Companhia Brasileira de Distribuicao SA (CBD) 2008 Q1 法說會逐字稿

(Interpreted) Thank you, good morning, welcome to the teleconference of Grupo Pao de Acucar to discuss the results of the Company in the first quarter of 2008. It is going to be broadcast simultaneously through the Internet, and may be accessed at the address www.gpari.com.br where you'll find the presentation. The selection of the slides will be controlled by you. The replay of these events will be available right after its closure.

We would like to inform you that the press release and the results is also available in the site, in the link Investor Relations, the same website, www.gpari.com.br

This event is being recorded, and all participants will just be listening to the teleconference during the presentation of the Company. After that, we'll have the Q&A sessions, when further instructions will be provided. (OPERATOR INSTRUCTIONS).

Before following through, we would like say that possible remarks that may be done during this teleconference regarding the business prospects of the Group, the projections and operation and financial standards are the beliefs and assumptions of the Board of the Company, as well as information currently available. Future remarks are not guarantees of performance. They entail risks and uncertainties and (inaudible), because they are regarding future events. And, therefore, they depend on circumstances that may happen or not.

Investors must understand that the economic conditions (inaudible) and other operational factors may affect the future performance of the Grupo Pao de Acucar and may lead to results that will materially differ from those expressed in such future remarks.

Now, I would like to pass the floor Daniela Sabbag, the Director of Investor Relations of Grupo Pao de Acucar that will open the presentation on the performance of the company during this period.

Please, Daniela, you have the floor.

(Interpreted). Good morning everyone and thank you for attending our teleconference. Today we have with us Abilio Diniz, the CEO of the Board, Claudio Galeazzi, our CEO, the President Eneas Pestana, Hugo Bethlem, Jose Roberto Tambasco and Caio Mattar.

I would like to remind all of you that next week we will roll the GPA Day, when we are going to introduce the prospects for 2008.

And now I'll give the floor to Abilio Diniz for the initial remarks.

(Interpreted). Good morning everyone. I would like to say a few words, following the line of my commitment with you, the commitment I made in December last year, when we had the new takeover, the new CEO of the company, when Claudio Galeazzi took over the direction of the company. My commitment that -- was that I would be surveying, paying attention to everything that was happening, paying attention to all of the details, and I would not let anything happen, anything that would not be in opposition to the interests of the company.

Of course, it's quite too early to [celebrate] the five months have gone by since the beginning of December to date. But what I would like to tell you is that the results are not that important so far, although we have good results. I consider them to be highly satisfactory. But the most important thing is the moment that we are experiencing, the moment that the company is experiencing. And it's a moment in which I feel that finally, the opening task that I proposed to myself that was professionalizing the company is now attaining its success stage.

So, at this moment, under the direction of Claudio, I feel that the team, the directors, the management team, I really feel that they are really aware of their responsibilities, that their key responsibilities are toward the Company that is providing results and really make the Company provide the right payback to the capital invested. That is the equity that the stakeholders have in this company.

And talking about the Company only, I do not feel the environment of people devoting to themselves, fighting for themselves only. I really see a team working as a group towards the results.

So, what do I think we are going after right now? I think we are pursuing excellence. I think we are going back to being the best. I think people will be able to acknowledge. Everyone will actually be able to acknowledge the work that is being carried out within Grupo Pao de Acucar.

We really want to be the best again in operations, the best in -the commercial field, in IT and logistics. And we do not have to struggle for sales. Sales are just a consequence of our work. Sales are a consequence of a good job, of a structured work. When you're really the best, when you really have the right merchandise that the customer is willing to buy at a fair price, at the appropriate price level, you will definitely sell. When you have sales operations following the Grupo Pao de Acucar standards, for instance, you'll be able to delight your customers.

That is what I feel the Group is pursuing right now led by Claudio Galeazzi. That has gotten the best from all of the managers and this is a target that has been accomplished. That's the environment that today we have in our company, and I witness this environment.

At GPA Day I'll get back to you to further discuss with you and also to listen from our shareholders, from the analysts, what you are thinking, what you are considering, but what I would like to convey to you at this moment is the environment that we have established within our Company.

Of course, at GPA Day we'll talk about our budget for this year. That is quite a daring budget that came from the management team. It's a very aggressive budget that is also supported with very aggressive bonuses for the team if the targets are met. I think sales are moving well. We have no impossible task to be met -- to be fulfilled, but we do have challenging objectives. And if they are pursued with discipline and determination, they will be attained and I think our targets will be really attained this year.

That's what I had to say to you before listening to the management team. That is the moment that we are experiencing right now. And my optimism is not only regarding results, but it's also regarding the continuity of this environment. That is how we promote success within companies. That is how we built Pao de Acucar since it's foundation with hard work, with willingness, with determination, with struggle and with the pursuit of the results. And that's what I feel right now in our Company, in the management team.

