Almacenes Exito SA (EXTO) 2008 Q4 法說會逐字稿

Good morning, my name is Marcello and I will be your conference operator today.

At this time, I'd like to welcome everyone to the Almacenes Exito fourth quarter conference call. (Operator Instructions). After the speaker's remarks there will be a question and answer session.

Thank you for your attention, Ms. Carolina Escobar you may begin your conference.

Thank you Marcello, a very good morning to you all and those of you who are in Europe, a very good afternoon. My name is Carolina Escobar, Investor Relations Manager for Almacenes Exito, and I would like you to welcome for our conference call, where we will be presenting our results for the fourth quarter of 2008.

This conference is being transmitted via webcast on our website, where you can also find the presentation. We will also like to inform you that yesterday our fourth quarter report was published on our website, both in English as well as in Spanish.

Should any of you wish to be included on our mailing list and receive our quarterly reports directly from us, please contact me, Carolina Escobar, Investor Relations Manager. My contact information can be found on the website www.exito.com under the investor relations tab.

Some of the figures we present today are purely for forecast figures and should not be construed as any infallible indication of future economic circumstances, market conditions or Company performance. As indicated, all projected figures these are subject to numerous risks and uncertainty. For more detailed information about our fourth quarter results, please refer to our earnings release available at our website.

With us today is Mr. Gonzalo Restrepo, Chief Executive Officer of our Almacenes Exito. Our Chief Financial Officer, Mrs. Edith Maria Hoyos and Mr. Jose Loaiza, our Financial Planning Director.

As with our previous quarterly conference calls, today we will begin with a brief summary of Colombia's macroeconomic results followed by a discussion of our financial and operating performance during the fourth quarter of 2008, together with the more relevant aspects of this year-end result.

As on previous occasions during the presentation you'll be on listen-only access, then we'll move to our Q&A session where we can take all your questions.

And now, I'd like to turn the call over to our CEO, Mr. Gonzalo Restrepo.

Thank you Carolina, good morning or good afternoon to you all. First, on behalf of the entire team at Almacenes Exito, I'd like to welcome you to our fourth quarter teleconference and thank you for being here with us today.

Before beginning with this presentation, I'd like to provide you with a little more context by discussing Colombia's macroeconomic performance towards the end of last year, which is illustrated in slide number five.

Although experts have said that the effects of the worldwide crisis tend to be slow to reach American markets, clearly in the case of Columbia, the majority of its macroeconomic indicators are showing a significant decline, especially in the sectors of industry and commerce.

During the third quarter of 2008, the Colombian economy grew at a rate of just 3.1% fuelled by zero growth in the retail sector, compared to 7.5% for the same period in 2007. Based on official fourth quarter projections, some experts now estimate the final year end GDP growth for 2008 closer to 3%.

Analysts have not yet arrived at a consensus regarding the projected GDP growth rate for 2009. However, the Colombian Central Bank is currently estimating an average growth between 1% and 3%, which constitutes a favorable comparison with other countries within the region.

This economic slump has been witnessed by the decline in retail industry. According to DANE, the Colombian Statistics Bureau, retail sales growth in nominal terms dropped from over 12% in November '07 to just 2.9% in the same month in 2008. This is a slowdown of 9.1%.

Experts place this drop in disposable income; even higher inflation in food prices; the credit crunch; the decline in the job market and the deteriorating optimism given the situation prevailing in worldwide markets.

The year end inflation rate reached 7.67% or 198 basis points higher than the 5.7% recorded during the previous year. This increase was mainly due to the 13.7% rise in food prices.

For 2009, the Central Bank is expecting the pace of inflation to slow down to between 4.5% and 5.5% due to lower pressure on demand as a result of the prevailing economic situation and the effect of a reduction of raw material prices.

As a result of macro conditions, Colombian Central Bank review its stance on monetary policy and at the end of 2008 reduced the intervention interest rate by 50 basis points to 9.5%. The Central Bank also set a cap rate limit for the first quarter of 2009 of 3.71% on consumer credit. That is to say 204 basis points below the rate established for the same period in 2008.

In January 2009, the intervention rate was reduced by the Central Bank by an additional 50 basis points to 9% and the market expects the Central Bank to continue reducing interest rates in order to stimulate the Colombian economy.

According to the latest data published by the Colombian Statistics Bureau, DANE, unemployment for the fourth quarter of 2008 came to 10.5% versus the 9.8% recorded for the same period in '07. This resulted in an average annualized rate of 11.3%, which was 30 basis points higher than the average unemployment rate for 2007.

