Companhia Brasileira de Distribuicao SA (CBD) 2008 Q2 法說會逐字稿

Greetings, welcome to the GPA teleconference to discuss the results of the company in the second quarter of 2008. Today, we have Mr. Abilio Diniz, the President of the Board. Claudio Galeazzi, the CEO, and also Eneas Pestana, Hugo Bethlem, Jose Roberto Tambasco, Caio Mattar and Daniela Sabbag. This event is simultaneously broadcast through internet via webcast through the address www.gpa-ri.com.br where you find the presentation. The selection of the slides will be controlled by you.

The replay of this event will be available after its conclusion. We inform that the press release and other results are available in the Investor Relations site www.gpa-ri.com.br. This event is being recorded and all participants will be hearing the teleconference during the presentation of the Company. And after that, we'll begin with the Q&A session. Further instructions will be provided. (OPERATOR INSTRUCTIONS).

Before moving on, we would like to clarify that [possible] statements to be made during this teleconference regards the business prospects of GPA, its operational targets and projections and their [just beneath] and premises of the company. And they are based on currently available information. Future remarks are not guarantees of performance. They entail risks, uncertainties, and premises because they regard future events that may depend on circumstances that may or may not occur.

Investors must understand that the economic conditions, industry conditions and other operational factors may affect the future performance of GPA. They may lead to results that materially differ of those expressed in such future remarks.

Now, we would like to pass it forward to Mrs. Daniela Sabbag, the Director of Investor Relations with a Grupo Pao de Acucar that will make the presentation about the company performance during the period. Mrs. Daniela, you have the floor.

Good morning. First, I would like to thank you all for attending. I would like to thank you for the opportunity of discussing the results of the second quarter for Grupo Pao de Acucar. Today, we have here with us Abilio Diniz, the President of the Board, Claudio Galeazzi, the CEO, and the executive director Eneas Pestana, Hugo Bethlem and José Roberto Tambasco, Caio Mattar, Ramatis Rodrigues and [Claudio Elisa].

As we have been doing in the other teleconferences, we'll begin with the remarks of the executive, and then we'll move on to the questions that you might have. I pass the floor then to Mr. Abilio Diniz for the initial remarks.

Good morning everyone. I'm going to be very brief. I'll leave everything else to Claudio and to the other executives because they will talk in detail about everything that we have been doing and what we can do yet in the year of 2008. What I would like to convey to you today with a great deal of reassurance and with a great deal of confidence and certainty based on what has been happening in the first seven months of the year. We may can assure you that this Company has changed.

Fortunately, it is back to what it was before. It is once again a company that is oriented to the pursuit of efficiency to the increase in sales, enhanced productivity and higher profitability. A company oriented to growth. We are preparing a solid foundation to promote more bold growth and [obviously] business going on.

The result or proof of that -- the results are in-line or even higher than our budget, budget that was pre-developed for this year in a very bold fashion, I believe. The figures and the objectives are being met. The sales based on the economic conditions and the conditions of the country, the sales are higher than our initial expectations.

We have been meeting the expected performance in the right way using the right methods. We are working on that basis. And how are we increasing the sales? We are trying to operate better, to buy better, to have a more efficient IT, a more efficient logistics department. A whole set of conditions that should result in higher sales.

I have no doubt that this is going on, everything is happening. We are now confident on ourselves, the Company is motivated, the whole team is motivated. And what should we do now? We must keep on working just like we have been doing in the first seven months of the year, trying to do everything that we have been doing so far, slightly better, with a further efficiency to pursue even better results.

There's much to be done yet and we are going to recover what we lost in the last years by the end of 2008. And that would be the Company is preparing for a major leap in quality, and that is what this team intends to do. That's my message to you. I am available to answer any questions.

Let's now hear the financial remarks with Eneas Pestana.

Good morning, everyone. Let's talk now about the results. I intend to provide further information, provide you a wider basis, so that you can correctly interpret our [secrets]. We have the presentation, I imagine that you can follow-up the presentation through the web. I'm going to follow this presentation now.

On page two, we have some bullet points covering everything that I will address, but I'll go to the next pages. On page three, we have here the sales. In the case of gross sales, we have a growth in the quarter of 16.2% in gross sales and 19.5% in net sales. Gross sales reaching 4.8% and net sales 4.2%. The difference between net sales and gross sales is explained basically by the tax distribution that is most concentrated in the state of Sao Paulo in this quarter that has involved many products within this tax distribution system that causes this effect on the difference in between net sales and gross sales.

As for the same store concept, the gross sales growth 4.3% and the net sales is 7.4%. Just to give you an overview about categories, we had 2.4% in food and 10.4% in the non-food items. This has consolidated the growth that we had in the first quarter. And something that is quite relevant for the analogies of the sales in the second quarter is the comparison with 2007, because in 2007, Easter was in the first quarter and in 2008 -- I'm sorry, it's the other way around.

In 2007, it was in the second quarter, and in 2008 we had Easter in the first quarter. So, we had a growth in sales, which is quite relevant, because we exclude the Easter, and of course it had an effect on the food category because of the Easter season. The hypermarkets recorded an increase in market share in this quarter.

An important highlight goes to the banners CompreBem that also presented a quite relevant progression. The Extra Electro and the Extra.com that aligned with what we had, that planned last year and aligned with the progression that we had in the first quarter and this quarter, these banners also presented a growth higher than 200%.

Going to the analogies of the gross profit, and you can see that in the page four of our presentation, we have here in terms of cash margin, a growth of 11%. We've reached RR$1.1 billion in terms of cash margin. In percentage, it's taken into account via net sales, and as compared to last year, we had a drop of 2 percentage points. And here, we highlight some of the most important points that explain this difference in margin.

That are, first, we have maintained our competitiveness strategy, before this strategy that was implemented in May 2006 has been maintained. There was an increase in the share of the non-food items, especially in the electronic items. This changes a little bit the margin mix, because these products have un-leveraged margin that is lower than the food margin, and I may give you an idea about that.

