Companhia Brasileira de Distribuicao SA (CBD) 2013 Q2 法說會逐字稿

Good morning and thank you for waiting. Welcome to Grupo Pao de Acucar's conference call to discuss the results for the second quarter of 2013. This event is also being broadcasted via webcast which can be accessed at www.grupopaodeacucar.com.br/ir/gpa and www.viavarejo.com.br/ir where all of the presentations will be available. The slide selection will be managed by you. The replay of this event will be available right after it is concluded.

We would like to inform you that the Company's press releases are also available at the IR website. This event is being recorded and all participants will be in a listen-only mode during the Company's presentation. After GPA's remarks are completed there will be a Q&A session when further instructions will be provided. (Operator Instructions).

Before proceeding let me mention that any forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996 or forward-looking statements are based on the best -- the beliefs and assumptions of GPA management and on information currently available to the Company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Grupo Pao de Acucar, and therefore could lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to turn the floor over to Ms. Daniela Sabbag, Investor Relations Director of the Company.

Good morning, and welcome to our conference call on the results for Q2 of 2013. Here with us is Abilio Diniz, Chairman of the Board; Eneas Pestana, CEO; Christophe Hidalgo, CFO; and all of the other individuals responsible for the businesses of the Group. We will begin this presentation with some initial remarks from Mr. Diniz, and next we will discuss the results for the second quarter.

Good morning and thank you very much for participating in this event with us. And once again, the results of the Company were excellent and sales are still growing. Despite the fact that we had a difficult first quarter and there was some distress regarding the economy it shows that during moments of crisis we were able to grow. The Company is sound, is firm, and very stable. Sales continue to grow, sales are growing in every single segment and business of the Company. And after Viavarejo is managed by Grupo Pao de Acucar it's already show good (technical difficulty) in sales and we are now experiencing synergies that we already experienced at the end of 2009. And this just reinstates the relevance of this business.

We also experienced growth in Assai and I would like to congratulate Belmiro for the excellent performance of that unit, Viavarejo. Jose Roberto Tambasco, I would like to thank you for expanding minimercados or the mini-markets business, a very interesting model for our country, and this model has been developed and tested for quite some time. We had other models that were used in the past, but this is indeed a very good model which is the mini-market model, so congratulations.

And by the way, congratulations to all of you for an excellent performance in this quarter. So the crisis does not affect us. Despite the current crisis we are not being affected by it, but I would just like to reinstate that we trust the country and we trust the current economy. I've always said that but I must say that the economy of this Company is sound and sometimes people have a misleading idea or a more pessimistic view of the economy. I would just like to reinstate that this Company believes in the country, we do believe in the economic forecasts, we believe in the president and in our future.

We are investing. We have not stopped investing, not a single moment. We will continue to invest very strongly due to the fact that we trust the performance of the Company and the leadership of the country. So having said that, thank you very much and let's proceed.

Good morning, this is Eneas. I'm Eneas Pestana, thank you very much for joining us in this conference call which is always a very important moment to us. You may not be able to see us but there are many executives of the Company present here today to -- and join -- they are here joining us in this effort. Also Daniela is also doing an important work to that regard. I would like to just endorse the remarks by Abilio Diniz.

And with no further ado, I mean, I will try to be quick, because, as we always like to do, the entire team is here to talk to you and to clarify any possible doubts that you may have concerning the figures and the overall performance.

So talking about the economic landscape I agree with Abilio, the first quarter was more challenging, and now in the second quarter the challenge is even greater. And despite this half year is stronger, the second half of the year is usually stronger because we have the holidays, et cetera. But considering the economic situation and the economic status I think that in the second half of the year we will have to face more challenges, but I do believe that this country is working based on good fundamentals.

For those of you that are older than 20, 25 years of age you know that Brazil is experiencing a very special moment in history, therefore we have many reasons to believe that the consumer market will grow, the unemployment level is very low, and we see an emerging class looking for products with better added value. The basket of products is very -- is very articulate and very diversified in the different brackets of society, and the market is growing in the different regions of the country.

Credit availability is also growing; even in terms of [default] levels, everything is under control in our business. Brazil has a very robust and controlled financial system. So the basics are here and the fundamentals are also here. But there will be challenges in the second half of the year. The economic growth of the country should be low, so there is also some inflationary pressure. In the second quarter there will be pressure on the food supply, but I think these are problems that will be resolved and we should be able to experience good growth in the second half of the year.

