Companhia Brasileira de Distribuicao SA (CBD) 2008 Q3 法說會逐字稿

Good morning and thank you for waiting. Welcome to GPAs teleconference to discuss the results of the company in the third quarter of 2008. This event is also simultaneously broadcast through the internet via webcast and may be accessed on the address www.gpari.com.br where you find the respective presentation. The selection of the slides will be controlled by you. The replay of this event will be available right after its closure. We inform that the press release on the results of the company is also available on the investor relations website at www.gpari.com.br.

This event is being recorded and all participants will be just listening to the teleconference during the presentation of the company. Right after that we'll begin with a Q&A session when further instructions will be given. Should you require any further assistance during the teleconference please request the support of an operator dialing star zero.

Before moving on we would like to clarify that possible statements that are made during this teleconference regarding the business perspectives of the GPA Group, its projections and operational and financial targets on based beliefs and premises of the Board of the Company as well on currently available information. Future remarks are not guarantees of performance, they entail risk, uncertainties and assumptions because they regard future events and therefore they depend on circumstances that may or may not occur.

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

Now we would like to pass the floor to Miss Daniela Sabbag, the Director of Investor Relations for the GPA Group that will open the presentation on the performance of the company in the period. Please, Daniela, you have the floor.

Good morning, everyone. Welcome to our teleconference in the third quarter. Today we have with us Abilio Diniz, the Chairman of the Board; Claudio Galeazzi, our CEO; and the Executive Directors of the Group, Eneas Pestana, Jose Roberto Tambasco, Ciao Mattar, Sylvia Leao, Jorge Herzog and [Carlja Eliza].

As we have been doing our teleconferences we'll begin the remarks of the board in the first part and after that we'll address the questions that you might have. I'll pass the floor then to Abilio Diniz for his initial remarks.

Good morning, everyone. In the return from last year to this year there was a determination of the Board that we had to change the results from the previous years and the Executive Board took this direction, trying to reinforce the foundation, the fundaments of the company to really promote the strengthening of our personnel. We advanced in IT and logistics. We restructured our capital. We have a more sound structure for capital so we address all the details and putting them all together the results of the Company were improved both in sales and in profitability and performance. I believe that we are now presenting the results of the third quarter and with great satisfaction we are really fulfilling our objectives -- fulfilling our tasks that we had defined for ourselves.

I would like to talk a little bit to you at this moment of the global crisis, how we view the scenario, how this may impact us. Actually, this beginning of the year we have been preparing for moments such as these. Clearly we are not using crystal balls. We cannot really foresee what was coming, we're not able to foresee what was coming. Nobody in the world imagined the dimension of the global crisis, nor did I, nor did we. But definitely with our 140 years of experience, my years of experience added to Claudio's years of experience plus the years of our Board executives of course this resulted in something quite beneficial for the company.

In the Black Monday on September 15 we had cash of 1.3 billion and we tried to enhance even further this cash available. So, we have liquidity, we were not doing great transactions, we were waiting to see what was coming so with this streamlined company with the company with a great operational performance, company that is very aggressive in sales and in results as well.

Our sales have not been affected. Our cash situation is really assured, we have really been dealing with the talks as a determination from Claudio Galeazzi so that we could increase our turn over. It is clear that right now we should be smart and take advantage of all of the opportunities in terms of purchasing so that we can be readily prepared for that year-end so that we can present a really good performance in the year-end sales. And that is what we are doing right now.

At this moment we have a capital and cash scenario which is quite reassuring. We have net debt that is less than our EBITDA and this provides great assurance to all of us. We have nothing invested in derivatives. The policy of the company, the policy of the treasury of the company is not to have exchange exposure, exchanged-based exposure, all of our debts are based in Real currency which provides also great reassurance to us. We have not invested in derivatives. We have been out of these appealing investments trying to enhance results. So, we are not investing in derivatives. So, we have a very reassuring situation in our Company.