From the 2 percentage points that I mentioned, 0.2% is related to the mix, to the change in the mix. The consolidation of the Assai chain -- and we'll further talk about Assai. Of course, Assai worked with an average margin, but it's much lower than the average of the GPA of the Group, before it also causes a certain effect. An effect of 0.9% is taking into account the 2 percentage points of difference.

We also have a list in page four that lists the promotions of low turnover products, what we call the slow movers. And it is aligned with what we said are made in the first quarter. And we are yet going to do throughout the next quarter. We are writing off the products to lower the stock levels, to have healthier stock levels to increase the asset turnover.

And this has an effect of approximately 0.2% as well, which is included in the 2 percentage points that I mentioned. Finally, the effect once again of the tax distribution system especially in Sao Paulo, in the state of Sao Paulo, that had an effect on the margin of a 0.6%. If we add up all these items, we reached the 2 percentage points that we had in terms of the total margin.

Talking a little bit about the expenses, more than anything else, we have been discussing the expenses and tackling this area not only this year, but also in the previous periods. We have had good structuring,. We have had many projects carried out to really reduce our expenses. We reached here a level of 18.9% in terms of total expenses as compared to net sales, versus last year when we had 21.7% distributed in administrative expenses that dropped from [3.52.8] as you can see in page five of our presentation.

The expenses with the sales that dropped from 17.17% to 15.6%. Here, we highlight the major aspects, the major lines in which we had such reductions, especially in the marketing area and third party areas. And we had a very strict control in personnel expenses and lease expenses. But it's important to say that in this quarter, we haven't had any restructuring action or dismissals.

This result is a consequence of the restructuring, the adjustment that we made in the first quarter. And it's also a consequence of plans and reductions made throughout 2007. Now, we are really reaping the results of such plans. I would like to remind you that the guidance for the year was 19%. We are really reaching the target now. The second half of the year in terms of dilution, we have even a greater dilution of our expenses because of the volume of sales when we compare it to the first half of the year.

So, we ratify the guidance for the year as 19%, as has been announced by the management in GPA day in April. So, we can speak now about the EBIT and EBITDA margins. We are reaching R$303 million in EBITDA in this quarter in comparison to R$228 million last year. This represents EBITDA growth of 33%.

What is really relevant, if we consider that in this consolidated results, here we are speaking about a Assai and Sendas that of course had a lower EBITDA margin than GPA in March -- in average. So, this is a relevant growth, and again, comparing to the guidance that we informed in GPA day, we are aligned with our guidance, because in the second semester with the [foreman's] anniversary, most of our results is recorded in the second semester, ratifying the guidance between 7.5% and 8% in terms of EBITDA margins for '08.

So, continuing this quarter, I think that we should highlight the issue of equity income that is described in page seven of the presentation. We have exclusively the result of our financial institution, our joint venture with Itau Bank FIC. So, the finance Itau EBIT debt showed a very important improvement in results if compared with the second quarter of '07, where we have losses of [R$7.9] in the income.

50% represented losses of R$10.9 million, and this year, the turn -- the beginning of a wait in the second quarter. We have a profit of R$1.4 million, improving our gains and also our indicators in the second quarter. Our portfolio is 5.7 million customers and the receivables achieved R$1.3 billion. Therefore, all of the operational indicators in the matron curve of the business of our financial institution, we see ascending curve, especially in terms of the [distribution] of sales in this profit.

Speaking of a standard distribuidora, the distributor, we spoke a lot of our work undertaken in Rio de Janeiro, that also received a very important support of [Galliagas Asocial] associates and debt companies management, leaded by [Jacques Dentogue]. This work is consistent in the second quarter compared with the second quarter of '07. We can see a reduction in the gross margins, a very important reduction.

Also, 3.6 percentage points in expenses and in consequence, a growth in EBITDA margin from 1.4% to 4.2% in this second quarter of 08. We must remember here that in this semester, we are closing Sendas with an EBITDA margin of 5.7% against 1.6% in the same quarter last year. In cash, we are speaking a semester of EBITDA of R$81 million against R$22 million last year. This represents an EBITDA growth in the semester of 270%.

So, despite of comparisons between first quarter and second quarter, important here is to consider Sendas' curve in the semester that we are delivering here. It's really to this calendar issue and the competitiveness in Rio de Janeiro, in the state of Rio de Janeiro, where in the first quarter as a function of the Easter holiday, we have been more important margin and more important EBITDA as a function of the volume of sales registered in the first quarter.

In the second quarter, we needed to be more aggressive in terms of prices, but this is part of the management and of our action plans that are under our control when the internet is in Rio de Janeiro. So, there is no highlight here with the exception of a positive highlight and a delivery of result that is much greater than last year.

So, going on, we are speaking about Assai now. About Assai, I'm going to speak very briefly and I'll pass the floor to [Jose Tambasco] who is going to speak more about Assai. So, I'm going straight to the point to the net profit, net income, as a consequence of all our [work set]. We have a progression of a 119% in our net income that went from R$27.6 million to R$60.4 million, so 0.8% of that margin to 1.4%. So, that's just the net income.

In page 11, if we adjust it through amortization of goodwill, the adjusted income would -- there's a line here that I think that was very important to the net income, which is the financial results. Financial results in the second quarter as it is explained in the release impacted our figures. So, here we must highlight for you to understand that in this quarter, we are highlighting the effect of R$4 billion, the contradiction of Assai that brings debt or financial cost of the leasing process.

Another highlight is the increase in the sales by installments, finance sales, because this non-interest finance sales represents additional expenses of R$85 million. In the contingencies, we have a highlight in the same quarter last year. We referred this part of [contingency] provisions on inventories, referring to our [Cofins] credit on inventories on a non-cumulative calculation of these taxes.

Last year, we had an adjustment to this provision reverting R$8 million of course affecting the base of our corporation for this quarter in a way. So, in terms of comparison with last year, we have R$8 millions as a function of this reversion last year, not due to any event in a way.