Increase in interest rates certainly causes an impact, brings an impact to the business, but in terms of macro challenges from Brazil is the tax burden which is still amongst -- as Abilio said, that in the moments of crisis we try to sell because we are a retail -- retail company and the supplies to all of the other business, businessmen and the companies that are here. The challenges are here for everyone to experience. But what I really want to share with you is that the Company is very well-prepared. The Company is preparing itself for many years. We react in a timely fashion. We have a long-term strategic plan. We define our strategy based on the consumer, the consumer of today, and the consumer habits of tomorrow. So this is a multi-business company, is a company that operates in multiple regions that have a very clear strategic positioning with clear brands. And in my view, without being arrogant, I think we are the most and the best company and the most prepared company to face the challenges because we place customers in the core of our decision, and through different channels we are able to serve this customer in different moments of shopping.

Today we have more demanding customers, they are quick, they are much better informed, and also they want to be served in different moments of his life when it comes to shopping, therefore it's important that we are a well-prepared company in terms of presence and positioning to be able to serve customers whatever they are. So we are working in multi-channels very strongly not only because of synergies, both back office and front office, because we want to be present where the customer is and we want to have satisfied customers.

In general terms, as we said before in other conference calls, last year we had a restructuring plan which was very important for Viavarejo, and we also promoted a very important restructuring plan when it comes to food stock retail. We already talked about that in our last call. This restructuring had different goals. But this could prepare us for a more challenging landscape.

In addition, with strategic planning and the new landscape or new outlook of our investment for the year, it is very clear to us how we must proceed in our strategic plan and how we will prepare the execution plan with very well-prepared and skilled team. The team consists of very competent individuals, and the compensation is based on meritocracy, and this gives us an important contribution because as you have clear strategies, roles and responsibility well-defined, and a well-prepared group based on meritocracy compensation all of these factors contribute to the success of the Company, and more and more we intensify this management model. The guidance continues. Despite all of the challenges we are prepared to go after the earnings of the year, so there is no change in the guidance for the year.

Nova Pontocom, Quiroga with its team, they are doing an excellent job. We started the year with a more difficult growth, we reviewed our pricing strategy, and the goal is sustainable growth. But at the same time we have to be -- we have to also mind service levels. Nova Pontocom is one of the best companies that this country has in terms of service level, in terms of number of complaints. We never had problems, we never had any impediment in terms of the way we work, therefore our service is sustainable, low level of investments.

And now due to a balanced pricing strategy in addition to a good marketing strategy we were able to experience amazing growth rates. Well, Belmiro is here, so I must congratulate you for all the work you did with your team, they were in charge of the entire restructuring of the model and the model has proven to be very successful in terms of the financial strategy with good return rates, return rates that were way above the ones experienced in the past.

And now we are also expanding the business. We are entering in seven new states therefore this just reinstates the success of the Company. And then I will allow Belmiro to talk more about it.

Viavarejo is doing an excellent job, and it started in the end of last year and also this year. The restructuring plans aims for profitability without losing sight of our positioning which has been acquired through several years and we also saw some important things that are not affecting the Company. And anyway we are constantly focusing on improving the service and improving the customer experience. So the profile of the Company is very sound, and together with Marcelo Lopes and then entire team of Viavarejo they are conducting the business in a brilliant way, so I am very pleased with their words.

Also Vitor Faga is conducting the business very well; they are able to face this very challenging moment through negotiations, long-term partnerships, and the challenge also. And this restructuring also involves an important reduction in expenses. They are now concluding this phase.

In food stuff retail also we do not want to seek increases in profitability because this comes with gains in scale and volume, but the main goal is competitiveness and competition. In a more challenging landscape what plays an important role is competitiveness. We have to go after market share of, in a moment of crisis we have to be better, that's why this work that we're doing in the food stuff retail aims at having a very healthy business with competitive margins in the entire mix without causing an effect to our profitability. This will bring increased customer (technical difficulty) market share.

Alexandre is leading GPA Malls. We just had the inauguration of Conviva in Rio de Janeiro. It was an exceptional event. It was very good for all of the merchants, very good. And this just inaugurates a different phase of the Company because we are now generating value by capturing gains in the real estate market, and then we created our own stores we created traffic in the store and this has amazing EBITDA margins for merchants, for retailers.

Retailers are experiencing EBITDA margins of 40% to 45%. And this is what makes this GPA Malls business very good. Alexandre restructured the business, the team is of excellent quality, he brought in experts from the real estate industry, and that's why we are now capturing that value, and this is the value that was not included in the value composition of the Pao de Acucar Group.

The operating result was very good, this despite the effects of Easter which was negative in the second quarter of this year because it was in 300 basis point. And if we look at the growth, our food and non-food in -- for category, we are distributors of food, we are the largest two distributors in this country, so it important that you share with us the way, a correct way of reading the numbers because more and more distribution channels makes sense in a very macro and strategic plan and it's important that there is a distinction between food and non-food.

