Companhia Brasileira de Distribuicao SA (CBD) 2007 Q4 法說會逐字稿

Good morning, and thank you for waiting. Welcome to the Grupo Pao de Acucar teleconference to discuss the results of the company in the fourth Q of 2007. This event is also being simultaneously presented via the web and webcast, and that may be accessed at the address www.gpari.com.br, where you have the presentation. The selection of the slides to be controlled by you.

The replay of the event will be available right after its closure via press release, and the results will also be available on the www.gpari.com.br website. This event is being recorded, and all of the participants will only listen to the teleconference during the presentation of the company. Right after that, we'll begin the Q&A session, and then we'll provide further instructions.

(OPERATOR INSTRUCTIONS). Possible statements that may be made during this teleconference regarding the prospects of the Pao de Acucar Group business, as well as projections and operation and financial content are based on the recent assumptions of the company, as well as information currently available. Future remarks are not assurance of performance, they entail risks, uncertainties and assumptions because they relate to future events and, therefore, they depend on circumstances that may or may not occur. Investors must understand that the general economic conditions, industry conditions, and other operational factors may affect the future performance of Pao de Acucar Group, and may lead to results that may differ materially from those expressed in such future remarks.

We now would like to give the floor to Mrs. Daniela Sabbag, Director of Investor Relations of Pao de Acucar, that will open the presentation of the performance of the company in the year period. Please Mrs. Daniela, you may take the floor.

Good morning, everyone, and thank you for participating in our teleconference. We have here today with us at the (inaudible) present the Board of Directors, Claudio Galeazzi, the CEO; and also Hugo Bethlem, Jose Roberto Tombasco, Eneas Pestana, Caio Mattar and [Abilio Diniz], the president of FIC.

Before beginning, I would like to warn you that quite soon we will be (inaudible) the date for the (inaudible) day that will be held in April. As we said before, (inaudible) the date, you will receive the invitation with the complete agenda.

Now I'll give the floor to Mr. Eneas Pestana for his remarks on performance.

Good morning, everyone. I will -- Here are the results of the year with the main highlights to try and cooperate with the right interpretation of these figures in print. So you have a presentation there with you. We'll start talking on page three. That deals with the sales performance. We'll always be looking into the performance of the fourth Q and also the performance of the year.

On page three, we can see then that in the fourth quarter, we had a growth in gross sales of 10.6% if we compare with the fourth Q of '06. And in the year, we reached 7.2% of our sales growth in terms of our same-store sales. Using this concept, the projection was 2.8% for the year, pulled by the category of food products, with a 3.1%, and we highlight the perishable category.

In the non-food category, we had a growth of in the same-store of 1.8%, impacted specially by the audio and video categories we had been seeing throughout the year. We really had the impact of these categories, non-food categories. The positive highlight in the format goes to Pao de Acucar. For the fifth consecutive quarter, we have presented a growth higher than the other formats that is quite interesting.

Talking about gross profits, it's worth pointing out that we have maintained our policy of low prices, pursuing competitiveness and profitability. In late '06, we adopted the strategy; we have been maintaining that, and we see a growth in sales with a growth of cash margin in the fourth Q.

On page four, you can see that in percentage terms, in terms of net sales, we had a margin of 27.7% in the fourth Q last year, the same figure, the same exactly margin; however, with a growth in cash margin of R$106 million. In the year, the scenario is quite similar. We had 28% of gross margin versus 28.2% last year, with a growth of cash margin of R$260 million. Of course, here we have the Assai included, and in the year without the consolidation of Assai in November and December, our gross margin would be R$28.3 million. That is in line with the '06 year; with 2006.

Talking a little bit about FIC, there has been a focus of attention for you investors. Before talking about FIC, let's talk about expenses.

In terms of expenses, we have a good control of our expenses. It has been highlighted in the fourth Q. In the fourth Q, we had total expenses of R$843 million, versus R$840 million last year, virtually the same figure in nominal terms. But it's worth pointing out that in the administrative expenses, we had a regression of 19%, and in sales expenses, including most of the variable expenses, including advertising, we had a growth of 5% in the quarter versus a growth of 10% growth in sales.

The scenario is quite similar in the year. In terms of percentage, we had 20.5% versus 21.2% last year. As far as administrative expenses, we had a reduction of 5.5% in nominal terms, and in sales expenses, we had a growth of 5%. That is also below this also below the 7.4% of growth in sales. So as for expenses, it's clear that we have been maintaining a strict control on expenses, and with that, we have been obtaining results, for beating very positive results.

In the fourth Q, as I said, we had R$106 million additional as compared to last year, and when we look to EBITDA, we had R$96 million, additional R$96 million. So all of the additional growth income is reflected on the EBITDA, because the expenses are under control and this has always been a focus of attention, that is if we should have control of expenses so that the additionals of margin and sales could be reflected on the EBITDA. And this is clearly demonstrated in the fourth Q as well as in the year when we reached an EBITDA margin of 6.9% versus 6.4% from last year, reaching R$1,026 million.