Along these lines, we also have an improvement in our contingency base. Our total contingency in the Company classified as likely went up by R$50 million this year. Adding these two quarters, this increase is related as our credit in fiscal fees, especially on taxes and other financial revenues that are not excluded in our base.

We are discussing this -- we are arguing against this credit in court, and so -- but we must have legal deposit in court corresponding to this [vet]. So, this explains in the improvement -- the increase in the base in the order of R$2 million, that are also included here. And we must send out, highlight also the elevation of financial costs around R$5 million as a function of the increase of our net debt in the Company.

So, with these details, I believe that our financial effects are explained. Thinking about the projection in the next quarters, I think we are working in values around R$70 million, that should be added toward the R$5 million per quarter in the next two quarters. And this increase is related to a higher interest rates promoted by the government due to the inflation.

Having said that, I think we can understand better these financial results. In terms of debts, we are closing this quarter with debts around R$2.6 billion, 15% in short term and 85% in the long term, this long term with an average term of 2.5 years. So, this is a very comfortable debt profile if there is an inflation crisis, it's in a very good moment in terms of our economic basics, because we prepared last year raising funds -- raising all necessary funds.

So, we are not going to borrow any money along the next quarters, and therefore we are not going to have to pay for this increased interest rates in the [low ones]. Our net debt close to the semester with R$1.3 billion and our indicator of net debt on EBITDA is aligned with our guidance, that is below one time our EBITDA.

So, to conclude, the CapEx for this quarter was a R$105 millions having invested in new stores and also in [trends, in land] investments. It can be seen clearly in page 12 of our presentation and its aligned with operated explanations and strategies debated along the first semester, which were also explained in the GPA day.

So, a lower volume of investments along the year had already been announced, again aligned with the value of R$733 million of investment in '08 -- [and debated 4/08]. So, I think that if something is unclear, you can ask questions during our Q&A, and now, I'll pass the floor to José Roberto Tambasco.

Good morning to you all. I'm going to speak about Assai and about the question of inflation on prices. In terms of Assai -- I want before anything else, to reassure you of the strategic importance of this business model to [Ponchazuca]. Assai positioned Ponchazuca in one of the fastest growing segments in the country today, which is the segment of [atacaregio], a mix of wholesale and retail acatergios, which is in Portuguese.

Assai today, it is our main motivation where we are making our best efforts in order to implement a growth plan that is very aggressive. We have already said it from the moment that Assai was acquired last year, we have been repeating that Assai is already the best debt player most specialized in serving the market of the so-called transformers composed by pitchers, restaurants, snack bars and hot dog stands.

So, we are now reinforcing this Assai differential. On the one side, through some improvements that are being made in our current stores and on the other side reinforcing our more aggressive price policy. We are investing strongly in the competitiveness of these stores and in the construction of a strong price image for Assai.

On the other side, we have the investing in the adjustment adequacy of Assai to our controlled standards in GPA from the management point of view and also from the accountancy point of view insuring a more healthy management for the business as a whole. In terms of Assai results, as Eneas has already talked about that, in spite of having presented a profitability below targets, we are very happy with Assai, especially in terms of our sales performance both in our original Assai stores and also in the recently opened stores.

We assure that all of this work that we have already talked about, the consolidation of our consistent platform for investments in Assai, will ensure as soon as this second quarter in a solid and sustainable way results align with these goals that have been set for Assai. Talking a little bit about inflation now in the last month, this topic has been a headline in the newspapers. And we question the impact that this will have in the price level in our business.

And in order to better understand inflation, we should [take] the in-depth indexes that are used. Inflation as we all know is strongly linked to what we call the commodities. And when we see a figure about the price index for instance, the IPCA, that is the food related index, it measures essentially the basic [basket] product that are represented mainly by these commodities. And when we analyze GPA, the inflation of such products is in line with the inflation measured by the IPCA index.

What happens is that the product basket in our group is much different from the basic basket that is measured by the IPCA index. Just to give you an example, the IPCA basket does not take into account the toiletry and hygiene items that in the last month have been presenting a deflation of 3.6%. In cleaning items, which is very significant for our business, had a growth in price, an increase in price throughout the last 12 months of 1.37%.

The beverage, juice and soft drinks and beer and wine department also had a deflation of 0.5% in addition to fish and frozen items that also had a deflation of 0.5%. And it has been an option for the consumer to replace meat or beef that had an increase in price. Before, we were talking about the price increase of the product basket, that we felt is much lower than the inflation rated by the IPCA index.

And it's also related to the growth sales, in sales of the Company, that is the growth in sales that we had in our Company is a real, natural growth. As for margin, the impact of the price increase as Eneas mentioned here is virtually is zero or none in our business. And for the following month -- and we have witnessed that in the month of July, the prices of some of the items of the food basket presented decrease. And the [expectation] of the market is to maintain this trend for the following month, which should guarantee the price levels to be lower than the current level of approximately 6%.

I will now pass the floor to Caio and then, we may go back and address questions if you want to know anything else about Assai and inflation rates.

Good morning, everyone. I'm going to talk about an area that has been widely questioned, that is the new state, how we are progressing in this subject. In our last meeting, we had the support of the Board to move on with this project. It is a model that is being structured. We are trying to set up business in which we have a structured management with focus on the business and with professional support, a real estate management with a focus specifically on this very area.

We have a huge potential to optimize our internal resources to current assets. We have many real estate items with a great potential and we may work with them. We may develop undertakings to improve the return on this investment by using such resources. Any transaction involving real estate is not something that we are going to do right now.

Before thinking about any transaction, we should have a very well structured model, and that's what we are working on at this moment. By the end of the year, this real estate business model will be under operation. We are also concerned about creating a structure that will not lead to additional tax float.