So you will see 4.8% growth for food and, as I said, 300 basis points in growth, so that will be 7.8% growth for food in the second quarter. In non-food, an excellent performance, 9.2%. And all of that with a very challenging background. And the Company is prepared to grow based on gains through the competition. This puts us in a comfortable position, it's not easy, it's not simple, nobody is just sitting and waiting. On the contrary, we are putting a lot of effort into making things happen.

The EBITDA growth in the second quarter, if you look on page 4 of this release, you have consolidated results in the second quarter, the growth was 38% of EBITDA. The margin went from 5.8% to 7.8%. The EBITDA growth was 25%, growing from 6.8% of margins to -- going to 6.8% margin.

I now like to highlight Assai and all of the other businesses that I mentioned before. So we will fulfill our expansion plan this year. If we do not fulfill it, there is a possibility of that not happening due to delays in some sites, as we always say here the most important thing in the inauguration has to do with location and location is very important, therefore we are constantly seeking for prime locations. And maybe if there is any delays in this expansion plan it's probably due to the fact that we were not able to find fine locations, and this is the number one assumption for our new stores.

In addition to that, we will try to fulfill our investment plans, so this year we will continue to invest and still believe in this country for the next few years. With this team that is here, a very engaged group based on clear targets with meritocracy, with very good compensation to deliver what is on the table, this is part of our culture, so, and now we are here to explain or to clarify any possible questions or doubts. Thank you very much.

Good morning, everyone. Thank you, Eneas. Now, we are going into the presentation slide number two, a highlight of GPA consolidated. We show that in the period we opened 33 new stores in the quarter. And 58 stores were opened with sales area increase of 2.2%, in line with the guidance of earlier this year.

We also highlight the growth in the food categories of 7.8% considering the Easter effect. The non-food categories grew by 9.3%, boosted by the progress of Viavarejo, both brick-mortar stores and e-commerce. Adjusted EBITDA went up by 20.6% under GPA consolidated, boosted by the gain of synergies and implementation of new processes and reduction of operating expenses, particularly at Viavarejo.

Net income, adjusted net income was up by 35.8% over this period owing to the operational development that we've mentioned combined with control over financial expenses. Would also highlight that in this period we reported other operating income and expenses totaling BRL350 million. We are talking about a one-only effect. And this means transitioning for tax risks, BRL163 million; effects related to the association between Pontofrio and Casas Bahia, BRL67 million; restructuring expenses and results from fixed assets, BRL51 million; and provisions related to labor claims and others BRL69 million; therefore a total of BRL350 million over this period.

On the other hand, when we look at the outlook for the future we see a very positive outlook, and we expect organic expansion to speed up in all formats, keeping on with our policy of renovation and development of shopping galleries. And our goal is to have an additional 35,000 square meters. We also expect e-commerce to grow above the market. We will also adopt or go into the Minha Casa Melhor program so as to boost furniture and home appliance sales, and we intend to continue capturing operational efficiency gains particularly at Viavarejo but in the Group as a whole as well.

Now, moving on to the slide 3, let's look at the behavior of the main financial indicators of GPA consolidated for the second quarter of 2013. Gross sales amounted to BRL14.9 billion, that is up by 10.4% over the previous period. Excluding real estate projects this growth goes up to 11.2%. And same-store sales grew by 7.3%.

Adjusted EBITDA amounted to BRL958 million, growing by 20.6% and 37.6% if we exclude the real estate projects. The margin was at 7.2% of net sales.

Adjusted net income grew from -- grew by 35.8% in the period to BRL327 million. Excluding real estate projects the growth was 129.1% and the margin was 2.4% of net sales.

Debt indicators show that there was a continuous strengthening of the financial structure of the Group. Net debt amounted to BRL9.9 million (sic-see slide 3 "BRL4.9 billion") in the end of June, 12, 20 (sic-see slide 3 "June 30, 2012"), and it fell to BRL4.17 billion the end of the first quarter of 2013. In terms of EBITDA the debt amounted to 1.44 times EBITDA last year, and now it is 1.16 times the EBITDA.

We also see in slide 3 that despite the behavior of interest rates there was a significant dilution of the net financial expenses, 2.2% of net sales. And this is the consolidated view of GPA.

Now, moving on to slide 4, going into detail about the faster store opening in the second quarter, we highlight the fact that 29 stores were opened in the second quarter, 23 Minimercado Extra, three Assai stores, two Pao de Acucar and one Drugstore. So on June 30 GPA Food had 962 stores, one point --- or 1,614 square meters of sales area, 2.9% increase over the past six months.

We also highlight under Malls and Properties the opening of Conviva Americas in Rio de Janeiro, the Group's launch in the Neighborhood Malls segment. 12,500 square meters GLA, anchored by a Pao de Acucar store with big retail chains and other 35 satellite stores. Viavarejo inaugurated four Casas Bahia stores, particularly in the northeast of the country.

