Companhia Brasileira de Distribuicao SA (CBD) 2012 Q4 法說會逐字稿

(interpreted) Good morning and thank you for waiting. Welcome to Grupo Pao de Acucar's conference call to discuss the results of the fourth quarter and full year of 2012. This event is being broadcast 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 soon after the conference is closed.

We would like to inform you that the press releases about the results of the Company are also available at their Investor Relations website. This event is being recorded and all participants will be in listen-only mode during the Company's presentation. After GPA's remarks, there will be a question-and-answer session when further instructions will be given. (Operator Instructions).

Before proceeding, we would like to mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of GPA's management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore they 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. Vitor Faga, Executive Director of Corporate Relations for the Company. Mr. Faga, you may proceed.

(interpreted) Good morning, everyone. We are starting our results conference call for the fourth quarter of 2012, and today with us we have Mr. Abilio Diniz, Chairman of the Board of GPA; Mr. Eneas Pestana, CEO of Grupo Pao de Acucar; and many other officers of the Company and of some subsidiaries as well.

Now, I would like to give the floor to Abilio Diniz for his opening remarks.

(interpreted) Good morning, everyone. It is a great pleasure for me to open this conference call with you. At the moment, the [grades] the Company is presenting, the closing of its figures for 2012 with a result that I believe you will all consider as being very good.

We were talking here before the call that we do not remember another moment in which the Company gave 2% as the bottom line. We are not talking about the EBITDA margin; we are talking about more than 2% on the bottom line. I believe that the result of last year was excellent. The year was not easy at all. We had to fight to maintain our consumers. We had to fight to be better than the others, and we were. We achieved that. Otherwise the results wouldn't be this. And we had to make our best endeavors in order to achieve all these figures.

This is even more outstanding when you think that a moment of transitioning of the Company was occurring and the Company had some wear and tear between -- and among our main shareholders. And the team was kept totally separate from these issues and nothing else was occurring -- ever affected the others, and they went after the markets and they delivered the results and they operated the stores and they did what they had to do and they transferred merchandize and they did all the IT processes and logistics, et cetera, and the ultimate result was reached.

As the Chairman of the Board, I can only say that I am extremely pleased with the results achieved. And another thing that gives me a big satisfaction is that after a lot of resistance at the Board of Directors during the whole year of 2012, I have been very vocal in saying that we have to be more firm in terms of retail and we have to get the Company in our hands and below the management of Pao de Acucar. This should be done and this only happened in November. And we could say, "Well, it only happened in November." But on the other hand, we must say, "Well, we are happy about it has already happened. Assai is doing a great job in retail in what we can visualize as a Company today is something totally different from what we visualized before.

This Company in our hands, looking for synergies and doing the homework and doing everything that has be done will certainly bring a lot of happiness to all of you investors and will be bringing a lot of satisfaction to all shareholders and everybody who works for the Company. This is very auspicious and we could see in retail the Company as it should be and the outlook for the future cannot be better.

2013 will continue to be very good for Grupo Pao de Acucar. Quite a lot was shared about the macroeconomic outlook and what Brazil will look like, and I believe consumers will continue -- our consumption will continue to be high. And if there is a problem with credit -- I don't believe there will be a problem with credit. But if it happens, it will be offset by the higher offering of jobs. All the infrastructure jobs underway are very important. They will bring about more jobs and create more money in the country and more money in the hands of households.

I think the outlook is really excellent for a company that is prepared to face challenges, a company that is strong and sound and resilient in a country that will continue to grow and is growing. And we are very happy with the situation. Thank you very much for your attention. Now I would like to give the floor to Eneas, who will give you more details about the operation and the results.

(interpreted) Good morning, everyone. Thank you very much for participating in this call. It is a great pleasure for us. We have our team around this table. I am not going to get into details. The team will be talking in detail about each one's operations and then we will leave time for questions and answers. I will be very straightforward in my remarks, but trying to give you an overview of the year and of the business.

It was an year of major challenges, but also, on the other hand, many opportunities. And the team is very strong. We are very competent and very professional. They are true proof -- and they know how to work in an integrated fashion, a true team work and maintain a focus on our clients, on our business. And I think this is a major competitive advantage that we have and that brings us better results, and results like the one that we are presenting.

And still talking about the macro of our business, let's start with Assai, which has been doing an excellent job. 2011 was a tough year, really tough year. And we had, I don't know how many challenges ahead of us. And Belmiro -- with the challenge of setting up his team and the structure and do his homework and in all senses -- from the viewpoint of stores, assortments, supply chain, strategic positioning and the target market.

This was done in 2011. It was concluded at the beginning of 2012. And 2012 was already a year where we reaped the fruits and we were able to focus on expansion. And this was done in a very competent fashion, creating a land bank that will help us accelerate -- further accelerate our expansion from now on. Important, same-store sales that shows how healthy our business is, and we did our homework and very well and all that with a significant increase in satisfaction regarding the net profit of Pao de Acucar Group.

2011 was not very good and the participation from Assai was 1% in net profit. This went up close to 9% in 2012; the participation of the Assai group. So you could see that this is enough evidence that Assai is in the right track -- on the right track. And in food retail, a very focused team, a very seasoned one that had the capacity to maintain their serenity and their focus on the business all the time.

