Companhia Brasileira de Distribuicao SA (CBD) 2011 Q3 法說會逐字稿

Good morning and thank you for standing by. Welcome to Grupo Pao de Acucar's conference call to discuss the third quarter of 2011 results. This event is being broadcasted via webcast and can be accessed at www.grupopaodeacucar.com.br/ir/gpa and www.globex.com.br/ir with the respective presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website.

We inform that the Company's press releases are also available at their IR websites. This event is being recorded and all participants will be in listen-only mode during the Company's presentation.

After GPA's remarks are completed, there will be a question-and-answer session when further instructions will be given. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements that are being made 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's management on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I would like to turn the floor over to Mr. Hugo Bethlem, Executive Vice President of the Company. Mr. Bethlem, you may proceed.

Good morning, thank you very much and welcome to the third quarter of 2011 earnings results conference call. Today the format will be slightly different. Vitor, who is our IR Officer of GPA will be making the presentation of the Food results and Orivaldo Padilha, CFO and IRO of Globex, will be talking about the financial results for Globex. Now I would like to give the floor to Abilio Diniz, Chairman of the Board of the Grupo Pao de Acucar.

Good morning everyone. Once again in the third quarter the results of the Company were very good, and I believe that all shareholders should be happy with them. We have growing sales not only because of the integration of Bahia and Globex which gives us a leap as far as sales are concerned but also same-store sales that we have already disclosed. We continue to grow and we will continue to grow until the end of this year.

EBITDA is going up. Our earning, net earnings are going up, especially at GPA Food. These results and this performance are due to the work done by this team by Eneas together with the whole management team of Pao de Acucar and that are focused, totally focused on managing the Company. I see no reason whatsoever for any kind of concern with the Company, and I don't see any degree of concern either in the Brazilian scenario as a whole and the economic, political and social scenario for our country.

The market is usually a little bit skeptical regarding inflation and the market or growth or interest rate or international crisis and -- but I repeat that as far as Brazil is concerned I do not see any reason for concern. As far as the government is concerned, President Dilma is totally committed with growth. And she has been repeating this even abroad, in the G20 meeting she is repeating exactly the same thing, and the only way to fight crisis is by growth. And of course this is what we see happening here in Brazil.

Right now the situation is totally under control. And a growth perspective, of course it is not exactly the same growth that we had last year. We see a certain slowdown in the industry that has not yet corresponded to a slowdown in commerce. But we believe that we will have an year-end that will be quite good, growing year over year and a growth rate encompassed with what the country is doing, distributing income and gradually increasing the purchasing power of our population.

So we have a commitment on the part of the government to strengthen the consumer market and having a sound domestic market able to sustain the whole economic activity in our country. And I think we should see the perspectives for our country and for our Company as well in a bullish way with balance, of course, but be certain that if we work the way we have always been working the results will always be very good. Thank you very much.

Now I would like to give the floor to CEO of Grupo Pao de Acucar, Eneas Pestana.

Good morning everybody. First, thank you very much for participating in this call for the third quarter of '11 results. And we will me maintaining this format because we believe it's very important for you to listen from more than one person. Here with us today, we have most of the officers of the Company. And I believe that this enriches our interaction especially during the Q&A session.

I would like to thank Abilio for his unconditional support to our team. And I would like to take advantage of this moment to say something that is a little bit different from the results. Of course, you will be having all necessary information about the Q3 and also the year-to-date results.

We are getting to the fourth quarter facing a difficult year different from last year. 2010 was exceptionally good. 2011 started with more difficulty and with a certain inflationary pressure and a less active market than 2010. And it is not a bad year at all especially for GPA. We have been gaining market share, we have been keeping our profitability, we have been controlling our expenses with a very sound capital structure and in which we try to keep with a low indebtedness and with a long profile debt and with cash, with liquidity. A year in which we were able to do very important reviews and restructurings in order to get more and more prepared for the next few years.

And I would like to mention a few highlights that are very important so that looking ahead, looking ahead to the fourth quarter and 2012, you may reach your own conclusions about Pao de Acucar in your perspectives, in your modeling. And in food retail it was announced [that the year] had the conversion of CompreBem and Sendas stores to Extra supermarkets in most of them, but also some to Extra Hiper and Pao de Acucar which have just been concluded during the third quarter. We are talking about over 220 stores in a very short period which involved quite a lot of planning and endeavor on our part. And this has already been concluded, so now we have a format that has a much more agile response, growing over 15% since the end of 2010. And it responds better to the demand on the part of the middle class and also with the consolidation of rent where we can have more communication efficiency and of advertising as well.

So on one hand this brings about a lot of efficiency and savings, and on the other hand it meets the requirements of the middle class of Brazil, especially in a format that is much more acceptable to them. In Proximity stores this was an year where we had an important review of the format, and the outcome was the extension of perishables conclusion and the inclusion of perishables category and the inclusion of bakery. And in this format it -- of course we are meeting the demand of this kind of public in a much better way. And expansion is fully prepared and planned with this change. So it was important so that we could carry out this restructuring.

And as far as Assai is concerned, well, starting with [Bill Meeru] is coming onboard and he has a done a spectacular job, he is an expert, and he know in-depth this kind of format. And we have been learning quite a lot from Bill Meeru. And Bill Meeru had all the empowerment, all the support to carry out a deep restructuring in Assai, restructuring the team, the management model and the layout of the stores and the assortment and the redefinition of the model, the business model.