In June 30 Viavarejo had 971 stores and sales area of 1,412 square meters, that is up by 1.3% over the past six months.

Now, moving on to slide 5, I'd like to pass the floor to Tambasco and Belmiro, they're going to talk about GPA Food, then the main indicators. We see a sales behavior with growth of 8.8%, nearly BRL8 billion in the period; adjusted EBITDA was BRL512 million in that period with the 7% margin on net sales, that is an 8.1% increase over the period. The adjusted net profit was BRL172 million in the period, up by 26.6%, with adjusted margin of 2.4%. So here we have the main financial indicators. And I'm going to pass the floor to Tambasco who is going to talk about the highlights in the period and then Belmiro will follow.

Good morning everyone. Let's talk about retail and hypermarket. The second quarter to us was an extremely positive period. As Christophe just said, EBITDA grew by 0.2 percentage points, and as a result of the efforts we've put to pursue greater efficiency as Eneas said. And our purpose is that (inaudible ) represented 2.3% in the second quarter will be invested to boost competitiveness and gain greater market share.

Now, it's important to mention something that Abilio and Eneas said about the minimercado. Minimercados have proved to be an extremely predictive model, because it has enabled us to grow not only as a result of our expansion drive in the second quarter but also owing to the growth of stores which are over one year old that grow about 10% above the market. And we feel an impact of seasonality, I'm talking about the Easter effect that's happened in the first quarter. And like Eneas said, it was 300 basis points that boosted food growth to 7.8%.

Another highlight is the strong growth that we've seen in the perishable categories, particularly meat and poultry where we've grown -- where our competitiveness has improved. And this is owing to the cut of federal taxes that happened in the first quarter that gave us greater competitiveness. And this is a category that has helped us grow.

And I must also mention the performance of non-foods in the hypermarket, it is below the Group's average as a whole. And then Vitor is going to talk about Viavarejo. The hypermarket has a peculiarity that is -- their sales is very much concentrated in categories that suffer greatly from price deflation. And owing to the migration of certain items that we've mentioned, that is notebooks migrating to tablet sales, and Viavarejo has a very strong participation in this category. This performance is partly offset by the growth in telephony where we see the opposite effect with the growth in smartphone sales and here Extra conventional stores have benefited.

Our expectation is that we will continue to strive to cut expenses and increase the competitiveness of our store models. We do not see a significant change in consumer's behavior apart from this migration of [products] so that they can have a more economical solution to their needs and we want to provide them with the best assortment possible.

On the other hand, as regards price, we suffered greater pressure on commodities in the second quarter. There was a significant increase in price. And we already feel that these prices are leveling. Often in some cases there was a reduction which leads us to think that the inflation rate will level off and will not impact our business in a significant way.

Now, I'd like to pass the floor to Belmiro; he is going to talk about Assai, and I'm at your disposal for any other clarifications you need. Thank you very much.

Good morning. Thank you. Good morning.

Like Abilio and Eneas said, the focus of Assai in the second quarter was organic growth. Our growth in the second quarter was 37.5%, obviously boosted by the organic expansion and the same-stores growth above double-digit. We moved up 31.8%. Our focus in the second quarter -- in the third quarter will be to open new stores in new states to guarantee greater presence. Over the past two months we moved from 6 to 12 Brazilian states, we inaugurated the first stores in Alagoas, Paraiba, Mato Grosso do Sul, Bahia and Parana. Therefore over the period we opened more than 48,000 square meters of sales area and 19,000 of GNL -- GLA. And it was part of our expansion strategy to concentrate the stores in these new states and each store requires investments in marketing and to announce the Assai brand, but they pave the way for new units to be set up, relationship with suppliers, and it creates relationship with consumers.

We have another eight units under construction in states where Assai is already present. These new openings will have a greater impact, boosted particularly by the support that these existing stores will provide. And these eight units will be inaugurated in the second half year of 2013.

As I said, net revenue moved up to 37.5%, GLA moved up by 26.5%. With the creation of new stores expenses fell by 10% and EBITDA moved up by 4.6%. And when we see expenses have fallen by 10% and we closed with 32% increase in sales, expenses were 29.6% and EBITDA 29.6%. And with this performance, Assai has become the Group's third most successful business. For the second half year we are very optimistic. We will continue moving on with organic expansion, and we'll find it easier to open new stores.

And along with that we will see the -- open -- the stores that were open in the first half year are maturing, and this gives us great confidence. We are working hard, the team is working hard with a very ambitious target, and we expect Assai to grow by 40% in 2013. Thank you very much. I will now pass the floor to Vitor Faga of Viavarejo.

