Companhia Brasileira de Distribuicao SA (CBD) 2012 Q2 法說會逐字稿

Good morning, ladies and gentleman, thank you for waiting. Welcome to Grupo Pao de Acucar's conference call to discuss the results for the second quarter of 2012. This event is also being broadcast via webcast, which could 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 yourself. There will be a replay facility for this call on the website.

We inform you that the Company's press releases are also available at their 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 question and answer session. At that time further instructions will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made, any projections or financial objectives are based on the beliefs and assumptions of GPA Management and on information currently available to the Company. They involve risk, uncertainties and assumptions, that could be related 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 should also reflect 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. You may proceed, sir.

Good morning everybody. And welcome to this call on the results of the second quarter 2012. We have here with us Raphael Klein and many other officers of GPA and -- to proceed with these results call.

Good morning everybody. It's good to be with you once again. And I hope to -- we will be able to answer all your questions as well. First of all, I'd like to talk about the macro scenario. And Brazil has a very good consumer market and so I think we have good results the second quarter. The third quarter, the calendar is even more favorable.

And generally speaking, Brazil continues to present very good fundamentals in -- showing a low level of unemployment. There is practically full employment, a drop in the rate of interest; inflation is under control. So very good fundamentals which is very good for retail, particularly regarding the question of income.

When we talk today, a lot about the increase of family indebtedness, our studies show that in spite of greater level of indebtedness of those families or homes, for the income that's available to families is not so affected, because -- the debt is because of the purchase of family's own home and sometimes rent and sometimes the purchase of a home -- the installments are less than rent. But the effect on the income for consumption is not that effected. So the question of default or delinquency, as we see it, is more focused on the segments of quarters. We do not identify, in our business, an increase of delinquency. It is keeping at the levels of 2011, with a trend to dropping.

So, the question of the dollar appreciation, which we have had in the last few months, has -- brings a certain pressure on imported prices or product prices, but this has been negotiated, so it will not impact prices and not bring about an increase of prices.

Contrary to everything, we have an optimistic view vis-a-vis the current scenario and the country and of Brazil. We must (inaudible) in the fundamentals and the [power of bill] and the consumer domestic market, and for these, Brazil will grow. And -- so we will be able to consume and invest and not [trick] and not shirk from investor.

We will continue with our investments. We will keep our guidance that's for this year as we have already mentioned, but we think that we must fulfill our investments particularly regarding -- we will continue to show solid sound growth particularly with the increase of income, particularly in the food retail but maintaining good results.

We have more than 16 quarters presenting positive results with very good growth, and this has been kept steady. We hope that the second quarter will be good, the third will be even better, because of the calendar -- and which will start [eating] up as from August. And the fourth quarter will be better sales. It will be stronger; the fourth quarter will be even stronger.

We have an excellent team here; a very competitive team and a management model which is well consolidated and this management model is already two years old and the Group has it under control, being able to diagnose and map things out and bring about action when needed, to solve any problem that might crop up. This is being carried out, we have a very dynamic work. We identify and diagnose things, and take actions actually every week.

So it's a professional competent team, well motivated to continue to deliver growth and targets. And each one of our different businesses in the Group without losing the capacity and to make, if the market is good, great; if it is not, we will make it better. Looking for better market share, improving our relative positions, especially where we have an advantage in e-commerce, in retail or electronic products.

We have a leadership position, we have a high market share position in each one of these segments and high capacity to gain market share and not depend only on a macroeconomic growth, generally speaking.

One point that I would like to mention, they are relative points. The first that I would like to talk about is communicate -- we just have communicated to the market just today, with the election of the new CC and CFO, Christophe Hidalgo, who -- he is a professional, with an excellent background, very strong financial person, and he has a lot experience in the retail.

He was a successful CFO in Colombia. He is 34, he's got a lot of energy and he is in tune with our values here in the Pao de Acucar with the discipline and emotional balance that we seek. All of this was discussed with me previously, and Vitor took this position before -- and but then I interviewed him and the process continued, and yesterday, he was elected.

And Vitor -- this job for a while, brilliantly, he will continue for a while longer, because Christophe was elected yesterday. However, he will not take on immediately and there is some time for him to adjust. But this will not cause any impact, because Vitor will continue to do this job in a very competent way and after this he will continue to be responsible with -- for investor relations and directly reporting to myself or to the top management of the Pao de Acucar.

So I'd like to thank Vitor for his competence and professionalism and leading the financial area at this particular moment. Another point which is important, was the GPA Malls and Properties; it's a long (inaudible) Caio Mattar has been structuring this real estate arm in a very professional way, making up the name and the strength of this real estate arm for the Company. A very structured way, with good processes, with clear management. Recently we put in Alexandre Vasconcellos, and we are introducing him to you now as the head of this process, of this position, and always supported by Caio Mattar. And now it's beginning to present results.

We don't have recurrent results because the GPA Malls and Properties is just being structured, but from now on it will continue to carry out operations to explore real estate activities in a recurrent form, activities exploring properties, so that we can bring in greater revenues or recurrent results for the Group contributing to the creation of value and the work of all the Pao de Acucar Group.

Now, from a more macro view, we will go into the presentation to page 2. I would like to say a few words about the consolidated results and then I'd like to have the team to take over and they will go into further details as they speak, so you can have the correct interpretation of the figures and the results.

So on page 2, we have three important points. Gross sales in the second quarter. We have two columns, one which is reported and the pro forma where we exclude the results of GPA Malls and Properties. So we can have a comparison with the former quarter. We had BRL13.512 billion in sales, a growth of 7.2%; a growth of 5.6%, a net of the effect. Of the real estate effect BRL13.414 billion, plus 6.4%, that is 5.6%.