The exchange rate end of the year at COP2,243 per dollar showing a devaluation of the Colombian peso of 11.4% with respect to the year end figure recorded for 2007. This devaluation trend continues in 2009. Yesterday, the exchange rate closed at COP2,596 per dollar. That is to say a year to date 2009 depreciation of 14.65%.

The behavior of mentioned macroeconomic variables reflects the difficulties faced by the consumption and low growth expectations for the Colombian economy. However, as a leading retail chain in the country, we're not going to sit down cross handed, and as it will be detailed later, we'll deploy commercial actions to accompany the consumers in these challenging times.

These actions will include the extension of the private label portfolio; focus on understanding changing consumption partners throughout our loyalty programs; and the fine tuning of our Bodega format among others. These actions will allow us to retain our customer base and detract them from migrating with the informal sector.

On slide number seven, we show the progress made with our expansion plan. During the fourth quarter of the year, the Company opened four new stores; the Exito Zipaquira and Exito Tunal stores, thereby completing a total of 87 Exito hypermarkets nationwide; the Carulla La Visitacion store in Medellin for a total of 94 supermarkets and the Bodega Surtimax Claret completing 14 stores of the new Bodega format.

With these projects, the Company added 11,520 square meters of selling space and completed projected [10] store openings that were scheduled for 2008. And Almacenes Exito ended the year with the total of 264 stores representing a total selling area of almost 647,000 square meters.

The Company also [active] through its store brand a streamlining program, converting five stores, including four Surtimax that were transferred to the Bodega Surtimax format, as well as the Merquefacil store was converted to a Carulla supermarket during the last quarter of the year. With these projects the Company totalized 28 conversions in 2008.

On December, 1 we successfully completed our back office integration program with Carulla Vivero. Throughout this process, a total of 152 stores are now connected up to the Group's systems and to its logistics network.

As a value-oriented retailer, we believe that current market conditions provide an opportunity to make it clear to our customers that Almacenes Exito is going to support them in maintaining their standard of living as close as possible to what it was during better economic times. This is the reason why we continue to offer them innovative, [variable] and health conscious products that are fashionable and well designed as well as reasonably priced.

An example of this has been our new private brand of wholesome food products, Taeq, which under the concept of Life in Balance offers a wide range of nutritious, organic foods sourced nationwide extending to nearly 100 SKUs.

Another example of our value-added offer is the exclusive collection of women's wear under the Arkitect label. This collection was specially designed for Almacenes Exito by the well-known Columbian fashion designer, Silvia Tcherassi. This event has marked a difference in the fashion and retail industries in Columbia.

If we continue with slide number eight; in order to strengthen our cash position, in the month of December, Almacenes Exito signed sales and lease back agreements of up to 50 years on three properties consisting in two Exito stores that [have] mature one distribution center. They represent 12,000 square meters and 10,600 square meters of retail and warehouses space respectively.

Asset disposals during 2008 allowed the Company to build up cash in the order of COP90,000 million. These proceeds will partially fund the CapEx of the Company for 2009 and place us in a peace of mind position to deal with the high degree of uncertainty that surrounds the financial markets today. This action is proving to be an ongoing effort in 2009 with additional disposals made so far this year.

Talking about the Company's social responsibility initiatives, which forms the cornerstone of Almacenes Exito commitment to the community and environment, we would like to highlight how, thanks to the job carried out in conjunction with other private and public organizations, we focused on five projects, sponsoring more than 200 nursery schools that benefited a total of 48,750 Columbian children.

[Close in] with our environmental perspective, the Exito Foundation managed to recover more than 15,700 tons of recycle waste representing a net value of COP2,829 million with a year on year increase of 12.5%.

Turning to the analysis of our financial results on slide number ten, we can see a summary of the figures of the fourth quarter of 2008.

For all calculations in US dollars, we used the average exchange rate for the fourth quarter, which was COP2,291 per dollar. A complete report of our financial results was published on our website yesterday. We hope you all have obtained a copy.

Now, on slide 11, we have a breakdown of our net revenues, which increased by 0.1% to COP2 billion or $882 million. This growth in the fourth quarter was driven by a 4.1% increase in revenues via our expansion plan, as well as a 4% decrease in same store sales.

Moving on to slide 12, gross profit increased by 1.1% for the fourth quarter as a percentage of net revenues. And gross margin went from 25.3% for the fourth quarter in '07 to 25.5% at the end of the same period in '08. This increase in gross profit margin was mainly driven by the synergies obtained with the integration with Carulla Vivero.