Changing subject now, I'll talk a little bit now about extra.com.br that had a growth of more than 200%. We're working in a very, very strong way to use the differentiating aspects that we have when we compare ourselves to the market. One of the main differentiating aspects that we have today is the fast section, the fast reply.

The delivery for the electronics, and we have over 5,000 items in the electronics, and the customer may buy them up to 3.00 p.m. on that very day and receive the good on that very day for the state of Sao Paulo. And for the other capitals, we are delivering in the following day. This is the differentiating aspect that is highly perceived by the customer. It is one of the most important three attributes. The others are price and product variety.

We have service support to the customers that is differentiated. We have our own customer service that is based on the excellence. We received the [diom] model that is the highest level in the survey that is made in this area of web services, proving our efficiency in the purchasing experience that the customer here has in our website.

And now, for everyone that is in this call, for everyone visits today the www.extra.com.br/call, www.extra.com.br/call, we have two special -- very special offers for those who visit our website. We have the Father's Day that is coming up, and it's only a promotion for today. You can test the delivery time, you see how fast we can deliver to you.

That's what I have to say. Thank you. I'll give the floor to Claudio now.

Good morning. I'm not going to discuss the concept that we implemented in the first and the second quarters. I'll talk a little bit about the focus that we have now for the third quarter. In the first quarter, we focused our attention on planning and restructuring the organization itself.

We also developed a budget and we were totally aligned with it. We're totally aligned with the results that we expected. We underwent an adjustment in terms of a personnel and we implemented a new compensation criteria to promote motivation and commitment to objective.

Our focus empowerment is oriented to Company results. We are trying to really expedite our process to pay attention to the details, because as everybody says, retail is detail. This is what will lead us to growth in sales and needing results. During the first quarter, we paid great attention to what we call the sales dealers.

And [Julianna] called it our mantra and it's really our mantra, that it involved assortment, pricing and services and the service area will aggressively train our employees in the third quarter. Initially, we focused in the northeastern region in the non-food area and in our [FYP] company. Of course, seeking to obtain better results in all of the areas that I mentioned.

And we have been achieving such results. In the second quarter, we began reviewing and redefining our format as we announced in the strategy meeting previously. This also resulted in lower investments for 2008. We didn't want to extend the Company based on a frail structure, that is, we wanted to really sacrifice the future to consolidate the present and later on pursue a better future based on solid pillars, on a solid foundation.

In the third quarter, we intend to focus, as we said before, on personnel, on training, on Assai, on the logistic chain and on IT. With that, we'll be dealing with the backbone of the Company. With that, we are choosing to have modernity in our managerial approach, focusing on future growth and we believe this will result in aggressive investment, however rational and intelligent investment.

With the aim of reinforcing our team, we are now announcing that we have a new Director of Human Resource, [Claudia Eliza], that has the best experience. She has been working with [On Debit] since 1991, where she acted as the director and the administrative and financial area. Then, she migrated to the human resources area in that company. This provides her great basis, and she is really concerned with results.

Claudia also had international experience in Latin America, and Claudia has been in charge of many transformation processes in the organization wherever she worked. She joined the Pao de Acucar group with a very aggressive background, with the required subtleness that we use in Pao de Acucar. She is really concerned about the customers, and she is really concerned about engaging with the team and with the results. They are the key aspects of our business.

Also, to reinforce our team, we hired (inaudible) to be the director of the IT department, because we see that this area together with the supply chain area is the backbone as we said of the retail sector. [Alessandro] has vast experience in this area. In the last six years, he has been the CIO of (inaudible), where he was promoted -- did restructuring of the IT platform. And in addition to that, he has operated also in retail networks, such as [mesbla] and [lata logo America].

We would like to highlight that we are reinforcing our team in non-food, and we also hired [Sidney Peo] that has worked for over 20 years for C&A, and he is now helping us to rethink the textile sector in our stores. With that, I have just highlighted the work that we have been developing calmly with reassurance, tackling the big points and reinforcing the strength to really [stick] steady results to really consolidate the trend reversion.

Now, I think we may open for questions.

Thank you. Now, we enter into procedure of questions-and-answers. (OPERATOR INSTRUCTIONS). Mr. [Sean de Ameras] from UBS [Factual] would like to ask a question.

Good morning to you all. Two questions. The first one I would like to ask in detail are comparisons with just the first quarters. Looking at the gross margin, we see that there is a significant fall in the second quarter in sight of the comparisons with last year. So, I'd like to understand first of all what happened if there was any change in the competitive scenario or it's due to inflation. And the second point is what is your expectation for the gross margin in the third quarter? Are we speaking of the average, the average that we had in the first two quarters or are we thinking differently from that?

Sean De, good morning, this is Eneas; I'm going to answer to you and after [Tomas] may add to that. Again, I'd like to reinforce the comparison of the second quarter with the third quarter. Of course this happened, but we reinforced the calendar [of fact] especially in Rio De Janeiro.

The scenario of [comparative] adjustments that is very strong in this state of Rio De Janeiro forced us to make some moves that some times get more evident, but there is no change in the level of sales. The higher sales that we recorded in Easter allow us to negotiate due to higher volumes, better negotiations in terms of cost, bonuses and other things that compose the growth margin and the growth profit.

But in the second quarter, we doubt the Easter in a more competitive environment, the investment -- more investments were made in March. The margins should go up in the next quarters. Of course, considering that the dilution that we have in the end of the year, but it should go up in comparison to this level. In the third quarter, it will not -- it should not be in the level of the first quarter, but it also should be below the average of the second quarter that will not -- as we are not going to have this Easter effect.

I would like to add to that. This is Claudio, Sean De. I'd like to add to that that initially last year, we heard in the analyst environment that Rio De Janeiro would be a market that would be difficult to recover as a function of a very cutthroat competition and informal competition.

And the situation was reverted in Rio De Janeiro and for three quarters, three consecutive quarters, we have been presenting very relevant results there, indicating that we are really considering to send this reversion as a consolidated factor concerned with the reduction of the margin percentage has to do with the increase due to the fact of the aggressiveness of Rio De Janeiro.

