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2Q11 Results Conference Call Transcription - Hypermarcas

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					                                                              Conference Call Transcript
                                                                          2Q11 Results
                                                               Hypermarcas (HYPE3 BZ)
                                                                      August 15th, 2011



Operator:

Good afternoon, and welcome to Hypermarcas 2Q11 results conference call. Today
with us we have Mr. Claudio Bergamo and Mr. Martim Prado Mattos, CEO, CFO and
Investor Relations Officer, respectively.

We would like to inform you that this event is being recorded and all participants will be
in listen-only mode during the Company’s presentation. After Hypermarcas remarks
there will be a question and answer session for investors and analysts, when further
instructions will be given. Should any participant need assistance during this call,
please press *0 to reach the operator. Today’s live webcast may be accessed through
the Company’s Investor Relations website, at www.hypermarcas.com.br/ir.

We would also like to inform you that statements made during this conference may
constitute forward-looking statements. Such statements are subject to known and
unknown risks and uncertainties that could cause the Company’s actual results to differ
materially from those set forth in the forward-looking statements.

Now, I will turn the floor to Mr. Claudio Bergamo, who will begin the presentation. Mr.
Bergamo, you may begin your conference.

Claudio Bergamo dos Santos:

So, just to start up on page five, as we would always do during our calls, to talk a little
bit about on what is the macroeconomic environment nowadays in Brazil, as I think
many of you remember, we started the year a little more cautious about what would
happen in the Brazilian economy, since we started the year with a spike in inflation,
with a spike in interest rates. And we expected somewhat to evaluate how the
economy would move along the year.

Now, at the 2Q, we actually have seen a macroeconomic environment with a higher
deceleration and both into the domestic and particularly international markets. We are
now living in a higher level of uncertainties, both at international, and also it is not clear
what will be the next move of the Brazilian monetary policy.

As a consequence, we are seeing somewhat an increase of a risk aversion sentiment
in Brazil, with many companies postponing some of their investments and some of the
consumers waiting a little more to see what will be the next move in terms of buying
decisions, given the high levels of uncertainties we are giving at this point.

If we go to page six, so, under this environment and scenario, we believe that our
strategy and our goals, as we set up at the beginning of the year, which was 'Cash is
King,' they are quite appropriate at this point. And we believe we should continue
focusing our goals for this year in our strategy, focusing on improving our cash flow
generation, focusing in capturing synergies from the past acquisitions and
consolidating our organization and our operations.

At times as now, the best offense in our view is the defense. So during the 2Q, the
Company has done many initiatives in order to continue this 'Cash is King' plan with
price increases in many of our brands and products, reduction of the terms of payment
or reduction of accounts receivables with the clients, reduction in costs and expenses


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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



in many areas, finalizing the integration of many acquired companies, simplifying our
structure in many areas, reducing inventories and selling non-operating assets.

On page seven, the first results of our 'Cash is King' plan and we already started being
noticed, as we are increasing our operating cash flow for the quarter, which were 3.5x
higher than 2Q10. As well, we saw an increase in the profitability in the quarter of 9.2%
organically vis-à-vis last year and a reduction of working capital needs.

Additionally, our bargaining power has been strengthened with the market, with the
clients, with the reduction of their stocks and inventories, and we have been able to sell
with higher prices, lower terms and lower trade deals.

The time required, however, to implement this plan, especially regarding the customer
destocking and the sales force integration, take longer than originally planned and
should last at least the whole year. The reasons behind that somewhat are in a way
due to the complexity of the sales force integrations higher than expected, given that
we have done less than nine acquisitions than last year and four at the end of the
previous year.

Also in terms of destocking of the wholesalers and the distributors, given that there is a
slowdown of economy and a sentiment of uncertainty, we have seen a behavior from
our clients to postpone some of the replenishment of their stocks.

Question is that we have been receiving from many analysts and many investors is that
how much of our market share of our brands are at risk given this strategy, and so if we
see on page eight, basically we have not seen any impact at all in our market share,
given that most of the initiatives we have been doing are more related with the indirect
clients, with the object of reducing their stocks increased our bargaining power vis-à-vis
them.

If we look in this chart on the Pharma Business Unit, we have maintained pretty stable
the market share of around 80% during the 1H of the year, and when you compare it
with the last year, actually we have increased close to 1% vis-à-vis the 1Q10.

In terms of Personal Care, the consumer products, we have maintained our market
share, is stable around a little plus 10% over the quarter and it has been coming down
from specific issues we had regarding some of the markets we have from half of last
year.

Also, if you look at the sell-out of these markets and our share vis-à-vis last year, the
Company sell-out is running around close to 10% in the 2H, despite all the issues on
potential on the deceleration we are seeing out in the market.