And having said that, I think that the important matter is looking towards the future. What do we expect from the future? Actually, I really hope the world to be better. I think the world will become more realistic. There was much vapor wear, many people selling wind and people buying wind on the other edge. I myself and I have been talking to Claudio and we agree on that we have never been good in selling wind or selling vapor wear. We'll now have a better situation in the future in which we are going to sell real things. We believe that the world will become more selective, investors will also become more selective and therefore, our company will be paid more attention to.

I have total reliance on this Company and I also have total reliance on this country. So far I've had no reason to complain. I believe that the government actions have been wise -- all of the actions have been really reassuring. I'm constantly traveling abroad and I see what is going on in other countries and I can see there the scenario here in Brazil much more reassuring and a very privileged situation. I have no doubt that the investors will be looking at us with this tense as well when they really decide to invest more aggressively in the country.

And I'm sure that we will not lack credit in this country for the major activities, we will not lack credit for agricultural, we will lack credit for exporting, we will not lack credit for the civil construction sector as well because Brazilians need housing and Brazilians need the jobs that are provided by civil construction sectors. I am sure that the country will continue to be well managed and we'll keep on growing. It may be that we are not going to grow at the pace that we have been growing but we'll keep on growing. I have no doubt, absolutely no doubt about that.

We here at the Grupo Pao de Acucar we are prepared to follow that growth and we are also prepared, we have some scenarios that we have been discussing here that are pessimistic scenarios and they may be heckled and we are prepared to face [big ends] adverse situation. However, I do not believe that the adverse situations will actually occur. We are extremely prepared, we have credit, we have the FIC, the financial institutions that we have been managing with the factor. To date is a sound institution, it's a health institution with the capability of meeting all of the demand of credit from our consumers. So, it's a well structured company that is very aggressive and is prepared to sell credit. And it's also prepared to grow.

Of course, we are going to grow very carefully taking into account our CapEx and taking into account the EBITDA growth. We will only make investments if we are really sure that we will have a responding increase in the EBITDA. That is the company that we have to show to you today and I hope we keep on that pathway and I'm sure that the executives that are leading this company are very experienced executives and they will take us along the right pathway. Thank you very much. Now I would like to give the floor to Eneas, our financial and administrative Director who is going to provide further details on the performance of the Company.

Good morning to you all, thank you for participating in our teleconference. Now I will focus on figures and technical issues and of course what we do not address may be including in a following Q&A session. But summarizes our subject today and after the growth by 50% -- so let's see how this results are formed. Starting by sales -- the Group presents in this quarter growth gross sales growth of 24% and net sales by 26%, this difference is due to tax, progressions and in the same store sales we grew by 10.3% and the net sales moved up by 13.6%.

If we categorize that we see that we grew in non-food products by 16.1%, in food products we grew by 8.5%. This exceeds our inflation rate confirmed for the period in this categories and the most important is to highlight that this sales growth is sustained by the increase traffic of customers and also increased of the ticket match. It's not due to prices increase we are going to speak of the gross margin and it's much to the contrary. We have a pricing efficiency leading to more customers coming to the store and also increasing the average ticket and also with a better mix, more added value that are part of this basic product basket and also leading to expressing increase in our sales.

In the accumulated we have an increase of 19.4% in gross sales and 21.9% in net sales again. And this difference corresponds to the issue of new tax systems. In the accumulated in the same store concept we have growth by 7.7% and if we discount inflation it will result in a real growth by 2.1%. And then I call your attention to the fact that our guidance that was announced in April '08 to all of you was about 2.2% of real growth. That is we are slightly above the guidance for the year and about to deliver the results promised to the end of the year.

In sales in terms of banners I think we should highlight the growth of Extra, Extra-Eletro and in supermarkets the banner CompreBem. Of course, that count is consistently growing also above three digits. And in this quarter we have 185% in growth with a precipation of 2.2% in the group sales. Now in margins the gross margin this quarter was about 27% consolidated margin, what means 1.7% of blinds below the third quarter of '07.