And above all, we have to be the best. We must be efficient in every detail of our businesses and the results will definitely show up. Thank you very much.

Now, I would like to give the floor to Claudio Galeazzi, the CEO of Grupo Pao de Acucar.

(Interpreted). Good morning everyone. It is a pleasure to be with you here once again. I've never had so much contact with investors as I am having in the last few months. And I would like to mention that we took the liberty of dividing our contacts with you in two stages.

The first one is today, where we'll address the results of the first quarter, and on the 14th, on GPA Day, we are going to introduce the guidance and other matters that are of your interest, and then we'll answer the questions about the future expectations.

In the market, we have heard about restructuring a lot. I'm not only talking about the meaning of this word, but it is also related to the change in behavior. We are really adjusting our reality to the market reality and this market reality is in constant evolution. And we must be agile to also promote changes within our Company. We are experiencing this transformation period, we are rethinking our Company, and that's a constant and daily obligation to our management team.

The avenue that we are following is very much close to what has been implemented in Rio de Janeiro in the second half of last year. And there we observed consistent results, as you could see in the first quarter figures. We are observing the sales growth and a positive trend in customer traffic.

But there was a certain adjustment, a certain customizing, on what we call the sales pillars that had been implemented in Rio, and now they are being implemented throughout the company. And the sales pillars are related to adjustment of assortment, taking into account the purchasing power of consumers, of every micro-region, of every micro-market, which is something that we are spreading out to all of the country. We are readjusting the assortment, according to the local demand, according to our target consumer.

We are also focusing in pricing. We are having a more rationale positioning in our offers. We are focusing in products that we do believe will generate a good traffic and based on our best negotiations. The communication is no longer a linear communication. And the communication now respects the clusters of the stores and also follows the target audience of every region.

Finally, the sales pillar, something that takes a little bit longer to be implemented is the service. That is the customer service. We have to stop talking and start acting vis-a-vis our customers. And this is quite a challenging task and it takes a little bit longer to be implemented. But I'm quite sure that we'll be able to reach this second target as of the second half of this year, for the company as a whole.

Well, we have many latent opportunities, and we are trying to reduce rationally our expenses. We are now focusing and prioritizing, as Abilio said, the expenses that really will trigger sales, that will make sales a consequence of good work, by means of these pillars.

We are now focusing. Actually this year we are focusing on maximizing all of our resources. That is obtaining efficiency in the existing resources, enhancing the productivity, we are going back to basics and we are leaving creativity for the following year, the creativity that we all have. And it's very difficult to curb creativity, but we must use common sense right now to be really able to focus on maximizing existing resources.

We are trying to implement agility, simplicity, efficiency, and focus on integration -- the integration among the areas that has a single objective. That is the ultimate objective of the company. That is giving value to its stock.

That being said, I will give the floor to Eneas and we'll talk about the figures of the first quarter of 2008.

(Interpreted). Good morning everyone. I will try to be objective in this reading. And the first thing I would like to say is that we have written our report with the objective of analyzing the company's operating performance. So far, we had to create a pro forma to exclude the effect of layoff costs, the restructuring costs that were incurred on the first quarter.

We were careful to concentrate all those costs in the first quarter, in order to prevent having costs relating to this restructuring reflecting on the second quarter or on the following quarter.

With that, we have an EBITDA effect of BRL23 million and an effect on our profit of BRL17.2 million, which are added in in effect to correctly analyze the Company's performance. That said let's try to start analyzing the sales.

Sales in the quarter had a growth of 20%. But more importantly, we have to analyze the increase on the stores, where the increase was 8.5% on the quarter. This 8.5% was not only due to the Easter effect, but in January have an increase of 5.4%, February 5.5%, and in March, 14.3%. That is the effect of Easter in this year, because this year, Easter was in March even though last year it was in April, so that you'll be more able to analyze this effect after we compute the increase in sales in the month of April, which we will have done by the 14th, the GPA Day.

It is an important growth that indicates a year that is better than last year. Just to remind you, last year, throughout the whole year, and to 2006 compared to 2007 we went down 0.1%, while this year, we increased 2.2%. So, the first quarter, 8.5%, despite the calendar effect, already gives us an indication of a better year which will, of course, be reflected on the guidances, which we will inform you on the GPA Day.

After sales, it's important talking about the margin. We have a few slides that you are able to follow. Sales, as I said, is on slide three of our presentation. It's worth saying, still on the sales subject, we should make a separation. We had food products increasing 7.6% and non-food items with an increase of 11.4%, and this mix is what gets to the 8.5% growth.