If we go to page nine, despite and apart of all the economic and financial dynamics for
the year, in the 2Q11, we finalized a series of integration strategic projects in the
Pharma Business Unit that in our view has been significantly strengthening its
competitive position.

If we see on the generation, the demand generation structure, in April we finalized the
integration of the medical sales representative teams, which will visit now 150,000
doctors per month from a previous volume of 90,000 doctors. Nowadays, we have


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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



close to 4.5% of the total Brazil's prescription volume. We were already the top number
three in terms of prescription generation even before the restructuring of the sales
force.

The sales restructure in June, we finalized the integration of the sales force dedicated
to drugstores and we started from July on visiting more than 23,000 drug stores' points
of sale, which previously we were visiting 9,000 points of sale. This is a major change
in our strength in the market, given that we will be visiting close to 80% of the total
weighted value of the drugstores channels in Brazil.

On the cost position in July, we finalized a transfer of the production lines of Barueri
and Nova Iorque to Anápolis and we already have started the production in the new
site in August. This was the famous so-called project Magnum. We are very happy that
we are able to finalize the project Magnum on time given the biggest, the large
challenge we had on this project.

With this, we will have the largest and the most modern plant in the Country in the
pharmaceutical industry with more than 90,000 m² of production area, very modern in
logistics, the facilities with high productivity and low costs. Also in innovation, in the
semester the division launched 39 new products and has filed another 64 at ANVISA,
which are waiting for ANVISA's approval. Hypermarcas had the highest number of
launches in Brazil in the 1H of the year and the largest number of new products being
filed at ANVISA.

So, we believe that all these initiatives were very strategic for our Pharma Business
Unit and our strategic position is very, very stronger than it was before and pretty much
ends the cycle that we had defined when we made the acquisition of Mantecorp.

Go to page 10, as I said, these initiatives created a very, very strong structure among
doctors, consumers, drugstores and distributors, with many, many strong sources in all
of these areas according to our business plan when we acquired Mantecorp, which we
believe will prepare this business unit for a new phase of sustainable growth in the mid
and to long term.

If you go to page 11, in the case of HPC business unit, despite the fact that it is still
behind the Pharma Business Unit in terms of final restructuring, there is still lots of
initiatives in progress such as the planned consolidation in Goiânia, the sales and
merchandise integration force, several re-launches ongoing, which should represent a
significant upside for this business unit moving ahead.

In terms of commercialization structure, we had been making some pilots on category
management and some of the results have been quite good. We have seen
improvements in the range of 30% to 40%. Also we had unfortunately to have the
patience that we have changed too much our sales force teams at the beginning of the
year, now we are investing heavily on maturing and stabilizing these sales forces, and
we believe that by end of the year, they would be quite finalized.

In terms of costs, and if we go to page 12, the Company has developed in the quarter a
plan to consolidate all the plants we had in the HPC business, similar to what we had
done with Pharma as the project Magnum. This new project, which we call Matrix



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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



Project, as well as the Magnum, will bring many series of economic benefits for the
business unit, taking this division to become the lowest producer in the market.

We will concentrate all the production into two cities in the Goiás state, Senador
Canedo and Goiânia which will be distributed through a new distribution center we are
building at Goiânia. And, this will allow the Company to have a lower tax given the
incentives we will get at this state, more competitive costs, economies of scale and
productivity and better control for this unit.

Also, in parallel of all the initiatives we have been conducting, we announced a new
organizational structure who will prepare the Company to move ahead with two
different businesses. We are creating a new business unit for Pharma and a new
business unit for Consumer which will be responsible for sales, marketing, production,
and R&D function and will be accounted and responsible for EBITDA, for each of these
businesses.

These business units will be supported by a COO which will take the responsibility for
the supply chain IT, HR, and logistics and by a CFO which will be accounted for
finance, costs related, controlling, financial planning and legal aspects.

With this structure, we believe we can, at the same time, give more focus on each of
the businesses and at the same time, with the two supporting areas with the COO and
CFO we will not miss any synergies across the business units. We believe this
structure will allow the Company to improve its focus and better coordinate its activities
and for each of these business.

Another initiative we are starting on now is that after we have finalized many of the
major integration projects and initiatives, we are launching now a new project called
Zero Based project in the 3Q with the support of an external consultancy firm, with the
objective of defining a series of additional improvement initiatives in many years, such
as in supply, in purchasing, in further organization streamline, logistics, plant
productivity and also the efficiency of our few teams.

We believe that by the end of the year, we will have a good diagnosis of all the
opportunities, and we believe there are many other opportunities in terms of cost
reduction and savings that will be implemented through 2012 and 2014.

So, thank you very much. Sorry for my English, and then I will pass by to Martim.
Thank you very much.