Therefore, again, by far there's no such thing as a price increase. Much to the contrary we are keeping, we are going on with the strong competitiveness policy since 2006 that has been intensified based on the clusterization strategy and pricing strategy market to market, region to region which was successful experience, consolidated by the results in Rio De Janeiro and in Rio De Janeiro turnaround. So, in this quarter margins was at 27% impacted and benefited by the best margin results in the banner Sendas, Sendas Distributor and Assai. Sendas Distributor achieved 28.6%, in Assai 16.4%. We are going to speak of Sendas and Assai a little further ahead.

If we could explain this 1.7 percentage points in three points we would say that the first is the competitiveness that impacted in 0.4 percental points the margins for this quarter. In addition to that, the consolidation of the Assai chain was a margin of 16.4% decreases the effect here is 0.8 percentage points. And after the change in the state of San Paolo VAT, the tax system increasing net sales and actually this provokes an effect of half percentage point. So, if we add this three points we then have the effect in the quarter's margin and also if we observe the accumulated in the first nine months in '07 was 28.2% and now we have in the wait -- we are then reaching the level of 26.4%.

Now we can speak about expenses. And expenses were one of the best news we had. We could really check how consistent this reduction has been along the year as you know we announced very clearly the adaptation of processes and organizational structure that we were promoting this year with the arrival of Claudio Galeazzi in the beginning of the year. This was his major task for '08. And also, leading to efficiency gains. This has been reflected at a level of expenses in a very consistent way so we are able to reach now in this third quarter 3 percentage points in any retail enterprise, it's very relevant.

So, expenses of the third quarter '07 achieve 21.9% of net sales and now these correspond only to 18.9% of net sales. So, a reduction of three percentage points even in the accumulated it was 21.6% in the first nine months and the year-to-date '07 and in this first nine months the year-to-date is 19% so a reduction of 2.6 percentage points compared to last year.

So, this is another highlight and very positive news. So, so far with this margin reduction and the rebate in the expenses line we have enacted the margin that is quite high if we consider the scenario of Assai and Sendas consolidation reaching 8.1% of EBITDA margin. In cash R$357 million the highest EBITDA reached by the company in the third quarter ever representing a growth of 50% compared to last year.

In terms of guidance we had announced, we had told you that sales would reach 2 percentage points in real growth, that's what we are finalizing for the year. In terms of margin we had announced a margin between 26.5% and 27% of net sales, in terms of expenses the guidance was about 19 and here have 19 in this year-to-date for this last nine months.

So, absolutely within the guidance. And for EBITDA we had announced an EBITDA of 7.5% and 8% for the year and we are in the year-to-date EBITDA recorded 7.7% in this quarter we have reached 8.1% so we are meeting the guidance even for the year-to-date the progression was about 37% for the EBITDA. So, if we consider the exclusion of the non-recurrent effect of the restructuring at the beginning of the year this effect would add to 45%. So, it's an excellent result consolidated in this third quarter.

In addition to that, financial results I think that we must highlight this line of business for this quarter as exactly what Abilio was saying about our capital structure. Financial results were negative in R$81 million, R$81.5 million, a little bit above what we expected, we expected something about $R76 million so we should bring this result to this level in the fourth quarter of course excluding any unexpected financial events. Also the installment plans the idea is to develop the mix between interest-free installment and including also interest installment plans without any impact to sales from our customers.

FIC, our financial institution is well-prepared and we are sure that in terms of a relative position, FIC is much better than the average of financial institutions in the market and ready to answer aggressively to any needs of such reaction to the credit offer and maintenance of the sales growth rate that we have been recording. In terms of financial results, this effect also is compared to seven, we see that the greatest is the increased interest rate on our net debt that today is 1.3 billion. It has an important impact and also on our contingencies. A reasonable level here should remain between R$75 million and R$80 million and we will work with our management in this interest-free installment plans together with pricing in the Company.