In slide 13, we can see the results obtained for the quarter with regard to selling and administrative expenses, which increased by 0.9% for the period. This, as a percentage of net revenues, went from 19.8% in the fourth quarter of '07 to 19.9% for the same period in '08. This increase in percentage was mainly due to higher non recurrent expenses as a result of the back office integration program with Carulla Vivero and the impact of lower retail sales in the country, especially in the second half of the year.

However, in order to offset this increase and adjust to current economic circumstances, as we mentioned in our last conference call, the Company has continued with its rigorous cost reduction program in all areas, building up greater operating efficiency and securing important savings in personnel expense.

All of these actions have resulted in expenses just growing 0.9%, despite the pre-operating expenses of four new stores, the cost of integrating the back offices of Carulla supermarkets and on the external side coping with an inflation rate of 7.67%. The cost reduction program we executed in 2008 is a founding stone that will contribute to keep us in safe harbor under the current turmoil. We cannot do less than giving it full continuity throughout 2009.

In slide 14, we show operating income, which for this quarter increased by 1.6% with respect to the same period last year. As a percentage of net revenues, operating income went from 5.5% in the fourth quarter of '07 to 5.6% for the same period in '08, this as a result of an increase in gross margin with expenses rising at a lower pace.

Continuing with slide 15, we can see that EBITDA decreased by 5.2% during the fourth quarter of '08 for the total of COP183,870 million or $80 million.

EBITDA as a percentage of net revenues went from 9.6% in the fourth quarter of 2007 to 9.1% for the same period in 2008. This is mainly explained by the increase in non recurrent expenses as a result of the entire integration of Carulla Vivero's back office operations before the end of 2008, which was planned to be completed for the end of 2009.

In slide number 16, we can see that net income increased by 56.9% for the total of COP89,865 million or $39 million, with net margins increasing from 2.8% to 4.4% for the fourth quarter of 2008. This increase was mainly due to non taxable income received as a result of the disposal of two hypermarkets and one distribution center that made part of a sale and lease back transaction.

In slide 18, you'll find the overall organization's strategy and the pillars that lay behind it. For those of you who have followed us closely, you realize that we are not changing our strategic approach. However, we are acknowledging the current market scenario and focusing on those pillars that will lead us to sustain our market leadership position on a profitable fashion for 2009. Having said this, our main initiatives for 2009 will be working our financial and operational excellence program, strengthening our customer relationship management and offering the right assortment of products while the [tide] comes down.

If we move to slide 19, we begin by addressing how we plan on implementing our financial and operational excellence initiatives.

The Company has a debt balance of COP1.27 billion, which is 100% hedged against fluctuations in the exchange and interest rates with an average cost of 11.4%, which constitutes to be a very favorable rate given prevailing market conditions today.

Our interest expense coverage ratio and leverage ratio remain stable at 5.79 and 2.25 respectively reaffirming the Company's capacity to service its debt comfortably.

Although the current ratios are adequate and comfortable, the Company has assumed a very prudent stance and decided to reduce its debt levels. We are going to do this by implementing a CapEx that goes in tandem with the current economic circumstances for 2009 and by emphasizing the free cash flow generation.

Along with this decision of reducing the debt levels, the Company has also accomplished an asset disposal program to strengthen its cash position. As we announced to the public last year, we signed sale and lease back agreements on a group of three properties that allowed us to obtain almost COP90,000 million last December, which increased our year end cash position to COP406,064 million.

In January, 2009, we signed sale and lease back agreements for two other assets and sold off our non strategic stake in [Makro Columbia] all of which represent an additional COP96,500 million. We want to highlight that these transactions are closed and certain. They are not wishful plans waiting to be deployed. The proceeds from these disposals, together with our prudent CapEx stand give us security and tranquility in order to ensure performance of our investments for 2009 and handle any uncertainties that may come ahead.

In January 2009, we signed deals of sale and lease back agreements for two other property assets and sold off our non strategic Makro Columbia.

With regard to our maturities for 2009, we shall therefore be closely monitoring the market throughout the year so as to strike the right balance between paying our debt at maturity and partially refinancing it.

With this debt reduction, a strong cash position, adequate inventory management and a cautious capital investment policy, we are assured that the Company is prepared for year 2009 no matter what the circumstances are, and at the meantime, remain flexible enough to take full and immediate advantage of any opportunity that could contribute to our leadership position while delivering our pre-emptive profitability requirement.

I would like to make it very clear that we have seriously chosen to go for profitable sales, for margin protection and for intelligent marketing over excessive discounting and promotional sales. Under the present circumstances, this destroys value and it's only good to show good sale numbers and not EBITDA creation and bottom line results.