Martim Prado Mattos:

Good afternoon. Beginning on page 16, we see that net revenue was R$1.8 billion in
the 1H11, a 29% increase when compared to the 1H10 and organically a deceleration
when measured by the reference base of 2%. In 2Q, we reached net sales of R$937
million, 25% above 2Q10, and organically a decrease of 0.6%.

The trend that led us to this organic decline, as mentioned by Claudio, where our
biggest focus on controlling working capital and thus focusing more on cash flow
generation in a scenario of worse macroeconomic conditions, especially interest rates
and inflation which also called less optimism for our clients.


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                                                          Conference Call Transcript
                                                                      2Q11 Results
                                                           Hypermarcas (HYPE3 BZ)
                                                                  August 15th, 2011




These trends were also impacted by internal changes, both through the efforts in
reducing terms given to our clients still leading to the destocking effects in the chain
and the integration of our sales force.

On the last page, page 17, we see that the breakdown of the 28% growth of net
revenues the 1H of the year, were up 32% in Personal Care, 37% in Pharma, and a
decline of roughly 23% in Home Care and Food. Organically, we saw a decrease of
roughly 3% in Personal Care, roughly an increase of 8% in Pharma, and a decline of
the same rate in Home Care and Food as compared to the reported decrease. In the
quarter, the breakdowns for 25% were an increase of 16% in Personal Care, 46% in
Pharma and minus 18% on Home care and Food. Organically, the 2Q11 had a decline
of 3.4% in Personal Care, in Pharma an increase of 5.3%, and in Home Care and Food
of minus 18%.

On the next page, talking about gross margin, we can see that compared to the
reported figures of the 1H10, in the 1H11 we saw an improvement of 4.5 p.p. and
organically an improvement of 4.2 p.p. In the 2Q, comparing of the reported figure, we
saw an improvement of 4.7 p.p. and organically of 3 p.p. That increase of 3 p.p. is
related to 2.3% of a combination of better prices and lower costs and the remaining 0.7
p.p. related to mix improvement given that the Pharma business unit, which has the
highest margin, has been growing more than the other business units.

If we look at the gross margins per business units on the following page, page 19, we
see that the 4.2 p.p. improvement on the 1H11 when compared to the reference base
is divided by a 2.8 p.p. improvement in Personal Care, significant 6 p.p. improvement in
Pharma, and a decline of approximately 10% in Home Care and Food. On the 2Q, we
had organically a decrease of 0.8 p.p. in Personal Care, a 6.5 p.p. increase in Pharma,
and a decline of also close to 10 p.p. in Home Care and Food.

The reduction in the Home Care and Food margins is mostly explained by the idle
capacity or the cost of producing lower volumes than before so all the fixed costs
related to that production was less diluted by the total amount produced in the quarter.
Talking about the Personal Care margin, it was especially affected by the
implementation of SAP system at Sapeka.

Thus, in doing so, as we are able to better control inventory levels at Sapeka, it was a
one-off adjustment of Sapeka's COGS given that before SAP, they used to calculate
their stock, their inventories, by stock differences, thus the Personal Care margin that
reflects more accurately the Personal Care trend is the one observed in the entire
1H11.

If we move to next page, page 20, we see that the reported EBITDA in the 1H11
reached R$435 million, a growth of 33% when compared to the reported in the 1H10
and organically an improvement of roughly 9%. In the 2Q, the EBITDA was R$221
million, an increase of 39% when compared to the 2Q10, and organically an
improvement of also 9%.

The margin given that the EBITDA growth was higher than the net sales growth was of
0.9 p.p in the 1H11 compared to what was reported in the 1H10, and an organic



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                                                                          2Q11 Results
                                                               Hypermarcas (HYPE3 BZ)
                                                                      August 15th, 2011



improvement of 2.5 p.p. and in the 2Q11 we saw an improvement of 2.2 p.p. when
compared to the reported and 2.1 p.p. organically.

If we move to page 21, talking about net income, net income decreased by 14% on the
1H11, reaching R$86 million and increased by 19%, reaching R$53 million on the
2Q11. The net income margin declined by 2.3 p.p. on the 1H10 to the 1H11 and was
roughly stable on the 2Q11 compared to the 2Q10.

It is important to mention that the income tax booked during the 2Q, you may analyze
it, it was roughly 50% of the pre-tax income, was higher in approximately R$19.5
million, due to the spinoff of Neo Química from the controlling Company, which is
Hypermarcas, to one of our 100% owned subsidiaries, as approved by our
shareholders meeting that took place on April, 2011.

In doing so, we had to write-off the proportional losses carried forward of the net worth
of what was spin off. The effect observed was a decrease of R$19.5 million of our tax
credits on our assets, against a decrease of the same amount on our net income line.
That decrease in the net income took place on the income tax line.