And besides there was an extreme reduction in the inventory levels and releasing working capital which further improved the Assai capital structure. And this has already been concluded after a lot of work, and it's ready, ready to grow and grow very strongly. We have already over 15% same-store sales on a consistent basis which shows that the job was very well done. And we are really hitting the target in this format.

Talking about Nova Pontocom e-commerce with steep growth rate, gaining share with a very consistent and a seasoned team many years in this kind of segment. And in the operation of Nova Pontocom we have difficulty in the Ponto Frio wholesale operation where our growth rate is slower. But we are trying to achieve a balance between profitability and growth, so that after we've achieved that we can grow more strongly, and Herzog and his team are doing an outstanding work. So they are great, and they are doing a great job and really delivering over all these months Casasbahia.com, Pontocom with extreme growth, over three digit, gaining share very quickly. And this is a brand that responds very quickly. And this should only improve and consolidate in the next few quarters and the next year.

In Drugstore recently publications have been talking about an experience in street store, and we have been innovative. We are bringing a concept of drugstore that does not exist in the market for street stores. And in commercial malls and galleries, we are sure that we will continue to expand because these are stores that tap into the flow of the hypermarket and supermarket, and they also attract the flow. So we have no doubt whatsoever as far as street stores are concerned. We are implementing innovative concepts. And we are still in a pilot.

But depending on the response then we will start aggressive growth in spite of the consolidation in the market. In spite of that, we believe there is a lot of room for us to grow. In relation to Globex, this will be explained more appropriately, but I'm very happy with the Globex process. Many people had doubts about our capacity to carry out this integration.

And I can tell you that it was not easy, it is not easy. These are huge companies with very strong cultures. But the integration completing practically one year already gets into the conclusion phase, already tapping into the synergies as expected, and by the way, beyond what we expected in terms of synergies, and we will be -- this will be reflected in our figures. And the team really doesn't measure any efforts to look for synergies and with the -- under the consistent management of Raphael and of his VPs.

It was also a year where we made some changes in our management model, and we launched the creation of a virtuous cycle where we bring culture and our values to the base of the pyramid to all our people, our employees. And we have over 170,000 people working for the Group and some of them on the base of the pyramid. We still have a high turnover. And this culture movement intends to bring these values and create a virtuous cycle at the base of the pyramid. And the cycle of this cultural movement is we want you to be happy here where we bring benefits with the objective of creating the right conditions for people to be happy in the workplace. And this is -- has to do with benefits and also empowerment and respect and very clear processes creating this condition for happiness and for respect and for dignity at the workplace with a lower turnover.

And this will mean generating more resources. And then we will be able to invest in our people more and more because we believe very deeply because in this -- because if we are gaining market share and if we are profitable and if we have our expenses under control and if we have a culture of budgeting and results all this very consolidated, if we are there this is because of our people, and this is why the Grupo Pao de Acucar is much better than the competition right now. And we will make our best endeavors to continue like that.

And for the fourth quarter as Abilio said, we have a team that is fully prepared. And in spite of any turbulences or any problems, they are totally focused on the business and in the fourth quarter. And as you well know, for retail and especially for our segment the fourth quarter is the quarter in which most of our results are achieved. It is during Christmas and after Christmas. And the team is fully prepared and we expect a very good year-end, and we have the necessary inventory.

All our major projects have already been concluded, and nothing will distract the attention of our management. And means of payment with FIC, with Bradesco, we are fully prepared to create all the right conditions that the client needs, the consumer needs in order to make their purchases. So we are rather bullish.

And we trust we will have a very good fourth quarter. But we trust based on reality, based on all the preparation that was done during the whole year to get to the fourth quarter. And we are also concluding our plans for the next year. We carried out our strategic planning meeting, you have followed that, and it was excellent. We were able to discuss all the Company's businesses. And we have very aggressive plans for 2012. And we expect it to be better than 2011. And it will start without the inflationary pressure that we have at the beginning of 2011, a better agricultural crop. And we are not subject to foreign markets; we do not depend on exports. And we have no debt on foreign currency. And so we are not exposed to any exchange rate fluctuations.

So we are focused on the domestic market, on the Brazilian economy that continues to be very strong. And with all the right conditions to give our clients, our consumers the best conditions to consume in all segments where we operate. So this is the -- what I leave with you.

And I repeat that the team is very well-prepared to deliver even more than you have seen so far over the next few quarters and the next few years. So thank you very much for participating, it's a great pleasure to be with you. And I would like to give the floor back to Vitor Faga to continue the call. Thank you very much.

Well, good morning everyone. I would like to start with the results of GPA Food. And I will talk about the highlights of this business unit.

Gross sales, we reached BRL12.6 billion during this quarter, 58% growth year on year. And if we could stress, GPA Food with same-store sales increase of 8.5% and Eletro electronic 10.7% growth.

Talking about gross income, BRL3.1 billion in the quarter, very strong growth, year on year 76%, where the two business units present margins that are higher than 26%, GPA Food 26.4% and Eletro electronic Globex 29.6%. And an EBITDA of BRL722 million during the period, a 46% growth year on year, 7.4% margin in GPA Food with 5.4% Globex.

Going to the next slide, slide number 5, we see the details of gross sales during this period. And in GPA Food we can see gross sales of BRL6.8 billion in the quarter, a 9.7% growth year on year, which represents same-store sales of 8.5%, as I mentioned before. And it is important to see, on the right, on the chart, that this growth shows a maintenance of the trend that we had been observing in the previous quarters and a slight acceleration of this growth, especially if we de-seasonalize the second quarter because of the Easter effect.