This represents a growth of 15.7% in the year, and a growth in the fourth Q that was 42.1%. This demonstrates that in spite of the seasonality, even in the scenario where there's seasonality, there is this trend of gaining EBITDA margin. This is something that is quite clear, especially based on the expenses control.

Now talking about FIC, that's totally in line with --. We have been demonstrating to you, talking to you in the last quarter. We have reached the breakeven by the end of '07. Looking into the quarter in 2006, we had a loss in the quarter of R$11 million, and in the fourth Q of '07, we had a loss of R$2 million. That is, we had a recovery of 80%. And the good news is that in December we had profits. Then also in the beginning of the year, of course, we are going to give you the figures when we close the first Q in '08, but we had the good beginning in this year, and rectifying this trend, we may say that we have now inaugurated a new phase in FIC that is a profit phase.

As for figures '06, it's worth pointing out the reported volume. We closed the year with 5.7 million customers. This accounted for an increase of 12.6% in our reported volume. The participation of FIC in the sales of the year grew, is 12.5%; and that's it. And we really hope to have a profitable year with the operations, the financial products with '06.

Another remark that we cannot fail to do about the operations in Rio de Janeiro, and more specifically about Sendas. We have been announcing all of the work that has been done since the hiring of the Galeazzi e Associados that occurred in September, and effectively began working in October last year, and we are able to see a very nice recovery in Sendas' results, especially when we talk about EBITDA.

The aggressive and competitive policy has been maintained in Rio, with a store of [verticalization] based on regions, regions defined by the target audience, based on the profile of each of the customers in the region.

Another highlight we can make that is the expense control. That is a very strict control. We set up a working group that really analyzes each penny that leaves our cash, and they may question the managers in terms of expenses to avoid any expense that would not add value to our business, or add value to the customer.

With that, the expenses had a reduction in nominal terms. The total expense was R$630 million. That accounts for 22% of the net sales as opposed R$631 million that we had last year, with 22.7%. And fourth Q, just to make a trend analysis here, the expenses drop as compared to the last period in the previous year, it dropped 10.5% reaching 19.6% of the net sales as opposed to 21.6% last year.

So it's clear that the work that we have begun in the fourth Q regarding Sendas really leveraged good results and the format [standard]. Then there is the special focus on the effective control of expenses, and the EBITDA margin as a consequence averaged in the quarter 6.6% versus 5.8% last year, which shows a growth of 12.7% in the quarter, or a growth of 11.7% in the year.

Finally, talking about results, the net income had an expressive growth, especially in the fourth Q, and the growth was 306%; it was R$113 million versus '06, and in the year taking into account the results published last year of R$85 million, we had 146% of growth, reaching a final income of R$211 million.

Of course, here in Sendas as we have announced in the third Q, we had an additional recovery of the tax refund in that period. That was accounted for because of the review of future projections for Sendas' results, and with the improvement of the operational results, this allowed us to have an additional credit of a tax refund that is controlled and is accounted for in the accounting terms, and the future results are able absorb this tax refunding.

On page ten, in order to help you to interpret our income, we have a reconciliation between the accountable net income and the cash net income. The main effect that we highlighted here, you go from R$211 million. I have here the equity equivalent. The equity income presented a loss; there was no disbursement of the cash. We have allowances for contingencies; we have R$50 million for that, R$53 million for that.

And finally, the goodwill amortization that has buyers orientating to tax planning, that represents important credits from the tax refunding, but in terms of income assessment, it doesn't represent any cash expenditure. So we are basing ourselves on the R$211 million. So these values aren't net values before taxes so that we can really add these values to the net income of R$211 million. So the income is R$394 million, the cash earnings that you can see here, so this is the figure that you are going to see in our financial statement.

Talking about the investment that we made in 2007, we reached the value of R$980 million in investments. However, here we have not included the investments related to acquisitions. Here we are only including the investment in new stores, in purchasing new pieces of land, in refurbishing stores and in infrastructure. especially in logistics and [DI].

If we take into account the acquisitions we would have to add R$46 million that were spent in acquiring the (inaudible) network, and R$226 million related to the association with the Assai network. Putting these two values together, we have R$273 million. That added to the R$980 million will total a final value, taking into account (inaudible) as well as the acquisitions, of R$1,253 million.

To close my presentation, I would like to talk a little bit about the debt. I know that it is very much important in terms of assessment and projection. Our debt on December 31, '07, reached R$2.3 billion, or R$2,342 million, from which R$643 million that account for 27.5% of the total; that in the short term, and R$1,698 million in the long term that accounts for 72.5% of our total debt.

The average term for our long term debt is three years. The average cost of our debt today is 99.3% of CDI, our average rate of financial investment is 101% of the CDI. So we have a very good level in terms of investment rate as opposed to the average term for the debt. So these were the remarks that I had to make, I'll give the floor now to Claudio Galeazzi, our CEO.

Good morning. First of all I'd like to speak a little bit of some of the points that form the policy that is guiding the implementation, the new implementation in which we are involved with CBD. I'd like to compare our [foreign] implementation for Rio De Janeiro and the [adaptation] that it shows guiding what we wish to implement in CBD.