On page 22, the cash earnings declined 2.4% on the 1H11 compared to the 1H10 and
also decreased 2.4% in the 2Q11 when compared to the 2Q10, the cash earnings
margin declined by 4.4 p.p. in the 1H11 and 3.9 p.p. in the 2Q11. This decrease on our
cash earnings is mostly explained by the increase of our net debt from the 2Q10 to the
2Q11, especially due to the acquisitions made.

If we look to operational cash flow on page 23, we can see that the 2Q had one of our
best operational cash flows of recent quarters reaching approximately R$140 million.
This is mostly related to what we see on the blue bars in this graph, the blue columns
in this graph, showing the average compounded sales terms offered to our clients. The
efforts that we are doing in reducing so, which as you can see from the 4Q10 to the
2Q11 of approximately 20 days is what explains most part of the improvement in the
operational cash flow in the quarter.

If we move to the next page, page 24, our gross debt ended the quarter at an amount
of R$5.6 billion and with a net debt of R$2.8 billion. Our cash positions also ended the
quarter at R$2.8 billion as well, so a significant amount and enough for us to fulfill all of
our payments including loans and financings, and also loans payable until the
beginning of 2014. So, it is a very comfortable cash position that we have and also the
profile of our debt is quite focused on the long term, especially because of our bond
issued recently with maturity into 2021.

On the following page, page 25, we can also see our debt profile showing that of our
total gross debt of R$5.6 billion, 41% is related to the CDI, however, our entire cash
position is also related to the CDI. So, we have a positive net exposure to CDI of
approximately R$500 million. Another 21% of our gross debt is related to FX, USD in
this case, especially because of the bonds, again, with maturity to 2021.

All the other FX exposures that we have on our balance sheet are currently hedged.
So, the only FX exposure that we have is of the principal amount of the bonds due to
2021. Another 21% of our gross debt is fixed, 12% related to inflation, especially



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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



because of the debenture issued to the BNDES and another 5% in TR and TJLP which
are subsidized indexes in Brazil.

On page 26, and reinforcing the change in the guidance and in line with the best
corporate practices, we constantly update the market in regards to our projections and
sentiments in regards to the future of the Company.

The assumptions used when providing the previous guidance of EBITDA for 2011 of
above R$1 billion has changed. First, we are now even more cautious on the macro
level, assuming that some weakness on the macro level may lead to our markets, our
own markets to show worse performance. Secondly, we are also being more
conservative on the timeframe for the restructuring of our sales forces, which is taking
longer than initially forecasted. And thirdly, and again on the more cautious side, we
are not assuming that this destocking process of the chain will be resumed on the short
term. With all of that as a background, we set a new EBITDA guidance for this year of
2011 of R$900 million approximately.

The last part of my presentation, we had, as you can see on page 27, we had a Board
Meeting last Friday, August 12th, and the most important decisions there were: One,
the concentration of our Beauty and Personal Care production in the city of Senador
Canedo in Goiás, 15 minutes away from Goiânia, which will include the purchase of a
property in that location, in that city, with the characteristics that you may see here on
this page 27.

In addition to that, the Board has also decided to set a new buy-back program as
announced last night on the Material Fact to acquire up to 35 million shares to be
purchased either on the spot, or on the stock market, or using options; meaning
especially a combination of purchasing calls and selling puts at the same strike. So, it
is a synthetic forward that basically gives us the opportunity of buying shares with a
payment term of that buyback of the same maturity as the options that we buy, which
can be as long as one year forward.

The third decision by the Board was to implement a new stock-option program to be
submitted to the General Shareholders' Meeting with a maximum dilution of additional
2% to the stock-option plan that we currently have. The main objective of that is to
include new executives of the Company in this new program and align them with the
objectives of Hypermarcas' shareholders.

We may now begin the Q&A session. Thank you.

Robert Ford, Merrill Lynch:

Hey, good morning, everybody, and congratulations on the progress, Claudio and
Martim. I have a question with respect to Pharma, and I was wondering if you are
comfortable with the inventories in the channel for Pharma right now.

Claudio Bergamo dos Santos:

Well, we are not comfortable yet. We believe that we still have some time to go in order
to be able to execute our strategy, and with respect to that what I think is very
important that we just finalized in July the creation of this new sales force that will go


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                                                             Conference Call Transcript
                                                                         2Q11 Results
                                                              Hypermarcas (HYPE3 BZ)
                                                                     August 15th, 2011



directly to 23,000 points of sale. In our view this will accelerate the orders to the
distributors in order to accelerate the destocking process, given that nowadays some of
the distributors are more in the pull side as opposed to be in the push side.