On the operational side, we can truly tell you that no area of the Company has been overlooked in our efforts to gain operating efficiencies through our controlling expenses and cutting costs. We have also thoroughly examined our structure, processes, the way we allocate our funds and resources so as to be able to promptly identify opportunities and increase efficiency in each and every single area of the Company.

These efforts have sacrificed neither the quality of our brands, nor the shopping experience we offer to our customers. Instead, they seek to enhance the Company competitiveness, while reducing cost. Full continuity will be given to this initiative throughout this year of 2009.

In compliment with this financial and operational initiative, we must not forget our reason business, the customer. Every single one of our employees must bear in mind that we are a retail and a marketing company. Retaining our customers is our mission. Therefore, adequate consumer relationship management through strong loyalty programs and offering the right assortment of products with the special emphasis on further developing our private labels will be focal points in 2009.

The combination of these actions should detract our customers from migrating to more informal sectors and attract customers from upscale sectors that are going to trickle down and at the same time driving shopping frequency and increasing ticket value.

Looking at slide number 20, I'm detailing a little bit our loyalty programs. The Company has built a very strong database of millions of loyal customers that allowed us make a permanent monitoring of about 75% of our sales. This constitutes a competitive advantage very hard to replicate.

The information this database provide us on consumption patterns becomes a key differentiator versus our competition, and will allow us to get a deep understanding of purchasing habits by being closer to our customer base.

Our commercial action plan for 2009 will be highly influenced by the knowledge tools that our loyalty programs provide to us. By carefully looking at the changing consumer patterns that characterize challenging economic times, we will be in a position to respond to those consumer needs and come up with a value proposition that meets their demands. At the end, all this should take us to an adequate client retention strategy that refrains our customers from going elsewhere.

Another important element in meeting customer demands is shown in slide number 21; it is the further development of private labels. The increased weight of our private labels versus total Company sales has been a sign of changing consumer patterns, [matched] an adequate anticipation of this trend by the Company.

We can see significant potential for private labels due mainly customers seeking to stretch out their purchasing power. As a result, we will extending our private labels across the board to all our store formats and to our top categories.

By information obtained from our loyalty program databases, it is a fact that Columbian consumers are down trading. Some of them are moving from leading national brands to our private labels in an attempt to cut back on household expense.

Another important fact is that we are a step ahead in private label performance in comparison to our peers. According to Nielsen, private labels share at Exito moved from 10.5% in '07 to 12% in '08; while for the rest of the market it remained stable at a level of 9.9%. This comes as a result of a disciplined implementation in building our private labels architecture.

Based on these results, we are therefore ready to offer them an extended and improved portfolio of private label products expanding the number of SKUs and consolidating our existing labels. Our focus is on helping our customers to save money with quality products. We shall underscore this premise as the competitive advantage that will lead us to become the saving partner of our clients.

As a final comment, we would have liked to reach better sale results. But in the meantime, we do recognize that the challenges of today shall motivate our team to identify new opportunities and work with renewed efforts to further consolidate our organization in order to make it more efficient in its performance going forward.

Although the world is passing through what we can describe as one of the most complicated economic times in recent history, we're very, very confident that with our determined strategic approach, focus on debt reduction, strong cash position, asset disposal program, operational excellence and deep customer understanding all within a proven stance, we are in a privileged position to face what is expected to be a very challenging year.

None of the aforementioned would be possible without the relentless commitment of our highly motivated and talented people. We are devoted to continue to maintain the number one position in the Colombian retail market without sacrificing profitability, which at the end, is what our shareholders and our investors demand from us and what these prudent and solid actions should do. All companies today should have a similar cross to pass through moving economic climate.

So now that we have concluded this part of the teleconference. And before proceeding with the question and answer session, I'd like to thank each and every one of you for your kind attention and for your interest shown in our Company.

Now if you wish Marcello, we're ready for questions and answers, so I pass the word to you.

(Operator Instructions). And our first question is from the line of Andres Jiminez with Interbolsa. Please go ahead with your question.

Yes, good morning, basically I have several questions. I will probably concentrate on only two, which -- the bulk of what I have are on. The first would be how many more stores are you actually considering in selling of the 63% that you actually already owned and actually are paying the tax bracket -- the tax benefit that I actually saw the tax break that you got, which actually boosted your sales at the end of the fourth quarter. That would be my first question.

And my second question will probably concentrate -- it's your outlook for actual conversions, openings and same store sales for the year 2009, thank you.