In Rio de Janeiro we are taking simplicity, mobility, empowerment, integration and focus; focus on the activities, but specially focus on the customers. Also, that means speculate.

We have to say that back to basics in college is not worth more than three credits to the students of business administration, but implementation in Rio De Janeiro, we have seeking this focus on the client and on the customer, and on the customer's demands, so much so that we prepared a pre-study that we announced in June when we actually started our operations, with Sendas distributor. And our concerns with the customer led the analysis to the creation of eight micro regions and a definition of growth and strategies to Rio de Janeiro.

I am mentioning here Rio de Janeiro because what was implemented there, basically, and I repeat that, shall guide the implementations throughout this structure and our focus to CBD. We have been trying to integrate the whole commercial in Sendas distributor. As you can see in our structure that we have already implemented in CBD, we have been trying to take the same principle, the integration and mobility.

We have also changed. We are trying to focus now on communication, on the (inaudible), on assortment and activities that lead to sales as a consequence and not as the main goal. By implementing the unifications of the areas we are able to focus on the customer, and delivering to the customer what he or she wants to find in our stores. So we formed a committee that tries to analyze into a self every cash expenditure; all expenses. It has been implemented here, and we are trying to go on. We are investing on this assessment. In Rio de Janeiro, we are form eight working groups that focus on the strategic views. These working groups are focused on strategy, productivity, shrinkage, expenses, non-food items, again shrinkage, operational standards and assortment.

We conducted an assortment review trying to capture what is expected from each one of the questions. I would like to mention also that this assortment review and analysis of our stock is being seen at this moment in that -- in analyzing that; here in Sao Paulo as well. We are also trying to seek by, through this integration of the commercial areas, we're implementing mobility and focus on results.

The whole model does not ignore, of course, sales evolution, but we are trying at this first moment to maximize results with resources that we already have internally. So I'll say that to begin with this would be our main comments for this occasion. So there are several studies being conducted, ongoing service, that do not allow us to project figures at this time, but they shall be presented in April, in (inaudible) with greater depth and greater consistency, and also figures that we, as a team, we believe that we will need in 2008.

Basically, this would be the comments that I would have to take at this moment. And now I pass the floor to our chairman of the Board, Dr. Abilio Diniz.

Good morning to you all. I want to talk to you according to my position of chairman of the Board. And what I am telling you represents not only my opinion, but the opinion of all of the members of the Board. And last week we had our first meeting together with all of the committees that have coded and analyzed in depth all of the changes that are being conducted at this time.

I would like to say that what's been happening in the last months of, since Claudio Galeazzi has taken office, is exactly what I would have done. What matters is the goal to be met, and the coherence, the consistency in meeting our goals. But what's being done -- if anything that's been done goes -- there's anything that's been done that goes against what I would have done, what I do here, no --.

What things do I support? Most of the things that are being done, yes, I support, most of the things that are being done, but I would rather speak here in adjustments rather than in restructuring. They follow a line of thought that tries to seek efficiency, mobility, competitive edge, and consequently in the end, profitability.

Here I see a work aligned with my thoughts, aligned with what I believe. I have been teaching in the last few years. I have been preaching that we do not cut people; we cut chairs, positions, functions. If you cut only people, we need to go back and redo all the work, and that's what we're doing now we are seeking efficiency. We are proposing adjustments. We have been cutting functions and we have been reassessing our processes, and consequently, we have more people than we need, and that's what happened last week when we have to fire some people.

And according to our work that we are conducting here, I don't think it will be necessary to continue as discussed. And also, in our Executive Board, given the guidelines, given our lines of conduct, the leadership, the Executive Board, those are the ones who are defining the staff, this role in detail. This is a reason of trust to the Board, a trust of the Board, trust -- we trust this leadership. The investors may trust this Board.

These people is trustworthy and they are --. There is no reason for great enthusiasm or excessive optimism, but it's a moment when we can trust a company, trust even further, and I think that the results are now starting to show. I think that everything we had of us looks like very promising so that we are able to fulfill our mission, focus on the customer, deliver the best services, the best prices, to have the best image. In summary, to render the best services, offer the best services to our customers.

So we are available for questions and answers now.

So now we start by the session of Q&A. (OPERATOR INSTRUCTIONS). We've got (inaudible) who'd like to ask a question.

Good morning. My question has to do with the sales in the last month. I would like to understand more or less how is the performance of sales and volume. In general, we had better results in February. We'll have results that were even better in the last month, but we know also that inflation in food items is stronger now, not necessarily aligned with the evolution of price. So I'd like to understand how the evolution of volume of prices in this last month in the sales, in terms of sales.

Good morning. This is Hugo Bethlem. In fact, the month of January, the months of January and February show a positive trend. March, we have the seasonal effect of Easter. That shall be positive. There is an important recovery, both in food and non-food items, in non-food items specifically in the area of entertainment. And this has been driven both by extra hypermarket stores, and also with the important [diversification] of Extra.com and magazine Extra Eletro magazine.