The dot com segment has been increasing over 200% extra dot com on the first quarter. And despite such an aggressive result, there's still a small basis, but it's a very expressive result, with a positive result, with a profit.

That said let's talk about margin -- the margin this quarter. Including Assai, the consolidated gross margin is 26.2%. Compared to the first quarter of 2007, this represents 1.6 percentage point compared to last year. Of course, this includes the Assai effect. We'll talk about Assai further ahead. But it also consolidates and confirms the strategy adopted since 2006, where we have been seeking greater competitiveness to have a growth based on increase in market share. And we will -- we really must have that. We will not have margins over 30% as we had until the second quarter of 2006. This strategy has already been consolidated.

Of course, we're going to have a fluctuation. This 26.2% includes the Easter effect, with the promotional offers of that period. It's important that we go back to a level of 27%, 27.5% possibly, throughout the year. But we will never go back to a margin that is much above this value, because the strategy is still seeking competitiveness and increasing market share.

So, moving on to expenses on slide number 5. Expenses have a good news. We acknowledge the effect of the restructuring. The positive effect will come, part on the second quarter -- but mostly starting on the second quarter of this year. But in the first quarter, we had an important reduction on expenses.

Operating expenses had -- was 2.1%, being lower than last year's number. Last year was 20.5%. This year is 18.4%. This includes the Assai effect. If we deduce the Assai effect, we would have around 19% or 18.9%, which is still a level that is very positive compared to the Company's history.

Of course, there is also the effect that is not a result of the restructuring, but of a strict behavior and the approval of expenses that has been taking place since the beginning of the year when Claudio arrived.

And following the example of Rio de Janeiro, we have formed expense groups who literally sit down and analyze all of the expenses before they are paid, and they have autonomy to question and re-discuss the need to actually incur on that expense. So, that has produced an effect; as, of course, the reductions of previous plans, which now are also producing their results, which bring us to a result that is 2% lower on expenses, which is exceptional and has allowed us the competitiveness and ability to work with the margin with 26.2% and a positive effect of profitability in terms of profitability, EBITDA, which has increased approximately 0.5% compared to last year.

The EBITDA, as you can see on slide six, the EBITDA margin is 7.1%, compared to 6.7% in the same period of last year, despite the margin of 1.6% below last year. This shows us the efficiency, which is a good surprise, especially taking into account the effects of the restructuring, which are still going to reflect on the upcoming quarters.

Equity income, it's exclusive with FIC. As we said last year, FIC reached breaking point at the end of the year, and this is the first quarter that FIC presents a profit since it was founded, since the joint venture was formed, which this is excellent news. Throughout the following quarters, it will certainly keep presenting a positive result.

Despite that the pillars of FIC have been bringing -- presenting positive figures. The number clients reached 5.6 million clients, with an increase of 7.6% year on year, and an increase on portfolio that reached BRL1.3 billion is 48.2%. So, this increase on portfolio that is much superior to the growth in the number of clients is explained by two reasons.

First, it's a result of the growth in the co-branded portfolio, which was a credit card portfolio that took place last year. And secondly, it's an increase on the efficiency of the portfolio with an increase on private label significantly, as well as a level of activation of cards that is very strong, a part of our strategy for the upcoming months and throughout this present year to reinforce the activation of cards.

We then move to Sendas Distribuidora, with a very positive result, as Claudio said. The work that Galeazzi and associates have been doing together with the Pao de Acucar team in Rio, the results are there. I believe they speak for themselves.

We have an improvement in the margin that was no due to an increase on prices, but by a better management of our promotions. So, we had an increase of 200 bps on the margin, which is very good and not affecting productivity. We were able to reduce the number of re-pricing, gaining efficiency in terms of perceived value. Those were the clusterization and [done] in Rio de Janeiro.

Operating expenses had an extraordinary performance, reducing on 330 bps, going from 22.8% to 19.5% on expenses. So, it is a very important level for a market, such as Rio de Janeiro. Closing EBITDA with a very expressive growth, 310% increase; the EBITDA margin on the first quarter of last year was 1.8%, and we have reached 7.1% EBITDA margin on Sendas Distribuidora in this first quarter of 2008. It's worth noting that it's the largest EBITDA registered by Sendas Distribuidora since the foundation of the Group.

The net income should be noted. We have been seeing on analysts reports. We should notice that in general, we see the EBITDA value and the EBITDA margins as very much in line with the market' expectations. Especially if we remove the Assai effect, the 7.1% of the EBITDA margin moves to 7.4%, almost 7.5%, which is very much aligned with the expectations we have been seeing in the reports. But the net income, we see a bit of distortion compared to the market' expectations.