So, we are very convinced that this will make a change in the industry and given that
the balance power will change given that we will be accountable for close to 70% of the
total orders out there in the market.

Robert Ford:

Claudio, if I look at the IMS Health numbers correctly, it looks as if the sellout in the 2Q
in Pharma, in particular, was running at about 28%, right? And as you say with the
expanded coverage of the sales footprint as you consolidate, one would expect that
you work through this excess relatively soon, but when do you expect that the sell-in
begins to converge with the sell-out rates?

Claudio Bergamo dos Santos:

I think will be towards the end of the year.

Robert Ford:

OK. And when you look at the acquisition synergies, can you comment a little bit on
how much you have implemented versus realized at the end of June, what you expect
both implemented versus realized at the end of the year, and what we might look for
into 2012, both implemented and realized if I work in terms of the delta?

Claudio Bergamo dos Santos:

By the end of June, we will have finalized all the initiatives on Mantecorp and Mabesa,
so we reached 84% of our total potential. So, we implemented already R$217 million
vis-à-vis a potential of R$257 million. So, the only project we are still missing is the
Project Magnum, which is the transfer to Anápolis, which was finalized by the end of
the 2Q, so we will have 100% full implemented of all this synergy by the end of the 3Q.

What we are working on now is, as I said, there are two new projects, which is one is
the Project Matrix, which will bring additional and further savings to the Company,
which we are finalizing the accounting of the savings for that.

And as well, as I said, we will be launching a new project called Zero-Based Budget, in
which we will grow into the next level of savings, booking them more in detail in each of
the major areas of the Company in order to set up a new cost reduction program for
2012 and 2014. To answer your questions specifically, on existing synergies, 84%
already implemented. Table two, you can look at table two on page 8 of our earnings
release.

Robert Ford:

OK, Claudio, I just was trying to make sure I understood, so it is implemented, but
when I look in your income statement I am still not seeing the benefits yet, you expect
to obtain those in the coming periods, right?


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                                                                  Conference Call Transcript
                                                                              2Q11 Results
                                                                   Hypermarcas (HYPE3 BZ)
                                                                          August 15th, 2011




Claudio Bergamo dos Santos:

Yes, because we finalized the implementation by the end of the quarter. So, what you
are going to see is as we move on, that is the other column where we call captured,
means that there is a time lag, right?

Robert Ford:

Completely understand.

Claudio Bergamo dos Santos:

So, we implemented by the end so you will see in a quarter-by-quarter basis see the
results coming into the results.

Robert Ford:

Based on what you can see right now, do you expect to retain most of those synergies,
or do you expect to reinvest that additional profitability in price, promotion, advertising,
or new product launches or something else?

Claudio Bergamo dos Santos:

Well, on the current scenario, which we are pushing more a defensive strategy for the
year, given the environment we have both internal and external, we would give
preference that to generate more operating cash at this point. But that we have to wait
to see how 2012 will turn out to be.

Robert Ford:

I understand. And then when you look at the new guidance for this year, what is the
free cash flow number that corresponds with that R$900 million EBITDA number?

Martim Prado Mattos:

Bob, it is still this year very close to zero, free cash after…

Robert Ford:

Great. Yes, after working capital, after CAPEX, after everything.

Martim Prado Mattos:

Yes.

Robert Ford:

OK. And then just lastly, on the full-cost structure versus just straight up buybacks, why
would you opt for the full-cost structure, is it just to keep financing on the transaction in
just a deferred payment?


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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011




Martim Prado Mattos:

Deferred payment, the most, given that recently with these changes and also trying to
better control the working capital, we are already seeing some improvements there, we
start feeling more confident that next year in 2012 the operating cash flow generation
should be much better.

So with the combination of that, the current leverage that we have, the stock price and
a better cash flow generation for next year, we developed here internally with some
banks the alternatives of basically buying back now, but only paying for that once the
options are exercised, which may have a deferral of approximately 12 months.

Robert Ford:

And once you put the position on, the banks that are doing this for you will go into the
market and start delta hedging it, I mean, they will start buying the stock in anticipation
of exercise in the future, is that correct?

Martim Prado Mattos:

Yes, the delta hedge of such structure is 100% exposure for the banks, so for them to
hedge that, they would have to buy exactly the same notional as we buy the options.

Robert Ford:

Great, thank you very much. I appreciate it.

José Yordán, Deutsche Bank:

Couple of questions. One, in the last release, you had mentioned all the number of
product launches that you had scheduled for the year and etc., and now you have
omitted it. Has the number of launches changed or is it just trying to cut down on the
amount of detail there? But I guess I am just interested in whether anything has
changed in terms of your plans for launches in the 2H of the year?