Okay, it's Gonzalo here. The main purpose of the assets disposals was to combine the intention of strengthening our cash position, along with an opportunity to take advantage of mature assets that, as you were saying, are tax exempt. The transactions we announced back in December '08 and in January '09 all have allowed us to meet this objective.

Now if we look forward, we cannot certainly say that we will go on with additional assets disposals. Strictly, we do not need to do so, but we cannot discard them either because they offer an alternative.

I guess it'll all depend on market opportunities and very specially in interest rates in relation to rent and, of course, on how the year unfolds. Central Bank reduces interest rates, assets disposals make it less interest, because then rents are going to outplace the cost of interest.

Now I guess your second question was about the outlook for 2009. I'll try to answer it and if it's not complete, I'll pass my word to Jose. As you saw and as it was informed yesterday to the market, talking about the outlook for 2009, we'd like to start by saying that we'll have a proven CapEx in comparison to previous years. We will invest approximately COP190,000 million. The breakdown will be 60% in three new openings, 5% in remodeling, 10% in logistics and IT, and 25% in maintenance.

Now this is a very proven CapEx that we consider goes in line with the economic circumstances and that will allow the Company to strengthen even further its cash position without having to do more asset disposals and, therefore, reduce its level of indebtedness.

Now, with regard to sales expectations, we would like to recall the trend that we shared with you at the beginning of the presentation. You saw that retail sales are declining from 12% in November '07 to 2.9% in November '08. If we add to this the general estimates for the Colombian economy for '09, are quite uncertain at this time and very broad. For instance, GDP forecast from the Central Bank goes in a range between 1% and 3%. So the inflation target has been missed three years in a row.

All these figures don't suggest a stable pattern. So we're not giving any guidance concerning net revenues or growth until we see a more foreseeable environment. What I can -- do say is that we are going to publish margins and results of a deep discount and sales that do not produce a benefit, because the elasticity of price during critical times like this is not very strong.

However, we must execute diligently in those variables that our business has that we control;0 for instance, margins and expenses. This is why our commitment is to make more profitable sales and, I repeat, regardless of growth, so that we keep the same margin levels that we attained in 2008.

If I can, I'd like to ask a follow up question and basically it would be on the same issue of the same store sales. Do you have any explanation of what -- unfortunately we decreased 4% in same store sales year on year in Exito. And we saw that actually your competition basically, Carrefour, actually showed positive numbers of an increase of 1.6% in same store sales.

Well again, on the external side the results were mainly affected by the deep deterioration of the macroeconomic figures. We have seen a very deep drop in disposable income, even higher inflation in food prices, higher interest rates and additional decline in the GAAP market and loss of confidence from the consumers.

Now this economic scenario has been especially witnessed by a decline in retail industry. If you again see the figures provided by DANE, the Colombian Statistics Bureau, in its whole, retail sales growth in nominal terms dropped from over 12% November '07 to just 2.9% for the same month in 2008. This represents a slowdown of 910 basis points.

Now all this affected overall sales and, of course, same store sales. In addition to that, the Colombian retail industry was marked last year by a very aggressive expansion plan, not only from us, but from all of our competitors, because these plans had been made since the times when the economy was booming and growing at a very fast rate, and they should be implemented. So very few retail stores, at least, were opened by our competitors and the big category killers, as the DIY.

Now all of this together with our own 10 [migrations] that make more than 40 created a cannibalism that was, of course, increased when the economy sharply reduced its growth. So the effect was an impact in same store sales that I am sure hit our Company, that that was very similar to that of our peers.

Our next question is from the line of [Tiago Queros] with JP Morgan. Please go ahead with your question.

Hello, good morning everyone. Thanks for taking my question. My first question would be related to sales performance in the fourth quarter. Could you give us a breakdown on same store sales performance by non-food and food perhaps by format as well; and also, if you could tell us the amount of non-recurring expenses in the quarter?

In other words, what would have been a normalized EBITDA margin level in the fourth quarter? That would be all, thank you.

Tiago, this is Jose speaking. Concerning your question about same store sales performance for the fourth quarter, we do not disclose that figure per -- for month or by product category.

As a general comment, we can say that the performance by category was much better in food than in non-food categories, as a natural consequence of the economic situation that we live in; so one grew, the other one decreased, and the average one, the one that we presented to you.

And the store format level, those formats with heavier (inaudible) in food sales performed a little bit better, but somehow it was pretty much just under the pattern in same store sales, in all our formats.

Now going to your second question about non-recurring expenses, here we would like to remind that we anticipated our back office integration for all the stores coming from Carulla Vivero. So it was already scheduled for '09 and we finished that process in '08. So it somehow boosted our non-recurring expenses for the fourth quarter, which accounted for 0.4% of net revenues. But that, for sure, will prove to be beneficial for the year to come.