In our opinion, this must be related to factors such as, first, the amortization of premium is increasing according to the projection of profitability of the Company. And we have an increase in the amortization of this premium in this quarter compared to the first quarter of last year on the order of BRL10 million. So, we can realize that this was not reflected by the expectations of the analysts. So, we highlight this here.

Another point is the income tax [rendered]. This first quarter, we did not account any credit income tax, even though we have a deferred income tax [target] accounted. As Sendas keeps presenting a trend of increasingly positive results, we may be able to capture this increase. But this has not happened in the first quarter.

So, we believe that basically because of this amortization of goodwill, because of this income tax question, there may be a lack of alignment. And we have closed with BRL53 million, represents an increase of 43% compared to the same period of last year. Therefore, it's a very expressive increase. It's even impressive for this first quarter. And it's excellent news considering the effects of the adjustment activities that we've done this year are still upcoming on the next quarters.

On slide number 10, for better reading of the results, to facilitate, we have a demonstration of what the adjusted income would be if we did not have the amortization of goodwill and if we did not have a negative non-operating result in this quarter. So, the result would go from BRL53.4 million up to BRL80 million of adjusted net income, if we didn't take into account the goodwill and lower operating results; so two non-operating points that have nothing to do with the Company's operation in the quarter. I think it's worth -- noteworthy for your considerations and reflection.

Speaking of investments, they were BRL18.5 million for this -- BRL118.5 million for the first quarter against BRL204.2 last year. So, it's a lower level of investment, but much more rigorous, and which -- with much more attention to the creation of value and return on investment.

Of these investments, you have there on page 11, stores that were BRL30 million of strategic blocks for the Group. It was BRL33.8 million, remodeling of stores BRL35.7 million, and infrastructure, especially focusing on IT and supply chain, we have invested BRL19 million in this quarter.

Finally, I would like to briefly talk about the capital structures, especially about the EBITDA, so the debt, so that you can have this reading. But we have closed the quarter with a net debt of BRL1.5 billion, but the total gross debt of BRL2.7 billion and a total flow of BRL1.2 billion.

We really have increased our cash on hand value, which are very important captures. We were able to have the cost of 102% of the CDI and a deadline of two years. This is very important at a time where interest rates have a very expressive increase and the capture rates are much above the 102% we were able to achieve. And we should not make any further moves in this area during this year.

First, we have an index of 1.4%, considering net debt over EBITDA. Net debt over [PL] represents 30%. The profile of this debt is very interesting considering the gross debt. We have 19% of this debt on the short term and 81% on long term. The term of this long term debt is of approximately three years. So, it's a good profile with just a small amount on the short term and the remaining on a very comfortable long term. So, that's what I had to say on capital structure.

I will give the floor to Roberto Tambasco, the Commercial Operating Vice President, who will address in more detail the sales aspects and the relation of that with inflation rates to better clarify this aspect to you. Thank you very much.

(Interpreted). Good morning, everyone. I would like to talk a little bit about the performance of Grupo Pao de Acucar, which in this first quarter has a growth of 8.5% in sales for the same store concept, and the relationship between this performance and the inflation rates that have been announced for the first quarter.

The general price index is 4.723%, but the food index, in terms of inflation in food items, is approximately 12.5%, which could indicate a loss of sales volume for Grupo Pao de Acucar. This is not true, and I will explain why.

When the inflation rates, announced by the research institute, indicate a food item inflation of 12.5%, they measure the basic basket products that have a high impact from the commodities, where we do have an inflation rate that in the last 12 months amounted to 13%. That is the internally measured inflation by Pao de Acucar.

And our sales performance in the food basket is in line with this inflation. That is there has been a growth in this food basket that was been approximately 13% as well.

When we measure the inflation of the product basket that we offer at GPA, this index is in line with the general inflation. That is approximately 4.7% and we measured 4.6%. So, it's very in line with the general inflation rate. So, this indicates a performance that will lead to a higher sales volume that is approximately 4% in actual terms.

In the industrial sector, in the beverages, toiletry sector, cleaning products, we have an inflation that is lower that 4.7%, actually. And in some cases, we do have deflation. That is the case of toiletries, which results in the average price growth of 4.7%.

We also feel that in the industrial sector there is no price pressure. We do not believe that the commodity pressure will affect the other sectors. And even in the basic food basket even regarding the commodities, in April, we start seeing a trend of a price drop. Tomatoes, that in March were seen as the villain of the price increase in the basic food basket, is presenting a trend -- a drop trend for April, a drop trend of 20% to consumer prices -- in consumer prices actually. This will make the food inflation rates lower, because sugar and coffee that are also part of the basic food basket also presented a lower level.

And we maintain the projection for the inflation of approximately 4.5% or 4.7% in the 12 months of the year.

(Interpreted). Now we may open for Q&A.