So we are confident with the strength and the perspective for sales volume in this business. And it is important to mention to you as well two highlights of in-growth. The first one is the supermarket stores, CompreBem and Sendas, converted into many branch of the Group, but especially the new Extra supermarket format with same-store sales very, very interesting, higher than 15%. And also the cash and carry in the Assai brand, which undoubtedly has been bringing good results from the viewpoint of sales volume.

And also it is important to remember that this is the 13th consecutive quarter in which we get a sales performance which is higher than the second player in the market. It shows undoubtedly that -- it shows some of the points that Eneas touched upon, about the consistency of delivering result associated to competitive advantages that are very strong vis-a-vis the major competitors in the market.

Going to slide number 6, we can see the conversion of the stores CompreBem and Sendas into Extra supermarket format. It is in total -- it is interesting to see the increase in the exposure of products that have a higher added value like bakery and fish and dairy and protein, and this is fully aligned with the perspectives and the new demands from Brazilian consumers, especially from the Brazilian middle class. So this was the major reason for this conversion, and this has been the basis of our strategy and for the new formats of our businesses.

This conversion process brings positive results to the Group, and we already can -- we can already observe this movement looking at slide number 7. Gross income -- gross profit with BRL1.6 billion. The gross profit is associated to this new habit on the part of consumers of the Brazilian population. And it is important to mention that we were able to get this advancement, and it leads to an increase in our margin from 26% to 26.4%, 40 basis points of increment. We were able to deliver this with the increase of the participation of cash and carry which structurally has lower margins. So if we consider only food retail, the increase in our gross income -- in our gross profit during the period would have been more expressive.

Now looking at our operating expenses on slide number 8, we see our expenses in the quarter BRL1.167 billion, 12.7% growth year on year impacted essentially by 3 points, personnel expenses that already reflect the new parameters regarding the next bargaining session with the unions and also marketing expenses with the inauguration of 93 stores that we opened because of the conversion of CompreBem and Sendas to the other formats of the Group.

And finally IT expenses. And here I would like to highlight that during this quarter we already have the full recognition of expenses referring to the outsourcing of our datacenters. So these are expenses that are under control and that are fully aligned with our strategy to strengthen the infrastructure for the whole Group.

And now considering the EBITDA of EBITDA Food, we were able to reach BRL458 million in EBITDA this quarter, over 10% growth year on year. And the maintenance of the EBITDA margin, it is important to stress that the EBTIDA associated to the expansion of the gross margin and with the improvement in our sales mix, as I said before. And it is important to say that we are comparing this EBITDA of the third quarter with a third quarter of 2010 that was very good. We had a third quarter in 2010 with a record of the Company in terms of EBITDA margin. So we are repeating this achievement in this quarter. It is important to say that even with a higher participation of cash and carry in the sales mix for our business.

And finally, going to financial expenses, slide number 10, here we have the maintenance of the level of our net financial expenses as a percentage of our net revenues, 2.7%. And this was achieved in spite of the increase of the SELIC interest rate. So we saw a reduction in the interest rate cycle at the end of second quarter. But if we take the average, the daily average of the SELIC, in spite of that it was higher than the average for the second quarter. And we were able to keep our financial expenses during this quarter at this level. And these are the major highlights for GPA Food.

And now I would like to give the floor to Raphael Klein who will be talking about Globex.

Good morning everyone. Thank you for joining us today for the call. On behalf of the Globex team, we're very happy and satisfied within managing to have tangible results for many things that we've been starting planning years ago. It was the capture -- synergy capture curve so we could deliver the guidance promised to the market.

But this is not an easy task. And the end of the year will not be easy at all. But I'm confident that this team is ready to deliver all the guidance promised. And we are very happy to celebrate the first quarter ever in our Company in which we are really in the black. So we are fully acknowledging the efforts of all the team, officers and employees of the Company.

For the fourth quarter, we know the market is really in a touchy circumstance. However, in the past, at Casas Bahia whenever the market was slightly under or being challenged, we benefited from these challenges, growing and maintaining the market share. And if necessary, all the techniques used to manage Bahia will also be applied to Globex just as we've been doing right now.

And we have good news for the fourth quarter. Fifteen new stores to be opened, out of which five for the Ponto Frio under the new concept, which is increasingly improving. We are evolving and watching this concept closely in order to provide better customer satisfaction and also meet the needs of all social brackets. And 10 Bahia stores to be opened this year, and a new market in Fortaleza, two new stores in Fortaleza.

We're very bullish. We are ready to take the challenge. Our infrastructure in terms of logistics is unprecedented in any -- by any other Eletro electronic retailers this year. We'll be adding 30 square meters in Rio and next year three building works in Aruja, Betim and Brasilia with new logistics structure to meet the need of the growing market.

Now I would like to give the floor to Quiroga, our partner at Pontocom.

Good morning. Another quarter in which we grew more than the market in addition to profitable operation despite fierce competition. So we are aligned with the guidance provided in Pontocom Day.

Special highlights were the performance of Casasbahia.com, a strong brand, gaining new clients at a very significant rate. It's very good to say that Nova Pontocom with the three banners in addition to the business supported by the Company are fully prepared for Christmas. Therefore, we'll be expanding even further our logistics and our service vis-a-vis our competitors. For that, we opened three exclusive DCs for Pontocom, we expanded our integration, and we are reworking all our customer service from 17 to 24 our categories for Christmas. And we maintain our diamond standard for e-bit. And we are one of the better-accessed companies for electronics, and this shows how focused we are in our customers and our uniqueness when it comes to level of service, profitability, and one of the highlights has to do with our team, which is differentiated and highly committed to deliver result. Basically these are my comments. Thank you.