Okay, thank you.

Our next question is from the line of Salvador Arenas with LarrainVial. Please go ahead with your question.

Hello, good morning to everyone, I want to ask you two questions. The first one is again regarding centre sales. With the figure that we saw in the last quarter of last year and expansion of competitors, what are the changes in terms of market share, if you have an estimate?

Okay, this is Gonzalo, Salvador. Latest information that was published by Nielson is only for December 2007. There we have a market share of 42% in the former retail market. Although we don't have available numbers for '08, judging from the store openings of our competitors compared to ours, it wouldn't surprise us for us to lose a little market share.

Market share is and will continue to be a very important indicator to follow, having always in mind the kind of results and the profitability shareholders and investors demand from us. But again, if we decrease a little, because we open less stores than our competitors during the period, I am pretty sure that when the data is published, our drop in market share percentage-wise is going to be smaller than the decline in same store sales, because our peers should have a very similar decline.

Okay, thanks. And the second one is relating the financial debt. Your presentation was very clear about what's going to be your strategy. But at this point the time is to pay the installments that you have for the end of the year, right?

Salvador, this is Jose speaking. As we shared during the presentation, we are attempting now to look for the right balance between paying our debt at maturities, keeping in mind that we have a very comfortable cost of debt under current economic circumstances, and refinancing some of that debt. So that's what we are going to do; remain very attentive to look for the best strategy in that regard and strike the right balance.

Okay, thank you.

If you let me add to this, here's Gonzalo again, our asset disposal placed us in a very, very comfortable position to finance our CapEx, which is in addition reduced under our prudent stance. So, of course, we're going to liberate more than enough cash to pay all the debt that is due for the whole year.

So we are 100% sure and this gives us a lot of tranquility to work in the commercial front and improving our efficiency, which is going to be a very good thing for when the economy resumes at full speed.

Our next question is from the line of Mauricio Restrepo with Bolsa y Renta, please go ahead with your question.

Good morning everyone, I have two questions. My first question is related with the conversion plan. I want to know; how were results affected by the conversion during the last quarter? And how are the -- how have been the results after the conversions in terms of sales?

And the second one, can you tell me, what was the net impact in the net profit for the sales of the three properties?

Okay, Mauricio, this is Jose speaking. Concerning the conversion program, last year we made a total of 28 conversions, 14 to the Exito brand and 14 to the Bodega format. Sales results have been in line with what we expected. (Inaudible) is converted to Exito. We remain getting 20% boost in sales. And for those of the Bodega formats, the sales have remained stable.

It is important here to keep in mind that when we do conversions, at the beginning those stores are affected in their EBITDA generation, because of the pre-operational expenses that goes through the conversion program. So we must give them an idea of operations to objectively measure their impact on the EBITDA, so that's very important to keep in mind.

Moving on to your second question about the asset disposals, here we would like to keep in perspective all the disposals we did back in '08 and that we plan on doing at that time that were performed at the early '09. So the mix of all that gave us, let's call it, a boost in the income of approximately COP50,000 million.

One more question, it's about regarding the EBITDA margin for this year after the sale of those properties are going to increase the expenses?

Mauricio, it is important here to see the transaction in the whole perspective of the P&L. It is true that the assets we disposed now are rented, so we need to pay our rent for those properties, which will increase our lease expenses and will have an impact on our operating and EBITDA generation.

But at the meantime they will allow that to strengthen our cash position, not to increase our debt, so they should give us a relief in the financial expense in line with the P&L, so at the end we should strike a good balance there.

Our next question is from the line of [Andres Restrepo] with [Porvenir]. Please go ahead with your question.

Good morning, my name is [Andres from Porvenir] and we have two questions. The first one is if you have a plan for 2009 for new stores?

And the second question is when do you expect to finish Carulla's integration with Exito?

Yes, this is Gonzalo. We're going to build three new stores during this year. This will be a more modest expansion plan but, as I say to my people, you don't need buy buses if you don't have passengers. The economy is going to perform at a slower pace. We believe what's very, very important now is to place the Company in a (inaudible).

As Jose was explaining, our main goal is to obtain the projected results. We increase the cash position and even though we're now giving guidance in that sense, we do plan to reduce our total outstanding debt.

Now as far as the integration of Carulla Vivero, everything that's complicated, which is logistics, all the systems and all the relationships with the vendors, which are more than 3,000, was anticipated by the end of 2008, and we completed that in December 2008 when it was planned by the end of 2009. So the big effort is that we anticipated one year and the good news is that this is done and that now our hands are free to concentrate in different things.