And then, I guess my second question is a follow up on the guidance. I mean, it sounds
like you are very cautious on 2011, but not necessarily on 2012. And I guess my
question is, if you were to have a guidance for 2012, would you have lowered that as
well? In other words, are you telling us growth is going to be lower in 2011 but higher in
2012 as a percentage or just lower in 2011 and the same sort of growth rate in 2012
versus a lower base in 2011?

Claudio Bergamo dos Santos:

José, I will answer the first one on the product launches. Basically, on the Pharma
business unit, we have not made any deceleration as to this way in terms of launching;
even on the contrary, we have launched, as I said in my presentation, 39 new products
for the year so far.




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                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



We have 64 already registered at ANVISA, and we are developing many other
products, so we have really a pretty extensive pipeline at this point. And unfortunately
ANVISA is taking too long, some of our products are taking up to two years to pass
evaluating, so they have a big backlog of new products to be analyzed and evaluated.

Even in spite of that, we have been able to do quite a lot of launches, and then just to
give an idea, I think we were the largest, the Company had done most of the launches
in the year. And so I think we are doing pretty well on the Pharma and we will continue
doing that way.

On the Consumer sector, actually we had many launches already planned for the year,
and what we did basically we put them a little bit on the shelves now, and to pull back
them from the shelves and re-launch at better economic timing. We do not believe it is
a good timing for the launches given all the uncertainties and constraints we have on
the macroeconomic perspective as well that we need to plan it up our homework on the
sales force and all the other things you have been saying.

So, the good news on that is that we have many, many products launched in pipeline
now that we already invested and we will be able to launch next year and forth without
having to make all the investments because the investments were already done.

Martim, can you comment on the guidance front?

Martim Prado Mattos:

Yes, on the guidance, José, I think that it is in line with what we are saying, what we
are referencing on our comments, we have been saying that the expenses, specially
SG&A, are either under control or they will be affected by synergies as highlighted also
on the earnings release, where you can see there the schedule of when we are going
to capture that.

So, assuming that the expenses are under control, which is where we are coming from,
one of the most important reasons for the decrease in guidance is actually the top line.
Disregarding the effect that with more sales we have more operating leverage, besides
that, the main item there is top line.

We cannot, or it is important to highlight again that that assumption is conservative, we
are trying to be much more conservative than we were in previous quarters, and that is
why I am mentioning the sales, the top line as being one of the most important reasons
for the decrease in the guidance.

For 2012, it is hard to comment. Still a lot of uncertainties going forward, and it is hard
for us at this point to provide you any new guidance in respect of that. As the year
develops and as we see if these trends actually materialize or not, we may certainly
discuss that again.

José Yordán:

Yes, sure. I mean I was not looking for a number, but the last we talked about the
projected increase in the minimum wage, etc., starting in January, and so it sounds
like, unless things globally get a lot worse, that the market will begin to grow


                                            11
                                                             Conference Call Transcript
                                                                         2Q11 Results
                                                              Hypermarcas (HYPE3 BZ)
                                                                     August 15th, 2011



significantly again, the demand will begin to grow significantly, and a lot of these things
that you have shelved for now potentially could be put back on the table and lead us to
a number, you know, a top line number in 2012 that is not all that different from what
the market was expecting before your downgrade for 2011.

I mean, does that statement make sense in terms of a potential outcome, assuming
things do not get a lot worse globally?

Claudio Bergamo dos Santos:

Yes, pretty much. I think what you just described would be our best case scenario now,
given all the other things maintaining stable and we do not see a further deterioration.
That would be probably the best case moving forward.

José Yordán:

Sounds great. Thanks a lot.

Lore Serra, Morgan Stanley:

Hi, good afternoon. I also had a couple of questions but maybe I will ask them one at a
time to make it simpler. I wonder if you could just help a little bit in describing more the
rationale and the hope in terms of the restructuring and also comment on the asset
sales that are pending.

And I guess my question is on the structural side, part of what I understood or a lot of
what I understood was the strategy of Hypermarcas was to roll up companies and then
consolidate a lot of the back office to create synergies.

And so, I just want to understand, is the reason you are doing this now because you
feel like you have enough scale in the Pharma and PC businesses to separate them?
And I just want to understand going forward how autonomous the two businesses are
going to be, I mean, they sound fairly autonomous as they are going to be managing
their own EBITDA. So I wonder if you could comment on that, please?

Claudio Bergamo dos Santos:

OK, Lore, look it is pretty much what I think you said. We believe that at this moment of
the Company, these two businesses, they got up to a scale which is large enough, it is
close to R$2 billion for the Pharma in gross revenues and R$3 billion for Consumer.

And they do deserve to be treated separately in terms of the key functions, also in
order to have a better coordination among the different operating areas such as sales,
marketing, preparation and R&D.