This was a major stride this year, with the conclusion of convergence to the Minimercado formats and the neighbor model. That completes our portfolio in terms of food retail to cater to our clients in all their purchasing moments. And looking for the revitalization of the non-food categories in the hypermarkets, and this is being done in a very competent manner both for fish and the other categories in the hypermarket.

Food retail has a total focus on clients today and clients tomorrow, for each one of the (inaudible) in order to the use the strengths of the portfolio and the different banners and the different regions in order to be able to offer an end-to-end option to our clients.

And I would like to highlight the expenses control that was done on very competently, guaranteeing the margins of our food retail, Viavarejo. And Ramatis came on board in a motivated manner, and this is the way Ramatis always works, in an integrated fashion. And we are totally focused on what he is doing.

And there is an important expansion that has already been carried out, especially in the north and the northeast. And the reduction in financial expenses also done since the beginning of the year Raphael, Claudia, Jose Roberto, they did a great job in means of payment and they were able to bring down the non-interest bearing plans and strengthening our installment operations and more specializing the financial management of this business.

E-commerce, the segment continues to move forward in Brazil with all the players seeking the same, which is gaining market share and profitability of course. But we have a strong team, a team that works in a very agile fashion and is very good in its employment. Pontocom was able to raise the bar in several services. I can say that we have the best service level in the whole segment, and this is totally recognized and this is done by a very hard job in logistics and achieving growth with no negative results at all.

There is a decision that this year we are starting in a very well [trusted] manner with a review of the team and the processes, which is our real estate division. Our real estate division is led by Alexandre Goncalves de Vasconcellos. He is a very competent guy. He has a holistic view. He set up the team and he did all the process review and we already have projects that had a great contribution to our bottom line. And from now on, we have excellent opportunities to create value by means of our real estate assets and of course always together hand in hand with retail.

So to conclude my remarks, talking about our people, our people are great. We are -- they have a lot of experience. They have a lot of motivation and perfect focus on each one of our businesses. It was a great pleasure for us to see the increase in the level of engagement by the end of 2012. That was really outstanding, and we invested quite a lot in training and responses and internal work with training of our people in a situation of full employment that could have been a bottleneck, a limitation, to our growth for the tough labor, especially skilled labor.

And we are preparing ourselves to do this internally. We have made gateway -- a stride in this direction. We already have training of professionals in a significant number in 2012 and it will even be higher in 2013 at (inaudible) management, with autonomy, with accountability and meritocracy. This is the way we work and this is the way we will continue to work.

We close the year with a sound capital structure. We reduced our indebtedness. We increased our liquidity with a focus to better management. And (inaudible) knows review, so when he came on board with a lot of knowledge and efficiency ratio and a reduction of inventories, reduction of the non-interest bearing installments and working with all of the other Grupo Pao de Acucar and guaranteeing the refinancing lines for the Company.

Infrastructure, I really must mention because the Company that is willing to have an aggressive expansion -- organic expansion plans first to invest in infrastructure. And we invested quite a lot of money in IT and logistics to prepare the Company and to keep it prepared for a strong performance, but always tapping into synergies and efficiencies among the different businesses. And we were able to achieve a sound result with sound margins with all these efforts and with various opportunities and (inaudible) expansion.

We had 103 new stores being opened; 71 food and 32 non-food. 2013, in my view, just to say a few words about that, what can we expect for 2013? We can expect efficiency and results. We will continue to maintain a global focus, which is our major competitive advantage, being very close to our clients and making surveys all the time and paying attention to our clients and focus on our business, respecting cultures and the specifics of these business, guaranteeing convergence through economic group, which is prepared with a portfolio to fight in this market, to [vie] for the market, which becomes more and more competitive, with a professional management.

And it is very important for me to say that we must have agility, this is retail. So retail is carried out by means of consistent processes with autonomy, with accountability, control and meritocracy. So this is the work of order. This is how we operate. This gives us agility in our decision making process and guarantees execution. It's back to day, every day. And very much strengthened this year, so that we may really be aggressive based on competitiveness, growing our sales, gaining market share and growing the inflow of clients in our stores, which we are seeing ability in our retail equation always based on efficiency gain so that we can grow, but at the same time maintain our margins.

You may also expect an aggressive organic growth. We will have at least 150 new stores opened in 2013 or 160,000 square meters in 2013. Focus, I have already mentioned, is quite a lot. And I reinforce that priority to the northeast and the midwest. And I think this is going to be the year in which we will see advancing and consolidating our operations among high channels and this is our big strength and this is a big difference. We are a very complete player in the market from the viewpoint of vendors and mix in all regions of the country and of course a lot of value can be further created with multiple channels and synergies.

And advance very strongly in value creation in a recurrent fashion, taking advantage of [workshop] opportunities of course, but we must have a recurrent value being brought to the Grupo Pao de Acucar by our real estate activities.

So with no further ado, I would like to give the floor to the members of the management from the Company. I will give the floor to Christophe and afterwards I will say a few words. I am very happy to be here and I am very bullish and we will continue together. So I will give the floor to Christophe.

(interpreted) Good morning, everyone. I would like to start the presentation. We can see that consolidated sales for the fourth quarter is BRL16.3 million, excluding real estate projects; 8% growth, excluding real estate projects. And among comparable stores, 5.8% vis-a-vis the previous year, and during the same period profitability measured by EBITDA grew by 28%, representing 8.7% net income for the Company, BRL488 million, with a 23.4% increase year-on-year, representing a 3.4% margin.