Good morning everyone. We are going to talk about the segment of electrical and electronic equipment. In slide 6, it's important for us to see few key indicators, particularly related to gross sales. There was a significant growth throughout 2013, and looking at the outlook for the second half year we expect a growth of 14.2% which represents nearly 12% under the same store sales concept. Adjusted EBITDA also moved up, now 7.4% margin for a gain of more than 300 basis points, and the EBITDA of the Company nearly doubled over the period. And lastly, adjusted net profit, around BRL155 million gives us adjusted net margin of 2.6%, also with a very significant growth in the period.

Now, looking more specifically at the bricks-and-mortar stores under Viavarejo, it's important to say that the segment is faring very well with the very galvanized team of people focusing on the capture of synergies as planned and looking more specifically at the strategic guidelines that were laid down.

Sales are growing satisfactorily, particularly same-store sales grew by 9.5% and total stores to around 12%. And as a consequence, we see a very sound economic and financial performance, I think a very important highlight for the expansion of the EBITDA margin where we have a gain of more than 13 percentage points especially from two sources, from the growth of -- from the growth of the gross margin owing to better management and logistic management, and many logistic costs have an impact on gross margin. And also owing to the reduction that we've had, 1.5 percentage points in expenses as a percentage of sales which shows us that we are indeed capturing greater synergies and streamlining a number of areas either in marketing, IT, and also personnel.

Looking at the Company, it's important to highlight that we are focusing on organic growth. The Company expects to grow in regions that have a great value potential. And here, as we've mentioned in this call, in the northeast, we are opening new stores in the northeast. And also we are repositioning the Ponto Frio brand, this is important because it will enable the Company to break into other markets and to attract other consumer segments. And from now on we will be able to leverage our sales levels as well.

And lastly, looking ahead, talking about our outlook for the second half year and 2014, it's important to say that the Company will keep on capitalizing of the gains from the productivity plans. There are a number of initiatives that are under implementation that will bring in additional gains to the project. And the Company's focus is to be close to consumers, close to clients seeking to meet not only their current demand for services but also try to predict the trends, the future trends for these consumers, looking ahead, looking at future demands in terms of what the consumers will want.

And it's important to mention the Minha Casa Melhor program, government program, which will present us with yet another opportunity to capture value. Very well as regards brick-and-mortar stores these are the most important highlights, and now Fernando Tracanella is going to talk about the Nova Pontocom or NPC.

Good morning everyone. Nova Pontocom reported a growth of 26% in the quarter, highest rate, which reflects the maturity of a number of initiatives that we started to improve the processes, particularly in supply and pricing. The combination of prices and categories, better margin mix, maintenance of differentiated service, and higher operating efficiency enabled us to have a much better performance (technical difficulty) 30% in June and a positive bottom line. I'd like to reinforce that we intend to grow above the market with balanced cash flow and profitability.

In terms of perspectives of outlook we are trying to reduce our operating cost and optimize our fixed cost. We are creating differentiators for our clients. We are developing new businesses and partnerships including the launch of marketplace. And lastly, but not least, initiatives to attract and develop talents in the Company.

And lastly, I'd like to highlight that once again our website (technical difficulty) and it was elected the most-loved website by consumers, and this will reinforce our commitment to sustainable growth without risking at any moment service level to our clients.

These were my comments. Thank you very much. I will now pass the floor to Alexandre Vasconcellos to talk about GPA Malls.

In fact now we start our Q&A.

Now, we would like to open the floor for questions. (Operator Instructions)

Fabio Monteiro, BTG Pactual.

I have a question about Viavarejo. I would like to talk about two particular points, one refers to organic growth. We've heard from [SIOLO] and also IBGE figures that home appliance sales are not performing so well when compared to other retail segments. And we also want to understand whether your gains of share are -- your gains are coming from any particular region of the country, or in your view its coming from other small or local point.

And also still talking about Viavarejo my question has to do with the EBITDA margin of the operation which was 7.4% in the second quarter. Do you believe, I mean how much more you could grow in terms of all of the improvements that are being implemented? Thank you.

Fabio, here is Vitor Faga. Thank you for your questions. In terms of your first comment, we did have a very positive sales performance in the second quarter, and as a consequence, and this was the result of two major factors, number one an assertive marketing positioning that affected three events in the second half of the year -- in the first half of the year, Mothers' Day, Valentine's day, the Confederations Cup, so for every single event we had a very particular strategy concerning (technical difficulty) lines of product and also we introduced new payment format. So the results from these three campaigns were very positive for these three different lines of products.

In addition, we do not have, I mean, all of the figures from the statistical agencies that cover this industry, but in our view there were gains of share during that period during all of these events and due to all the marketing campaigns, because these products were linked to these marketing campaigns. But it's also important to say that category such as home appliances or telephones, these are the categories that presented higher growth, even higher than what we had expected.