We believe there are many, many advantages behind that, that will help accelerate the
implementation of many of the improvements we have seen in each of these
businesses, and also to implement the strategic plan for both

On the other hand, when you say: “well, are we going to lose cross business
synergies?” We believe not, because that is exactly why we maintained two other


                                            12
                                                              Conference Call Transcript
                                                                          2Q11 Results
                                                               Hypermarcas (HYPE3 BZ)
                                                                      August 15th, 2011



areas which are service areas, which will serve both divisions, such as the COO and
the CFO, which are most of the shared functions and shared areas are in these two.
And they will continue serving both businesses.

And additionally, we will have at the top a planning area and a corporate center, which
also will be looking at the cross synergies among the business units. But at this point,
given the scale we got, we believe that that strategy will be much more effective and
efficient for the Company.

Having said that, and then talking about the Cleaning and Food, the Cleaning and
Food, despite the tough time we had in the last quarters, we are still very price
sensitive for this business, and we will not be willing to divest them if the proper price is
not there at this point, given their potential, we know these businesses. And give this
new reorganization structure, we believe we can reestablish these businesses, given
we are focused now internally, and we are not focused on acquisitions anymore.

Lore Serra:

Great, thanks. And then, I wonder, Claudio, if you could sort of compare and contrast
the experiences you are having in Pharma versus Personal Care? In Pharma despite
the fact that you have made this big acquisition in Mantecorp and you have been
restructuring sales forces, you are still delivering growth of 5% and your gross margin
is up a lot. So, that looks relatively good to me.

On the other hand, Personal Care, you know, you have had a second sort of tough
quarter, it looks like some of the market share data on the different segments is a little
bit less clear, and you are early on, so you have not even really done the sales force
restructuring. So I would love your understanding on what is driving your better
success in Pharma. And with Personal Care, as you restructured the sales forces, that
sounds like it could be quite disruptive; how do you minimize that over the next six
months, please?

Claudio Bergamo dos Santos:

Well, the Pharma business unit, I think, we definitely, strategically speaking, I think we
have a very distinctive position in the market. And if you compare Consumer despite it
is still strong, but I think relatively to Personal Care, it is stronger.

We are the number one in OTC, the number one in OTX, the number two in Rx, the
number one in similars, number three in generics and now the number one domestic in
dermocosmetics. So, clearly our position is very distinctive. And also the complexity for
change is much slower. I mean, we are talking about 50,000 to 60,000 points of sale in
the drugstore chain, vis-à-vis 650,000 in the Personal Care, and Personal Care sales
both in the grocery channels as well in the drugstore channels.

So, the level of complexity, the number of points of sales and the dependence on the
integration of the sales force in Personal Care is larger than it is for Pharma. That is
why Pharma is kind of a little step ahead of Consumer.

On the Consumer itself, I think the biggest issue really we faced and we are working on
are the sales teams. I mean, we are coming from, out of the 14 acquisitions we made


                                             13
                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



in the last two years, 12 were in Consumer. So we, at some point in time last year, we
had like something around 14 to 16 different sales forces, and we had to shrink them
down to lower in order to take advantage in terms of commercial synergies..

In the process, given the large amount of our sales force to be shrank down, I think we
got some issues that we are facing now and we believe that once we get them
adjusted, which we are working on this year, and given that the brands are very strong,
we should see the rematch of sell-ins and sell-outs coming back.

Lore Serra:

OK. And then and just lastly, I guess for Martim, I think you mentioned in the answer to
a previous question that you are expecting to be free cash flow breakeven this year
and I am just wondering, if you are going to generate R$900 million of EBITDA, where
is all that going? Is the CAPEX much higher this year? I would have guessed with your
focus on the working capital you would be slightly free cash flow positive this year.

Martim Prado Mattos:

CAPEX-wise, that is one thing that we have to bear in mind. Second thing is dividends,
which we pay now during the 3Q, R$76 million. Besides that, still because of our
leverage, we still have a lot of interest rates, like interest payments, financial expenses
to be paid.

So, based on all of that, we still do not think that we are going to have major
improvements or a major decline in our net debt by the end of the year. You cannot
also disregard the fact that a lot of this restructuring that we are doing and also
acquisitions, they do have an impact in terms of our cash, because all these expenses
we are still having and they represent also a significant charge on our cash flow.

Lore Serra:

OK. Well, what is the CAPEX for this year, please?

Martim Prado Mattos:

Between R$200 million and R$250 million.

Lore Serra:

OK. Thank you very much.

Martim Prado Mattos:

It includes Project Magnum and also the beginning of Project Matrix, and maintenance
CAPEX.

Lore Serra:

Great. Thanks very much.