We are concerned with not losing market share. The situation we believe that we have now indicators of a reversion of this fall, which is absolutely in line with the process of restructuring. Again, just to go on with this question, in the terms of EBITDA margin, I believe that this was a little bit worse than if you compare it to the sales, our figures to sales.

What happens with the EBITDA margins? Should it go up or down? Especially in things just like the Easter effect, I don't know. Well, of course, when you have a greater volume of sales, you have a dilution, but Easter allows us on the one hand a better negotiation in terms of our budget and commercial dynamics as a function of a [tail] gain, we have more volume.

So, we had in the first quarter in terms of EBITDA, not only the Easter effect, but also other effects. So, we are keeping the guidance for the year of an EBITDA above 5%, if we consider that in the semester, we have 5.6% Sendas despite the pricing strategy, market strategy. It's well prepared in terms of cost platform. There is a reduction, year-on-year comparison of more than 3 percentage points in terms of expenses.

So, I think we should analyze your question more carefully, because of course there is a dilution of on lines in terms of margins due to increased sales, but better negotiations or commercial budgets also let semester results to a higher level. So, we are reinforcing that there is no highlight in terms of change of strategic past or any event that should be highlighted. So, what's happening is the commercial dynamics, a market action that is consistent and controlled. So, we live with our daily live with a growing curve in terms of sales, that's what we reinforced.

Just another question, in terms of CapEx, and as a function of investment results, CapEx, in opening new stores and real estate investments, we see that it's still very irrelevant. So, I don't -- we were investing in effect 45% and now it's 30% only. So, this impact for maintenance CapEx, is it relevant?

Sean De, this is a good question, and answer is that we are maintaining the guidance for the year of R$730 million investment in real estate and in land and plots. We are still investing, we have an important land banks today in the Company. We will still invest in real estate, because we need this platform to accelerate the growth that we anticipate for next year.

It's true that in this quarter, we are holding a little bit back, but the background here is that all investment that we are making today, that I confess that the difference from the past is being made in a very strict way from the point of view of visibility, return assessments. And therefore, naturally and mathematically it leads us to holding back a little bit, seeing that in process, but I want to tell you that despite lower investments in the second quarter, we haven't ceased advantage for the year and this is not a delay in the investment curve for the year.

This represents a greater control of the process in a constant way, having profitability in line, so you are right to say that there is a reduction in the level of CapEx. It was due to strategic decision and lower investments in the quarter even in comparison with the year, the curve for the year do not represent the delay for the investments anticipated for the year at the level of R$730 million. Thank you.

Now, question of Ricardo Fernandez from Itau Bank.

Good morning. Congratulations for the good results. I would like to know about the plans related to CapEx for the beginning of '09. I don't know if you're going to wait 'til September to think about next year, but the growth anticipated to the asset format with figures lower than the expected, will it remain aggressive and do you think that this mix of image in the future will be considered a risk, this target for margin of 7.5%, 8%?

In terms of CapEx, [Heca], hello. Our greatest concern is to review all of our formats and to adjust all of our assortments and pay attention to different regions, to the regional (inaudible). So, in '08, we didn't want to be aggressive in our investments based on a platform that was still being questioned by us.

What we are doing now is maximizing our current resources, consolidating the support structure for all of our stores, so that next year we may be able -- according to our planning for next year to be very aggressive in terms of investments, new stores and maybe new acquisitions, which is another focus of our investment, that are not of [Nike] and a logistics exchanged with -- which you didn't ask about, but I'm telling you that we will accelerate our investments in the support of our departments.

In terms of your second question, Ricardo, this is Eneas, thank you for your question and your comment on the Company's results. But in terms of the EBITDA margin, there will be no threat exactly. This is not a threat in fact, but what's happening is that the Assai represents 6.7% of the Company as a whole, of course to the extent that the Company makes the decision to enter a segment such as this one.

So, after the levels are lower, of course it changes the asset mix of the company. We do not see this as a threat, but as a change in our mix. In consequence, there is a reflection of that in the EBITDA margin. So, this is not bad news. This is a good news, a good piece of news. As long as Assai respond to these contributions that we expect, so it would be really bad news if within the same mix, the same composition of performance, then we had a lot in our EBITDA margins.

But today, much to the contrary, if you calculate the [recomposion] of the EBITDA margin excluding the consolidation of Assai and Sendas, whereas this excluding Assai, you will conclude that the company's EBITDA in comparison to previous periods have been growing very expressively. So, I conclude again saying that it's not a threat, but rather a reflect on the change in the mix and in the cash margin.

It will show a very important growth. These are of course the results that we anticipated and met, and we believe in this segment very consistently, because the EBITDA margin around 7.5%, I think my concern is the opposite. If you grow Assai, it's very fast with the cash margin, from implementation sales, they are accelerated, but I think it could represent another challenge in order to reach these levels of 7.5%, 8% that you are anticipating.

So, what you are thinking as a target already includes this rapid expansion of Assai?

Yes, that's the answer. The guidance for 2008 includes this growth, this forecast of this growth. So, there is no tract for the guidance for this year. Of course, we have to reformulate it for next year. We'll probably decide a new target for next year, but you are right, your final remark is correct.

The same store growth that you are thinking about is huge. Was there any change?

Talking more about the supermarkets or the mini-supermarkets instead of the big ones that consume a lot of the CapEx [glands] are used to waiting for the new structure if you have a new structure in terms of the real estate, to define the growth in the same store format.

This is Caio. The real estate will just supplement our business and provide greater feasibility to our operations, but the real estate does not affect the growth that we have in retail.

Okay, thank you.

(Inaudible) will ask a question.

Good morning everyone. Congratulations on the result, I have two questions. One about the sales, the de-acceleration of the CapEx that we had, it was a surprise. We had a slight drop in terms of instability. What do you expect for the end of the year? 3% in terms of sale, I would like to know if this is a correct number or aggressive number.