In terms of the EBITDA margin, we already noticed the impact of several initiatives that were implemented by the Company in the last few months starting in the end of 2012. There are still initiatives that are in the process of being implemented. So we believe that we'll be able to see the results of all of them by the end of the second half of the year, and we will be able to operate with expenses over net income below 22% which is what we had in the second quarter.

Now, in terms of the gross margin, this will certainly depend on how the market will behave, and we will also -- it will also depend on the products that we will focus on in the next few quarters and then this will have an impact on the EBITDA performance. But we are very comfortable because we will meet the guidance, which is to have an EBITDA margin for the year higher than 6.6%. We -- that's what we tell the market during the call of the first Q.

I only have one last question about the other operating expenses when you gave us more details on explanatory notes 30 from Grupo Pao de Acucar. Despite the fact that most expenses were non-cash expenses, I would like to hear your feedback about the provision for tax risk, BRL163 million for (inaudible) taxes, and that became very likely. I just want to understand whether this risk can be materialized in the short and mid range, or whether you could tell us anything about that risk that was provisioned by the Company? This is for Pao de Acucar.

Now, for Viavarejo, I want to learn more about KPMG's work. And you mention in that note the potential [collection] of an amount of around BRL174 million related to Viavarejo. And I just want to know whether there is any particular timing for that, even though it is non-cash, I just want to learn more about the risk of not collecting these amounts or having any risk of tax losses? Thank you.

About your comment on Viavarejo, we posted BRL71 million referring to these adjustments. These are adjustments to our balance sheet, there is no impact to our cash position, and the Company is now evaluating some possible effects of that related to reimbursements. Now, I'll give the floor to Christophe who will talk about GPA.

Good morning. Concerning that contingency that it's -- that went from likely to possible, in the second quarter we ran some evaluations together with our consultants related to risks for (inaudible), and we modified the qualification of that risk regarding the fact that maybe this risk could become cash effect. So we understand that first of all we still have some room for discussion, we still have some room to discuss it further until this risk becomes cash.

And we also have the possibility of thinking that in case this risk becomes a reality or if it becomes cash we hope that does not materialize in the short period of time. So in concrete terms, there should not have a short-term cash effect that we understand that despite the fact that this risk is posted under the category of probable, we still have some grounds to defend that topic.

Very good. Do you believe that there will be more positions or maybe other indemnization liabilities in the next quarters, or you think that in this quarter this already reflects the majority of the risks that you see ahead?

We are operating this business with a lot of responsibility, so to say that there would not be any additional risk will be probably wrong. But now we are taking all of the necessary measures to limit this kind of situation, managing the business in a very responsible way.

It's not that the situation is unpredictable and we cannot say no, but as more risks become more material we will communicate it to the market, but the status quo today and what is reflected in our financial results contemplate our own reading and also the reading from our consultants.

So, the answer is, today the risk for probable is being accounted for so as to really reflect the reality.

Thank you. Thank you both of you.

Andrea Teixeira, JPMorgan.

Good morning and congratulations for all of your operating results. In fact, I have two questions. Eneas, I would just like to reinstate what you said, you talked about the (technical difficulty) Christophe said something about the growing of, the opening of new stores or organic growth. And also you talked about inflation in food stocks. How can we think in terms of the growth of same stores sales for the second half of the year as you --- how do you think that we should think in terms of non-foods? From the comments that I've heard from Vitor, there will be a reduction of marketing expenses. And this reduction in marketing expenses that we cannot see too clearly, maybe we could say that this can be evaded as you have already reached a higher margin when compared to that 6.6 margin. So maybe it would pay off to delay your marketing expenditures and we will still see market share gains growing further.

Andrea?

Andrea, Andrea here is Tambasco. For super and hypermarkets we do not envision any various -- any strong movements towards price increases. But we have to look at inflation. When we measure our internal inflation it's slightly lower than what we see in the market today. And we believe that some industries that put pressure on the prices such as fruits and vegetable should not occur anymore. But now with the pressure from the dollar some categories may feel more pressure on their prices. But we don't see any major cause for changes in the scenario.

So we do believe that we will continue to grow above inflation even in the same store concept. We do not see any particular situation that would deviate us from our guidance that has been established early this year.

Andrea, now its Belmiro. Belmiro, go ahead.

Just adding to what Tambasco said, we felt some inflationary pressures early this year but the consumer market is self-regulating there, so we do not believe that given the current landscape this will generate impact on sales in the second half of the year. So I'm talking on the wholesale side. And we are also benefiting some increases in logistics prices, and we are also making door-to-door deliveries. And our work is being more facilitated, this just reinstates that the work that we do as distributors.