The capture of opportunities in the real estate area allowed us to add 40 basis points to the EBITDA margin, which reaches 9.1% of our net sales. And the impact on the net income of the Company by our real estate projects allowed us to reach 36.4% increase with a 3.7% margin.

Now, going to slide number 3, we see that during the whole year sales exceeded BRL57 billion, with a growth of 8.4% during the period and same store sales growth in the same period was sound, reaching 7%.

EBITDA for the period 2012 was BRL3.5 billion, which means a 6.9% margin with a 24.8% growth. And this good performance reflects the very good control over our expenses with the objective of not having -- of continuing to be very competitive. Net -- well, we had our net income going from 39.2% reaching the best historical level with a 2% margin. The contribution of the real estate projects brought 30 basis points to the EBITDA and to the net income, which reached 7.2% and 2.3% respectively.

Now, going to slide number 4, we can see that the net debt by the end of the year was BRL3.4 billion, showing a major deleveraging in spite of the significant level of investments carried out in the fourth quarter. By the end of 2012 net debt represents 0.93 times the EBITDA and it is reflected in the reduction of the non-financial expenses.

Now, I would like to give the floor to Tambasco, and he is going to talk about the food area.

(interpreted) Food retail -- well, in food retail the results were not different from that. As Eneas said, it was a tough year, but it was a rather successful year in terms of growth and good results obtained.

We will be talking in detail about that. And now I would like to limit myself to a few points of our strategy, which has brought about this result. In the last few years, we have been talking quite extensively about that. Consumers have been changing their buying behavior and they have a higher purchasing power than they had in the past and they had been trying to establish a more complex relationship with retail.

Because of that, our strategy, as Eneas said, was strategy of being a Company that has a very complete portfolio in terms of store models, allows us to establish a strategy with two major focuses. The first one has to do with multi format or multi banner. Our consumers more and more look for multi banner and multi channel, which has a lot to do with our strategy due to our portfolio. And we are focusing our strategy on these aspects.

In terms of multi banner or multi format, we are trying to reinforce each one of our formats, having biggest outlet option for our consumers at that specific moment, be it at the supermarkets or a neighborhood store or a hypermarket.

So we have been focusing on the growth of mini markets in the last quarter. We opened four of the mini stores of Minimercado, mini markets, and this model caters to the consumers in their daily needs and this also gives us an opportunity to strengthen our ties with these consumers with the Extra brand of Pao de Acucar.

We have a significant gain because of the improved purchasing power of our consumers that try to use and buy new products and look for other services and this offers our Group at Pao de Acucar an opportunity to consolidate with a banner that caters to these consumers. And in the hypermarkets besides having resumed the expansion of the store model, we are also trying to reinforce the offer of products and services in this model of stores.

And here I would like to highlight the textile area. This is an area that since 2011 we repositioned our product portfolio for this category and bringing extra to provide for the textile market with specialized stores, with specialty stores. And in 2012 we started a new reformulation of the sale -- of the selling areas of this sector, creating a much more pleasant ambience for our consumers and adding other services for the sale of these textile products. And this has been bringing us a very robust growth. And in 2013, we should be concluding the rollout of this operation in all the hypermarkets.

Another area that I would like to highlight and that has a lot to do with this new consumer that I have just described, and that looks more and more to have his or her meals outside their homes is to transform Extra with the rotisserie operation or placing their -- an operation. Hypermarkets are going through a transformation in the implementation of restaurants, our own restaurants, in these areas, and this has been generating a new option to these consumers and also bringing a higher inflow of clients to our stores.

Alexandre Goncalves will be talking in detail about that. But another highlight for Extra is the increase of our galleries to offer more and more services to these consumers. And the second point of our retail strategy that Eneas Neto has already touched upon is a search for a high level of integration between the physical world and the virtual world. In our several retail stores, the brick-and-mortar stores, with the Novo Pontocom, [in dozens] of the excess to the Mercado stores, we had already implemented the kiosks of Pontocom that allow these consumers to have access to non-food products that these supermarkets don't have, with a very big integration with the Extra Pontocom website. And we also launched by the end of this year, the Extra food delivery operation.

We only had this before with the Pao de Acucar and now we have launched with Extra -- integrated through the Extra Pontocom website, extra.com, with the objective of deepening these point of contact with our consumers by means of the Extra brand. Our objective is not only to be close to these clients whenever he wishes to buy -- he or she wishes to buy, but at the same time we are able to reinforce the Extra brand as a better purchasing option for that client.

And as Eneas said, for 2013, we are very bullish about the reinforcement of this strategy with a very aggressive expansion, and we intend to deepen this integration with a virtual world. And of course you will hear about that even more afterwards.

So, I thank you very much for your attention and wish you all a very good day. And now I would like to give the floor -- I apologize, I will give the floor to Belmiro now and Belmiro will be talking about the GPA Food with Assai.

(interpreted) Thank you very much, Tambasco. Good morning, everyone. Talking about Q4 2013; Q4 in terms of sales was the best year for Assai. We had a very good increase in our sales and this increase in sales was 24% and it was driven by growth of same-store sales in the fourth quarter, which reached an 18.8% growth, closing the year with 15.7%, with a growth higher than inflation, higher than two digits, which is unprecedented in the market. And this result was obtained with the maturating of some operations in some categories in 2011 and operations regarding our target public. These new items as they are part of the basket of our clients, they increase the average ticket in a positive fashion and increased more than 15%. And the remainder was the increased consumer traffic, which was more than 4% increase in same-store sales.