Good morning. Orivaldo Padilha. I'll be addressing the figures of Globex as a whole, Casas Bahia, Ponto Frio and consolidated figures for Nova Pontocom.

This quarter gross sales were BRL5.7 billion, growing 10.7% same-store sales. We include in the space the performance of same-store sales for Casas Bahia and also the website Casasbahia.com.

A second highlight is the growth in our nominal sales for the third quarter vis-a-vis the second quarter. The Company is managing to grow by 1.10% this quarter vis-a-vis the previous quarter despite two events that were very significant. We had the migration of our whole front-office system in all our stores at Ponto Frio in addition to the change of the wholesale DC to Rio. Another highlight, once again as Quiroga mentioned, is that performance of Casasbahia.com's website growing together with the other websites at 31.4%, which is very important to us.

Another highlight has to do with BRL14.9 billion achieved in the first nine months of the year. And we're very much in line now with the guidance to meet sales in brick-and-mortar stores greater than BRL20 billion for the year.

On the next slide, now gross profit, once again we have positive figures BRL1.5 billion, that's our gross profit in the third quarter. Margin increased to 29.6%, gaining 1.50% over the previous quarter. Over the first quarter 2.7% as well. And this margin was achieved despite the increase in e-commerce share of Nova Pontocom in our mix. Obviously margin is slightly lower. And it was achieved basically by two drivers, the expansion of the commercial margin in addition to a higher penetration in our service category, particularly extended warranty.

Next slide, expenses. Operating expenses amounted to BRL1,156 million (sic -- see slide 16) on nominal terms in the same level of the second quarter despite we grew 1 point greater than that quarter. Another highlight is a slight increase in selling expenses, which were fully offset by reductions in general and administrative expenses. And now we feel very much in line with all the guidances and synergies for expenses.

On the next slide adding the two effects, gross profit and expense, 5.4% is our EBITDA in the quarter, BRL264 million in the same quarter or 1 point better or higher compared to the previous quarter. And that was achieved mainly thanks to an increase in gross income or profitability of the Company, year to date 440. And once again we are in this interval of the guidances in the range of the guidance provided to the market.

On the next slide, a couple of words on financial expenses, as we said before that the priority of the Group turnover management, we are heavily focused on that. And by doing so we've managed to maintain an even lower in this quarter our financial expenses. And as we said before, we have an increase in the average SELIC rate compared to the previous quarter.

I'd like to stress, and by the way this is not included in the presentation, but now I'd like to say or mention a comparison of EBITDA with discount expenses, discounted receivables basically. If you work on the figures for the three quarters, in the first quarter we would be zero, in the second quarter BRL28 million positive, accounting for 0.60 of net sales, and in the third quarter BRL62,400,000 or 1.30 of our net sales. So we doubled this index showing the financial health and operating health which is the focus of the Company.

On the same slide on the last chart, we also share good news. Adjusted net income for non-recurring expenses for integration and restructuring achieved in this quarter BRL48.8 million. The margin is 1% over net sales compared to 0.30% in the previous quarter, which also emphasize we are on the right track or we're improving the profitability expected by the Company and by the Group.

Now I'd like to give the floor back to Hugo.

Now we're about to conclude the presentation and here you can see the consolidated figures on the next slide.

Our equity income and our FIC with Itau has proved to be consistent, 100%, reflecting the impacts and adjustment of IFRS. And 8.9% of share of FIC cards in the sales of GPA, and more than 8 million clients in our base accounted for 10% penetration, that's the rate in GPA Food and 22% in Ponto Frio operation. For debt, debt is absolutely stable between BRL2 billion and BRL2,300 million in order of magnitude, and our guidance is lower -- well debt over EBITDA ratio. And in the third quarter, which has no impact of seasonality, we have 0.84 times.

On the next slide, it's important to highlight that this net income, adjusted net income or accounting net income is not comparable at all. We're speaking of two different companies here. Last year Nova Casas Bahia was not integrated, and this year it has been fully integrated. So based on that, it is important to realize that the business, the Eletro electronic business, does bring another need, a different working capital need in terms of discount receivables. And these discount receivables this quarter accounted for BRL236 million vis-a-vis what is reflected in last year's balance sheet.

So following the same rationale given by Padilha, our EBITDA growth here was 46%. However, on an adjusted basis financial expenses, operating income grew 10.2%, which is absolutely in line with same-store sales growth. So that's important to mention this. And would like to say again that despite changes in Globex and financial expenses due to the business model that it's absolutely under control and within the guidance given to you.

On the last slide, we come to our investment. This quarter we invested in Food BRL325 million, year to date BRL780 million. And in this quarter we managed to have a great impact. We're just about to conclude our conversions as mentioned a lot, CompreBem and Sendas stores into other models. So out of the 128 converted this year, 93 were in this quarter, another new Extra Hiper and Pao de Acucar. For Globex, BRL108 million, we inaugurated four new stores for Casas Bahia this quarter and for the year 14 stores.