So in the first quarter we had same store sales way above inflation. And the outlook, given the increase in customer presence and throughout the year we will see same store sales above inflation, performing above inflation.

In the home appliance business there it's still too soon for us to give you a more precise outlook about sales in the second half of the year even because the second half of the year is more impacted by the holidays at the end of the year, but we see a growing trend of sales, very similar to what we experience in the first half of the year. In the second half of the year we will see a stronger growth.

But now concerning marketing expenses, we are able to optimize marketing expenses, and that is being accomplished through, number one, more efficiency in our advertising scheduling and also because we have good marketing assistants and good marketing companies. In terms of consumers, I mean --- I don't think that -- I mean, the market is being impacted by marketing initiatives. But clearly we believe that it's not necessary, especially when we look at production, sales, margins, and marketing expenses in terms of producing more sales, currently, any increases in marketing will not generate additional value that would boost sales.

Increases in marketing expenses or marketing initiatives would not give us the expected return, therefore we do not intend to go through that route, but through this optimization process we hope to have in the next coming months a lower level of expenses associated to that line.

Very good. And can you tell me about the new leadership of Viavarejo and what will be the timing of the follow-on?

About the IPO, all we have to say, we already said it the market so there is nothing new about that.

Andrea this is Eneas, good morning.

About your last question, the process is running smoothly, I'm doing that together with Salvador, our Human Resources VP. This has been a very smooth process with no setbacks. And as I said before, we will do that -- we had no problem because we have a very good team of experts. Vitor is doing a very assertive job, he is following the strategic plan in a very efficient way together with [Azagi] and the others that are part of the team. Therefore, there is no reason for us to do things in a rush fashion. We are being very demanding and very careful. I don't think it will take very long because today this Company is capable of attracting good executives and other professionals in the market.

So there are people interested in talking to us, they want to understand things further. But again, we are growing, we are being very demanding, but at the same time very calm because we want to do things right with the right people. So it's difficult for me to tell you anything else.

The timing is also necessary, timing for us to be sure that we are doing things in the right way with the right person that will be there to give us more contributions and to work well with the team that is there with the goal of pursuing better results and better performance because this is how we always do things in this Company. We work with the teams, we work as a team, so the team is there, they are working hard, the results are presented in a very sound way, okay?

All right. Thank you very much, Eneas, for all of the detailed answers.

(Operator Instructions).

[Toby King], Santander.

Good morning. First of all I would like to know about expenses related to Viavarejo, not only provisions or tax adjustment, I would just like to know whether you -- there is anything else to be known or whether the balance sheet is clean and all the adjustments that had to be made when the Company was created are concluded.

And the second question is concerning the gross margin. The evolution of gross margin surprised me, they were high in the last quarters, in the last quarter it was even higher. This assertiveness do you believe that you will continue to pursue that same path and you will be able to have gross margin similar to that of this quarter?

And still connecting this question to Andrea's question G&A came down in Viavarejo and sales expenses were up vis-a-vis your, what was posted. So in fact with you we haven't even seen any drops in marketing expenses and that's when we should expect differences in the next quarter. Thanks.

Very well, the first part of your question, what we can say. At the moment I'm going to quote Christophe. What we can at the moment tell you is the all the impacts that we had are reflected. We had no other impacts that we can predict. Obviously they should be factored in if this was the case.

As regard to your question about selling expenses, it is true that SG&A fell a lot, about 30%, and sales expenses grew as a function of sales growth also because selling expenses are associated with expenses at the store and there is a very significant variable component. And also to the sales team, the sales team works on a commission, and usually these are large teams. So we have a strong correlation between these items, sales growth and sales -- yes, growth of sales expenses. Is it possible that we will see the expenses fall over the coming months? Yes, it's possible but it's very difficult to state that they will.

And lastly, as regards net -- gross profit, gross profit depends a lot on sales mix. Our mix is very diversified, we have different margins, and we depend on the market component which is very important in this equation. We are very comfortable. We have an operation with gross profit around 28%, specifically in this quarter it's 28.7%, but this depends heavily on the market behavior and how demand grows for the various categories of products. So it's really difficult to predict how gross profit will behave, but we are comfortable operating at 28% and plus.

Thank you very much. Just a follow up. Now, about marketing expenses, where is the bulk of these expenses, where does it fall, in what line of the balance sheet? Is it together with sales? So is it reasonable what I am saying, that in fact it's perhaps we haven't seen the bulk.

You just said that the marketing expense is very well sized up but what we see is the opposite. Don't you think that you have a lot [fat] to grow in marketing with better impact on the bottom line?

Well, it is possible that this will happen, but it's difficult to quantify now today and give you a clear outlook.