So we're in a strong surge for restructuring our assortment, and start aligning each one of our communications and the positioning of each one of the banners falling (inaudible) guidelines, realignment that was conducted in Sendas distributors being applied to all the Brazilian regions, and we shall enjoy the fruits of this work.

Can you give us a brief idea of what the evolution of traffic volume and -- traffic and volume compared to January '07; volume and price?

Well, really you made an interesting point. Whenever we speaking about food product inflation, we forget that in time when we have to transfer these prices to the customer, the inflation is not accounted for. So we are suffering seasonal inflation to some products like soya oil, rice, coffee; meat is already going down in terms of prices; greens, (inaudible). We have some inflation in food products, so volumes are growing, but more than the prices of products. And this leads to a productivity that must grow in order to follow the sales. So I am not able to give you a specific number, but yes, volumes are growing and recovery of sales both in terms of volume and the number of customers is finalizing a positive trend to us.

Okay, I have a second question that has to do with the performance of each one of the formats. In fact, we saw here that you had net profits for Sendas and Assai that are positive. For me, there's very clearly a positive trend with Sendas, and also the contribution of Assai at this point in terms of operational profits; it's not as positive. But when we see the company, excluding Sendas and excluding the Assai effect, we see that there is a growth in the gross margin, improvement in the EBITDA margin that comes the gross margin comparing the quarters, the third quarters of '06 to '07, so you have a gross margin here that is based on improvement of the whole company. So the improvement in the fourth quarter, is it all dependent on the shrinkage effect? Or also does it depend on promotions and sales?

So yes, your evaluation is well aligned, but I will also like to correct something. We have an important other aspect that has been captured. That is our gains in expenses. So productivity and our gains in expenses with personnel and percentage of personnel has been growing less than the sales in the same-stores, independent of collective bargainings that were twice as much as our growth rate, two points above the inflation. So we are able to control all these expenses very well. That has been captured independent of the SI effect.

On the other hand, in our EBITDA margin, we have important gain in our shrinkage reshrinkage program. The shrinkage program has been implemented along the years, has generated positive results and is still following a positive trend in this year of 2008. And in addition to this shrinkage program, all of this plan of organizing the promotions, the offers, at the right value, at the right moment without throwing money away, has been a positive effect to all of the formats. So we are practicing promotions that were defined to each one of the banners. Extra in its format, Pao de Acucar in its format, each one of the formats with their specific promotions.

Let me just complement the question. Well, we don't have all the data here to conduct the accounts for each one of the formats, but we can see the combination of the line of operational expenses in the line of taxes, but I don't have the data for each part of the company.

When I see CBD, Extra and Assai, I see the margin [EBITDA ] growing by 1 percentage point, and also the gross margin; so the combination of Sendas and Assai operational expenses, plus taxes; I don't see this breakdown of expenses. So I'd like to understand in fact is this business defect of the collective bargaining, as you said, that it looks very high? Or is what we must in fact conclude here is that we will see other effects (inaudible)? This is not clear to me, the company as a whole.

As for margins, the recovery is the result of what I told you. Shrinkage and positioning (inaudible) of the format doesn't come from price only. This has been rectified by Eneas.

The price position in the world adopted in mid '06 is still maintained, but the specific positioning that finally was implemented, specially at (inaudible) standards for Pao de Acucar (inaudible) brought real benefits for the expenses.

There was a change in the taxation, yes, it occurred. It's a slight change in the line of energy supply and other public services. And we lost some credits that we have in ICMS, plus the increase in the energy feed also reflects on the figures. So we have savings in some areas that sometimes do not show. So there will be even better results in terms of expenses throughout 2008 so that we have a better reflection on the final results.

Mr. (inaudible) would like to ask a question.

It's Mrs. (inaudible) actually. Good morning, everyone. I have a doubt regarding the strategy of the company, because when you announced to be a competitor in this campaign for 2006, it was clear from the market that you would use the margin to recover market share and competitiveness. But now the tone of the conversation is quite different.

We see that in the press releases highlighting that the mode of growth in sales was [mad], and this somehow has affected profitability. This is making us confused and [extra] confused without undermining or minimizing the efforts that you have made to reduce expenses, but what the market is expecting terms of restructuring is (inaudible) an increase in sales that is not the focus now, even with the new management team. And the (inaudible) expenses is good, but it's limited, so I would like to further understand if there was a change in focus. How do you make the math?

And looking to Sendas, that also had a restructuring that was quite positive. Obviously, we see that sales have not increased, the gross margin dropped, even with the promotions, and the gain comes from the current expenses. That has a limited gain, and I would like you to further address this matter. Thank you.

Christina, it's (inaudible) again. About your questions on positioning, I would like to make a correction here. We rectified that one of the pillars of this year, the pursuit of growth at the same-store concept, is not the growth of sales at any cost, is not the growth in sales just by having the growth. We want to have sustainable growth in all of the stores in the same-store concept.

And we recognize the difficultly in recovering the market share in the food factor, and this is in line with the positioning. So when we talked about repositioning the margins, and giving up on the percentage, we do not mean giving up on the cash margin, because we want to pursue elasticity to recover market share and sales growth.