(Interpreted). Thank you. (OPERATOR INSTRUCTOR). Juliana Rozembaun from Itau and Unibanco would like to ask a question.

(Interpreted). Good morning everyone. I would like to know if you can measure the size of the improvement that we can see in expenses. You said that the third quarter you'll be able to see all of the gains of the restructuring. Can you quantify the gains? Thank you.

(Interpreted). Juliana, good morning. Your question is very relevant, but in the beginning I mentioned that we took the liberty of dividing you in two steps today. We are going to address the first quarter, and in the GPA meeting we are going to address this matter that you mentioned and all of the other matters that you would like to see addressed.

The wide opportunities, we have verified that and the effects we'll really feel as of the third quarter. That is in the second half of this year.

(Interpreted). Thank you. So, I'll leave the questions for the GPA Day. Thank you.

(Interpreted). Thank you, Juliana.

(Interpreted). (Inaudible) from (inaudible) would like to ask a question.

(Interpreted). Good morning, everyone. My question is about Tambasco's remark about the commodities prices. I would like to further understand this matter, because it's not only related to the basic food basket. The oil prices may affect the packaging prices, for instance. We have things that affect non-food, the electronics, the white line. So, please, I would like to see this matter further addressed because, as you said, it seems that it's under control and it's highly localized regarding the basic food basket, and I have a different perception so I would like to further discuss this matter. That's my first question.

(Interpreted). Christina, yes. Since December we see a high pressure on commodities. That's what we have seen in the food inflation rates.

But then you talk about oil, and even the oil by-products, or even steel, when you talk about durable goods, yes, we do see today a pressure on the industry, more related to the distribution of the raw materials. That may really result in price increases, especially regarding durable goods.

However, there is an opposing movement that is related to the advancement of technological innovations that have brought to us devices that offer state of the art technology at lower prices. I wouldn't say to you that there is no perceptive of price increase in this sector. But it's not a trend that would lead us to review the inflation rate projection for this year. The economists themselves, they have maintained their forecast saying that the inflation for 2008 should be around 4.5% to 5%.

And as for the commodities, especially in the produce area when we don't have such a high impact from the international market, we can clearly see a reduction on the price pressure. There are some products that have deflation, in the case of tomatoes, as I said. So, in the following months we are going to have a deflation for this product.

In average, there might be some offsetting. We should always address not only what retail contributes to supporting price levels in food, because of the competition that we have in the market. Well, anyhow, I don't think there is any indication that there will be a greater pressure than the pressure we are experiencing today, especially when we talk about toiletry cleaning, beverage juices, as I said in the beginning, of course. Is it clear to you?

(Interpreted). Yes. It's clear. I have two more questions. The first is about Galeazzi's remark that you wanted to go back to basics this year and in 2009 you would use creativity. Can we understand then in 2008 there will be no further acquisitions?

And there was a release today, I would like to know if Abilio can talk about the sale, about the decision of the family, if I quite understood?

(Interpreted). Good morning. Regarding the acquisitions, well, the acquisitions are opportunities. If we analyze our indebtedness level, our indebtedness capability level, we'll consider the acquisitions case by case, and we'll take into account our budget. Of course, we are paying attention to the opportunities that may emerge. We will talk more about CapEx and investments, investment policy, the policy that is under implementation on the GPA Day as well.

(Interpreted). Good morning. This is Abilio. I'll answer your question about my shares and the family's shares, because part of it would be released now. For my stock -- my equity, I have no intention to sell my stock, nor my children, nor do I have that intention. We want to keep, because we think this is the best investment for our equity. It's a great part of our equity. So, we think that there is no better investment than this.

As for the family, as for my sisters and my brother, I have been talking to them, and their decision is that there is no idea of selling an expressive amount of their shares. It may be that some of them decide to sell part of it -- a small part of it -- small figures.

Anyhow, you may rest assured because what is regulated by agreements will be followed, because if they are willing to sell the sale will be organized by GPA. We'll organize the sale in a very structured way, so that it does not hinder the share behavior in the market. That's what I wanted to tell you. But I do not feel from them any intent of selling. I do not think they will sell their shares in large amounts.

(Interpreted). Thank you.

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

(Interpreted). Good morning. How many people did you dismiss in the restructuring phase? Where did the money come from? How much did it cost to lay off people?

Where did the money come from and where did it go to? Where did it go to? Yes, where did it come from and where did it go to?

(Interpreted). Well, Ricardo, it is not from the restructuring, but the adjustments that we're undergoing. For the first time the Pao de Acucar -- Grupo Pao de Acucar, after analyzing the processes and readjusting those processes, has promoted a redundance of significant figures at the higher level, the company on the executive level and directors.

