviously we are bringing this down and we're never going to do anything that will prevent us from achieving this guidance. So the big strategic decisions that will pressure the guidance to improve it and not to let it have a negative impact on Pao de Acucar's strategic alliance. And we are going to expedite, we disseminate those two projects but obviously this reduction will -- we don't want it to bring any problems concerning sales.

I think I have two more discounting questions. I find it hard to understand how to make it compatible within the new Globex the gross receivables I think in about net receivable of BRL2.5 billion and in the comments you talk about BRL3 billion and discounting receivables. So if this is included in the BRL3 billion?

Juliana, this is (inaudible). Good morning, thank you. Those BRL3 billion that we provided you with is the discount on credit prior receivables, about 96% of installment sales on credit cards, specifically details that was used to discount part of those receivables. Today is working to Porto Frio, PontoFrio.com and we've got plans to expand it to Nova Casas Bahia. I believe that you know that very well that we need to trace receivables so we need to fine-tune the system.

And we are already doing specific for the Nova Casas Bahia. So those BRL3 billion we mentioned are basically credit card receivables, 96% of what was sold on credit cards. And this is the volume. It's not the entire portfolio.

The entire portfolio, I have to see the movement what was carried over from the previous period. Yes, this is what we had the discounts in this quarter to face up to cash needs was those BRL3 billion that you mentioned.

So those BRL2.5 billion includes about BRL800 million?

Yes, it does. Since I am the controller of the subject, I am obliged to show that.

So we can never sum the BRL2.5 billion with BRL3 billion?

No. You have to look at the need of the quarter and what I needed to discuss. So we recognize it first. We can work on this later with Vitor. I wouldn't be able to do it right now because it takes a bit longer than the (inaudible) that we have.

The last question. Those BRL30 million that you put back on the premium of Casas Bahia's resale of intangible, is there within the income tax rate, is this those BRL27 million? I cannot find BRL30 million, I can only BRL27 million. Is it the same number? The impact is on 2 Q, right, or Casas Bahia premium and it is closer to your income tax?

So it's BRL30 million. Yes, it (inaudible) income tax. So the net effect is BRL19.8 million within GPA Food although in reference to the intangible owing to the business combination with the acquisition of Nova Casas Bahia and the IFRS you have to consider the difference in income tax.

But in what line of GPA Food is it on?

In the press release on page 10.

And what line?

You can find it in page 13 in the depreciation. GPA Food went from BRL93 million to BRL124 million.

Okay, so the depreciation. But this is silly of me, but why it is a net effect result in IFRS?

Hi, this is Diniz. This is amortization because when you create a business combination about some of these components can be amortized. These are results that are certain for us on whether you amortize investment. And this is why it appears in amortization and depreciation.

So it has a different feature?

Yes. It's different. This is not amortization. That's goodwill. It is a specific item that created an amount when you do the valuation of the investment. And this will happen throughout time. So the effect is going to fade out.

So how much could be expected in the year?

Well, it's expected to repeat itself in the next quarters. This is very technical. It's in line with the new IFRS procedures.

Okay. Thank you very much.

[Marcello Hans], Goldman Sachs.

It's just a question to follow up. I'd like to understand a bit more in GPA Food what are your plans?

Sorry, we had an interruption. Marcello, this is Hugo Bethlem. Thank you for your questions. We do not provide guidances on that and they will not be announced now for GPA Food.

We are working on the expansion and what we saw Assai, Extra Facil. We still have the conversions, 110 conversions of country base and centers. This is where our investment this year is concentrated. We will continue to grow in Extra Facil, Assai and new opportunities that have already been identified for Pao de Acucar and Extra [Electro].

So in the short term it will be that the focus would be on conversions and this format you mentioned, but not necessarily a change in the organic growth of GPA Food.

Yes, exactly. Thank you.

The Pao de Acucar earnings conference is now closed. The Investor Relations department will be at your service to answer any further questions you may have. Good day to all for being with us and wish you a good afternoon. Thank you.

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.