Raphael has already shown, shared the good news. In the fourth quarter, we'll be opening 15 Eletro stores, five Ponto Frio in the new format and 10 for Casas Bahia, in addition to 11 new stores for GPA Food, out of which 2 will be hypermarket. CapEx, therefore, should be close at BRL1.2 billion to BRL1.3 billion total consolidated figures for the year. Please note that this year we made the decision, a critical decision to revisit our models for Assai and Extra Facil already mentioned by Eneas. Today our models are fully revisited. They are healthy and highly profitable. And next year will be the year to come back to our organic growth as we had in previous years.

So now I'd like to invite you to join us in our Q&A session.

We're opening now the Q&A session. We kindly ask you to make all your questions at once and wait for the Company's answer. (Operator Instructions)

Tobias Stingelin, Santander.

I'll ask three questions, and if you need I can repeat them. First question has to do with Globex more specifically. I'm happy with the margin delivered, and we can clearly see an expansion, a very strong expansion of gross margin. To what extent can it be further expanded? And if it cannot expand any longer, when we will see a more significant drop in terms of expenses more specifically? That's my first question.

Second question, I'd like to know if you could quantify the impact on sales when you migrated Bahia's front office. Did it affect your sales this quarter?

And lastly, what can we expect when it comes to Food expenses? So you are doing very well with the gross margin, but expenses were surprising. When it comes to expenses, was it a one-time thing, is it a recurrent event? What about the future? Thank you.

Tobias, thank you. This is Hugo. The first question, Globex, if I understood you well you were talking about the margin delivered, which was -- well, it even outperformed, right? So what can we expect, how far can it go? And in the same question you want to know about expenses, when can we be more aggressive. First, for margin, I'd like Roberto Fulcherberguer to answer. And the second question will be answered by Jorge Herzog.

Tobias, good morning, thank you for your question. When it comes to margins, you're right, we've been expanding the margins. We still have opportunities for growth, but we are closer to stable levels. So that's the first question.

Now migration of Ponto Frio's front office, you ask about any occasional loss in sales this quarter. After the migration we have 30 to 40 days to adapt the Ponto Frio banner to the new operation model. We had more than 300,000 hours of training with the team. But this migration was quite significant. However, close to Ponto Frio we also have Casas Bahia. So Casas Bahia was ready to absorb any occasional problem at the point of sale at Ponto Frio. And when we add both banners together, we don't believe we had any loss in share or market over the quarter.

Thank you, Roberto. So if the gross margin is closer to what it could get, obviously you are going to have an operating leverage, there is Christmas. But if we think about next year in order to meet the highest EBITDA margin guidance we have to check expenses going downwards faster. Is there any guidance you could give us? My question was along those lines.

Gross margin is good. Now, when we think about expenses more aggressively, and by the way, I saw that in your release, you've been investing on truck fleets. So I read it this way, the idea of revisiting all the processes, you've come to the conclusion that you're going to have your own fleet; you're investing on your own fleet. Can you elaborate on that?

Just to correct, we still have a high -- a slight increase in our margin, we can still have gains to be checked. I cannot give you precise figures, but Jorge Herzog will go in to give your more details on expenses. Thank you.

Hello, Tobias, good morning. More specifically on expenses, I believe there are two critical points to be highlighted. The first point is that we started the integration process and capture of synergies in late 2010.

Every synergy that we have been capturing have already had impact on our expenses. This quarter, more specifically, there has been some reduction in administrative expenses, particularly in IT, legal department, non-food, IT, basically due to the integration of the platform between Ponto Frio and Casas Bahia, which was one of the main activities scheduled in our integration process.

Our expectation is that the actions being made for synergy will keep on happening over the fourth quarter. And obviously, these recurrent events will be captured throughout 2012. We are within the expectations we had set and we believe this will remain. Other projects we had in mind are being implemented and delivering the results expected.

Now when it comes to the trucks, you mentioned trucks, basically this change in trucks happened for two reasons. First reason, we already had part of the fleet reaching the limit and we also wanted to make the most out of (inaudible) opportunity that happened in late this quarter, and we thought the change would be timely.

As to the decision to move into our own fleet or to outsource, actually the decision was to have a hybrid model. This is still being implemented. It's also part of the capture of synergies. Our own fleet is very effective for a specific radius of distribution, and the outsourced fleet applies when you have longer distances. So we have been working on this process, the implementation process, and we believe that by mid next year this will be fully integrated up and running as defined in the project for logistics.

Raphael wants to add a comment.

Just to add to his comment, Tobias, there is something important here. Some synergies have not been fully captured and some will only happen next year. So we still have some room to work and the lower expenses. We have IDC, some other benefits in logistics, a couple of things that we have to revisit, not to mention the APRO, today this is sort of a hindrance to lower our expenses.

In the beginning, we thought APRO was very healthy, but now we are limited to a good share of the operation, and therefore we cannot go as low as we wanted in our expenses, but as soon as [Kaidi] approves it, we will be ready to go lower than that.

As to your questions of expenses for Food, Geraldo Monteiro will be answering, particularly personal expenses and marketing expenses. He is the Retail Operation Officer in Sau Paulo.

I'm sorry, this is Eneas, sorry to interrupt. Geraldo, just one minute. Expenses, I've been following expenses very closely. Tobias, we have control, as you know, a very stringent control of our expenses in all our areas of business. We learned it by doing it. We suffered a lot. And when you learn it the hard way you don't go back.

We maintain our expenses growth absolutely stringently. Now, this year was really a hard year. This year we decided to outsource our IT area, last year, and this is the year in which we annualize every outsourcing expense. On the other hand, also the new software we acquired licenses basically virtually BRL100 million of increase in our expenses. And these are necessary, they are extremely necessary, so we can have condition to grow in the future at the levels expected. In this quarter, more specifically, and I'll hand it over to Geraldo.