So this target is of course, a target and we are going to address the specific categories such as cleaning products, or the rise in [table] wine. There are those that make up that basic basket of the Brazilian consumer, and they buy this in a single place in a single store for the whole month, in spite of inflation.

The other side is the issue about using the same-store concept in the non-food sector, where we have huge room for growth, a huge potential for growth, because we have only begun the structuring in '07, and effectively will end the restructuring and reap the benefits in 2008. And for Sendas, I will give the floor to Eneas.

Well, it is true that expenses, they do -- does have a limited compression rate. But let's look at from a different perspective. The aggressiveness in terms of the pricing in Rio, for instance, must be maintained, because it's a very competitive market that we have in Rio de Janeiro.

And the (inaudible) strategy, per region, per profile, has proved to be efficient, and you do what Hugo has just said, you work with a lower margin. But even so, you guarantee a higher cash margin based on elasticity. What we have done is we do these expenses to have a reflection on EBITDA, because the EBITDA on Sendas for Q1 was 2.6%. Then we were going to talk about the first quarter with you, but this figure is even higher in the first month of this year.

Talking about the EBITDA of Sendas with this level of margin, with an EBITDA of approximately 7%, is totally reasonable. We cannot really expect Sendas, in view of the competitiveness, in view of the region, in view of the format, we cannot expect to have EBIDTA much different from 7%. So in spite of having limitations in terms of cutting back on expenses, I think that we are really reaching a good level of EBITDA margin with this level of expenses, and we are also capturing the cash margin.

I would like to go back on the explanation about the separation between [GPA] standards and Assai. It's true that Assai drives the expenses down. Assai works with a gross margin, but it's approximately 15%, and it works with expenses that is approximately 10.5%. With that it has an EBITDA of approximately 4.5%.

Just to make a comparison here, if we take into account GPA with Sendas, and without Assai, and compare with last year, we do have an expense reduction that is a reasonable figure in nominal terms. And if we take into account taxes, interest, we reach R$151 million in the fourth Q against R$161 in the fourth Q last year.

So in nominal terms, not only did we not increase the expenses, but we had a drop of R$10 million actually. So you should take into account the collective bargaining, the inflation, and so on and so forth. In nominal terms you had a reduction R$10 million and I'm excluding Assai in that calculation, it seems to us then that we do have an effective control on expenses.

Can it be improved? Yes, it may be further improved. Do we have actions for that year? As Claudio said, we are implementing the group that will analyze the cash flow as we did in Rio. But we know about the limitation in terms of expenses compression, we know that the customer must be well served, and we are not going to destroy that value. Well, we see that it is bringing us an EBITDA margin that is highly interesting.

I understand and I agree. I'm sure that these gains are important for the company, but my question is as you said, the margin could not go any lower, and again, will come from the top line growth, and I would like to understand what you are doing in that direction, because even with the promotions and even all the cutting back on expenses, we haven't had a reaction in top line.

Christina, this is Abilio. This contact with you should be done personally through the Board of Directors, through Claudio. But you're concerned about sales; you're concerned about the drop in sales, about our emphasizing only on profitability. In the future, if we do not get concerned about the sales and the market share, it's going to be uncertain.

Yes, that's the case.

What I'd like to tell you is that the chairman of the Board and I observe everything that has been done. The administration of Claudio Galeazzi is not based on fighting for sales every day, at every moment, at every instant. He believes that sales are a consequence of what we do in the management of the company, the consequence of the good work.

It is actually the result of everything, the results of the working efforts. So everything that we do within the company will result in sales, as of the case of top line that you mentioned. And now the emphasis is on that, is on promoting the gain in efficiency, and then sales will come.

And it's coming, but you're concerned about the future, so the forward looking scenario. Claudio thinks like that, but the others in the Board of Directors, they fight for sales; they have flash on sales, they fight the [enemy], they fight for sales every day. So I think you may rest assured that yes, we have a clear target. Without growth in sales, without growth in market share, there is no way how we can value the company, promote the value of the company as we wish. That's my view. That's my opinion and I will no longer interrupt here.

Thank you.

Christina, this is Claudio Galeazzi. I would like to supplement Abilio's remark.

I've always said throughout the last few years that sales should not be a single target; usually it's a consequence of what you implement. The sales pillars are supported by pricing, proper communication, proper assortment based on regions, services and display of products offered. With that, if we deal with those pillars, sales become a consequence, they do not become a target. Very often, there is an obsessive pursuit for sales, and this may even sacrifice results, when actually we have to use these pillars and tackle these pillars.

Something else that I always say is that very often you need to sacrifice a little bit the future to consolidate the present to then pursue a brilliant future. So as we are dealing, we are tackling these pillars with a great deal of serenity and with a great deal of dedication, sales will eventually occur, and as Abilio said, we're using the same-stores sales concept. That is a daring growth objective for this year, because we also want to maintain results.

Thank you very much.

Mr. Daniela Bretthauer from Goldman Sachs would like to ask a question.

Good morning, everyone. Congratulations on the results of the fourth Q. The question is whether you may pass to us some guidance in terms of the same-stores sales, or in terms of an EBITDA margin that you would like to reach in 2008; and also, if you have the costs on the risks and dismissals, or any other restructuring that may occur throughout 2008.