In terms of the debt profile in the page eight of the presentation -- that profile totals for the end of the third quarter 2.7 billion and this is important to highlight the profile of the debt. 86% of the debt is at the long-term with 800 days average term differently from the third quarter '07 as Abilio highlighted where we had 31% at the debt for the long-term and now we have 86% for the long-term. So, we have a debt profile that is very comfortable with rate of coverage above four times and the net debt on EBITDA is less than one times.

We close the year-to-date with cash of 1.4 billion. We don't have any kind of that exposed to the exchange rate. All of our debts are already converted to reals and linked to the CPI. Our policies are very strict about that. We have an area of internal control that takes care of all of these issues, these policies are very strict in terms of our treasury, not only in terms of contracting of perfect hedges but also in terms of not allowing any kind of contracting any kind of derivative operation aiming at profits or increased redoubts as Abilio has already mentioned. So, that the company does not run a risk of losses in terms of derivative operations.

In terms of our preparation as Abilio said, right after Claudio's arrival and the determination by our Board so that we should work with the company fundament and one of these fundaments is the capital structure we tried to increase the minimal level of cash in the company like increasing the debt profile, the term of the debt and today it will only be in mid 2010 that we will have due dates, important due dates for all that so we have very aggressive goals.

Also for this year in terms of inventory levels we had decided and announced to you the reduction at the CapEx level for this year and it's strengthens in a very relevant way from the point of view of capital structure and it allows us to be in a stronger position in order to face any unfavorable scenario that we may have to face as a function of the global crisis as Abilio said. We are taking this very seriously in this company, we have been working in the last month trying to simulate different scenarios and for each one of these scenarios we have action plans that are ready to be implemented in necessary and any way the company is very strong and very confident and we can say very comfortably that the guidances for this year will be met.

In terms of equity we have FIC for this quarter, we decided really to invest in selling cards, branded cards and whenever that is done the expenses are somehow anticipated so we have a break even result for the quarter. However the selling of the cards was 85% higher than the selling of cards if we compare to the same period last year. So, our customer portfolio reached 5.9 million customers and a reasonable portfolio of R$1.4 billion. The participation of FIC and the sales of the company reached in this quarter 14.2%.

As percent of this Distribuidora as I had said before the this quarter we reached a gross margin that was higher with 28.6% that is 1.9% higher than the same quarter from last year. This accounted gross profit of R$200 million. The expenses are totally under control.

This is piece of news that is good news to be able to verify the consistency of the work in reducing expenses, the work that was carried out in Rio de Janeiro there was also based on reviewing the processes and with that Sendas Distribuidora in spite having yet a slight loss resulting from the negative financial results, resulting from the indebtedness that we have at Sendas Distribuidora, it had an EBITDA very high, an EBITDA margin of 8% as opposed to an EBITDA in '07 of 3.5% only. And if we recall the third quarter of '06, the EBITDA margin at that time was 0.9% so you can see really the evolution we had in Sendas Distribuidora.

As for the higher margin that we had in this quarter and I reassert what we have been saying about Rio de Janeiro in the last teleconferences, that is that Rio de Janeiro is a market that is extremely nervous, is extremely aggressive from the point of view of competitive, is highly verticalized and this should happen really there.

In the first quarter we had a margin that reached 27.6%, in the second quarter 25.5%, we had a drop of two points then and in all 28.6%, that is depending on the campaigns, depending on the promotions, depending on the moment in which we cut down on something, depending on the campaigns, no the promotional offers, depending on the work that we develop towards more competitive in Rio de Janeiro we can capture higher or lower margins. But from the point of view of the future in terms of year-to-date we recommend a margin between 27 and 27.5. That should really close the year at that rate. For the next months we have a forecast of 27.2%.