This transformation and [liquation] has affected the management level of the company as well and everything that supported the areas that were deactivated or incorporated by other areas.

So, the effective amount was really in order to realign our processes. And, repeating myself, we were adjusting our reality to a reality of the market, where it's very competitive and seeking to eliminate inefficiency in light of productivity. I would say that this process included redundancies, around 320 to 350 people.

(Interpreted). Thank you. Second question is about the gross margin. It seems to me, please correct me if I'm wrong, but it was basically the price to become more competitive in the market that led to the margin strategy. You were talking about commissions of the promotions of the seasons. But is this going to be a policy of the company to have more aggressive prices from here on, including the promotions? Or is it more like what Wal-Mart claims to do? They say you should go back to the gross margin, but why would it go back?

(Interpreted). Well, because, in reality, there's an equation and a point to be found between sales and results. We are seeking the best equation in terms of supply, in terms of mix, seeking to effectively adjust for a margin that produces results and produces sales.

We are still on an experimental process, testing our supply with more rational offers or promotions than what we used to do before. We can say that our offer policy is every day low price and everything.

And today we are thinking much more on every day low price in what really generates traffic, first of all, and, second, of the best negotiations and best practices that are being implemented.

I would maybe -- if Tambasco has anything to add, I would give him the floor.

(Interpreted). Ricardo, we can even further explore this issue of price strategy on the GPA Day. But it's good to reaffirm that the reduction in margin that took place in this first quarter is essentially based on Assai, which operates at lower margins, and of the Easter effect, which generates lower margins. Those are seasonal products that operate with margins, on the chocolate sector, of around 4 percentage points, or 400 bps. So, that explains the reduction of margin of the first quarter.

And regarding the strategy of our competitor or our own strategy, we may be able to give you more information next week, as Claudio said.

(Interpreted). Thank you very much.

(Interpreted). (OPERATOR INSTRUCTIONS). Miss. Daniela would like to ask a question.

(Interpreted). Good morning everyone. Congratulations on your results. We start seeing improvement on the operating aspect of the company. But I would like to also explore something that, for me, was a surprise from the first quarter results, which was Assai.

You said there were more aggressive pricing, especially in two markets, in the interior in Sao Paulo, where you sought to increase your market share, so I would like to know about this 2.2 margin, and what the weight of Assai is on the CBD sales. It seemed a little shy.

And you said we'll be able to reach a margin of higher than 4%. So, I would like to know if, on the second quarter, you're already noting -- noticing this recovery, and what may effectively have caused? We know about Easter, and you know that it's more you are confident on the recovery of the 4%. But what will the repositioning of Assai be effectively after the other flags are also converted to the CBD? That's my first question.

(Interpreted). Daniela, this is Roberto. Concerning Assai, if we take into account the margin recovery we can see -- first, I don't understand your concern or your doubt about the participation on sales, because from the beginning Assai has been increasing more than the other flags and the participation is [bad] 6.2% in total. So, it's only going to increase as we increase in more stores, and it keeps growing at larger rates than the traditional flags.

On the other hand, the objective has always of an EBITDA of 4%. However, we already expect, for the first quarter, a reduction on EBITDA for the two reasons -- two main reasons that are noted here. There is a competitiveness side, which is an increase on market share for new markets. Assai has a wide knowledge on the markets where it operates, such as the market of Sao Paulo, because we're talking of just running, pizza place owners, and restaurant owners, who know this market and trust this market. When we move to a market such as (inaudible - spoken in Portuguese) in the interior of Sao Paulo before association there's an entire work to conquer this market.

On the same way, this happened in Santander, which is a very competitive area, with a recovery of a store that used to be Grupo Pao de Acucar, and today is surrounded by great competition where the sales results are very good on both stores. But both stores they have already reopened. We have volumes higher than 400% of sales that we used to have on the old flags.

On the other hand, in terms of margin, there is a greater fact for the allocation of some principles that Assai did not use to follow. In the case of provision for a doubtful or worse, and the beneficiation bonus of providers of suppliers in the last quarter of 2007, we are now changing the way that we charge for this bonus payment, adjusting it to the Grupo Pao de Acucar system. So, in the second quarter, we don't have the need for a provision, because they will debited and the accounts of the suppliers at the time of payments of their respective purchases. So, that's our principle.

The second effect is breakpoint or shrinkage when we are controlling the shrinkage of Assai. If you consider these two effects that represent 0.8% of the margin, plus 1% of the margin mix, which is already being recovered in this month of April, never jeopardizing the competitiveness of this market, which is a highly competitive segment of low margins, we go back to the 2.2% EBITDA in our 4 point goal.

(Interpreted). Thank you very much. I think that's exactly the explanation that I needed. So, can I assume that 4% is a minimum level for profitability for Assai?