Daniela, this is Claudio. Regarding the guidelines for 2008, we are reviewing the budget, the objectives and targets and, of course, we're trying to define what kind of policies we're going to implement to reach the objectives that we want to reach. It would be highly premature to talk now about the guidelines, even because this process has just begun in January, the second half of January, and we do not have everything aligned to provide to you the highlight or a forecast on the guidelines.

As for the costs, I would like to give the floor to Eneas so that he can talk about that.

Hi, Daniela. About the costs, we are talking yet about the adjustments that were mentioned here by Claudio, and Abilio.

These adjustments have a greater coverage than just the dismissal, or the dismissal of 20 people. The cost is not high, I can tell you that, but the most important thing about this cost is understanding that we are developing work, aiming at adjusting the management model, the processes, the impact on the organizational structure. And not only that, we are highly focused on the working capital and the in-depth discussion mentioned by Claudio is related to the stock level.

Our stock level raised a great deal last year, whereas the average term for payment remained stable, and we have been controlling our receiving cycle, so the focus to work with the working capital though is working with the stock level. This will provide not only a benefit to the working capital, it will provide a streamlined line with a high turnover product, a lighter company with better sales, so the customer will be better served without shrinkage.

So that's a focus that we have, and this is part of the adjustments. Additionally, we want to reduce the number of projects so that we can really focus on field matters, field projects that are really important from the adding value point of view. I'm not going to talk much more, but what I mean is that this whole set of adjustments that is going on right now in the first quarter, well, first we know how much you and the market want to see once and for all; these adjustments really implemented and introduced and closed, so as of then this company may change its results level, may change its profitability level as of this moment.

So that's all our homework; we are doing that in the first Q, and when we announce the results of the first quarter, we do hope that we'll not talk about adjustments any more, because at this moment we're going to talk about all of the adjustments that we made in the first quarter, the related costs. We are going to identify each of the costs and show to you so we can move with a different perspective and with a different level of results as of the second quarter.

Let me see if I understand this correctly. What you are telling me is that the costs of the dismissals, the costs of the changes, they are offset by the savings, by the gain that you're going to have throughout 2008, is that right? But you don't have the figures yet.

Undoubtedly, that's the plan. I cannot tell you if it's going to be offset in one month, two months, ten months, or any other time. But you'll notice that the company will have a different approach with more agility, more efficiency, with streamlined responses, and these new levels of efficiency will be translated into results. Definitely, we have no question about that. So we are our results as a consequence, as we are working with sales as a consequence. We know where have to improve, where we have to promote efficiency gains, so that the results and the sales present growth. And this is going to be very clear in the report of the first quarter of this year.

Daniela, I'd like to remind you that these adjustments are not purely linear. There's a whole analysis of our processes, of our equation with the goal of efficiency, credibility and mobility. This is a continuous process, and our feeling is that in the first quarter, we're going to try and quantify these values of our equation.

Okay, thank you.

Mr. [Robert Ford] from Merrill Lynch would like to ask a question.

Good morning to all, and congratulations for the results. I have three questions, but they're very simple. First, how much did you have of non-recurring charges and standards last year? What can we expect from this same area for this year?

Let me see if I understand your question. How much were the non-recurrent expenses?

No? Yes, I'm sorry. Non-recurrent expenses.

We don't have this information, and I can call you after the conference call.

Thank you.

I would just like to mention that, just to show you, that all the [assessing] in the study that we have conducted when we tried to implement in that equation is very deep. Through our data analysis in Rio de Janeiro we have already suffered, we have already made redundant a wide number of people, also affecting the operation of the store, so much so, that the redundancies in Rio de Janeiro were at the minimal level, and they were -- we can call them adjustments.

So there the adjustment in terms of redundancies was minimal. And what we tried was to consider the customer. This was the approach in Rio de Janeiro, which was softer than what's been done here in Sao Paolo where we have been assessing all of the processes, looking for mobility in that equation.

(OPERATOR INSTRUCTIONS). Mr. [Carlos Alberno] from Citibank would like to ask a question.

Good morning. My question goes to Galeazzi. I'd like to understand your strategy. I believe you mentioned that in restructuring, we are cutting positions and not people. And I would like to understand, Galeazzi. If you could comment on the fact that Pedro (inaudible) left [here] of non-food items. Last year, you focused on food products, and his name was connected to this area of adjustments in the area of non-food products.

So if his -- the fact that he's left, how do you intend to proceed in this area? Is there anyone responsible for non-food products? How is this going to work from now on?

Alberno, I'd like to say that the focus on non-food products not only goes on, but also has been extended. Our concern in having a very efficient department of non-food items in (inaudible) is adequate to the movement we've been going through. It's irrelevant, it's an irrelevant fact. In the beginning of our conference, I said that all of our analysis was based on processes in order to search for mobility, efficiency and productivity. And obviously, when we are in this search, we have lots of functions that are not fulfilled. Boxes that are eliminated, that are not absorbed.