EBITDA, we have BRL787 million, a growth of 22.8%, excluding GPA Malls and Properties, a growth of 7.9%, totaling BRL692 million EBITDA. So even considering the comparative value, we have a growth which is above the sales growth, which means a growth for the Group as a whole, [hold] by the food sector. In the net income BRL255 million, a growth of 180% and a net margin of 2.1%. Without the effect to the real estate projects, a BRL159 million comparable to last year -- which gives us a good growth of 4.5% (sic - see slide 2 "74.5%") and net margin of 1.3%.

Now on page 3, we will talk quickly here about the semester, the first six months. We have a gross sales of BRL27.172 billion, a growth of 8.8%, same store sales gross 7.6% without real estate, BRL27,000 million, a growth of 8.4%, and same stores growth 7.6%.

EBITDA, BRL1.6 million (sic - see slide 3 "BRL1,545 million"), 26.3 million (sic - see slide 3 "26.3%"), a margin of 6.4%. Excluding real estate projects, we have BRL1.456 billion of EBITDA, which accounts for 19% growth. This is strong robust growth compared to last year and a margin is 6%. Net income, BRL421 million, excluding real estate projects BRL331 million, a growth of 48.3% when compared to the same half year last year. So these and other results, I hope that you will be able to analyze these.

Now on page 4, talking a little bit about the real estate projects, and then Caio and Alexandre are going to give you some greater details. We have a revenue of BRL98 million. This operation was a swap of land and [tailored] -- Group's intel was very important to this activity. This kind of operation and more -- and another two which will be presented, this has already been released. It is important to say that our objective is not to sell our assets, but to exploit them, to use them, so that we can have recurrent results. And based, as I have, said on a business, which today is already well structured and will bring recurrent results and important value which will come from these activities of the real estates projects.

Here on page 4 -- then I will give the floor to my colleagues. But the gross sales, if we exclude the real estate project results, in the Food division, the growth was 5.9% in the second quarter. Gross income 25.7%, a growth of 8.5%, half-a-point above the last year.

And EBITDA, a margin of 7.2% which accounts for a growth of 14.2% in the EBITDA of GPA Food and GPA Food (inaudible) as a whole, hypermarket, supermarkets, central gallery installations, mini markets and Assai, which is a cash-and-carry outlet.

So here we have a very clear comparison for the analysis of the results, vis-à-vis the same period last year.

And to conclude my comments, I would like to say a little bit about our indebtedness, which is more or less the same. The consolidated net debt is BRL4.8 billion at the close of the first quarter and BRL4.9 billion at the close of the first six months.

If we have the net debt over EBITDA, this is maintained; its first quarter, 1.51, and now 1.5 times our EBITDA at the end of the semester. This has the effect of the reduction of the SELIC rate, but also because of the reduction of the sales and installments without -- with no interest, net of interest, as the retail team would explain.

And the CapEx -- well, we are not reducing that, particularly the increase of the sales area, we will hit our target. We had BRL392 million in the first quarter and this year -- on -- now on 30th of June we have BRL633 million at the end of the semester. If we compare this to last year, last year we have invested 35% more and in the semester 10.5% of more.

What is significant is the growth that we have invested in new stores in the second -- or last year, we invested BRL34 million and this quarter BRL150 million. This gives us 360% of growth in the opening of new stores and purchase of land. Last semester at this time, the first semester or this semester we have invested BRL232 million, a growth above 100% when compared to last year. This means we have seriously focused on organic expansion to guarantee the growth of the Company. This will be further detailed -- the growth in number of stores and an expansion of 14 stores which will be detailed further on.

I have concluded now, but I will continue here, at your disposal, to answer your questions. So I'd now like to ask Vitor to continue. Thank you very much.

Thank you, Eneas.

Next, the results of GPA Food in the second quarter. And here we're considering Extra, Pao de Acucar, Assai divisions and also the result of Malls and Properties real estate projects. And then I'll give the floor to Jose Roberto Tambasco, Quiroga and Caio, (inaudible) some comments on their businesses over this quarter.

So, on page 6 (inaudible), here we can see the evolution. The evolution, a positive evolution BRL7.4 billion -- I'm sorry, we're having problems with the sound -- accounted for 7.3% growth compared with the same period of last year. It's important to notice that on top of that, there was a very significant growth in the gross income, 26.8% over this quarter, accounted for a gain of 1.6 percentage points. It's important to show that this increase in growth income came both from retail food, and also Assai or cash-and-carry operation. These two segments contributed positively for this improved gross income.

Next, we can have a positive performance as well when it comes to lower operating expense (technical difficulty) and other segment, particularly when it comes to the evolution of personal expenses, as we've been discussing previously with you.

When it comes to EBITDA we also had a productive growth of BRL574 million, also owing to the growth in our retail food business, particularly a growth in EBITDA, when it comes to cash-and-carry.

Here we can see very significant improved margin, as a result of all the efforts by the leaders and all the team in those given segments. The EBITDA margin moved from 1.5% to levels greater than 3.8% over the quarter. So that reflects the efforts of the whole team, particularly in this segment, which has been performed over the last 12 months.

As to financial expenses, we had an evolution -- a drop in financial expenses, reaching 1.8% of net sales. And this positive evolution comes obviously from a reduction in the SELIC rate over the quarter as you have all been following on. But also with very stringent discipline when it comes to payment terms, as well as payment conditions offered to our customers.

We don't find any kind of deterioration in expenses and the SELIC scenario is more favorable with a significant reduction in financial expenses.

And in terms of net income, growing 170% vis-à-vis last year. As a result of improved result in retail Food, Assai, and also the recognition of this revenue and gain, when it comes our real estate projects.

Now I'd like to give the floor to Jose Roberto Tambasco, so he can make a few comments on the evolution and performance and also what we have achieved in practical terms, when it comes to our businesses for retail foods.

Good morning everybody. Now more specifically on supermarkets and hypermarkets, I think it's important to notice the sales performance in this quarter; it was slightly lower compared to the previous quarters.

Eneas has already addressed that briefly. This quarter was slightly affected by seasonality and this is true. Last year, the whole Easter was concentrated in the second quarter and this year it happened in the first or in late first quarter. As a result, it had a negative impact in the performance in the month of April.