(Interpreted). Yes. It is the minimum level for Assai. And we have some potential works to then go and reach for something higher than that.

(Interpreted). My second question is regarding Sendas. You had an accomplishment in the year with arbitraging (inaudible). And I would like to see the timetable from now on. What is being questioned is the value of the family's departure. In this case, it should be 23.65 or 42.57? And, if not, it is a go again to arbitrage or? I would like, maybe Eneas or someone, to tell me the next, or the upcoming steps in this transaction of Sendas, because it's a little confusing?

(Interpreted). I'll try to make it more clear. The arbitrage is closed. It's final. The decision is final. So, this transfer of control, where Abilio would have left the control, is closed, and it's been proven that we had -- we were right in a sense that there was no change of control. Abilio is still part of the control group, sharing it with -- as you know. This chapter is closed.

What happens now is that Sendas, in January of last year, had already met what were provided for in the contract, even though it has been notified based on the transfer of control. Basically, they performed that conditioning the decision of the arbitrage, which is [us saying] that if they lost the arbitrage the exercise of that which would be already provided for.

After the arbitrage is closed, that is what is now under discussion, is in place starting now. In this, it provides that the put will take place through an exchange of stock with CBD action or stocks, or --and cash on the criteria of exclusively CBD. At the time, there is no discussion or no issue on value of their participation, and Sendas Distribuidora capital. What we will do now is start talking to them again, because there is a procedure provided for in the contracts to reach the value of the company, the value of the company, Sendas Distribuidora, value which has to be data -- the date based on February last year, which is the moment that they initiated the put. It is not now. So, the date of the exercise of that put is what determines the date for the value.

So, the contract provides that investments -- first line investment banks have to be hired, which will calculate the value of the company through the evaluation criteria that are widely known in the market, cash flow multiples, to reach a value. And if this value is accepted by both parties, it will be realized through an exchange, or cash, or both a combination of exchange and cash on the criteria of CBD.

If no agreement is reached, which we do not expect, we have -- we will do everything to reach an agreement. But the arbitrage is the forum of the discussion, because it is what's provided for in the contract. Any divergence in the position of the partners will be taken to arbitrage. So, there may be arbitrage if, in fact, there is a divergence.

(Interpreted). And as I have understood that there also is a divergence of CBD concerning the percentage of share, if it's 23.5 -- 23.65 that will be used to determine the value, or if it's the 42.57?

(Interpreted). This now does not exceed by far. And the 42.57 represents their participation in the subscribed -- total subscribed capital. There is no doubt of that, the object of the quota, exclusively the integrated stock not the underwritten stock

(Interpreted). So, it is the 23.65?

(Interpreted). Exactly, there is no doubt of that for us, and there is no issue on this yet. Even concerning the value, all discussions -- all the discussion that existed potentially over value is no longer valid. And we now understand that we go back to the value calculated by the investment bank.

(Interpreted). Yet, about the topic -- because there are many repercussions there, in the bank's calculations the Sendas performance, what we have had in '07, they had an impressive improve and continues to improve in '08, is that taken into account? Or it's from '07 and before that?

(Interpreted). The calculation is going to be based on February '07, both for the investment bank calculation and for any basic calculation. The date is February last year. That's what is defined in the contract.

(Interpreted). And my final question regarding this topic, if they choose to pay in stock they will be locked to sell it (inaudible), because it's from '07 to '10 and then from '10 to '13?

(Interpreted). It's not if they choose because this option is up to CBD. CBD will decide if they want to exchange or if they want cash, according to their convenience, according to the shareholders' convenience.

You're right in the case of exchange there is a lock-up, one-third maybe done from February '07 to February '10, the other third from February '10 to February '13, and the final one-third of this amount that is exchangeable after February 2013.

(Interpreted). And just to finalize, the timing for all of that to be so settled is very uncertain, because the bank will make the assessment. They have to reach a certain value, if they don't reach it goes to the arbitrage counsel and it may take another year. What is your opinion then? Do you think the outcome will be optimistic? Or do you think the outcome will be based on arbitrage?

(Interpreted). We are always optimistic. We have a good relationship with the Sendas family. In spite of divergences in administrative areas, the relationship is very good, highly respectful. And we understand that as of now we will go back to talk about that. And we expect that in 90 days we may have a conclusion for this matter. And if we have to extend that on common agreement from both parties, we will extend. And if it goes into the arbitrage, it will depend on the arbitrage. It's impossible to foresee. It may take to wait for 12 months as we had before.

(Interpreted). The final question about the CapEx, you approved in the meeting that the CapEx would be [730] for '08, is it going to be restricted according to the conversions from CBD to Assai?

