Companhia Brasileira de Distribuicao SA (CBD) 2005 Q3 法說會逐字稿

Good morning, and thank you for joining us. We welcome you to the conference call of Companhia Brasileira de Distribuicao, CBD.

Today we have Mr. Abilio Diniz – Chairman of the Board, Mr. Luiz Amarante – [inaudible] and Control Director, Mr. Fernando Tracanella – IR Director, and Mr. Aymar Giglio – Treasury Director.

A simultaneous webcast of this presentation is available and can be accessed at the site www.CBD-RI.com.BR/eng. You will be able to control the slide selection, and a replay facility will be available soon after the presentation.

Please be informed that the earnings release is also available at the Company’s IR site – www.CBD-RI.com.BR/eng. This event is being recorded, and all participants will only be able to listen to the conference during the Company’s presentation. Afterwards, we will proceed to a q-and-a session, at which point further instructions will be provided. Should any participant need assistance during this conference, please press *0 for an operator.

Before proceeding, let me mention that forward-looking statements made during this conference call related to CBD’s business outlook, projection and operating and financial goals reflect the Company’s beliefs and assumptions, and information currently available to the Company.

Forward-looking statements are not performance guarantees. They involve risks, uncertainties and assumptions, because they pertain to future events, and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CBD, and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I’ll turn the conference over to Mr. Fernando Tracanella, who will present CBD’s quarterly performance. Mr. Fernando Tracanella, you may begin your conference.

Good morning, everyone. Thank you for joining us for this conference call. Initially, I would like to comment on our Company’s financial and operating results for the 3rd quarter of this year – followed by remarks about our strategy and outlook. Then we will open the q-and-a session.

Moving to Slide 2, for those of you who are following our webcast with [inaudible] to our website, we have the main highlights of the Company consolidated sales. CBD’s gross revenues reached 3.9 billion – with net sales of 3.2 billion. 2.8 percent and 3.8 percent growth, respectively, over the same period of 2004.

Same-store sales in the quarter grew 0.9 percent, [inaudible] terms, and dropped by 5 percent in real terms, when adjusted by IPC. We have drawn attention to the fact that, if deflated by IPCA, household food inflation – IPC [inaudible] – which, in our view, better reflects CBD’s reality. Same-store sales in the quarter actually grew by 1.2 percent, in real terms.

Same-store sales performance was somewhat affected by deflation in some food products’ categories. Especially commodities and perishables. Strong comparison base in 2004, when sales growth was 9 percent positive in the 3rd quarter.

A lower confidence level of consumers, and lower disposal income for food products – consumption – as a result of the previous financing installment payments and loans on durable goods purchased.

These factors also reflected in the breakdown between non-food and food. While non-food products grew by 10.6 percent in the period, food products fell by 1.7 percent.

Gross [inaudible] year-to-date totaled 11.6 billion BRLs. Net sales 9.6 billion. A 6.2 percent and 7.5 percent growth, respectively.

A [inaudible] same-store sales grew by 4.1 percent in [inaudible] terms, and dropped 2.8 percent in real terms, deflated by IPCA. When deflated by IPCA, [as a means of some] food inflation, same-store sales grew by 2.2 percent.

The highlight of the quarter was Sendas Banner. Same-store sales grew double-digit growth, while significantly higher than the Company’s average – as a direct result from investments in store remodelings, marketing efforts and also a very competitive pricing policy in the State of [inaudible].

In Slide 3, we will comment on the operating performance of CBD.

CBD reported a gross income of 970 million – a 5.7 percent growth, compared to the same period of the previous year. The [inaudible] into a 30.4 percent gross margin, or 600 basis points above the margin reported in the 3rd quarter 2004.

It’s worth pointing out that this margin improvement occurred together with some signs of market share gains for CBD, according to data recently released by our competitors. Facing the restraint in consumer spending, the Company has opted for keeping profitability – [matching] sales prices, accordingly.

Within this context, we also have the impact of the ongoing project to review our reorganizing internal processes in commercial and capital management areas. This project has already generated benefits related to improve negotiations with suppliers, and more effective management of product assortment, pricing policy and promotion.

The combination of increasing profitability and competitiveness reflected by our gross margin and market share gain is a result among other factors of measures implemented as part of this project that started in the beginning of this year.