Another factor that also affects the sales growth is that in this case, when incomes dropped to April and May, there was a deflation in categories like food and vegetables and meat. As a result, despite the increase in sales volumes, our revenue was close to zero. So what is positive behind this performance is that categories that ever since last year, we've been making comments on a very significant growth, particularly due to the higher purchasing power of social brackets, [G&D]. Categories like toiletries, general merchandise and household appliances, bakery and ready-to-eat meals, additional perishables, cheese and dairy, desserts; these are categories that have begun to be part of a basket of these consumers.

These categories are growing above the inflation, and this shows an outlook that we'd be able to maintain our sales performance, and now no longer effected by this deflation, related to fruits, vegetables and meat. And that makes us feel very bullish for months to come.

Thanks to our expansion, or opening new stores, this quarter we still were more concentrated in the conversion of Extra Facil into minimarkets. We concluded 65 stores converted, and in the third quarter our focus, our work will be focusing on opening new stores, about 19 new minimarket stores. And then in the fourth quarter, another 30 stores.

As to hypermarkets, we have already started them out with one more hypermarket and we should have another hypermarket or a fourth hypermarket in August this year. And this will allow us to exceed the number of openings of hypermarkets this year. Therefore, we expect to maintain our expansion in terms of 6% selling area, which was our target for the year. And maybe some gap, some leeway when we consider additional two hypermarkets compared to our previous forecast.

As to retail, al this growth in margin, as Vitor mentioned, also ends up by being in a positive result of the better performance of these categories that I mentioned before. In terms of gaining more market share in our business, and it's our expectation that these numbers will be maintained in the future. Thank you very much. That's all for Viavarejo. Now I'd like to give the floor to Belmiro, so he can make comments on results for cash-and-carry.

Good morning everyone. In the second quarter of 2012, we maintained to capture, and have improvement coming from adjustments made to Assai operations over 2011, and changes made in the commercial policy. As a result, in the second quarter we had a growth in sales around 11.11%, and same store sales growing 10%.

Total was 17.2% in Assai operation, 15% in same store sales, year-to-date. This has been achieved through changes in our commercial positioning in Assai, seeking for better service to corporations, and that applies to the whole store base regardless of the year of opening.

The main highlight that we have in the second quarter, as has been mentioned, has to do with Food.

The commercial positioning and maturation of the move that was made last year, has results that improved 32% in Assai and allied to expense control, it improved the operation EBIDTA 192%, moving from BRL14 million EBITDA to BRL40 million EBITDA in the second quarter. And also changes to payment terms, allied to SELIC rate drop, also improved financial result with a cost reduction of 26%.

As a result, the net income of Assai was BRL19 million, considering net loss of BRL5 million compared to the second quarter of last year, resulting in 1.8 percentage points of net sales over the quarter. And as far as of the year, we had a net loss of BRL21 million, and now the net number is BRL34 million showing that the changes made over 2011, resulting not only increased sales, but also a very strong contribution to the Group as a whole.

In the first quarter, we also decided to re-position the expansion in Assai. And the store format, now this is slightly different now. It requires slightly higher area, some characteristics of the real estate, in order to have a more automated operation and lower use of labor at the store level. And this work led to a prospection of excellent quality, and that would lead in the opening of new units in the second half of 2012, and particularly in 2013 and '14. The outlook is very good for the second half of the year.

The market is taking well the cash-and-carry model. Logistics difficulties that we've seen -- observed in big capital cities or very dense regions, this has favored the model. The model has been increasingly more consolidated in terms of suppliers. As a complementary distributor, it's very important for service, and you end up by complementing supply in the industry and also helping small companies -- not to need to sell or to maintain a high inventory level, and we can use wholesale as a supply point and therefore we have a very bullish outlook for the second half of the year.

Thank you very much and we'll be happy to take your questions.

Next, Caio Mattar will be addressing Real estate projects.

Good morning everybody. Eneas has already addressed that topic, but just recap. This was created to power retail operation, trying to make use of the real estate assets created by old brick and mortar stores, because we are an anchor store. The goal is to work on the Company's asset, so we can add to retail assets. The figures shown today stem from our work that started many years ago. It is still a repressed real estate market, and just to give an idea, the first venture or Faria Lima was born four years ago.

However, considering that the real estate cycle is very different compared to retail, the first results will only start to appear now. Considering the expansion of GPA M&P and the (inaudible), we hired a CEO to be exclusively devoted to this operation. I had this position in the past. I'd like to introduce to you [Alicia Nivas Gonsalves], the new CEO of GPA Malls & Properties to address the results. And I give the floor to Alicia now.

Good morning. I'll be sticking to slide 8. As Caio and Eneas explained before, here we have some details of the three most important projects taken by Malls and Properties for 4 years now, and that was carried out by the team. Basically these are swap operations and we give the land and our partners work with, sale, constructions and delivery of the units, regardless of being residential or commercial. The first two projects are part of the results for this quarter, and the third, Guarulhos Bosque Maia, will be launched in August.

For the future, we will be increasingly seeking to have recurring income, generating or adding value to the Group's results. What does that mean? It means that we have to look at existing assets, try to find out every place, and on top of that, we need specific development in order to cater to the needs of the target public in the surrounding area.

That applies both to demand available today and also for the process to follow up the organic expansion of our businesses. All our stores, once implemented, generate traffic, they generate value and also seek complimentary services to the business operation, and that's exactly our intention, to provide solutions that meet all those needs. Thank you very much.

Next, Raphael Klein will be making comments on Viavarejo.

Good morning everyone. Once again, we're here to report the second quarter of the year. We are very excited and happy. In the second quarter of this year we had good growth in same store sales. We believe we are growing 6.3% in same store sales, which is good and strong. Lot of inflation, our growth in same store sales was 12% exclusively brick and mortar stores, now that's how we calculated -- well, down to 12, this was based on [IDT]. We have 7% inflation for electronics and inflation approximately 1% in furniture.

