Investor Presentaiton

the lowest stockout indices in the entire industry9; ii) Excellence in customer services. Here, Drogasil moved away from the traditional approach, as described above, of the standard (non differentiated) retail establishment. Based on the concept that good service in the store would not only lever sporadic sales, but would also generate greater customer fidelity, Drogasil has invested very subtly in personnel training, seeking to create a culture of excellence in service. For example, store attendants are concerned in helping customers in all their needs, comple- menting the sale of medications by offering other products, such as personal hygiene items, diapers, etc. In addition to that, Drogasil comply strictly with all the regulatory requirements, which include the prohibition to substitute medications of the prescriptions and the requirement for a pharmacist to always be present throughout opening hours, circumstances not always found in the competition's establishments. The fight against illegitimacy in this sector gained strength in early 2008 when the State of São Paulo introduced tax substitution into the medication chain. With this innovation, the ICMS that used to be paid at the time of sale of the medica- tion to the customer, was incorporated by the retailer into the purchase price of the merchandise. This policy had two major impacts on the pharmaceutical market: i) it drastically reduced the possibility of tax evasion, and ii) increased the working capital needs for the retail players since the upfront payment of the tax obligations increased the monetary value of inventories. Both impacts favored the competitive edge of Drogasil, which had never based its business model on any tax prerogative. To be sure, the company had cooperated as a volunteer on steering public projects for the introduction of the electronic invoice. In addition to that, since it went public in July 2007, Drogasil became the sector's most highly capitalized company. Again, it was no coincidence that, over the last two years, Drogasil recorded the best operating performance of its history, increasing its market share in all segments. The growth in same stores sales that, throughout 2007, had already performed well (approximately 15%), grew substantially over the last twelve months, attaining 24% in the first quarter of 2009, placing the company in a lead position in the retail ranking (see table). Drogasil's operating results were also good, with its consolidated EBITDA increasing by 180% since 2005. This was a particularly admirable performance if we consider the growth in its store base over this period. This is contrary to the standard retail tenet that the EBITDA margin would undermine during times of aggressive organic expansion. This is because, at such times, the pre-operational costs of the new units are high and are still on a growth curve, which tends to lead to below potential capacity sales. Over the last three years, Drogasil´s store base has grown by 65%, and the company is now present in three new states: Goiás, Brasília, and Espírito Santo. Notwithstanding, its market share in all areas where it is present is still modest (no more than 11%). As we have seen over the last ten years, the company has built the fundamentals of a healthy growth, which will probably accelerate, given the opportunity of the consolidation of the retail pharmaceutical sector, based on the expectation of the decline of the informality in this segment. A healthy business environment is an essential pre- requisite for a nation's sustainable development. As Brazil reveals itself as an emerging economic force in the global scenario, as an attractive destination for foreign investors, the cohabitation with archaic microeconomic structures becomes an anachronism. Tax legality and formal employment upheld by a straightforward and fair tax structure are passports to productive investments and creative competitiveness. A virtuous cycle should emerge, creating a fertile terrain for business opportunities. At this level, investors monitoring the day-to-day activities of potential target companies can already identify those that would benefit from such a favor- able environment. 25% 20% 15% 10% 5% 0% -5% Chart III Same Store Sales Growth - QoQ Drogasil -10% Lojas Americanas Pão de Açúcar -15% 9 A major portion of pharmacy sales is under doctors' prescriptions. It is a longstanding consumer custom to make these purchases in a single establishment that stocks all items in the respective prescription. Thus, the stockout has a multiplying negative impact, since the one missing item undermines the potential sale of the other prescribed products. Source: Cos Renner Marisa 000 1T07 2T07 3T07 4T07 1T08 2T08 3T08 4T08 1T09

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