Now there might be other aspects of the integration, which are more cosmetic in the face of the customer, as for instance changing some banners maybe to Carulla, or changing some banners of other supermarkets into the Carulla brand. But this can wait until we see that the market is more stable.

Our next question is from the line of Jairo Agudelo with Interbolsa. Please go ahead with your question.

Yes hello to everyone. I have two questions. My first questions will be in line with the financial expenses, because during the fourth quarter of 2008 you present a decrease of 25.4%. I just want to know which was the reason for this decrease, taking into account that your debt liabilities will not present as a strong decrease?

And my second question will be in line with the credit card business. I just want to know if you can give us more detail about the non-performance loans as a percentage of total loans ratio, delinquency ratios or something like that?

Jairo, this is Jose speaking. Concerning financial expenses, I would like to say the following. At the beginning of the fourth quarter we still had some US dollars as a result of the equity offering we performed back in '07. And we took advantage of the exchange rate that we were witnessing. So we were able to make a profit on the monetization of those resources from US dollars to Columbian pesos.

And I'll pass the word over to Mr. Gonzalo concerning the outlook for the credit card business and then I'll go into details of that.

The outlook for the credit card business is still very good. The performance has been very, very stable. Really, bad debt at that level has not increased. We have provisions that almost doubled the bad credit and we're close to 1.3 billion outstanding cards and we continue to sell more than 10% on credit.

I believe that under the circumstances that we're right now, this business is only going to grow, even though we have almost reduced to half the placement of cards, because as you probably can assume, during these times one has to be very, very careful with the scoring, which we have made very, very demanding.

So we're not in a rush to place cards just to place cards, because then they would produce fails that will have a higher risk. So, the business is strong. It's growing, producing money and we're going to keep it that way.

Jairo, this is Jose. I just would like to complement and to remind all of you that the way the performance of the credit card business grows into our P&L is just in one line. We were pleased to announce in this call that the business reach break even back in '08.

And that we expect for this '09 the business remains that way. So we are not counting on the -- profits from the credit card business to boost our own retail results, but just to remain the way they were back in '08.

Our next question is from the line of Carlos Gonzalez with Bolsa y Renta. Please go ahead with your question.

Good morning to everyone. I have two questions. The first one is you say that you're planning to open three new stores, but how many conversions will you perform this year?

And the second one is how do expect the sales mix to behave this year, taking into account the gain of food and the expectation of inflation behavior? And how that relates with the same store sales expected to 2009?

Carlos, we're going to open, like we said, three new stores. We're not going to do -- or at this time we're not planning to do any conversions. The number one priority for us is to increase our cash position. We're very serious and determined about this. So that, as far as new stores is concerned. We believe that this can wait for when the economy resumes its pace.

Now we expect, as far as the mix, to stay pretty much stable and we believe that that's a big defense this Group has, especially after the acquisition of Carulla Vivero. We expect it to be around 70% in food and 30% in non-food.

And as Jose said, the impact of the slow down will be shown more in the non-food categories than in the food categories. Inflation might be lower than in the past year, people do a little bit of a trade down in food also but a lot less than they do in non-food. I don't have, of course, at this point any guidance that I can give you in same store sales for the year or in the sales figure.

Yes, I would like just to complement, Carlos, on the following considering the conversion question, Mr. Restrepo emphasized that we ended up integrating all, and we mean all the Carulla stores in our back office. It means that they run through our logistic systems and that action that we anticipated one year in advance, will allow us to capture all the synergies at the purchasing and at the cost level, which will be the focus for this '09.

Again, I would like to say that I consider that during these times, when there's a big slow down in demand, it is very, very difficult to accomplish both big increases in sales and maintaining very good gross margins, EBITDA, EBIT and net profit.

We have decided to publish results in those indicators over making sales just for the sake of making sales. It would be very, very easy if you lose your margins to accomplish very pretty sales results in total sales or same store sales, but very difficult to accomplish your value creation. You would at the contrary destroy a lot of value, because there is not that much elasticity at those times when you lower your prices to increase your sales in an amount that compensates the value destruction by the lowering of your prices.

So we're going to publish sales results and be very smart with our loyalty programs, and maintain a very good price perception, but without affecting the results that is what the Company need the most during these critical times. Companies without results, we believe are going to be placed in a very weak position if the crisis last longer than people are expecting.

Our next question is from the line of Johanna Castro with Corredores. Please go ahead with your question.