When they work on the weighted sales mix, Viavarejo as a whole, including Casas Bahia and Ponto Frio, here we're speaking of 5.5% and this shows the sales evolution growing to digits -- we believe this is very healthy, there are some factors like [IPI] that also favored us driving our sales. Not to mention some of the actions that we've already implemented some while ago and now we are beginning to reap the fruit.

Some events, for instance Ponto Frio, we implemented a concept store for Ponto Frio. It was a pilot study six months ago and now the pilot study has already turned to be a final model. We already have 21 new stores under the new Ponto Frio concept. We're very confident and we believe this concept will be ideal for the new repositioning.

And from Ponto Frio, we have a new product mix as well. An example, just being very straight forward, Ponto Frio today already is the largest LCD or LED big screen and -- point of sale, owing to this new concept, and the retrofit in our stores. As to financial expenses, financial expenses are part of our pricing and that's something we monitor daily, and also part of the reduction in financial expenses though they come from lower SELIC rates, and Claudia in the next slides will be addressing that in more details.

But the most important thing is that we are committed to the future of the Company, we implemented the University of Retail ensuring our look and feel, and our style at Viavarejo, as if it were an university in which own store managers are promoted in-house. Regional managers are promoted in-house as well. We refer that to "Leader of the Futures" program. And that ensures the core team of the Company and on top of that the perpetuity of the Company.

In short, we believe that we are on the right track. Sales are very much in line with our expectations. We've been through a spin-up, we've been through a migration in the system, restructuring and we can ensure that the core team of the Company is doing well.

We'd be opening additional 50 or 60 stores this year, this is our goal already this year, and we are confident that we'll be achieving that. We have a big challenge ahead of us. We strongly engage in expenses. We have already implemented [further] actions in order to lower our operating expenses. It's already said the cash committee, as this committee establishes all the expenses or approves controls and recommends continuous improvement for all these drivers at the Company. And we believe that we will be reaping all this fruit over the second half of 2012.

We're very excited. We are very confident for 2012 and also ready for growth in Brazil, and Viavarejo will be able to meet those needs. Thank you very much. I'd like to give the floor to my friend Quiroga.

Good morning everybody. Well, we have had less demand and heated competition, contra to what you can imagine in the circumstances. It's the new Pontocom thinks that this kind of situation is, with these -- these are better teams. Well, we have this team.

And I'd like to remind you that last year, we were perhaps the only Company that showed growth in this section and also improved cash. And also remind you that in 2010, we delivered at Christmas on the 17th of December, and maintained the reliability or the trust of our Company, of the clients. And now we are in a similar situation because as we focus a lot on e-commerce, we would like to keep this as strong as possible.

So, we have decided to focus on the generation of value for shareholders, and this is done through the generation of cash, and in such a way that we will focus on these two factors, and be able to grow in a healthy way.

And more than half of the variable -- remuneration of our -- we would have -- we have still the most important commercial brands of -- in this -- we have grown 10% with the Nova Pontocom and the interesting thing is that this year we will reach the level of 4.3, an equivalent amount of (inaudible) GPA.

In the third quarter, more than (inaudible), we are putting into practice assortment management, customer satisfaction, service leader, working capital, consistent relationship with our suppliers and customers with long-term strategies and partnership. And above all, with a senior team excited with our trajectory and challenges for the future.

Another highlight is strong engagement and the use of automation of our processes. Particularly, our -- we are also increasing the way we work on information on our consumers, structuring an analytic tool which is very differentiated.

And we also have a series of innovations, when it comes to social network. Highlighting Facebook and also social login, and basically that's a possibility to have our customers logged into our electronic platforms and this always keeps customer loyalties.

Lastly, I'd like to congratulate our team for reaching higher levels in customer satisfaction; the main organs that checks this kind of metric, like E-bit, Procon, and Reclame Aqui have complemented it, so thank you very much. Now, I'd like to give the floor to Claudia, CFO of Viavarejo.

Good morning. Well, now let's go to slide 10. In fact, we have several numbers here and everything that Raphael and Quiroga have said to you regarding the work that has been carried out by the teams of the Company as a whole -- and this has brought along -- what we have seen, the results of BRL6 billion of gross sales, a growth of 7% and same store sales 6.7%, which is very interesting, particularly when one considers the impact that we also suffer of the deflation in this sector.

In terms of gross income, we have had a growth of gross income, but in terms of gross margin in view of what we have seen and Quiroga mentioned the stepped up competition, a drop of 1 percentage point. And this appears in our results, offset in a way, by which we have seen an improved expenses and the participation in net income, and we have had a drop here.

So operating expenses of 21% of the net income and an EBITDA of BRL214 million, which is 4% of the net revenue and EBITDA margin 4%. And then we have been following closely, the net financial expenses where we can also observe an improvement in the results. An improvement of 0.3 percentage points, 3.1%. The best result, financial result that we have had ever since we started presenting our results. And all those effect leads then to a very good net profit of BRL5 million, which is also an evolution of growth, regarding the second quarter of 2011.

So there has been definitely a growth, but of course -- but in retail, both in the physical world and all the e-commerce and wholesale, it continues to be sound and optimistic about everything that will be built up. We want more and we know that we want to be the best, through better assortments, thorough our service, our logistic services and through all of this, which is a dedication to our client. Thank you very much and I would like to give the floor back to Vitor Faga.

So, thank you very much to all of you. We will now go on to our questions and answers. So now we will have our Q&A session.

(Operator instruction) Joao Mamede, BTG Pactual.

My question has to do with this consecutive environment. How will it be from now on? Do -- are you going to open up a bit or you -- with 100% focus on profitability, because even with more cautious measures, you have had a loss in land which is relevant for e-commerce. So this is my first question, and the second question is to the significant amount of gross margin in the cash-and-carry. So perhaps these stores are going to pull the margin up. But it is difficult to see what the end of this will be. So perhaps you could tell us a little bit about what you think and then medium and long-term, thank you.