                                            14
                                                              Conference Call Transcript
                                                                          2Q11 Results
                                                               Hypermarcas (HYPE3 BZ)
                                                                      August 15th, 2011



Irma Sgarz, Goldman Sachs:

Yes, hi. Good afternoon, Martim and Claudio. Just one more follow-up question; I know
you have talked about synergies, but I would like to understand how you are seeing
margins, sustainable EBITDA margins going forward. I know there is no longer any
exclusive guidance, but as you look through above and beyond that integration process
and assuming it all goes along plan, are we still looking at EBITDA margin of in the
24% to 25% room? And where do you see also marketing expenses and the other
expense lines going post the integration process? Thank you very much.

Martim Prado Mattos:

Hi. One of the objectives since the beginning of the year of changing the guidance for a
nominal amount instead of margin and also growth was exactly to give us some room
on these expenses and the tradeoffs between growth and profitability.

Despite the trends that we saw recently or that we are seeing in the 1H of the year
declining 2% of net sales, again, we had an improvement of EBITDA of close to 9%,
also organically. We have been saying recently that we have been trying to focus more
on profitability. That is what we are trying to do here, but the objective is to go after the
EBITDA, the R$900 million of EBITDA, with cash flow generation.

Irma Sgarz:

Sure. I understand for this year, you looking into the near term, you were looking for
that flexibility. I was just curious how you would see that beyond the integration
process, really as we look out to 2012-2013. Thank you.

Martim Prado Mattos:

The synergies certainly help. The synergies certainly create us more room to, again,
exercise the trade-off between profitability and growth. So, the more we act there on
the synergies it is easier for decide for us to decide if we want to increase our
marketing budget or if we want to deliver more profitability.

But, the background of all the initiatives we have been doing including all the synergies
and including projects such as Project Matrix, for instance, is certainly to go after higher
profitability in upcoming years.

Irma Sgarz:

OK, understood. Thanks.

Daniela Bretthauer, Raymond James:

Hi, Martim and Claudio. Thank you for taking the question. I am still a bit confused. I
mean, there is a lot of noise now that spreads have gone up and the market has
become quite volatile that you guys would bridge your covenants, your debt.

I was just reading the terms of the covenants again, and basically you only breach if
you remain above the 3.75 for two consecutive semesters so that is like a whole year


                                             15
                                                            Conference Call Transcript
                                                                        2Q11 Results
                                                             Hypermarcas (HYPE3 BZ)
                                                                    August 15th, 2011



above that to actually reach the covenants, so can you just verify if this is the case and
if you plan any other debt issue or any other credit line? So, if you could comment on
your financing strategy that would be helpful. Thank you.

Martim Prado Mattos:

Daniela, I think your question is very important because that is exactly the
understanding and I think it is also our message that despite all the rumors and all of
the noise there, a lot of it is completely untrue.

So, this is a very good example of that. The financial position of the Company is solid.
We have a lot of cash. We have R$2.8 billion in cash position, again that is enough to
pay all of our upcoming debt until the beginning of 2014. If we consider cash flow
generation, we are even in a better position.

The backlog also is quite long term and we will keep on managing that, managing the
debt profile that we currently have to give the Company even a better position going
forward to allow us to go out at our objective.

So, I think there are in certain moments opportunities to work on that, work on the
maturity of our gross debt, and as any other any other company, we will certainly
manage that going forward.

Daniela Bretthauer:

Do you have any other credit line, let us say, available with banks that you are not
using yet? So, can you comment a little bit on that as well? Thanks. Like stand-by lines.

Martim Prado Mattos:

Nothing committed, no stand-by lines. However, recently in the last quarters we issued
those debentures, public debentures in June-July last year, also that debenture with
the BNDES plus the bonds at the beginning of this year. So, even disregarding new
issuances of gross debt, public issuances of gross debt, our exposure to local banks is
quite low, especially considering our cash position. So, the fact we do not have
anything, any stand-by credit line, we feel nowadays that we could certainly, if needed
which is not the case, use more bank debt.

Daniela Bretthauer:

OK. Thank you very much.

Operator:

Thank you. And that concludes the question-and-answer session. Now, I would like to
hand the floor back over to Mr. Claudio Bergamo for his closing remarks.




                                           16
                                                                                         Conference Call Transcript
                                                                                                     2Q11 Results
                                                                                          Hypermarcas (HYPE3 BZ)
                                                                                                 August 15th, 2011



Claudio Bergamo dos Santos:

Again, thank you very much all for participating, and if you have any further questions,
please feel free to contact our Investor Relations department. Thank you very much all.
Bye-bye.

Operator:

The conference is now concluded. Thank you for attending. You may now disconnect
your lines.




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