Year-to-date gross income reached 2.9 billion. A 9.3 percent growth compared to the first 9 months of 2004. Gross margin was 29.9 percent – slightly higher than the 29.4 percent margin reported in the same period of 2004.

SG&A expenses reached 684 million – a 5.2 percent growth over the same period of 2004. Mainly reflecting inflation in some items and wage readjustments for employees in September. Even with the impact of the formation facts, G&A expenses remained nearly flat, compared to the same period of last year.

A special consideration should be given to the plants in the amount of 1.029 billion BRLs that CBD was given from [Grupo De Nice] on July 8th 2005. This advance is relative to the sale of 60 real estate properties to [Grupo De Nice], which will be leased to the Company.

The leasing contract was signed on October 3rd, and lease expenses regarding these stores will impact the total operating expense of CBD, starting in the 4th quarter of this year.

As a commitment of [inaudible] for the advance we received from [Grupo De Nice], CBD [inaudible] 25.5 million on the far assets line. And this amount will be amortized throughout the term of the leasing contract of the respective stores.

As a consequence of improved gross margins, CBD reported an EBITDA margin of 9.1 percent in the quarter. Higher than the 80.9 reported in the same period of 2004. EBITDA totaled 293 million – a 6.8 percent growth, compared to the previous year. And in the 9-month period, EBITDA reached 857 million BRLs. A 15 percent growth, compared to the same period of 2004, and a margin improvement from 8.3 to 8.9 percent.

As for the financial results, we have [inaudible] the financial income group by 57 percent – reflecting the higher cash position of the Company -- generating higher income from cash investments.

Reminding that we had 1 billion cash in full in the beginning of July, as a result of the real estate transaction previously mentioned. This increase in the income from cash investments was partially offset by the increase in non-interest-bearing credit card installment payments, and also by the transfer of the financing activities to [Financera Itauci, CBD Fiki] -- which results now accounted as equity income line.

In the other hand, the increase of 26 percent in financial expenses is explained by higher interest rates in the period.

As a result of these changes, net financial expenses reached 60 million BRLs in the quarter, compared to 67 million in the same period of 2004.

Net income in the 3rd quarter reached 70 million BRLs. Lower than the 171 million reported in the same period of 2004. This reduction is mainly due to known operating results in 2004 of 87 million BRLs, arising from the joint venture with Itaul to create the [Financiera Itaul CBD Fiki].

Year-to-date net income totals 192 million – lower than the 257 million reported in the previous year – due to the same non-operating result reported in 2004.

Next slide, where we quickly highlight demand investments in the quarter – reached 268 million, compared to 110 million in the same period of 2004. The main highlights were opening of [One Pound of Sugar] supermarket, and one [Complabe] supermarket. Construction of 4 Hypermarkets, and 4 [Pound of Sugar] Supermarkets should be open in the 4th quarter. Also, construction of gas stations and drug stores. Those investments represented 34 percent of the total.

Second, acquisition of strategic land. That represented, in the last quarter – in the 3rd quarter of this year – roughly 17 percent of the total for future store openings, especially in the hypermarket model.

Additionally, investments included remodeling of stores – accounting for 39 percent of the total. And investments in technology and logistics, with a 10 percent [inaudible].

Finally, we emphasize that even in a very difficult consumption environment, we managed to remain competitive in the market – with better sales performance, compared to our peers. And at the same time, improved the profitability compared to the previous year.

This scenario reflects the beginning of a period in which we will be focused on increasing our efficiency – aiming as competitiveness gains, higher assets all over and a higher return on [capital wide].

Thank you very much. We’ll now open the q-and-a session.

[Operator instructions].

Juliana Rosenbaum, Deutschebank. Please go ahead.

I just had a follow-up question from the previous call. I’d like a little bit of update on the operations in financing with Itaul. In how many stores is financing already operational? I’ve watched the preliminary results that you received in that operation. Even if in the short-term, we do see very negative figures in terms of the equity account, because of pre-operational expenses, I’d like to know on the existing operations, what’s the result at this point.

Juliana, I should give you some numbers about our operations with Itaul. To date, we have the whole infrastructure of [Fiki] in 231 stores. We have, in terms of the number of clients, more than 3 million – 3.7 million. That includes private-label cards, co-branded cards, credit to financing and extended warranties.