Thank you very much Joan. We will ask Quiroga, who is going to answer your first question, and then Belmiro will answer your second question.

Joan, thank you for your question. So, the competitive --competition and the competitive environment; we are prepared for this. Today, we have the best purchase scale of the products that we sell by e-commerce. We have five divisions at which we are leaders -- furniture and electronics. So we are leaders here and we have a very good position, so -- but we prefer to focus on profitability.

Last year, we also during the year, we had some quarters with some losses, but we closed with profit. And this is the most important quarter to be -- to be ready to make the operation profitable, to build up the volume. These are the averages for the year. So we are prepared to gather profit again during this year, to gather income.

So large -- we had profit last year and we were sure that we will hit this level again. And I doubt whether the competition will -- can do the same. So -- but we will focus on profitability, so we are growing, we are generating cash and we will have profitability during the year. We are getting ready now at the beginning of the year and we will certainly see this in the second half of the year.

Hello Joan, this is Belmiro. Regarding your question; so the gross margin of the wholesale is obviously less in retail. Improvements cannot lead to -- this has led to the improvement of the margins and we have much better assortment and more automated processes. So wholesale, also is, there is no sale with a certain periods of time and special credit and credit bottoms as well. So it's 4% or 5%, but this is converted into a net profit of 2% or 3%, and this is what we intend to keep.

Thank you Belmiro.

Ricardo Boiati, Bradesco.

Thank you for this opportunity. First of all, to clarify with Raphael, regarding the competitive environment again, for the retail company -- is it feeling some pressure as different environmental or competitive environment or in the e-commerce division, and also for the food retail and the Minimercado Extra.

What can you visualize from now on, after the conversion and these stores that were converted. How have the revenues and margins grown, what can we expect for this format? And will there be new stores opened, what is their idea?

Ricardo, thank you for your question, this is Rafael speaking. As you said yourself, the physical world is very different from the electronic or the e-commerce world. We have two companies with independent management to guarantee the maximum elasticity and the maximum profitability of each company. First, we'll talk about the competitiveness and -- hello Ricardo, thank you for your question.

In fact, yes there is diversification in this fight for price in the physical stores as well. Impacted by the electronic world as well, but we have been pricing our products well, and we have been selling well without depreciating the margin of the product. And I think, we are getting through this period well, adding to sales with low impact on the margin.

Tambasco is now going to talk about the mini market.

Now regarding the Minimercado, as I have said, we have concluded the transformation of these stores in the second quarter. So, the sales performance is a little bit affected by the -- during the time of the conversion where you have to close down for some time. So this does affect the sales. But after the conversion what we have seen is a significant growth of the number of clients, almost 20% and also an increase of the average ticket.

What is very much in line was what we had mentioned when we carried out the pilot of these stores. So our enthusiasm is great and I think we have a store model which adds more value to the consumer and it adds margin to the business, because you have a better sales mix and also it is a very good opportunity for expansion of the Pao de Acucar, even in large cities.

Now we have a clear focus in some assortment adjustments, but we are satisfied with the performance and the focus of our business now will become, as I have said, expansion. This next quarter, we will be opening up another 19 stores and by the end of the year, we should deliver about 50-55 new stores with this model. Thank you.

Tobias Stingelin, Santander.

My first question, I want to go back to Quiroga. I'd like to understand, when you presented the Pontocom (inaudible) and compare this to (inaudible) today, what has happened to (inaudible), the revenue has grown 2%, the net revenue in the second quarter and the margin has improved, but it dropped in the following year. So, what -- how could we see this? Can you grow and improve the profitability, that's the first question, for the Pontocom?

And then in Viavarejo, when we're going to start see more aggressive synergies in expenses? Raphael talked a little bit about cutting expenses, et cetera, I'd like to know a little bit more about that.

And I'd also like to just add, Eneas is more optimistic than Raphael, he believes in economic growth. But I'd like to know what difference interpretations here are for the business?

Regarding the growth, the growth of 2%, its net revenue, which is effective. But when you talk about gross revenue, this will give you a more approximate sales number. In the e-commerce, this growth is about 13%, it is as I mentioned, 14%, 13.7%. In the (inaudible) it's 10%. And in the wholesale, regarding the difference of the current scenario and the new e-commerce in the Pontocom, neither the macroeconomic context was forecast at that time, or the behavior of our competitors, who have to -- who underwent tremendous promotions.

So, I think that you must regard in this e-commerce has been very attractive, particularly in times of crisis. Like in more mature markets, in America, even in times of crisis it has continued to grow, and here in Brazil as well. So this is very important. So its growth as well in the physical world.

Regarding the competition, there are some important decisions and we have had to make choices. But it is important to mention, once again the point that I will raise. We are the first to take more radical positions, perhaps. And we will develop this business. It is a very prosperous business and we have decided to win. So if others want to continue to lose that's their problem, but we will continue the game to improve commercial conditions and to win this battle. It is very healthy.

There has been a tremendous development of technology in TVs, and we have only won with this. So we are trying to add value for our shareholders, generate cash and maintain the Company in profit. This is what we are going to do. We are going to continue to generate profit, and not at any price, but we will certainly be the winners.

And as the environment improving [do you] think for the main players. Well, the aggressiveness is increasing. Several players are working with discounts of 10% and 12% if you pay cash or 15%, in different categories. And so this shows you -- close to 20% above our commercial gross margin. So fortunately, we could have continued to grow. We have several growth channels and we have new businesses, new models, we have a B2B. And we have added to the Company throughout the time. And so we will continue to grow in profitability and generating cash.

Hi, I will be making comments now on Viavarejo. Tobias, we are very excited, we do believe that growth with deflation of 12% is good growth. Therefore, we are excited. We are confident, so much so that our expansion plan is an aggressive expansion plan. We'll open 50 to 60 stores.