The second question is about the interest rates of the non-food area, because most of the growth came from this area. Did the interest rates go up as expected by the market? What do you view in terms of the impact in the non-food area? Thank you.

Christina, good morning, this is Eneas. Thank you for participating for your remarks on the results. As for the sales, I do not know if I understand directly your question, but regarding this year, we maintained the guidance of growing and sales areas at approximately 3% of course.

It's a little bit more, it's 3.7% in terms of sales area growth. This has not been changed, we are not changing it, we are not reviewing this target. Of course, this does not take into account Assai that has been acquired by the end of last year. It was in anticipation for an investment in 2008. This would lead to a growth in sales areas to 6%, almost 7% if we take into account Assai. So, we haven't reviewed this figure, we are not changing this guidance. We believe we'll reach this growth of approximately 3.7% in sales area.

Any interest rate in non-food?

Christina, this is a discussion that we have been having. The interest rates increased. There might be an impact in the non-food items, but let me tell you if we take into account a quick reasoning, the interest rate increase is more restrictive in terms of a credit. It could impact the reception of such products.

This has not been solved up to the second quarter. Up to the closure of the second quarter, there was a very consistent growth of a two digits in the non-food area. As for the future period, then the interest rate increase will be present for the whole market. The [thick] performance today shows a very prepared company.

Why, because we have a [sound] for you? Our strictness last year in building this portfolio in terms of support credit brings today a very reliable scenario, a comfortable scenario to face the situation of more restricted credit in the future. If the interest rates will increase for everyone, then we believe that our relative positioning will make a difference.

So, we'll keep on being very aggressive in terms of [granting] credit, of course with the feet on the ground with the strictness that is a standard for Itau and for Pao de Acucar group, but we are quite prepared to face a restricted scenario. We do not believe that this is going to be quite strong even with the inflation reaching 6.5%. Even with higher interest rates as we have been witnessing, and I think it will even go up by the end of the year.

Another question, but I don't know if I [ask]. The Assai margins, you maintained a guidance for 4% for the year?

Christina, this is Jose Roberto. Yes, we maintained a guidance. Our effort is focused on giving Assai greater competitiveness to guarantee this growth platform and to meet the objectives that we have outlined in the beginning of the year. So, 4%, yes it's maintained. Thank you.

(OPERATOR INSTRUCTIONS).

Daniela Bretthauer from Goldman Sachs will ask a question.

Good morning, everyone. Congratulations for the result. The first question is about the internet strategy. The .com recently announced a new strategy for the internet. Some people from America [planned to come] were brought to help them. Could you talk about your strategy regarding the internet operations? You said that the sales were good, but what was the increase of the internet sales in the total sales of the Company? That's my first question.

Daniela, this is Caio. As for [Pontofrio], they made some moves. They were quite weak in the internet operations. They hired people from the market with a great deal of experience in that segment, but this is a segment that you do not change overnight. You should work strongly in the base, do a continuous work until you reach the customers, so that they start relying on your work, on your service, so that you can really gain a satisfactory customer basis to meet your targets.

As for our sales, we've had a great growth as compared to last year's growth. Today our share in sales went from 1.7% of the total sales of the company to 2.1% now. That's what we have on Extra.com in our company.

Daniela, this is Claudio. .com will be a focus of attention. It is now and it will be even more important. We haven't talked much about dotcom because of the internal attention right now, but we'll give further attention to this and we really expect a very aggressive growth in that area.

Thank you. My second question is about the gross margin, because it is at the level of 26%. The expenses level were maintained at 19% and the EBITDA between 7.5% and 8%, but I haven't heard anything about the gross margin. Are you going to reach this 7.8% with the EBITDA even with this margin or are you going to have recovery in the margin?

This is Eneas, thank you for participating. Something that we have to take into account is the following. When we developed the guidance for the gross margin 26.5%, actually we had a branch from 26.5% to 27%. It's worth more 20% something, but it's valid for other lines, but the most important aspect here is the change in the tax system.

When we developed the budget and the guidance for the year, we did not know. We had an idea about it, but we did not know for sure about the product basket that would be included in the new tax system, and much like it we have an idea about the impact that this would cause. Of course, now we can measure it, and as I said, in the second quarter, we had an impact of 0.6% in the margin.

It was of the tax system, the tax distribution system. Of course, this is a recurring effect. If we take into account this margin of 26.1%, I have an effect of 0.6% because of the tax system, which is not a management issue. The margin would be 26.7% and the guidance was not taken into account in the beginning of this information about the new tax system.

In spite of that, we still believe we are going to be close. We are going to be within the lower limit of our guidance that is 26.5% with this effect of the tax system that affects the margin of the whole P&L, because it has an effect in the net sales. The tax substitution makes you remove part of the tax, increasing therefore [Euronet] sales, and its value goes to the [CMV] as an increasing cost.

But it does not affect cash margins, but it affects all of the other margins, because this is based on the net sale -- the effect on the margin is 0.6%. It was not forecasted in the margin, but in spite of that, we believe that we are going to meet the guidance in the lower limit, that is 26.5% for the year.

Okay, that is what I needed to know. Thank you.

Mrs. [Juliana Hosingbow] from [Unibank] would like to ask a question.

Good morning, everyone. I would like to go back to the discussion of the first question, when we discussed the impact of the calendar and the Easter in Sendas. I would like to discuss the point in CBD without Sendas, without Assai, we had an increase in gross margin and a good increase in the EBITDA margin too. So, I would like to discuss that. Is it because of the seasonality, because of the calendar effect among the different banners?

Juliana, could you repeat the question please?

We had a reduction in the gross margin, in [net debt] margin, in Sendas and there are a combination of factors including the calendar effect of the Easter, but when we look only at CBD without Sendas and without Assai, it's the other way around.

We had an increase in the EBITDA margin, and a little bit in the growth margin in CBD only. Is there something specific we should take into account that is more important than the calendar effect? So, why did we have this improvement in the CBD only margin?