In the case of non-food products we, in fact, join this responsibility. It was an integration, in fact. So now our concern still remains, and we are as concerned as before. So the redundancy also was not due to the issue of competence, but it was due to the integration. And in this integration, sometimes we suffer modifications in our personnel.

I don't know if this has been answered before, but Eneas, can you tell us about any guidance? Or are you going to either (inaudible) day about sales margins?

As I mentioned, now we are reviewing all of our budgets for the year; our goals. We are seeking challenging goals, and at this time we are not able to convey any adequate guidelines, so I don't wish to make any predictions at this point. But in April, as we have already told you, we will communicate all of our guidelines.

Juliana Rozembaun from Unibanco would like to ask a question.

Hello, good morning. I'd like to explore a little bit any relevant effect in Assai margin. Along the quarters, do you have a composition that is similar to that 15% of gross margin with the 10% (inaudible) of expenses and the margin of 4.5%? Is there a focus on mobility? Do you expect this strong (inaudible) on mobility?

Hello, this is Eneas. Well, based on the whole work of assessment that we conducted on Assai figures, I can tell you that the average, the margin in Assai is, in fact, around 15%; yes. Despite of the seasonability, that's the margin with which we're working a lot of our expenses, so it's around 10%, 10% or 11%. And the EBITDA, given the format of this business within the segment of Atacarejo, which is wholesale plus retail, is around 4.5%. It shouldn't change around the year. In addition to that, when we see the structure of management in our presentation, we see that Caio is already separate as real estate in parallel to the structure.

How are we in terms of the prime (inaudible) potential separation?

Juliana, this is Claudio. Our greatest concern here is to focus on the core business of the company, which is retail. Of course, the part of real estate is very relevant in terms of our expansion, and we are really giving a lot of attention to the real estate in the first moment connected to the core business, but we are also analyzing with criteria and other issues, issues relative to taxes, charges of the business that may be greater than what's been shown to the market.

Now it's not yet the time to speak about this. Probably during the year we will return to this question. At this moment we are treating it separately, not as a part of the core business. And then it will, of course, depend on our Board of Administration which way we should opt. So now I will pass the floor to Caio, so that he may add to your comments.

Juliana, good morning, this is Caio. I think that this issue is on our agenda for a while now. We have been studying it in depth. We don't wish to make any mistakes, so here we have been studying this with a lot of attention. Now I think it's the right time to focus on real estate. It's an important asset that we have within the company. So as soon as we have the results of the study we will announce them; very soon.

Another question in terms of conversions and opening of new stores. In the two first months of the year, I think it's normal to interrupt it. We have a new management, a new structure. But do you have the plan to convert stores to the Assai format as we have discussed before, or is this to be revealed? Are we only going to be communicated after a number of new conversions in April? Have you already decided how a store, a CBD store, shall be converted to Assai? It's not fully a property, so how is this conversion going to be conducted?

Yes, we're still converting stores as we have announced in the beginning of the year. We have been studying how, because CBD has 60% of the business of Barcelona and Assai has 40%, so we are calculating our office, and we are only making conversions in stores that shall be profitable to CBD. We will open one of the same-stores store next week, a converted store. We have already opened one last year. So we are conducting the studies and up to the end of the year we have additional 14 stores converted.

And that's the last question about this debate about policy certification, when we are speaking about promotions our policy for promotions; when you say that the company is not increasing prices, not taking a step back in this strategy about this from 2006, (inaudible) repositioning the prices in order to gain market share. So are you reducing the gap between the high and the low? Are you changing the structure of your offers? And if this is true, can you illustrate the positioning of each one of the banner to the market?

This is Hugo, Juliana. Within this positioning, there are some observations according to each banner. One of the first things, CompreBen is following the positioning that was [designed] to it, and it's fully implemented of low prices every day, where effectively we left the television, the (inaudible) CompreBen. We are attacking local markets; today we have 180 stores competing with nearly 180 different competitors in each one of the markets. So in this case, the lag between the shelf price and the price of the offer is shorter because we don't need to have this higher gap differently from other positioning.

For example, we have our high low policy forces the customer to leave his or her own home and go to the supermarket. We attract the customer, so we have a strong work developed in 2007 to reinforce in 2008 of cross-selling of complementary products, complementary margins, so side by side, physically in order to offset first the verticalization of sales, and the results have been good.

The important thing here is to say that in this work, this change of our policy in order not to wear and tear our image, and we are trying to cauterize. In the past we would burn a product, focusing the product to the C class customer, and leaving out the B and A classes. The work that we have been conducting in Rio has been reflected in other regions, and consequently, the effect that we had in the last line is less verticalization, which doesn't mean less competitive edge.

Did it make any difference in that rate where you compare the average price of the market and the average price for each banner?

Juliana, this is question that you pose if we are cooling down the gap between the high and low in our promotions. Of course, that we are not able to relieve this fight of the market; this market is very competitive. And we have this in our minds the whole time. But what we have [is] we have tried to find a new balance between the average prices and categories, as Hugo said, with a better adaptation to each local market where we are without showing our competitiveness in the offer.