But in September this quarter we had a collective bargaining which has a strong impact in our personnel base. It was higher than we expected when it comes to the bargaining with the unions, and this obviously affected all our businesses. Our personnel base is very important. Personnel is our top expense, so obviously there was an impact. In spite of that, considering our savings that we expect to have to offset this effect, we are at 18.9 in this quarter, 18.7 year to date, which is 0.4 only vis-a-vis the previous year. And I say only considering the higher cost. Obviously they were made by us but they are necessary to have the Company ready for a new and very robust IT platform so we can have responsible growth. So that's just what I wanted to add more to give you a macro feel.

And now I'll turn it over to Geraldo. Thank you for your question.

Tobias, good morning. This is Geraldo. Thank you for your question.

I think Eneas mentioned very well when it comes to the collective bargaining. I would just like to add something to the expenses part. We have the Company's decision to have a fast change in the 93 stores mentioned by Vitor, they all happened in the third quarter. And then we had some non-recurring expenses. We have to change all the uniform. That gets into the personnel expense line. And sometimes you have extra items when it comes to these fast migrations. So we really to have be very fast. Something unprecedented in the market. It was really, really a fast change. And it does have an impact on marketing expenses in order to announce this change in stores and this is not recurring. So these three expenses, collective bargaining, changes and marketing expenses, these are the ones that had more impact.

Thank you for your explanation. So what about non-recurring events? Can you give us an order of magnitude for the future? Could you have taken BRL10 million or BRL20 million out of expenses? Thank you again for the opportunity.

Tobias, we cannot give you accurate figures right now, but we can share information later on. Thank you.

Fabio Monteiro, BTG Pactual.

My question is in the line of gross margin. You mentioned store conversions for Extra super, and it also improved GPA Food results, it was surprisingly. We had strong growth, fewer consumption, electronics not to mention Assai and the negative impacts. That was clear to me. What about Globex? Despite or even though e-commerce is strongly growing and you also had improved margins, at a given time you also make comments on extended warranty. If I'm not mistaken, Orivaldo mentioned that. There is a commission that you earn, and I wonder -- well, you have high margins, very high margins. So what is the magnitude of revenues at Globex for extended warranty? Thank you.

Fabio, Roberto Fulcherberguer is going to answer your question. Thank you.

Good morning. Thank you for your question. Actually the front office at Ponto Frio allowed us to better manage our extended warranty, slightly leveraging our sale of services. The breakdown for EBITDA is due to that and also better negotiation with industry and also better performance when it comes to product assortment.

The second question, more from the macro view. If in non-food you have felt any difference in terms of your gross sales in A, B class stores, vis-a-vis C class stores, is there any difference? Do you -- can you talk about that?

In fact, Fabio, this is something rather linear. We do not see any deviation regarding the middle class or C class, it's very, very level.

And one last question, a quick one. You talked about conversions to Extra. What do you believe could leverage sales per square meter or same-stores sales in these converted stores for the next year? I remember that in Assai the conversion was very important. So what kind of expectation do you have for these converted stores, recently-converted stores?

Geraldo, will answer your question.

Fabio, this is Geraldo. As we said before, these stores grew over 15%, and we expect the performance to continue. It is important to say that these stores grow in sales and number of clients. They improve the participation of perishables, which is very satisfactory because it reinforces the daily purchasing habits, and our expectation is to continue on the same growth curve.

Fabio, it doesn't grow like Assai which doubled sales, it grows over 15%, but it delays a very important margin component. Each new square meter of sales becomes more profitable than the previous square meter. Okay?

Okay. Thank you very much.

Gustavo Oliveira, UBS.

I have a few questions. The first one has to do with the financial result.

(Operator Instructions)

Carlos Albano, Citibank.

Eneas was talking about the expansion, aggressive expansion for Food in 2012. Can you specify the number of stores or which stores, can you quantify that?

As we said before, Albano, what Eneas meant was the following. Our organic growth base was around 7% before this year, which was focused on the review of our models and the conversion of stores. And our ROIC is excellent. And next year we intend to go back to this level. The number of stores hasn't been defined yet. So we will give you this during our guidance for 2012 after we close 2011. But we are going to resume organic growth. And we must not forget the size of our business. For each 7%, 8% that we grow in sales area we grow almost a whole competitor.

Albano? Albano, can you hear?

(Operator Instructions)

Gustavo Oliveira, UBS.

Regarding finances, you have the updating of other assets and liabilities which has a negative impact on Food but positive impact on Globex. So could you further explain this?

Gustavo, this is Padilha.

I will explain the effect on Globex. We're talking about two effects mainly. We started the third quarter with higher cash in financial revenues and the investment of this cash. And also part of that, the major chunk of that was the increase in the payment for discount to -- regarding payment to suppliers and which had -- 80% of this increase is due to this factor.

Filippo will be talking about GPA Food.

There are some factors in other expenses that, for instance, you have rate fees, that effects ultimately, and also we have the negative effect of CBD and positive effect at Globex. Regarding the association agreement, we have the obligation to make cash transfers over time. So these are cash contributions over time because of the re-composition of capital based on our agreement. So this debt is indexed. So it generates a financial expense at -- for CBD and financial revenue for Globex. And you will see this in the balance sheet, and this is a major item that accounts for that.

And has it been normalized, that is to say from now on? Will it be 40 on each side or how would this work from now on?

It is balanced and the term is rather long. Globex as well, Gustavo.