(Interpreted). Daniela, this is Caio Mattar, good morning. As Claudio said in the beginning, we intend to detail what we're going to do regard CapEx on the GPA. So, please, you should ask this very question during the GPA Day, and there we will provide the explanation. We are going to show you everything that we are going to do.

(Interpreted). Okay. Thank you.

(Interpreted). Mr. Medeiros from Pactual would like to ask a question.

(Interpreted). I would like to continue to discuss the gross margin. You announced a gross margin for CBD and Assai, so we can see where it comes from. But when we look at the whole figure we had a drop to 27%. I don't know if I understood, but we had the effect of Easter. So, could we image that this margin with Assai, Sendas, and CBD could resume in the second quarter, and even forecast an expansion of Assai and Sendas? So, my question is the following, is it reasonable to think that you have a gross margin growth from the second to the third quarter?

(Interpreted). Tambasco will be later supplement, but I would like to say that GPA margin, without Sendas and Assai, is 27%. That is from the 26.2%. We would go to 27% without Assai. This is in the first Q.

As for the following quarters of this year, the guidance for the margin as a result of our price policy, we would like to explore that on GPA Day, as Roberto Tambasco said, because then we will explore that in depth and we will show you our strategies. Okay?

(Interpreted). Okay. Another question, a remark about the competition, Wal-Mart has a strategy. So, I would like to know if you have a strategy for the competition or if you see it as normal.

(Interpreted). This is Roberto. Well, to us, the competition is not new. The market has always been highly competitive in terms of prices, in terms of stores expansion. We see it all the time. We hear that they made provision that you hear about the competition strategies and, of course, we pay attention to it, but we're highly reliable on our growth strategy. We are trusting, very much, the strategy that we are developing for the Group to fight in this market. And, as we said before, we are going to further explore that on GPA Day. But we are paying attention to all of the movements of the competition, but we are also paying attention to our movement.

(Interpreted). We will talk further then on GPA Day. Thank you.

(Interpreted). Christina from (inaudible) would like to ask a question.

(Interpreted). Thank you. Going back to gross margin, I have a question yet. Why does Sendas have a gross margin of 27.6% and CBD, without Assai, is 27%, because both have the Easter effect. So, what's the difference between them? I understood that it should be the other way around, that CBD work in a more competitive environment.

(Interpreted). Christina, it's Roberto. This comparison between Sendas and GPA, without Assai, cannot be linked only to the competition in Rio de Janeiro, or Sao Paulo market, or in any other market.

Of course, that's -- in every market you have a certain situation, but the major difference is related to the sales mix than to the -- much more related to that than to the market competition. And if you take into account the model of our stores that we have in Rio de Janeiro, in which we focus highly on Sendas supermarket, the participation in non-food is not as high as in other regions, in regions where Pao de Acucar operates.

In the non-food today, especially in electronic products, in addition to the oil influence, they operate at a margin that is much lower than the 27%. So, this brings the margin of the Group as a whole, without Sendas, to lower levels than those of Rio de Janeiro.

(Interpreted). Okay. Thank you.

(Interpreted). Our final question, Luis Cesta from Espirito Santo Banco.

(Interpreted). Good morning, everyone. My question is regarding Sendas and Sendas distribution company. Pao de Acucar will soon have 100% of Sendas Distribuidora stock. So, my question is what would be the improvements that Pao de Acucar would implement in that region in terms of store format, in terms of remodeling of the stores that operate in that market? So, what are the improvements that you're going to make when you finally have 100% of the operation in hand?

(Interpreted). We will also address this question on GPA Day. But we may say that the improvements are being implemented, and you can verify that by the results that we are attaining in Rio de Janeiro, but we can talk further on the GPA Day.

(Interpreted). Okay. Thank you.

(Interpreted). We close now the Q&A session. We will pass the floor to the company for final remarks.

(Interpreted). This is Claudio Galeazzi. In January, we began the transformation process and in the first four months of the year we have strongly focused on the corporation and on the processes. And as of May, we are turning our attention to our stores with the pillars that we have addressed here.

We are seeking to improve -- improving our resources, to maximizing in the existing resources. And on the GPA Day we will talk about the review of the assumptions and of the adjustments of the different formats, so that in the future we may assure higher returns.

And pay attention to my words, we are undergoing a process in which we are sacrificing the future to consolidate the present, so that we can really have a brilliant future ahead.

That's it. We would like to thank you all for attending. We would like to thank you for the questions, for your participation, and we'll see you again on the 14th, on the GPA Day.

(Interpreted). The results teleconference held by Grupo Pao de Acucar is closed. The Relations team is available to clarify further matters. We would like to thank you all. Have a nice day.

Speaker statements on this transcript were interpreted on the conference call by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.