Now with Assai, differently from the first and second quarter, in this third quarter we had a margin of 16.4% that is higher substantially higher than the margins that we had in the first and second quarters that were at about 13.5%. In the first and second quarters we invested a lot in pricing and price image and we readjusted the processes and readjusted the companies to the processes that we are now introducing including stocks.

In the third quarter we were able to review the margin to take the advantage of negotiating bonuses to adjust the Assai agreement bringing it to the same profitability that we have for the GPA Group so that it was possible to reach a higher margin of 16.4%. The expenses were capped at the level of 11.5% which made the EBITDA margin reach 4.9% in the third quarter. And year-to-date 3.1% now by the end of September. The Assai margin thinking about the future as well should not remain at the level of 16.4%, it should be lower than that at approximately 15.5% to 16%.

With that, we have here earnings before taxes, I would like to talk about earning before income taxes because last year in the third quarter the company benefited from tax credit with Sendas Distribuidora in the value of 34 million that became, that turned the income tax line as a creditor line in 17 million and of course this year we are not having this refund, this tax credit therefore we'll remain in earnings before taxes at last year in the third quarter we had profits of 27 million and this year in the third quarter 124 million with a growth of 353% which is highly significant.

In spite of the income tax credit that we had even it would take into account the net profit, the net income, the net margin is 1.9 which accounts for a net profit of R$82.2 million and last year yet with the tax credit we had a profit of R$34 million with a net margin of 1%. So, we are performing an analysis of the adjusted net income in which we have reached R$157 million of adjusted net profit. Actually the net income in the third quarter is R$107 million and as you can see in the chart.

To conclude, I'll talk a little bit about our investments, our investments in CapEx in the third quarter of '08 was R$107 million. With that year-to-date R$331 million we inaugurated in this quarter seven new stores and that three are convenience stores, Extra Facil, two Extra stores, one that is a hypermarket and the other that is a compact Extra, and two additional Assai stores.

Just for your information in the fourth quarter we are going to inaugurate 12 additional stores and will make five additional conversions to Assai. The total investment for the year should be approximately R$500 million yet below what we had announced in the beginning of the year. There was a R$730 million. And I would like to explain to you that this different investment is not related to strategy changing, to guidance changing or to reducing CapEx.

Actually the investment plan included budgets for buying land, for opening Extra Facile and Assai stores and in the case of Assai as we told you before we made the decision of investing strongly in adjusting the processes and with that we delayed a little bit the inauguration or conversion of stores to Assai and now we are resuming that activity, Extra Facile, we should really accelerate that investment next year. There have been no strategic changes regarding Extra Facile stores.

And as for land, there has been no strategic change either in purchasing land except for the fact that today we are much more strict in terms of the process and decision making and feasibility analysis of our investment with a strong focus on return on investments and results. So, that in addition to finding a well-located piece of land there should be also consistency in making the undertaking more feasibly. And of course these make the process more selective, stricter and longer resulting in delays but it's something that will speed up in the following months. And we'll really recover and continue investing. That's what I had to tell you. Now I'll give the floor to Claudio Galeazzi before doing Q&A. Thank you for your attention.

Good morning. It's a pleasure to be here with you. I'll try to be as subjective and brief as possible. Of course, the back to basics policy and what Juliana from Bank Itau mentioned that is our constant mantra that is to tackle the sales pillars aiming at selling more and aiming at achieving the results as a consequence of the work that we have been implementing. And this is something that is really providing a benefit, a significant benefit for the Company.

So, in the last year we have been preparing to be able to expand before the crisis of course. The expansion program was quite aggressive however common sense will prevail and as Eneas said we have many triggering points and also Abilio reinforced that idea that we have many triggering points from which was can speed up or the accelerate as required as convenient according to the common sense.