The second question, in same-store sales, you have these -- in Food you have the effect of the conversion of stores and growth of Assai and same-store sales higher than 15% in these two businesses. What about hypermarkets? What about the performance of hypermarkets? And next year do you intend to make any new investments or any modelings or change in layout of your hypermarket? And what would be the expected effect on same-stores sales?

Gustavo, could you ask all the other questions so that we may distribute them?

So this the first. The second question is the following. I don't really understand what you're doing with Globex, especially because there is a big conceptual difference from what is being done online. Online is more complex and you are almost fully outsourcing and you have logistics which is outsourcing Food, and it's difficult to understand. I would like to know if the major benefits are still to come and if they will be coming from logistics and distribution or whether this will be from G&A.

And the last question that I have is to Quiroga, and it is about the new action in categories. What is the concept that you want to place in your online store? I thought you were thinking about a one-stop shop model, but you are adding other categories. And if you do that it seems to me that the model will be rather different from the one-stop shop that I imagined.

Okay. So I will rephrase the question so that everybody may understand. The first one has to do with same-store sales, besides the strong impact of the conversion of supermarkets, CompreBem and Sendas to Extra and other models, the positive result of the ongoing growth of Assai in spite of the review of the model, that will bring an even better result for next year. Hypermarkets having a very good performance, yes.

And I would like to remind you that Brazil today has a huge potential of other areas that really didn't fit a supermarket. And today there is a huge opportunity for new Brazilian areas. We have just opened a new store in Goiania with an outstanding result in Campina Grande and other areas.

Next year within this new model of hypermarket of 6,000 square meters focused mainly on these areas of 200,000 inhabitants, we will have a huge potential to grow. And same-store sales 15%, we have something like 6.5%, 7% growing in supermarkets and traditional hypermarket. In logistics we have a hybrid model. This is not really hybrid, but we have an outsourced model, I would say, and Jorge Herzog can clarify this further.

Carlos, hi, this is Herzog.

Gustavo, just to clarify what we are doing with logistics the Casas Bahia logistica and Ponto Frio have their own logistics, we have our own distribution centers. And what we did in terms of outsourcing is a part of the logistics which is the delivery where we consider that the distances are more adequate for us to have outsourced logistics. However, it's a dedicated logistics. That is to say these are trucks that have the brand of Casas Bahia on them, but they belong to third parties. And most of our logistics continue to be within the current model that we have which is our own logistics.

So I don't know whether I have made this clear to you. But more specifically, this is the difference that we have in comparison to what we did before.

Now, Quiroga will be talking about the e-commerce part of your question.

Hi, Gustavo, good morning. Basically we do everything in-house. Transportation management, logistics management, our distribution centers, we manage them. The only thing that we outsource is transportation, and in spite of that we increased the integration of the carrier and we chose the best carriers in the market and we have a very good relationship with them. And because of our good payment terms they almost exclusively work for us. So we do not have many risks or many problems, and we do not foresee any problems for Christmas.

And we have our people at these carriers already. And until the end of January they will stay there to have an even better control of these operations.

Regarding the categories that you referred to, our view is that we have some brands such as Assai that allow us to increase, radically increase the number of categories that we have. And we have been doing this since the beginning of our operation.

And at the beginning we only worked in the four major categories, Eletro electronics -- or appliance, IT and cellular phones. And over the first half, well, we foresee seven additional categories now. And they play two different roles; they play two fundamental roles in our commercial strategy. We intend to increase our margin and increase the flow. The categories that we operated first, the four categories, they are very good in volume. But we have an increase in categories to achieve repeat purchases and margins. We are talking about accessories, watches, soccer, sports, toiletry, flowers.

Could you compare the number of people on your online stores and your brick-and-mortar?

Well, it's rather different. The physical world has a higher concentration in the core categories, and the online operation allows us to have a complete assortment in all categories practically. So we have both in categories, and in-depth in the categories this is very different because we ultimately can be more in-depth than in the brick-and-mortar world.

And a follow up, the margin gain in Globex will not come from logistics anymore, it comes from G&A, is this what you mean?

We have a margin gain with logistics, yes, coming from logistics as in our gross profit we have logistics. So part of our gross profit will come from logistics, yes.

Thank you.

Carlos Albano, Citibank.

One more question regarding Globex now. When you talk about non-recurrent expenses in this quarter, I understand that you're right in the middle of the way to reach the guidance and get to the 7%, 7.5% margin that you had given us as a guidance, so a lot remains to be done. And in 2012 you will still try to gain synergies, of course. And I would like to know about non-recurrent expenses that will be necessary to tap into these synergies and achieve all the gains that you are seeking, both in expenditures and in CapEx, the change or replacement of your fleet. So what could we expect as expenses and CapEx?

Carlos, this is Hugo. I would like to make two slight corrections. The first one is that in the guidance that we gave you we didn't talk about 2012, we talked about the model year, the full year, so not necessarily 2012. Of course, we will be making our best endeavors in this direction.

And the second thing is that in the second quarter we started to disclose the change in the classification of [POR] of 1 point lower than the EBITDA, and now it's higher than the EBITDA, and it was 4.5 to 6, and now it's 4 to 5.5 and 7.5. You can reach 7, okay, the employment profit sharing.

Carlos, good morning. The wish on the part of the management is to limit to 2011 all the expenditures regarding consultancy and impact of changes, et cetera. So we should not be transferring this to 2012, nothing more relevant should happen in 2012.