As Eneas mentioned, we believe in Brazil, we believe in organic expansion very strongly, like Casas Bahia and Ponto Frio. So we are really excited and we are very much in line. Everybody here is in line, very excited with growth that we are planning for 2012.

As to synergies, synergy is important, and it's important to understand as well that we gained a lot of synergies last year. Some of these synergies are structured and scheduled to happen over the second half of the year and also along 2013.

One example is, [jointly positive]. From the moment you make a decision to build a warehouse or to have it implemented and deploy everybody together with a group, it does take some time and there is another factor as well. We are seeking synergy but we still have to wait for CADE's decision, due to APRO restriction. Because of APRO, so far we haven't had full synergy. We've captured a lot of synergy, but not 100% yet. There are several fronts, both in Pao de Acucar and Pontocom, in order to seek synergy with the Group.

Please bear in mind, the whole history of the Company when it started in 2010, it was very different. And now we are naturally evolving at a Company level. And a couple of things will only appear in the near future, and please remember CADE. When it comes to expense [last] synergy, as we've said before we set a cash committee and will be reaping good fruit, and now Jorge will give you more details, both on back office synergy, logistics, a couple of things as well, and also the cash committee.

Good morning and thank you for your questions. Just highlighting what Raphael mentioned before. Over 2011, we will very strongly focus on synergy implementation. These synergies are still brining returns over 2012. In other words, the first half of the year, particularly the first quarter.

However, as of mid second quarter, we want to be focusing on expense reduction to check where the Company could be leaner. For that initiative we pinpointed a series of actions and we have already started to deploy or to implement them over the second or the third quarter.

However, maybe one of the stronger and most aggressive action is the cash committee. The cash committee also known in the market as expense committee, dedicated to the Group, is responsible for assessing each and every expense taken by the Company.

Any expense that should be taken by the Company will have to go through this committee, this is mandatory. So they can assess the expense, approve or not the expense. And finally, we'll be working, as Raphael mentioned, in order to analyze possibilities for improvement.

Any improvement that can be implemented in order to provide a better visibility of everything that takes place at the Company level. We are very confident; we already have expertise to work under this business model. By the way, this Group had the implementation of this committee a couple of years ago with very interesting results. So right now, we are implementing the same model as Viavarejo, and we are confident that the outcome would be very favorable, thank you.

Gustavo Oliveira, UBS.

I have a couple of questions. First, I would like to start with Tambasco. Tambasco, you mentioned a lot about the seasonal effect in the second quarter due to the Easter effect. I'd like to understand if the seasonal effect also affected margins, the Company's margins when it comes to being positive or not. And if the marginal guidance that was 7.8%, top range, could even be exceeded, owing to the fact that retail and foods are stronger.

The seasonal effect, well, obviously for Extra and hypermarkets, the Easter effect is really strong. Nothing that might change margins, I would say. Any changes in the margins are positive.

If we consider -- not exactly in this quarter, but we had already [spelled] previously, a reduction in some categories of more basic products, staple foods like rice, beans, orange, sugar. These are lower market categories, certainly; and these categories have held their share in our business, owing to the change in consumer behavior.

On the other hand there is an increase in other categories that I mentioned before. And these categories are not only with a higher value added, but also higher margins. So, this is what really brings even better gains, when it comes to the margin lengths.

Obviously, the market, when it comes to foods, first half is very fierce competition. In our last call we had already mentioned, stronger aggression by some competitors, who up till then were weaker. And as a result, we have a new focus on negotiations with suppliers. So this increased margins is related to the product mix and also by stronger efforts with negotiations with our suppliers, so we can lower our cost.

As to the guidance Gustavo, it's important -- while we're very confident to deliver results within our goals per the guidance, please recall that for GPA Foods the -- that margin, is between 7.3 and 7.8. Obviously, from the moment these results or the quarters show good results, we become more confident in being in the upper part of the guidance and therefore close to the maximum limit. But it's too early to mention any results above the guidance discussed previously with you.

Okay, thank you. My second question is to Belmiro. For the last one and a half years, you advanced a lot in Assai. You changed the mix, you have more positive results now. Are you ready for a more aggressive expansion in area, considering the next two or three years, and what kind of growth would you implement?

Just as last year we were very strongly engaged into those internal change, be in terms of commercial positioning product and mix. Ever since last year, we are extremely concentrated in getting expansion ready. Our goal is to close the year, so that at least in the next three years, we can have these points of sale guaranteed. Obviously we had some difficulties at first, but there is a demand. With these new changes in the market, well, we need more automated operations, fewer staff in the store level, and also more automation with forklifts.

So, we [best] take a new structure in our current complex, 25 to -- 25000 meter square -- 1000 square meters built. So there is a series of action, so we can have aggressive expansion; they have already been taken. And we are ready both for the second half of the year and also 320,000 to 380,000 square meters over 2013 and '14.

On a year basis -- no, that's the till to number, for sales. For build, 680,000 to 700,000 meters. One of the differentials of wholesale is your higher capacity to have the warehousing at the store level. You don't use logistics so much. Wholesale operation, under the new market, 80% of supply is directly delivered to the unit. And therefore, you eliminate one step of the operation and you can have a lower good cost and you can be consequently more aggressive.

The last two questions have to do still with electro-electronics. When it comes to the promotion and competitive environment, last year you became leaders. It was very interesting, and you launched Black Friday in Brazil, in the Brazilian market, but first it was very shy, not so much aggressive in marketing.

And that's the promotion and depending on how you work on it, once again, you can, with a lot of creativity. How do you plan in advance for the second half of the year, including Black Friday, so that's my first question.

And the second question to Tambasco and also to Belmiro -- I am sorry, to Quiroga. Quiroga, it also has to do with his business.

How sustainable is the e-commerce business in the stand-alone model? When I listen to the talks and to the questions during this call, I think a lot of B2W, in 2006 or 2007, when they were about to be integrated. Are you further considering this or? I know decisions made last year were better, but there comes a time that logistics or services only end up by not being the single value for consumers. So, how do you envisage a strategy to address all this model for Nova Pontocom on a stand-alone fashion?