The important thing is that we have the upper hand on braking, on stopping the operation or on accelerating the operations today due to the in depth that level on account of the liquidity that we have, on account of our positioning vis a vis with our suppliers, we may have the best negotiating conditions and this really provides a competitive edge. Without further ado, because we have been talking a lot throughout the year about the project that has been approved by the Board and by Abilio, that was the back to basics project. It is going back to the basic operations to really address the arid aspects of the retail factors. Usually retailers are paying attention to the choreography of the sector which is more dynamic and provides more adrenaline but the care with the financial side with the area apart, with the working capital, is also important.

In the beginning of the year we increased our debt profile but of course we paid attention to coherence limits and the reduction of the CapEx that was motivated by caution so that we could really review all of the models. Well all in all in this year-end we are highly prepared, we're very well prepared to respond to any of the scenarios that we have already simulated and that we are, I would say, ready to adjust conveniently to any of the adverse scenarios. So, now I would like to questions that you might have.

Thank you, ladies and gentlemen. We start now with the Q&A session. To ask a question please type star one. To take your question off the list of the line to remove it from the line, press star two. Our first question comes from Miss [Cristina Perrion] from [Noe Investments].

Good morning to you all. Congratulations for the great results. I have three questions, brief questions. The first in terms of the margin, the sales margins, stands at 8%. In such a competitive margin with the accumulated margin of 7.5% and the fourth quarter we have that it will be even stronger I think that the guidance is a little bit low. Are you going to review the margins guidance, increasing it? This is the first question. The second question for the projections for '09 I don't know if you're able or ready to announce something? And the last question in terms of the negotiations with [Sanders] family, how is this process going on? Thank you.

Cristina, thank you for your questions. These are three very important questions in fact. In terms of guidance and our margins, this is Eneas speaking, sorry. First of all in terms of standards, they presented in this quarter margin of 26% but in the accumulated and the year-to-date we have 27.2% of margin and 6.4% of EBITDA margin. In the fourth quarter it's a very competitive quarter in the Rio de Janeiro always greater than in the rest of the country, in the rest of Brazil and guidance are not low we think.

We are keeping the margin guidance from 26 to 27% in depending on the fact that tax effect so this is tax effect has an effect of half percentage point on the margin and we are keeping the guidance on 26%, 27%. We have the need of additional half percentage point to deliver the same guidance that we had announced so that's why we took this decision of keeping the guidance and I must tell you that is not low. We had in our budget with percent, we had it already six, 6.5% of the EBITDA in order to compose the total guidance. In a very assertive we can tell you that no, this is not low.

In terms of the Sanders family the negotiations with Sendas family and I will address the negotiations, our projections for next year we had a very sad event with the death of our partner Mr. [Too Sanders] that was only the Chairman of the Board of Administration in our joint venture since January. And of course that this will have no direct impact on our negotiations but it's of course that his will be reasons for some delay. Negotiations are going on, we have no news about this after the arbitrage chamber we return to the negotiation with the partners.

They notified in January '07 about this exit, about this dissolution so we have to negotiate this exit. And this negotiation will then restart very soon and I think that the final solution will be reached in some months. Of course this is the solution that we hope in the case of the conflict our agreement again provides for the arbitration again. Of course we want to reach a friendly solution and to solve the question.

In terms of plans for '09, be it in terms of investment, expansion or even in terms of results, unfortunately we are still concluding our budget investment plans for '09. This is still to be approved by our Board of Administration until the end of November and the beginning of December so that we are not going to speak about '09 now but we are anticipating for February and March to have a GPA day so that we will officially promote announce the guidance for '09. So, thank you.

Our next question is from Mr. Marcel Moraes from Credit Suisse.

Good morning to you all. Congratulations for the results. Eneas, my question in terms of sales performance for the end of the year, holiday season, some feeling for '09 in terms of non-food products, what's your intuition? We saw that interest rates were reduced for taxes on imported products, maybe this will go up. What's the feeling, the management's feeling in terms of sales to the end of the y?