Everything that had to be done has already been done, and we will try to complete everything by the end of this year. So we had 80% of these expenditures with the changeover or migration process. Due to its magnitude we had to involve many people, many processes. And this whole process represented 80% of what you saw in our quarterly statement.

And what we still have is some consultancy work, but it will be limited this year to our -- but anyway our guideline, as Raphael said, is that for 2012 we should continue to tap into what has already been done, and we will try to get other cost reductions over the year.

So in the fourth quarter you will probably still have some non-recurrent expenditures but not anything relevant in 2012, right?

Yes.

Irma Sgarz, Goldman Sachs.

My question has to do with the financial part, so maybe you could talk about the quality of your credit portfolio and the level of delinquency and the development of delinquency over the last few months, and how do you see this from now on?

And afterwards. Irma, could you please ask your second question?

Going back to the operating expenses of Globex. It hasn't been very clear to me if you see a good room to decrease expenses, especially sales expenses, which are a little bit lower than 20% now. If from now on this could decrease as you tap into synergies or if this represents the commercial philosophy of the Company, especially on the side of Casas Bahia and whether there are some points you're not going to touch on.

Okay, Irma, financial expenses and the quality of credit. You saw two effect. One, the effect of the expense that is very well controlled even with the SELIC interest rate changing and also the FIC results. But I would like to give the floor now to [Imar] who will be talking about that.

Good afternoon, Irma, this is Imar. About your question regarding delinquency, of course, FIC over 2011 has been showing a slightly higher delinquency vis-a-vis 2010, but also 2010 was the best year in terms of delinquency, but this is very much in line with the history of FIC and much, much better if we discount the forwards of 2010, the minimums of 2010, still at very good levels. And the information that we can compare with the market and the evidences that we have for comparison purposes lead us to believe that the FIC portfolios have a behavior that is similar to the best credit portfolios in the whole market. So we do not have any [worries] about the delinquency level, and it should even improve now.

And Padilha will be talking about the installment sales.

Consumer credit of Casas Bahia, it is as old as the brand, and what we were able to see in the last 12 months was that there has been no change in delinquency vis-a-vis the period before the association. And in these last few months, also after the association, it's been kept stable. So there are no surprises there, Irma.

Thank you.

Now Raphael will answer your question about operating expenses for Globex.

Irma, good afternoon. This is Raphael. Irma, yes, we still have room to further reduce our expenses, how much? Well, we cannot quantify. But the guideline that we have is to preserve the G&A of delivery services to our customers. And this was the major competitive advantage of Casas Bahia always. And we are implementing this in Ponto Frio as well.

So if there is one area that will not be changed.

Well, no, I wouldn't say that. We are reviewing all our processes. But in some areas we are more careful in terms of this methodology with the aim of delivering services to our customers, and we still have the fourth quarter to tap into more and more synergies. So it hasn't been finished yet. But our guideline is to keep our guideline of delivering the best service to our clients. Thank you.

Alan Cardoso, Bradesco.

Good afternoon, I have three questions. The first one is about Globex. You said that you have disadvantage in EUR-commerce, and I would like to some -- to have some more details and also more details about the Ponto Frio stores concept that will be implemented.

And the last question has to do with the changeover, the migration of the Ponto Frio system. So you channeled part of the sales to Casas Bahia, was there a surprise there? And could that have an impact on brand expansion from now on? So I would like to know the impact that this had regarding these two brands.

Alan, thank you very much. Quiroga will answer your question about the competition too for e-commerce. And then Roberto Fulcherberguer will be answering the two other questions, the new concept of Ponto Frio, and during the 40 days of adaptation of the Ponto Frio teams what happened regarding sales of Casas Bahia.

Alan, hi, good afternoon. They are asking me to speak more slowly, but the point is the following. Competition is more aggressive online. Yes, in our opinion they are having some difficulty regarding the share that they conquered in the past, and in order to keep the sales volume we have to very aggressive commercially. And this aggressiveness has two -- three critical factors, which are discounts, aggressive installments and free freight, and this hinders the profitability of the business. And because of consistency in service level, we are able to grow levels without hindering our profitability comparing with the strategy used by the other competitors.

So we manage the brands and we combine growth of sales with profitability of the operation. But the market is more competitive, it complicates a little bit our challenge, but it's more fun, I would say.

Roberto, for the new concept of Ponto Frio and the migration.

Good afternoon. Thank you for the question. For some time already we redesigned the concept of store for Ponto Frio in shopping malls, and the concept is more adapted for the A and B classes stores more focused on technology and better experimentation and testing of products. We already have six stores with this concept. And all the new shopping center stores of Ponto Frio or any other new stores will fit into this concept.

Regarding the migration of the system what I said was the following. As we had a period of adaptation of our team after this changeover we prepared Casas Bahia. In case we had any problem of sales at Ponto Frio, Casas Bahia, which are close to Ponto Frio would take over the sales and not leave this to our competition.

Yes, I understand, and regarding this last point of Casas Bahia have been to take over sales from Ponto Frio. Does it change in any manner your procedure because I know that each brand has an exposure to a different consumer group, high-end, low-end, but Casas Bahia has been absorbing these sales very well, so what about -- does it change anything?

No, it doesn't change anything. Sometimes we have stores next to each other. And it was something more or less automatic, but it doesn't really change anything the way we see the business. Thank you.

Grupo Pao de Acucar's conference call is closed, and the Investor Relations Department of the Group will be available to you to answer any questions that you might have. We thank you very much for your participation and wish you all a very good afternoon.