Juliana, this is Eneas. Good morning, thank you for your presentation. I'm going to answer them, maybe some of our colleagues may answer that, but what we must stand out in your questions. A very intelligent question, but we must be a little bit cautious in this analysis, because when you look at Sendas in here, we always highlight Sendas, because they have the analysis.

So, joint ventures, we have partners and we do not highlight all the markets where GPA is present. If we were to highlight every market where we are present, you would see variations, new markets and then the average the results consolidated. What I mean by that, I mean that in Rio De Janeiro, we have some specificity, that should be considered in this analysis.

That is first of all, the performance that we have there, the participation of non-foods is lower than if we considered GPA consolidated. In addition to that, we are speaking of a market, if we consider all of our markets in GPA, it's a market that is still more aggressive and more competitive as a [function] of a number of reasons.

So, we see this aggressiveness, important competition in the market in Rio De Janeiro, but to cut a long story short, if we consolidate a number of markets with their own specificities, comparing this to a specific market must be very careful in this comparison. Again, there is no highlight to be made in Sendas with sections of this difference in margin and in between the first and second quarter.

This is only due to management and decisions led by competitions, price margins, the search for results. This is a moment to work with price margins. So, this is absolutely based on questions of commercial dynamics of a market such as Rio De Janeiro's market. There is no isolated highlight or recurrent effect. If there was, we would say it. If there was something, we would tell you for sure. So, we must be careful here, in this analysis, and instead of concluding too fast that there is a different effect.

So, do you think that it would be exaggeration to say that Rio De Janeiro expanded more than you gained share. Was there any dynamic that is different from the market in Sao Paulo?

Within my disclosure limitations, what I can tell you is that in fact a region that has been allowing us the commercial dynamics that is more directed to the source of practice is Sao Paulo. This is the market where we have been seeing this more, but it's not only in Rio that we have a competitive market and that investment in gross margin is present influencing the EBITDA.

But let's not consider that as a representative data, say that in Rio de Janeiro would change its level of results. It's not in the first or the second quarter of a way that will define a level of results in Sendas. We can consider the semester, yes, it reflects the level of Rio de Janeiro, but not the second or the first quarter isolated (inaudible). Because there is this natural dynamics in the very competitive retail.

Thank you. Another question in terms of the competitive environment, the partner that you have in (inaudible) in the wholesale market are different than the partners that we have seen in Assai specifically. In terms of performance, is there any structural question, is there a problem in your figures?

If you see the CompreBem stores today and you transform it into Assai, and in one year in the same stores, if you compare sales in Assai and CompreBem, would you see a different importance of partners? Why is this result -- same stores sales and Assai, why do they show such different results? Is there any structural issue here?

Hello Juliana, this is Jose Roberto. In terms of [Atacadon] the whole sale, I don't know the figures. If you can tell me, I think we could be good, so that we make a better analysis, but whatever the figure is, let's consider that (inaudible) as in converging stores and have been considering this as an effect of the growth of the wholesale markets just like we did in the lower volume of stores at this point.

From the point of view of Assai's performance that we have not disclosed these figures, the specific numbers, because Assai was not part of the company last year, it was integrated into the company in the last quarter of 07. What we see here is the sales performance as I told you initially. That is very happy for us, very satisfactory.

In our conversions, we have growth by 300% to 400% in the converted stores, and even in our existing Assai stores, they have been reinforced in what we consider is the most important for this kind of business. The strengthening of price competitiveness during price images, strong price image to the market, we have been doing that and results have been satisfactory.

That's why I told you that we keep our plan for expanding Assai, converting new stores to Assai because the performance of our existing stores, either the converted one or the open new stores, their performance is much above the CBD, which represents a two digit growth in comparison to last year.

Thank you.

Now, next question, (OPERATOR QUESTION).

It's Daniela Bretthauer from Goldman Sachs would like to ask a question.

I would like to ask a more broader question in terms of the competitive environment. What do you feel given the fact that there is inflation in food stuff? How is the company facing this issue? What is the strategy as you are planning to fight against this inflation of food stuffs?

Daniela, this is José Roberto again. We have already analyzed inflation and its impact on our businesses. We have been having a performance of real sales growth. So, the impact of inflation on our sales is in terms of margin. It's not significant now.

This inflation affects the market as a whole, so this position is a relative one today, as a function of everything we have done along the first semester in terms of strengthening the muscles or the group muscles in order to ensure a sustainable growth, healthy growth. It allows today GPA in all of its formats an ability to compete, a competitive edge greater than we had last year.

This (inaudible) gives us certainty that we are able to compete in every market. Eneas talked about the Rio De Janeiro market, but we have also investing in competitiveness, not only in stores in Rio De Janeiro, but in the Northeast as a whole, in Brasilia, where we suffer with the entry of major players, more stores in the central region of our capital city Brasilia.

So, we have been having the ability to keep on the level growth in our existing stores. So, we are in a comfortable position and we can tell you that if we are going to be able to improve our growth rates or not, I cannot say, but we are really able to compete in any one of those markets. The company is more competitive today than it was last year.

I think that it's due to sales or due to the mix. So, we are more competitive, there is no question about that. We are not speaking specifically about formats. We are speaking about Assai, CompreBem for example, the performance is excellent in regions where the competition of in formals or in the growth of new stores is very representative. We have been seeing favorable sales performance.

Last question. In terms of Extra, that we know, that is an important part of your sales. If you could comment, what would be the next steps for Extra? I would be grateful.

In Extra -- again, José Roberto. Extra, speaking about performance, we will see in Extra the same performance that Eneas described, where you have a more favorable performance in the state of Sao Paulo as a whole. The major movements as we have been making in terms of Extra is to re-adapt or to adapt the model that we created last year, that it's Extra Perto, where we have been making some adjustments.