Good morning everybody. I have just one question about the dividend payment that was published today; that was announced today. If the actual [ownership] decide to choose the cash form of the dividend, will you still able to pay some of the dividend that you want to pay this year?

Could you please, Johanna, repeat the last part of the question?

Sure, the question is as you announced today, you can pay the dividends either in cash or in more stock. If everybody wants the cash and not the stock, are you still able to pay as much of [debt] as you want for this year?

Yes, well, to precisely answer your question, we are, after the actions we took last year and at the beginning of this year and the -- also with the reduction of the CapEx and the financing of the new CapEx with the disposal of the macroeconomic strategic investments, plus the asset disposals, we are totally financed to pay our obligations.

Now the dividend policy that was shown to you yesterday establishes three different alternatives. One is people can choose 100% in cash, or there's a second alternative when our shareholders can choose 50% in cash or 50% in shares, or one that will be a dividend 100% payable at the choosing of the shareholder in 100% in shares.

We do not know, of course, what shareholders are going to decide, but I could guess that some of them are going to choose cash and some of them are going to choose shares. For the amount that the people choose in shares, of course, this is going to strengthen even more the cash position of the Company. But this was not an alternative decided like that, because the Company didn't have enough funds to pay its obligations, but only because we want make cash reduction number one priority during these difficult times.

And our next question is from the line of Robert Ford with Merrill Lynch. Please go ahead with your question.

Thank you and good morning everybody. I had a couple of questions. One was private label and in the presentation you highlighted private label as a big opportunity and I noticed that in the press release you feature Taeq, which I suspect is imported from Brazil for the most part. And I was curious if you could elaborate a little bit more on your private label strategy. Certainly in this environment there's going to be some foreign exchange volatility.

Can you comment with respect to your opportunities to further expand private label? And how much of that do you expect or anticipate will be done with local vendors in Columbia? And how much does your value proposition in private label vary with Carrefour and perhaps some other prominent offerings in Columbia?

And when you look at the contributions on a per item basis, in the grocery category at least, how much more gross margin pesos do you take in with private label versus a branded alternative?

And Gonzalo, I know you don't want to comment with respect to the outlook for same store sales. There's a lot of uncertainty out there. But I was curious if you could talk a little bit about the year to date, what the run-rate have been and what you're seeing in terms of a food price inflation and what you anticipate will happen with the average ticket as consumers down trade? Thank you.

Okay, as far as the Taeq brand, Robert, the Taeq brand, of course, the idea of this brand was proven very successful in Brazil. We brought the name from Brazil. So we're bringing or importing very few products. Most of those products are manufactured under the guidance of very important and efficient medium sized and small manufacturers here in Columbia. Of course, a portion of about 30% is being imported to produce things that are not produced in the country.

Now our private label strategy, as you could see, I believe is one of the most successful indicators of our performance in last year and this private labels grew about 19% in 2008. And we are aligned in a three year objective to reach 50% growth of private labels in the period '07 through '08.

Now private labels they sell at 10% to 15% lower price than national brands, so they should have margins up to -- between 5% to 10% higher also than national brands because then, of course, if all your sales went to private labels, your sales figure would be lower. So you need to compensate with higher margins and rotation while you lose, of course, in the sale price.

So our strategy is not only the Taeq brand but also the private labels, what we call the MDD, which of course as you know related to the French word of [marque de distributaire], which is the private label in the middle that compares to national brands. We have launched the new packaging designed by the [FEBEA] Agency in Paris [for the] beautiful packaging, and we have selected the best vendors for the Exito private label.

We're increasing enormously the sales of the first price label that trades at a lower price for the lower segments of the population under the [Econo] name, which is selling very, very well. And we have reduced and focused in the most important [proprietary] names of the textile labels as Arkitect, Custer and Bronzini for our textile labels.

I'm going to leave you with Jose, Robert, if you allow me, for the sales figures and I reckon you asked something about the performance in January I think?

Yes sir, January, I know you have month to date in February, if you just give us a sense of how things are developing please?

Well, the business -- Jose speaking. And here we will like, and it's our policy to provide as much information as possible so that everybody can make informed decisions. But truly, Bob, at this point in time we prefer to refrain ourselves from talking about future sales performance until we see a stable pattern. So we don't have any number to share with you at the moment, Bob.

And at this time there are no further questions. Ms. Caroline Escobar, do you have any closing remarks?

Thank you Marcello. I want to once again thank our audience for your interest in Almacenes Exito and for taking the time to participate in this conference call. Please do not hesitate to contact us at any time with any questions. Have a good day.

This concludes today's conference call. You may now disconnect.