We closed with BRL1.542 billion vis-a-vis the figure that you have for the previous year and this increase -- and the strength of this category brought pressure to our OD and 10.6 advancement and 10.6 -- and we continued to gain efficiency in expenses, because expenses do not grow as much as sales neither in the year nor in the quarter.

2012, Assai was very positive. We had an 18.5% increase in total sales. We reached BRL5 billion in sales and EBITDA went from 77 -- with an increase of 77 from BRL106 million to BRL190 million. As our segment suffered so much pressure, 57% of the EBITDA value was converted in [LAIR] and 42% converted in net income. With that, the net income of 2011 which was BRL9 million, as Eneas just said before, income before income tax, with a big capture of the results coming from the changes in the business -- it reached 8 times the increase vis-a-vis the previous year, reaching a percentage of 1.8% of the net sales.

2012 was a year in which we reaped the results of the adjustments in our commercial policy of Assai. But it was mainly a year that we prepared Assai for a new leap. We have an organic growth plan which is very aggressive. (Inaudible) 2012 was done in 2012 with the definition of the stores format and the sites and which is being executed in 2013.

We spent 2012 to 2013 with over 40,000 square meters under construction that will be opened in the first half of this year, going from 7 to 14 states, increasing its presence nationally. It will be a year in which we are assured that we are very good in terms of expansion. Our team is very motivated with the growth of our business. We have been working very strongly to have also growth in our people, that is to say -- so that they may develop themselves, and we are a 100% sure that 2013 will be the best year ever so far. Thank you very much.

Alexandre Vasconcellos now will be making some remarks.

(interpreted) Good morning. I would like to move to slide 6. Well, the center summarizes the real estate honest growth. As mentioned before, our clients are in constant change and we have to understand, follow and serve to meet on our expectations. That is translated into opportunities to improve the attractiveness of our clients with complimentary offerings to what was offered in own stores in the segments of leisure, shelf, (inaudible), convenience and food.

As Tambasco mentioned, this is a transformation of our galleries, both through the expansion of the physical space, the ambience, and also the inclusion of the new assortment our stores. And in focusing of our retail operation, really what we did to face this challenge is provide this accessibility to retail stores by heterogenic growth and also including renovation and maintenance of the stores.

We have also concentrated to reduce the cost in terms of set up new stores of food retail. And as an example, I mentioned the expansion of mini markets and neighborhood stores, where we changed banners and focused -- and I have a dedicated team working in an integrated fashion, and in working of the stores from new points and to the delivery of new stores.

(Inaudible) open in the market have been reduced by 50% and the cost has been reduced by 25%. In the next months we will be delivering more on what I have just described. Thank you very much. And now I give the floor to Vitor Faga.

(interpreted) Thank you, Alexandre. On slide 7, I will give you some highlights referring to growth of our selling area. This is the topic we have been discussing with you at length. It's important to highlight that GPA Food in the last quarter of 2012, we opened 38 new stores, an important acceleration in the pace of store opening, which has represented more than 25,000 square meters of additional selling areas added in this quarter alone.

So Viavarejo 16 new stores were -- 12 at Casas Bahia and 4 at Ponto Frio, which comes to show an important expansion in the selling area for the new retail segment. And probably to highlight particularly GPA Food, which had a growth in the selling area close to 5% in 2012; that said, 4% of that growth happened in the second half of the year, which shows the pace of growth in the second half was a lot stronger than in the first half of the year. And it is with this pace where we expect to evolve over 2013; growing selling areas, to organic growth, to include our banners along 2013.

Moving to slide 8, I am going to present some business highlights for our business results for GPA Food, the operations including food, retail or banners; Extra, Pao de Acucar and cash-and-carry Assai. Gross sales grew, excluding real estate projects, 9% in the last quarter of 2012 over the first quarter of 2011. Gross profit of 26.9%, 0.8 percentage points compared to the same period as the previous year. Therefore, a growth of almost 13% in absolute terms, and associated through a reduction in operating expenses as a percentage of sales.

Now, at 18.1% operating expenses compared to net sales, which shows the synergy in the gain of operating efficiency which is ongoing in GPA Food. And finally, the effects of that on the EBITDA margin. EBITDA margin, as mentioned, was very increased and the nominal value of EBITDA increased by more than 20% in the period.

When we associate the reduction of net financial expenses, that is a reduction in our net debt level and a reduction in the cost of the debt, that led to a net income of BRL254 million, which gives us an EBITDA margin of over 3% for GPA Food.

When we include real estate projects, net income in this business segment above BRL300 million -- BRL305 million and a margin of 13.3%. These are the highlights for GPA Food that we wanted to share with you. I will now give the floor to Ramatis, who is going to talk about Viavarejo.

(interpreted) Good morning. 2012 was a very important year in the process of integration of Viavarejo. This year we focused on two main progress; on processes and on our people. First on the processes. (Inaudible) the management of our processes. When we talk about people, we've started a very strong process to strengthen our culture. We started a program called [Nasakalta], higher cause, focusing on getting the engagement and commitment of the Viavarejo staff.

In addition, we strongly focus on training, training our people. We have more than 1.2 million hours of training. We also focus on professionalizing our management. With all of that -- and the results of that, was that we had a sales growth of -- same-store sales went up 7.4% in 2012. Our sales growth was led with the repositioning and improved product mix or a segment of Ponto Frio stores. As Belmiro mentioned, the understanding of this new consumer, we are making adjustments in our marketing strategy, in our product mix strategy. So we can get back to our stores these new customers.