Just in terms of private-label cards, we have now 2.7 million card-holders. That is a very significant number. We’ll see that in the very short-term period, in terms of operations.

Can you repeat the second part of your question?

Just a matter of the results on those stores that you’re already seeing. You’re of course, and as a whole, you’re not break-even, yet. But in these stores where you’re already seeing investments, what kind of results do you get out of those stores?

A number that I can give you is that participation in the [growth] of the Company today is around 10 percent – which is very good, and ahead of our initial expectations.

Can I clarify that as 10 percent of your…? I just don’t have the numbers. Ten percent of what?

The products offered by [Fiki] today represent around 10 percent of our operations.

Tina Butalso, UBS.

Just a follow-up, also, on the previous call. Did you actually feel more competition in [inaudible] particular, so that you saw that you had to reposition this banner? Or was that a plan, all along?

It seems that the average ticket at Sendas is lower than at Compribe. So do you want…? I don’t know if these stores will ever compete with each other, maybe, in a few regions.

But do you plan to reposition Sendas below Compribe, and did you really feel an increase in competition in Rio de Janeiro from the year before? Thanks.

The competition in Rio de Janeiro is very [tough]. I don’t know if I can have the expectation for more competition next year than we have now. I think the competition that we already have is strong enough.

The competition in Rio de Janeiro is [inaudible] from all people – [inaudible] and [Munjar] and [this guy]. In [Sarjeri], a very difficult mark. But the site is are increasing our sales in our same-store sales. And we are more aggressive, too.

You are facing the competition. I don’t know if next year we will be better or worse – depending on the competition. But I think we will be better for us, because we are doing our jobs better.

Just on a [balancing] question – why did you decide to capitalize this expense? The 25.5 million that I understand should have been the rents paid on this quarter – if the stores would have been transferred in this quarter. I understand they are only being transferred in the 1st quarter. Why did you decide to capitalize that, instead of just on an accrual accounting, just adjusted it for passing through the P&L in this quarter?

Basically, because the stores were not rented in the 3rd quarter. So as long as we’re going to start seeing the additional rental expenses from the 4th quarter on, we decided to defer this initial expense of 25 million. And I’m going to tell you during the period that we’re going to have the benefit. The period related to the renting contract.

And on your expansion plan, are you still targeting the Northeast as your main region? So are you going to focus on the Southeast and the Northeast, going forward?

[inaudible]. We are doing very well in the Northeast. We are happy with the results of the new stores. And we have plans to open one more store in the [inaudible] the market is bigger.

We will possibly open one more store in our [inaudible] looking for a place. And we have one store opening soon next year in [Resipia]. The first [inaudible]. And we are expected to open the second next year, too, in [Resipia]. We are satisfied with the results in the Northeast, and you will follow [inaudible] in the Northeast, too.

I’m sorry. I forgot – one last question. On the financing part. When you do promotions like you did in this quarter – no-interest promotions – is it always going to hit CBD’s financial results? Or can you… if Itaul can be convinced, or are they willing to participate on these promotions, too?

The impact will be when they have [inaudible] sales with all the interest, the impact will be continually reflected in determining financial income. This will not change in the future.

Benjamin [Bremmond, Luce] Research.

Has your capex program changed for next year? What are your targets for opening new stores or remodeling existing stores?

The capex plans of the Company for 2006, with all details, will be defined and approved in the next board of directors meeting – to take place at the end of this month. So, in front of me at this moment, I don’t have the official information beside the numbers to provide you.

We promise that as soon as we have all the information, as usual, we’re going to release an announcement for everyone.

With regards to the store formats, which one is next to be remodeled? Do you have any plans [inaudible]?

[inaudible] always remodeling. All the banners of the stores that need remodeling, we will do. There is not a specific one brand that needs more remodeling.

This is a plan that’s store-by-store. We do not have details about remodeling for the next year. We have a plan that we already have sent to the [inaudible]. In the next 4 years, we should happen for the hypermarkets and 100-120 supermarkets. We keep this initial plan. Then we need to detail more for next year, for 2006.

At this time, there appear to be no further questions. I would like to turn the floor back over to Mr. Fernando Tracanella, for any closing remarks.

Thank you very much for your attendance in our conference call, for your interest in CBD, and have a nice day.

Thank you.