I'd like to give the floor to Quiroga, answering e-commerce, and then we can address the electro-electronic market and Black Friday.

First of all, there is no doubt about it. In the future, e-commerce will prove to be an outstanding business. All my investments on our mid to long term basis are focused on this business and we've been reaping the fruit of the time, more mature markets, there's no doubt about it. Now, there is a tiny circumstance in Brazil, associated to a global macro-economic scenario. Well, the more in doubt people are, the better; those who are certain will have a great future. I'm very confident, this is really fantastic, highly reliable business when it comes to macro consumers, the trend is to be more present online.

The new generation, the younger generation were born in the digital environment, and they are more used to buying online. So the purchase habit in more mature markets, under several categories, is predominantly digital. And that will happen in Brazil -- as it is already happening.

So, gains upscale or outstanding in this kind of business, and over time we will have amazing benefits. Now, competition is really fierce now, right now, and we have to maintain the margins. But you have to establish a limit and once again, what I said is important, recently, we've set, as a guideline, this thing about cash generation and profitability as top priority, which we were trying to match both factors, but due to competitions or competitors' attitude, we've tried to work on the best mix possible. The choice was to generate cash and be profitable. In our accounts, this will still provide significant growth. So, significant growth, cash generation and profit.

In B2C we grew 40%, so we'll be putting this growth aside in order to bet on what we believe to be more important to our shareholders -- which is cash generation, value generation and above all, customer satisfaction. We are strongly prone to deliver an increasingly better service to our customer, so they can be more liable to our platform.

Now Black Friday, we had a historical record level, with one day, with excellent profitability, with exceptional discount prices. We were attentive to that over time and we could be profitable associated with very high sales volumes. And as to our competitors I'm not going to make a lot of comments on what they did or did not do. But what I can tell you is that we're just beginning to reap the benefits of multichannel.

And in that sense, there are many more things to come, and global players are really surprised with what we've achieved. Some companies work, they stand alone but they don't have the benefits of multichannel, so that's why we worked together as a group so that we could capture the beauty of multichannel and e-commerce. So we are getting closer to our daily business, integrated with the (inaudible) in the electro world, and we'd be reaping the fruit in the years to come. And I'm sure that our results will show that. I don't know if I was clear enough, but this is really amazing scalability and result generation is amazing (inaudible) to the future.

So you could have doubt about it, great, okay, we will be getting even more money in the future. Tambasco is going to make some comments now on the electro-electronic market.

In terms of competitiveness, expectations for the next quarter, we expect the scenario to be competitive just as it was in the last quarter, and may be improving slightly over the fourth quarter.

We're very well commercially prepared as a Company in order to go through the third quarter, no matter how competitive it is. So we're not concerned with the level of competitiveness we might face in the third quarter. We're very well prepared when it comes to pricing to withstand it.

Why do you believe that things would be improved in the fourth quarter compared the third quarter?

We believe there will be -- well, the economy will be more heated compared to the second and the third quarter.

Andrea Teixeira, JPMorgan.

I'd just like to have a better understanding of the third quarter. By the way you've just mentioned a stronger operation in the fourth quarter -- a better recovery in the fourth quarter. Just like to have a better understanding of this quarter. And as a follow on to previous questions, as far as I understand, in e-commerce we believe there will be 4% EBITDA margin and 2% net margin. This would be something around or related to stability, I didn't understand exactly what it means.

Is that to Viavarejo as a whole or are you considering -- very conservative for Viavarejo, but does the same apply to -- when I saw the [virtual slide] by Quiroga.

The second question has to do with what Belmiro mentioned about area expansion. I believe the Group as a whole is turning a page, and I want to know you'd be speeding up your area strategy over the next 18 months. What about this increase in area, does that apply to the whole Group? 320,000 square meters to 380,000 square meters over the next two years. I'm just trying to reconcile the figures in order not to have any further questions.

What we expect for margin in electro business is higher than 5%, which is close to guidance of 5.2% and 6.5% as EBITDA margin this year. As I mentioned in the call, the margin is around 4%, but that's for cash-and-carry, Assai. So your outlook isn't the outlook for the future and we are confident that we'll be delivering our results within that target, okay. Quiroga, will add to my comments and address e-commerce.

Last year our EBITDA margin was greater than 5%. We believe this market when it comes to adequate competitiveness level, EBITDA margin for e-commerce could be around 9%. Now, the market or competition -- well, this is higher than what we deem to be reasonable. So maybe we won't be able to run that range this year at 9%, so that's the level we believe to be perfectly feasible when it comes to adequate competition.

Last year was above 5%, and once again we are committed to generate profitability at the bottom-line to grow and generate cash through shareholders.

Quiroga, what about this number, 5% and 9%? Do have these numbers after discount receivable, receivable discount -- is this after discounts in receivables?

The financial part is lower than EBITDA. Expenses with SELIC at the current rate is above 3% our financial cost for operating purposes.

Minus 2%.

Just to clarify, minus 2%.

So Quiroga, thank you very much for the explanation. Just to clarify, so would that be a circumstance, does that apply to -- would you manage to have a perfect expense allocation, considering all the multichannels that you mentioned that everybody likes and I understand it.

So in this part, could you have a perfect allocation of your distribution centre, is it separate? So the whole allocation when it comes to cost, suppliers, the whole structure today. If Viavarejo Nova -- Viavarejo -- or Nova Pontocom, correcting myself, if Nova Pontocom were spun-off, would you have the same profitability?

Andrea, excellent question -- (technical difficulty).

Please wait while we reconnect.

Well, Andrea that was an excellent question, because it gives me the opportunity -- can you hear me Andrea?

Yes, I can hear you.

Just a technical hitch. Good question, because it gives us the possibility to answer. There is music in the background but that's just to make things happy. Right from beginning of 2008, when we started operation, our Company was totally separate, all costs allocated. We received BRL28 million to start with, and so everything is subsidized by our own Company.