So what we're trying to do here is trying to charge adjustments throughout the period without impact the market with promotions, because this is part of our daily life. So the high low policy tends to go on. Of course, we are fighting for more competitive prices. Hugo said that in the case of Extra [better] we are even more concerned with basic products in order to ensure competitive edge at all moments. But of course, we still have promotions, and we will reinforce this price positioning.

Thank you.

I have two remarks about your two first questions. First about the real estate. As we have told you before, we are now really separating the team led by Caio Mattar that is going to perform the studies and development of this business. As Claudio said, there is going to be separate from retail. This team will be totally focused on this in-depth analysis with the development of a business plan and all the restructuring will be done by them.

And then, as Caio said, we'll communicate it to you later on. But it's something that we see as much interesting and we are going to study in depth. And the benefit is to give a greater focus on the core competency of the company.

As for Assai, this partnership is doing very well. We're really focused on the development of businesses. We are following up close the operations at Assai and the expansion of the business by means of the conversion. We have been doing that assuredly, even because the agreement states our partnership, but the Grupo Pao de Acucar has the control of the partnership, and we have an agreement that protects both parties, but protects really the [extinction] of the company.

The conversions are made store by store, and the sale of the store to the partnership. So we do the valuation study based on the EBITDA, on the return figures and then we reach a price that is feasible to the Assai operation. And a value that will not destroy the value for Pao de Acucar whenever the sale is done. So Caio and Eneas have been in charge of that personally.

Thank you.

Mr. Ricardo Fernandez from Itau would like to ask a question.

Good morning, everyone. It's more a philosophical question. Now you have a new management model, do you know if you want to be the best supermarket company in Brazil, or you have a greater vision and you would like to be the best retail company in Brazil? That means an entry in new formats, entering a new market, not necessarily operating in food and non-food and mixing food with non-food. So basically, I would like to understand what is the vision that you have right now? It may change, but I would like to know what is the vision for now?

Ricardo, we haven't heard the second part of your question. We heard just the first part of your question when you ask if we want to focus just on supermarkets, or if we want to be the best retail company, not only a supermarket company. Is that right?

But the second part, can you repeat the second part please?

Well, I don't know; it's a quite complicated question, but it means the same; if you want to be the best supermarket company or the best retail company. Do you intend to include other formats? I don't know what is your vision right now. It may change, but I would like to have your idea right now.

Here at (inaudible), when we say supermarket we should say self-service food, and non-food self-service if this is our focus. So the focus of self-service with assisted sales, specifically for non-food, that's where we stand today. We have the supermarket positioned for A and B customers, supermarket position for low income customers.

Hypermarkets, contact hypermarkets, now with extra [portal] that is more lengthy, the verticalized segment in large cities or in lower income cities, the Extra function that follows the convenience model, the Extra that followed the magazine model, where you have assisted sales for non-food, the Extra.com, that has a strong trend for growth; all of them in our segment in our area.

The final acquisition that we had was Assai, and the two segments that most grew in retail were the segment up to four checkouts then we joined with Extra (inaudible), then with Atacarejo we joined with Atacarejo with retail plus wholesale this year. That's the line that we are following, that's the line that we intend to follow. To be the best company, it is our objective to be the largest company as a consequence of this objective.

Okay, thank you.

This will be the last question. Mrs. (inaudible) from (inaudible) Investments. Would like to ask a question.

Thank you for answering this additional questions. I have two questions actually. The first is, how are you dealing with Sendas as for the purchase of the final percentage from the family, and when do you hope to reach the final agreement?

Then the second with the 60th anniversary of the Group, are we going to have special promotions this year? Is this going to have some sort of impact in the agenda for the year?

Christina, as for Sendas, there's nothing new about it as you know. As Caio said, we have been having a discussion in the good sense, it's not a fight. Actually it's a debate, a discussion about the effective purchase regarding price and terms. We have been talking about this matter a lot to you lately, and as discussion goes on there has been no change. We have the [arbitraj] team, and so far, there has been no decision by the -- by this team, by the -- with traders. And we hope to have a solution for that this year, perhaps yet in the first quarter. When this happens we are going to communicate it to you.

The second part about promotions, I'll give the floor to Jose Roberto Tombasco.

Hi, Christina. You know that for the anniversary campaigns, we had strong campaigns. They really represent a very positive event when we celebrate the anniversary of each format. With this year we have the sixth year's anniversary of Grupo Pao de Acucar, so we are really preparing more comprehensive actions, more comprehensive promotions. We are finalizing a promotional plan that may even result in some cross-section promotions covering more than the single banner.

As soon as we announce it to the consumer, you also get to know about it, because to us, this is a strategic. We only announce when we really have the plan concluded and available for the media.

Thank you very much.

We close right now the Q&A session. We would like to give the floor to Mrs. Daniela Sabbag for the final remarks.

Well, once again, I would like to thank you all for attending and for participating. I would like to remind you that the investor relations department is available to answer any further questions. The questions that were made through the web will also be answered. We'll be in touch to answer them.

Thank you.

The teleconference of Grupo Pao de Acucar is closed. We thank you all for participating, have a nice day.