Facility expansion, year of 2012 had 32 new stores and introduced on Casas Bahia banner. Of those 32 we had 25 of those being Casas Bahia, 16 of these new stores opened in the northeast and northern regions. With that expansion, we currently totaled 39 stores in the northeast.

[Possibly] -- a reduction of operating expenses. In 2012, we focused on improving our internal processes, particularly with the introduction of new tools and management systems. That led us to great productivity gains and a strong reduction of the expenses.

As mentioned before, we had a reduction of our net financial expenses, mainly due to reduced average collection period of customers and another element contributing to that was the SELIC rate cuts. We also had cash generation, particularly due to increased profitability and due to improved inventory and suppliers management.

So 2012 for us is very important and we start 2013 feeling confident that we are a strong and well structured Company with a highly motivated team to continue to grow towards profitability, competitiveness, and to remain leaders in the market.

Thank you very much. I would like to give the floor now to Quiroga to talk about Nova Pontocom.

(interpreted) Thank you, Ramatis. Good morning. In the fourth quarter of 2012, Nova Pontocom had a challenge of reversing the losses accumulated in the first three quarters of the year and continue to grow and having to face the competition. The great news is that the Nova team was able to overcome the challenge.

In the fourth quarter, we had a growth and positive operating result. More than that, we reversed the accumulated losses of the year, maintaining therefore our (inaudible) record of growth with consistent positive results, delivering the guidance at the beginning of the year, closing 2012 with a net cash above BRL100 million.

Integration -- we developed a new strategic business for the Company; Market Place, Partiu Viagens and Barateiro. We restructured the Market Place and invested strongly in marketing analytics and supply chain. In 2013, we can count on the results of all of our endeavors in 2012.

We are more prepared more than ever to face a highly competitive market because in 2012 we worked on process review to increase our efficiency and productivity.

And that's why we had a positive operating result in the fourth quarter of 2012. (Inaudible) to that now we have an unprecedented condition. We can capture synergies that will help us be more competitive. The Group is also focused on enjoying one of the main competitive advantages that we have, multi channel. The team is looking quite good together and is highly motivated to make multi channel a reality. But now Tambasco and the other teams have been working together for a long time and now we are in a fantastic position to make this synergy reap the fruits.

Client focus remains one of our pillars. And finally, I would like to thanks our team at the Pao de Acucar Group for all the work for the Group together in 2013. My message to you is, in 2013 we will accelerate our growth through revenue -- positive profitability and cash generation. Thank you very much.

I will give floor now to Claudia.

(interpreted) This is Claudia Elisa, Financial and IR CFO of Viavarejo, talking to you about the results of the first quarter of 2012. In my presentation, I will talk about delivering the guidance for the year for Viavarejo. This is a very positive year for us.

Looking at our gross sales in the quarter, [it's at] more than BRL7.5 billion, almost a 7% growth quarterly-over-quarterly, 6% same-store sales growth and (inaudible). Therefore, delivering more than the guidance given for 2012 of BRL25.7 billion, that was the expectation for Viavarejo.

In terms of gross profit, we reached a gross margin of 29.1%, a reduction compared to the fourth quarter of 2011 of 1%. And since the second quarter we have been talking about an allocation among accounts, within gross profit and operating expenses for this 1% reduction in the first quarter was actually 0.5% reduction. But it was offset by our performance and control of operating expenses.

Operating expenses were reduced substantially in the fourth quarter. Even with increased gross sales and gross profit, operating expenses in this quarter were reduced by 6%. And in terms of percentage points of the net revenue, we had a reduction of 3.1 percentage point. Considering what is written in the press release, this 3.1 corresponds to 2.5 percentage points. With that kind of a performance we reached an EBITDA of BRL579 million and an EBITDA margin in the fourth quarter of 8.7%, growing 38.7% in the quarter our EBITDA, and in the year our EBITDA margin was 6%. Also, in accordance with the guidance given to the market, between 5.7% and 6.5%.

In terms of the financial expenses, just like the whole Group, we performed better, reducing our net financial expenses. In the quarter, we reached 2.5% of the net sale, a 0.7 percentage point reduction compared to the fourth quarter of 2011 and in the year a 3% financial expenses. Again, we had given guidance that we would be below 3.3%.

But with all of these good results our net income grew substantially in the quarter. Net income grew 85.9% and net margin of 3.5%; in the year 1.4%. This 1.4% is a growth of almost 1 percentage point over 2011; in year-on-year in real terms a growth of BRL234 million.

I would give the floor now to Vitor, who will continue this presentation. Thank you.

(interpreted) Thank you, Claudia. We are now going to start the q-and-a session.

(interpreted) We would like to open the q-and-a session now. We open the floor for questions. We kindly ask you to make all questions at once and then wait for the Company's answer. (Operator Instructions).

Tobias Stingelin, Santander.

(interpreted) I would like to understand the guidance of expansion of 160,000 square meters. Is this for (inaudible) or just for GPA Food? My first question is this.

My second question is I would like to understand the expansion of the gross margin of Food, excluding Assai, which was (inaudible). I want you to explain how we can interpret that, the present quarter, because there was reduction. Now you went up again quite a lot. How can you see that in the strategic plan?