And so this shows how successful we have -- we are now, we have nothing subsidized. What we have is the work to find intelligent options. All our stocks and the purchase of merchandize, all our work is independent. It's -- everything we do ourselves. Sometimes we have some suppliers we can sometimes buy through the same -- through the Group. We might have some opportunity to do that, otherwise we are totally separate.

So, and as (inaudible), what is your expectation to reach this level of EBITDA margin. If the market is healthy, perhaps this is the year that we might reach this level. So let's hope that we can do that and we can beat the competition on this.

And just two comments, what you're observing now. We have seen lot of news in the media about Father's Day, et cetera. What about the behavior of the consumer now? I'd like to know you -- you're the greatest retailers in Brazil, so give us an idea then of how the consumers are behaving?

But things are great and we have done this -- we have had a client flow which has been very sustainable throughout the year.

Thank you Quiroga.

This is Roberto. The physical world also we have a very good client flow; I think that we are gaining clients as well.

Thank you very much to all.

Well, Andrea, let's talk about the area expansion, it's important to segment the Viavarejo and the GPA Food. The GPA Food, our estimate is to grow about 6%-6.5% as Roberto has just said. And this in sales area which accounts for 90,000 square meters of area expansion, and we are quite confident to this expansion. In the first half of the year we opened several stores and we have another 14 stores under construction. We see no problem in achieving this level of growth.

In the Viavarejo -- well, just to know, the end of this year or the end of the next year?

No, this year. 90,000 meters comparing the end of -- 2011 was the area of -- at the end of 2012. And for GPA Food -- no for the Viavarejo, we have -- we will open 50 to 60 stores, as Raphael said. It is [not] important to say that the Viavarejo, we have 18 stores now under construction. So this puts us in the right direction to complete this expansion throughout the year.

It's also important to remember the concentration of the opening of stores in the second half of the year is always greater than in the first half for the year. We have seen this throughout the last few years, this is a trend of the retail because obviously you are going to make the best of the heating up of the market at the end of the year.

This is Eneas again. I would like to go back to your first question regarding the recovery in the second half of the year or the fourth quarter. This is a frequent question it seems, and it comes to all of us in our different businesses.

I would like to underline our view for the second half of the year. We have a vision, as I've said to you, which is optimistic. The vision of people who believe in the strength of the markets, the consumption market, the domestic market of Brazil. This is where we are based, this is where we operate. This is a very strong market. It is a market which has developed greatly in the last few years, because of the migration of social classes, because of the better income distribution, because of the increase in the minimum wage, because of the increase of real income, because of collective bargaining processes.

And we also believe in some leverages for this in the second half of the year. First of all, in August or September it has a more favorable calendar with more Saturdays than last year and this should help the third quarter.

Secondly, we have been working in all the businesses in the Viavarejo, has been said by Rafael, he has worked very hard and some very structured work to reduce expenses, a lot has been planed, synergies which have been implemented. And obviously, respecting all the restrictions and the CADE -- but a lot has been done.

And the work is, as I have said, has been doing instructions by Rafael, [Orivaldo], Claudia, Roberto himself, so they all fully engaged, and I have seen the plans that they have prepared and action which have been undertaken. And we truly believe that they will be able to achieve this, they are doing it. So to reap the benefits this year still and from that on in a recurring fashion.

And for the other businesses as well. Assai has cut its expenses, and its working capital last year was more than BLR3 million cuts in working capital. Retail has already done its homework and done this in a very controlled way; the cash committees and the expense committees have not been dissolved.

So all of this leads to a cut of expenses. And therefore gains efficiency which will increase profitability, the profitability of each one of the businesses, but also bring about even greater competition capacity which is becoming more and more necessary. And we will compete as we always do in every micro region, in every place where we are present, and in e-commerce in a much broader fashion.

And besides that we also believe strongly that these measurements of the government by -- through fiscal activities, the white line and what [minister] months ago has been doing, and his willingness to take activity or to take steps to guarantee the strength of the Brazilian consumer market, lead us to believe strongly that the scenario will be better that the heating up of the economy will come obviously, seasonality has a lot to do with it.

But what we do see is an awful lot of bad news, particularly because of the bad news coming from Europe and still from the United States. And also questions of delinquency and increased debt. And this brings about a crisis of confidence for the consumer. And we think that today it's much more the confidence crisis, than an effect or the consequence of some of the fundamentals. Because the fundamentals are very strong and good.

We believe that this is Brazil's moment to grow. That companies must keep their investments in generation of jobs so that the consumer market will continue to be strong, Brazil will continue to grow, this was not the moment to stop, this is what we believe in. And besides that, with these steps, we will have a capacity of gaining market share and improving our relative position vis-a-vis the other players, those who compete with us in each one of the businesses.

We have a very favorable position because of our scale, our leadership position, [as when] our leader were second, were runners up in the segment. Therefore, we have the capacity to have a very profitable and growing second half of the year.

We will have a Black Friday, a red alert; we will do everything which is necessary to guarantee a healthy growth with profitability. And we will maintain our organic expansion. It is time to grow based on a strong capital structure; we will not give that up. We will not give up our liquidity or good cash, low costs. We have been working more and more on the installments with no interest, not bearing interest and reducing the working capital.

We are also seeking a return on our own capital. All of you have heard the rest of the team speaking; they are full of energy, professionals of great competence with much experience in retail, well organized with autonomy and power -- with -- working well in a group and in a team.

So, I'm sorry, but I made the best of your question to once again repeat -- the trust that we have in the domestic market. And I want to wish and hope that the employees in all the different segments will also have this belief and contribute, so that we will transform not only the second half of 2012, but this moment of the country which we believe will help the country to grow, generate value and jobs and follow-on. Thank you, thank you for your questions.

The Pao De Acucar Group's call is now finished. The team is always at your disposal to answer your questions. Thank you for your participation, and have a good afternoon.

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.