But whether we have already concluded the equations, the adjustments and we are rolling out entrance [forming and into] contact hypermarket with much more ability to expand this model source to regions where we do not have large areas, so we can build and implement stores with less surface, but with our whole variety with the same assortments of extra hypermarkets and the normal Extras. So, these are the developments in our Extra format, and we are very sure that this will give new strength and new driver to the expansion of extra source as a whole.

But no specific action in Extra Perto and Extra traditional, the traditional Extra that you have been developing?

No, this is possible at any time. We are always moving and always looking at markets, adjusting to new situations, to specific situations of different markets. Today our plans are very ambitious in one region or the other in terms of getting more competitive edge, but this is more a consequence of the situation specific for each markets. They are in the specific competition, then to changes in the model or any operation.

Okay, thank you.

Miss (inaudible) would like to ask a question.

I'm sorry, I did not hear the question. There is a sound interference

Just a moment, I think that the person could repeat the question, please. Can you please repeat the question?

Julia, are you talking about the sales performance, comparing the different banners or the behavior of the number of customers versus the volume?

I'm talking about the traffic.

What we see is that there was really a drop in the number of customers in the beginning of this year. This was offset mostly by the average ticket, but since May, we have had a recovery since last year, the end of last year, but since May we started showing positive numbers in terms of growth of number of customers which showed that we are gaining market shares without having this loss in the average ticket.

This contributed to the year growth in sales. When you compare that among the different banners, of course, because of the added performance of the non-food, the Extra banner and the Extra Eletro banner and the dotcom banner too. They have of course sales performance, growth in the sales, growth in the number of tickets is more significant than the average for the whole company.

What is the banner that presents the highest growth in traffic?

In other markets, Sao Paulo is strong as we said, but it's impacted by the growth in non-food, but I was talking about the CompreBem performance that happened in the state of Sao Paulo, and since the beginning of the year, we have had a growth in the number of the customers that was different from the rest of the company. This trend has been maintained in CompreBem and the last month has been positioned with the sales growth that is higher than two digits, the present two digits. Thank you.

This will be the last question. Mr. (inaudible) from Spirito Santo Bank would like to ask a question.

Good morning everyone. My question is about the restriction that will be greater regarding the traffic of trucks in the city of Sao Paulo. I would like to know if you were feeling any changes in terms of logistic cost because of that. I know that this is a problem. Thank you.

Louis, this is Hugo Bethlem. One of the most important thing is to ask operations what was the impact that they felt. It's been 45 days that we have been having this restriction. First, we had the active restriction about the size of the truck, and the second now that again [while you go] with the restriction of the license plate restriction.

With the license plate restriction, we had been working for over one year. So, we'd monitor our trucks to have 1100 outsourced trucks that are exclusive for us. This will insure our delivery. Today, we have 70 stores that are covered by this restriction area, and the operations response was zero perception in terms of impacting the delivery and the supply.

So, we were not impacted in no time. At full cost, we do have impacts, because I have to adjust the deliveries to the time tables and to the different types of trucks, but the value is negligible so far, because of the planning that we have. The values in daily cost are small and we are renegotiating the logistics hiring. I don't know if you know this, but we have several middle sized networks that are no longer buying directly from the industry. They are buying from wholesalers, because the industry does not have the capability of delivering to this middle sized networks, because they have the limitation in terms of trucks.

This also helped us to really normalize in terms of our future compensation, but I guarantee that we are totally prepared, not only for the Sao Paulo city, but also for the new restriction that will occur in Rio De Janeiro and perhaps in other capital cities.

Do you think that in average, because the smaller mid-sized retail companies are having difficulties. So, you think that this could bring an increase in competitiveness or no?

There are two effects that will increase the competitiveness in the short and in the environment. One that is an adverse effect mentioned by Eneas, that is the tax replacement, because it impacts the margins, but along time everybody will be at the same competitive platform. So, it will no longer affect us eventually.

The benefit for us is greater then, and this is a significant trend in the state of Sao Paulo because of the court's power of the country and it's going to be copied by all of the other states and the second effect is the logistics. We should have logistics efficiency and IT efficiency as Claudio mentioned, otherwise we may lose further competition. In this area we are going to be a step ahead.

You talked about informality. How are you addressing this informality environment, especially in the state of Sao Paulo, have you seen improvements, because the state administration is developing several actions to fight against informality. How do you view that?

Louis, this is Eneas. Good morning, thank you for participating. What I may tell you is that undoubtedly we are noticing a gain efficiency from the point of view of inspection and even collection of taxes. The collection levels for the state and even for the city of Sao Paulo has doubled in the city of Sao Paulo, because of the inspection that is being made.

The collection has doubled, so we gained efficiency, and of course in the other edge is the consequence. We have a reduction in informality. These because of the invoice that is issued, the electronic invoice [feed] because of the tax system, because of the inspection efficiencies, but we have been feeling, yes. We have been noticing that and we have been celebrating this in our company.

As a side effect, we have gained in competitiveness hugely, because we were losing before in terms of competitiveness, because the inspection process was inefficient in the past, and there were more players working in the informality. So, we are totally partners with the state and with the city administration, not only Sao Paulo, but all over Brazil.

In regard to helping them improve the inspection levels to reduce the informality, especially in retail and in general. So, we are really realizing and feeling this deduction in informality, and not only in the state of Sao Paulo are we witnessing the reduction in informality, because of the electronic invoicing, because of the (inaudible) system that developed since January and because of the inspection process itself and because of the tax system as well. That's it.

Thank you.

If there are no further questions, we would like to return the floor to Mr. Claudio Galeazzi for final remarks.

I would like to thank you all for your participation. I hope we have been able to convey our message. I hope we have been able to answer the questions that were made. We are at your disposal, the whole team is at your disposal to answer any questions, any further questions that you might have, that you would like to ask. Thank you very much once again for your participation. I wish you a nice day.

The Grupo Pao de Acucar teleconference is closed. The Investor Relations Department is available to answer any further questions. We thank you for your participation. Have a nice day.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring the event.