And I want to listen from Ramatis, if he could explain the gain in the fourth quarter. How can we (inaudible) looking forward? Could you give us any indication of the pace for new gains for Viavarejo? Thank you.

(interpreted) Tobias, to answer your first question. Our guidance of 170 stores -- more than 170 store, more 170,000 square meters is for the whole Group. In the future, will this gross (inaudible) above the sales guidance for our result and guidance for new stores, but these two parameters are for the Group as a whole.

(interpreted) This is Tambasco. Talking about the performance of our margins in GPA food. What we have here is clearly a change in the mix, in the participation of the segment. The mini market and the neighborhood stores are expanding more now. You all remember that there was repetition in that banner. That happened in the aggregate of categories of perishables in that market, which is where we have grown strongly and these are categories that gained higher margin.

There is another aspect involved here (inaudible). In the last few years we have seen a reduction in the consumption of (inaudible) products overall. So we feel wines, oil have lost share. But that will offset in categories that have higher EBIT value and with better margins to level. Categories of widely seen staple food, they really have very reduced margins. So there's a benefit there for the reduction of staple food and the increase of apparels, textiles in the hypermarkets or readymade dishes. These are all categories of products with a higher margin and a higher EBIT value. So it's fundamentally a shift in terms of the products.

(interpreted) And a follow-up question. And looking at the third quarter, the third quarter, the product mix has shift to the more long lasting effect. There was a drop of 70 [PPS] and now it grew more than 100, (inaudible) one of the reasons that it is such a major shift from one quarter to another. Is it just due to seasonal mix of products? It's fundamentally a seasonal product mix due to change in the market. I want to hear this piece of data that might bring forth my answer? (inaudible) of the market.

(interpreted) In the category of consumer electronics it's lower compared to the year as a whole, particularly in the categories of video and IT. These are categories with very rigid margins given the competitiveness in the market. So again, it is (inaudible) point that we enforce the improvement in the margin mix despite the fact that we lost a little bit of sales in this category.

But to answer your question, yes, it is fundamentally a product mix reason. We can't explain it any other way. Thank you.

(interpreted) And there is one question about Viavarejo. Ramatis is going to answer your question about Viavarejo.

(interpreted) Hello, Tobias, and thank you for the question. This is indeed a very important point because most of the gains that we captured were now in fourth quarter. As we can see the results are just [different]. Many of the actions we implemented in the second half, many of them are still being implemented. But we started capturing some of these gains.

That tends to be recurring over 2013. We created an internal committee on (inaudible), as we mentioned in our press release. And you can see with this internal committee we are analyzing, controlling, and attribute all of these factors. This is one of [instances] we have to focus on our expenses, on our cash so that we can focus on a reduction of expenses. We also have at least another committee that is concentrating on new opportunities to review processes of the Company, and in turn review some strategic issues that can be very important. We are reviewing IT, logistics, marketing and we're trying to think out of the box so that we can start pushing our net sales but with lower expenses. This has been our work today so far. We should consolidate these gains by the end of 2013.

I think you had a follow-up question?

(interpreted) Is it reasonable to continue to believe that everything has been mapped, but now here in the present implementation -- a quick implementation of all of these measures?

(interpreted) The answer is exactly right, it has been implemented and another plan is being implemented at an accelerated pace. Particularly as of December we have been working on things that we have created before. At the beginning of the first quarter we started capturing some of these gains.

(interpreted) Thank you. Marvelous. Congratulations. Have a good day.

(interpreted) Ricardo Boiati, Bradesco.

(interpreted) My question is addressed to Belmiro regarding Assai. Could you elaborate on where you got reduction from the logistics cost of the operation? Is this due to a product mix, which is (inaudible) or perhaps different customers? What is really the potential looking at the operation as a whole given that you want to have tax competitiveness and given the potential to reduce expenses, is there any room to perform even better in the EBITDA margin, or what should we expect? Could we expect a positive impact on return on capital invested?

And my second question is to Quiroga in Nova Pontocom. Quiroga, if possible could you elaborate a little bit further on the service prospect? Any indicators you could share with us (inaudible), delivery terms, customer satisfaction? Is there anything you can give us, [perhaps see] if you could have a benchmark with the main competitors? And also regarding expenses of Nova Pontocom? How do you track the indicators such as cost to acquiring your customers, the expenses of sales that you -- paid channels versus non-paid channels so that we can have an idea of what to expect in terms of margin and performance in the operation looking forward? Thank you.

(interpreted) This is Belmiro. Ricardo, thank you for the questions. Logistic efficiency gain, you have a relationship with a mix of products which changed. Depending on the EBIT value of the product, the logistics expenses show a reduction. Well, we did do a logistics gain (inaudible). But we'll continue to -- specially, it has to do with adjustment of the banners.

Our sales stores have the ability to stock in the stores. We can stock more than a retail store. If something happens you cut stock in logistics and you get a products in the store directly from suppliers. When you get products in the stores, you have a reduction in cost. More of the eastern stores particularly that we are opening now -- that happens in practically 100% of the stores, where the stores receive 100% of the product mix directly from the industry, the manufacturers, and with that you lower logistics expenses.

(inaudible) logistics is in a region -- I don't -- if the region is too dense, as is in the case of San Paulo or in a very remote setting, then we use this format, this banner.

You asked about EBITDA?

(interpreted) Also, shouldn't we look at EBITDA, which like you said in the beginning, it does not need (technical difficulty).