Thank you very much. I'd like to understand better, if you could repeat because the about turn was really significant, the gross margin is still under pressure, and I believe that in the fourth quarter this will change. But could you talk a little bit about what happened in the quarter and what the Company did to be able to boost performance in this rate?

Good morning, [Tobias].

Well, we can summarize that over the past quarter Nova Pontocom repositioned websites projects and categories, we tried to maximize the elasticity of each categories in each of the three websites, and what I said in the beginning about (technical difficulty) pricing is true, we also moved on. And two very important points that helped us in sales performance. First of all there was decentralization of sales price which is very important because there is a greater participation in the long tail, and also lack of concentration (technical difficulty) regions.

So in the bricks-and-mortar world we are increasing our share away from the Sao Paulo-Rio route, particularly in the northeast. The growth in competitiveness is relevant. Growth resulted not only from greater effort but also greater conversion.

Thank you very much.

And we believe that the outlook will be remained for the third quarter, we started very well, still above the average of the second quarter.

Wonderful, thank you very much.

Irma Sgarz, Goldman Sachs.

Good morning. I'd like to ask about working capital of Viavarejo because there was a significant increase. And the terms to pay suppliers, to implement an initiative, and can we believe that this will be the new level that we should adopt from now on? Could you explain that? And then I'll have another question about Assai.

Thank you very much, Irma.

Yes, we've been working hard with suppliers, but not only with suppliers also within Company processes to optimize working capital within the Company. And, yes, we can expect this inventory level from now on, particularly connected to -- talking about suppliers, there was also significant progress and we can consider this new level. About Assai.

Thank you.

Assai, my question is in the initial comment, initial remarks, I'd like you to confirm that the target this year is to grow 40%, I don't know whether I understood this correctly.

This is Belmiro. Yes, the target for 2013 is to grow 40%, in the second quarter 37.5%. This will include from the first quarter 32%. But there is still a number of stores to be opened now in the beginning of the second half year. In (inaudible) we opened a store, it was one of the best inaugurations that we had. There is another one which is nearing completion. And also the maturity of existing stores leads us to believe that we will be able to grow by 40% in 2013 (inaudible).

Thank you very much.

And now for the future, you said, operating expenses will fall below 10% according to, as the new stores mature now. About the gross margin, as you grow into new states and -- prices should we expect that you will work in a level around 15% or more than 15% in the 2014 or 2015? And related to that, the EBITDA margin perhaps could be above 5%, 5.5% with these two changes, OpEx falling below 10% and gross margin moving back to historic levels.

Every time we open a store and in a new state we have to invest in marketing and (technical difficulty) staff training, et cetera. The strategies that we were using was exactly to get a foothold and pave the way for other stores to be opened so that it doesn't pressure so much the margin and expenses.

Our purpose is that total expenses will be around 10%, obviously the scenario, the exchange. And obviously the longer the stores are in this state greater the possibility that we'll adapt to the mix to the regional suppliers and we will be able to capture an increase in margin.

But is there a EBITDA margin that you are working with over the medium term?

Always upward, the purpose is to increase it invariably continuously as the market allows us and as the team works for it. But our purpose is always to increase it.

Thank you.

(Operator Instructions)

[Aldo Cardoso], Banco Safra.

I have got two questions. First one about Minha Casa Melhor. Can you share with us if you feel an impact of adopting the program in Viavarejo?

Hi, this is Herzog.

In fact the program is very insipient. This is a program where the government will provide a credit facility to the beneficiaries of Minha Casa Minha Vida, so they started distributing these cards, and we will only feel the impact of the sales on the business as of August. In July we felt something but it will only be after August that we will actually notice whether the program is helping sales

Great. My second question is about discounted receivables. In the second quarter expenses moved up by 15.4%, your gross revenue went up 14%. And comparing the quarters there was a drop in the average selling interest rate, so why didn't you have a reduction in the discounted receivables in this quarter when compared with the previous quarter or with the quarter in 2012?

Thank you very much, Aldo, for the question. Very good question.

We've had an increase in discounted receivables particularly in credit card receivables, and I'm talking about a relative increase, and revenue grew by 14% and the discount grew above that. In fact, there are three sectors that led to this result. First of all, the growth in sales volume as you've mentioned. But is important to see that in the second quarter of 2012 revenue was around BRL5 million.

Regarding the subordinate (inaudible) so this lowers the comfortable base, so there is 3 percentage points of difference, and we've had an increase of 0.2 months in the average term in the comparison between this period and same period last year which is around 3, 3.5 of this difference. So there was a difference in the average payment term, and this is why we saw the discounted receivables to grow. But if you exclude the other effects, it's not to the tune of what we see without thinking about the factors. Thank you very much.

The Grupo Pao de Acucar conference call is closed. And the Investor Relations department of the Group is available to answer your questions. Thank you very much. And have a nice day.

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.