(interpreted) We are diamond -- we are one of the few diamond companies in Brazil, and we have an indicator which an important -- which is the interest of people -- one of the people who attempt to buy gems from. To be a diamond it's about 85%. Very few companies manage that and we have an indicator of over 90%, consistent indicator, meaning people are willing to come and buy from us again.

One other point, we are purchasing -- index -- some of our customers will come and buy again and higher and higher. And this is linked to your other question, in terms of the expenses. You talked about percentage of marketing expenses paid through channels versus -- more than 80% of our sales go through direct channels. That is a relatively new piece of data, we don't want to [live] from it. But you asked for a competitive data, so there you have it. And we just have a strong (inaudible) of brands, of Assai, Ponto Frio, Extra.

(interpreted) Who shows this indicator of -- in addition to the positive purchasing experience that lets customers come back and to buy something else again?

(interpreted) Certainly, positive mouth to mouth about our level of service -- (inaudible) indictor. And to our customer satisfaction, we normally don't disclose that because it's related to the percentage that I gave you before. And the cost of acquiring new clients is a cost that is dropping over time. I hope I have answered your question. Thank you.

(interpreted) Fabio Monteiro, BTG Pactual.

(interpreted) I have two questions, one is about Viavarejo. I was trying to know a little more, the expenses. So I would like to understand how far along are you (inaudible) in items such as marketing, such as -- ways in particular. I would like to know whether in marketing you have a new plan to internalize a part of your advertising as we've seen years ago in Pao de Acucar? And in logistics, any strategy regarding your (inaudible) or possibility of closing a distribution center? Any expectation regarding a CADE decision? That is my first question. Thank you.

(interpreted) Hi, Fabio. This is Claudia Elisa. The same element is mentioned in the previous question asked (inaudible). The [theory] of our plans, as far as expense control is, because of our expenses committee the strategy of 2012 it resulted a lot of expenses related to IT and expenses related to (inaudible), a number of reviews that we had in that regard, such as reporting, we will continue implementing these plans. (inaudible) to do the math and then ask what could we do -- what achievement could be in other areas, including marketing and logistics.

In marketing specifically regarding your question, whether we have made any decisions about the agencies, no, no decisions have been made about Antonio Ramatis and the knowledge that he has of our area. Of course his knowledge will be very useful for us to continue to this debate in the Company because the logistics what we have been evolving from 2012 to 2013. I am going to give the (inaudible).

(interpreted) Thank you very much. And here are the sources about the -- regarding logistics. There are some work already done -- there is some work already done in tapping the synergies. We identified the possibility to carry out change of model in some areas vis-a-vis our own speed and our goals change.

By the end of 2011 and over the year of 2012 we have already started to implement that and we believe we have already reached a good level. We have 60% fleet, 40% outsourced. Regarding possible increases in synergies today we already have a study that is rather advanced already regarding synergies in the Group and we are not (inaudible) is one of the participants that will have an important benefit about using synergies between the different businesses.

But that we will be analyzing in depth and implementing over 2013. In this regard, I would like to remind you that in logistics there are some limitations that are established by the CADE. So one of them has to do with our (inaudible) official agreement for the possible reversal of transaction, it has to do with our logistics operations. As soon as we have the decision by CADE, we will be able to advance and optimize the areas that we have today.

Regarding CADE -- already answering your second question -- what is our expectation. We are very close to CADE in all the debate together with our advisors and they have been telling us that the CADE's idea is to have this as quick as possible; that is to take a decision about our case. And we believe it is already advanced because all the information that they requested from us during the whole process, we have already submitted everything. So this is the reason why we believe that in the next few sessions our case will be judged and we are bullish about the outcome.

We still have some limitations regarding CADE, basically in logistics, as I said before, and also in some stores. But we could make decisions about them afterwards, but we have to wait for the CADE's decision. Our expectation is that in the next few sessions of CADE, our case will be before them and judged by them.

(interpreted) Thank you very much. I have one last question, a very quick one, to the property people. As you have revenue recognition of the last launches and the executions, et cetera, what is the pipeline that you have for 2013 coming from the real estate business?

(interpreted) Thank you, Fabio, for your question. Our pipeline doesn't have anything independent in 2013. By that I mean that the whole operation is linked to retail and we are working the pipeline in the following array of actions. Already in design of the new stores in organic growth, we are increasing our galleries according to the concept that I described today, our galleries in Extra, for instance, are between 500 and 600 square meters and we are working with larger areas from a 1,000 to 1,300 square meters for 2013.

So in 2013, we are going to grow this further, and we are going to revisit all the stores that we already have stretching the opportunities by means of increasing our galleries, by means of remodeling these stores, already existing stores. We would also have our fuel stations. We have pilots with convenience stores and we are negotiating that. I cannot give you any further details because we are about to close our negotiations with our future store owners and we have bigger initiatives as well in areas of over 2,000 square meters for the fourth quarter of this year.

(interpreted) Thank you very much.

(interpreted) [Uedle Veek], JP Morgan.

(interpreted) Very quickly, I would like to understand the rationale for the operations in terms of Globex FIDC. What is the rationale for the changes and what kind of change will this carry out in your receivables discounts?

(interpreted) Thank you very much for your question. The decision was a major one made by the Company, but it was not different from all the decisions that we make on a daily basis. You must keep in mind that the FIDCs were close to their end, to their maturities, so it was the right moment to think about the opportunity of either renew the [FIDC] structures, [thank you] to the situation and the analysis of the situation, the liquidity situation and the perspective for the market, we deemed it convenient not to renew the structures.

And today we have the right conditions to tap into the opportunity that the market offers, or, in other words, this decision allows us to optimize our discount operations in a more softer voice, than we could do with the FIDC structures. Of course I am not going to get into details about the cost and the expenses regarding these discounts. But I refer that the exiting the FIDCs was a decision that allowed us to improve our discount structure. Thank you.

(interpreted) Richard Cathcart, Banco Espirito Santo

(interpreted) (spoken in Portuguese).

(interpreted) Could you please repeat the question?

(interpreted) (spoken in Portuguese).

(interpreted) Excuse me, Richard. Can you ask your question in English?

So the gross margin, the lower gross margin at Assai in the fourth quarter will that continue for the next few quarters and if they have been happy with that price position against competition at Assai or does it need to improve?

(interpreted) Thank you very much for the question. No, the gross margin, the drop in Q4 was much more due to the fact that we were seeking more sales and the inclusion of some target groups in our legal entity group. The change in the anticipation within these two groups could cause a drop which was non-typical in Q -- in this Q. For 2013, it shouldn't be the same scenario. A drop in margin could happen there; largely through the opening of the new stores. And this would be only natural because a store when it is opened during the maturation process the margin is lower. However, this will not be happening for the existing stores.

Okay, thank you.

(interpreted) Okay, have I answered your question?

(interpreted) (Operator Instructions).

Tina Barroso, Santander.

(interpreted) I would like to add to Tobias question. I would like to understand how much is recurrent in your gross margin in the food area in the fourth quarter? And I know that in the next three quarters this is not going to happen. How much of this improvement in margin was because you lost products with a lower margin? So what we need in other words is a guidance for margin for the food area? And regarding expansion, 4.8%, so how comfortable can we be with a minimum fixed guidance? And that could reach 8%. I think it was a past guidance for 2013 in terms of selling area.

(interpreted) Tina, this is Vitor. I would like to start by answering your second question. We had 4.8% GPA Food increase in 2012. Our expectation was to grow slightly more than that. And what happened was that we had to postpone the opening of some stores from late 2012 to early 2013. And in Q1 2013, the pace of new stores being opened will be substantially faster than what we saw last year in the first half.

How comfortable can we be with this pace of growth for 2013? Very comfortable because growth in 2012 in the second half was much stronger than in the first half of the year and this shows that our expansion pace due to many factors, for instance, the implementation of the specific branches for the opening of Minimercado stores, mini market stores, this is much more agile and it allows us to open, for instance, 30 new stores every quarter.

This is the reason why we did that in Q4 and this means one store in every three days. And of course a new process has to be implemented regarding mapping, development and the opening of the stores. So we are very comfortable with this pace of opening new stores.

About the gross margin, we will be disclosing our guidance for the Company of each one of the business units. It will be a little bit later on. It will be a more detailed guidance about this indicator.

But anyway, I would like to give the floor to Tambasco and he will be able to say something about the thing, okay.

(interpreted) Hello, Tina. I would like to reiterate the mix, which is very significant. It is difficult to (inaudible) how much this represents in terms of participation only. This is our daily routine. Every single day we look at the market and we, of course, make price adjustments and what is more difficult and what is easier. You seek productivity. You try to improve efficiency every single day and improve the negotiations with suppliers. So this is the dynamics of the business.

Of course, if we have something like an initiative, such as the one that I mentioned in the case of apparel or textiles, and the rotisserie, which are categories that contribute higher margins, this could give you some room for maneuver. But the dynamics of our business, it is going back to your suppliers, negotiating with them all the time. And there are two things we never change; what is my price competitiveness vis-a-vis our competitor's in each one of our markets; and what is the outcome, what is the result that I have to achieve ultimately.

And we try to establish an equation and fine tune in order to guarantee that we do not want to lose competitiveness because of the need to look for market share and we do not (inaudible) our results. So, looking ahead, the dynamics is great. This is what happened last year and this is what will happen this year. We don't lose competitiveness and we don't lose profitability. And this is where you have to fine tune all your variables, be it with your suppliers or the category mix in order to guarantee this outcome.

(interpreted) Okay. I forgot to ask you something. What about same-store sales at the beginning of the year? Do you see the same mix that you had in the fourth quarter net of the seasonal products like Christmas items, et cetera? Do you see this trend continuing over the week, or same-store sales with a better mix and better margins? Thank you.

(interpreted) In the case of hypermarkets, as you saw at the end of the year, our performance in IT is the one I described, with a very strong increase in the food area. And mainly in the fresh produce, we have better margins. So this is true. So I can say that the picture that we had in the last quarter should be maintained.

(interpreted) Thank you.

(interpreted) As there are no more questions, I would like to give the floor back to Mr. Vitor Faga for his closing remarks. Mr. Faga, you may proceed.

(interpreted) I would like to thank you all very much for participating in our call, another Grupo Pao de Acucar conference call about our results. And if you still have any doubts, could you please contact our Investor Relations area. Thank you very much, and I wish you all a very good afternoon.

(interpreted) Grupo Pao de Acucar conference call about results of the fourth quarter is closed. The Investor Relations department of the Group is available to answer any questions that you might have. And we would like to thank you very much for your participation and wish you all a very good afternoon. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.