So, I will make a brief introduction and I'll pass the floor to Marcel in Tombasco who will conclude the answer and will tell you about this feeling, the company's feeling. He's the officer responsible for the operational area so he has a better feeling of the pulse in this area. In terms of 2009, again unfortunately we are not allowed to communicate any kind of feelings or plans for '09.

In terms of non-food products what I can tell you I think from the financial point of view, in terms of the crisis we don't know exactly how this will all end up and we think that really those who say that they know they are not well informed so we need more time to have greater levels of certainty. And suppose if we have more difficult scenarios for non-food products at the function of credit restrictions in our scenarios we have debating this and what I can tell you in respect is that FICI, our financial institution, today is very healthy institution in terms of default.

We have the lowest rate of default in the market due to our strict credit score, very narrow, and arising from [ATU] policies so that we have room and we have breath. To be very aggressive in scenario of restrictive credit in terms of relative position I'm sure that we'll be in a better place compared to our competitors and we are not going to lose as many sales as the others in a scenario that we don't know how much difficult this scenario will be as a function of this crisis. So, that's what I had to say and now pass the floor to Cecil that he may conclude this answer.

Hi, Marcel. Good morning. As Eneas has addressed a little bit this fact that we cannot guess what is coming ahead but so far we have had the expectation of maintaining the performance that we've been having so far. And based on everything that was said here by Abilio, by Claudio and by Eneas I believe that from the internal point of the view the company today is much more prepared to really fight in this competitive market.

We see the data, we see the figures that really show a major of market share including the non-food and up until last year, up until the beginning of this year we have a very poor performance in that sector but we are gaining market share and our expectation is to keep advancing in this market for the year-end, towards the year-end.

And from the external point of view of course a crisis like this is of importance. Of course we cannot guess what will happen in the future. This crisis may have some sort of impact but the economy has much more stable fundaments in the last few months we have an increase the purchasing power of fee income bracket, especially fee income brackets and this will have a lower impact, the crisis will have a lower impact in terms of the consumption of food products and semi-durable products that includes the non-food that you mentioned.

And the fact that we can really offer credit that the card for default that Eneas introduced to you makes credit available for our customers. And with the aggressiveness that we have been showing with our payment plans, with the interest rate plans, this will enable us to maintain the performance up and through the year-end.

Was there any sort of adjustment in the commercial policy of the company as of September because of the credit crunch? Was there any kind of adjustment that involved terms, of payment or prices in some of the categories? And how do you negotiate with the industry? Because I believe that in a scenario of a higher prices of imported products you may negotiate with the industry to get a longer term, negotiation with them for instance.

From the point of the view of the consumer there was no change in all that we offer, in all the payment terms, especially non-food. We have been maintaining the same policies, it is a very aggressive policy. If you look at what Extra is doing we even increased our exposure in the plans that have become more aggressive in terms of interest rates and also in terms of installment plans. So, there have been no changes. This will enable us to be more aggressive in the market.

Talking about the negotiation with our suppliers with the industry of course initially we have a certain halting of activities until everybody understands what is going to happen with the products so the negotiation becomes a little bit difficult with the suppliers. At no moment have we accepted this crisis as something affecting the purchasing prices of our products, we have been very harsh in negotiating and we've been successful. We've been almost totally successful. We haven't paralyzed the purchasing process just for a short period with the debt until the year's suppliers can get together and we are really meeting the goals of our purchasing plans.

Really to be able to celebrate the anniversary of Extra that we are celebrating this month, we had no issues with replenishment, the negotiations are going on. I would say that virtually normally. You may even think that it's weird to say that virtually normally but whenever you have a crisis the negotiation becomes more difficult in the beginning but it will result in a greater balance for everyone be it in terms of cost or be it in terms of price positioning from the suppliers within the market because nobody wants to increase the prices if they're not sure if the prices will be paid for by the consumers. And the market is very competitive which really helps us to establish with the industry, with the suppliers price levels that are quite close to the price levels that we have been offering.

So, once again, guessing what is coming ahead is not an easy task. But we've been highly successful and you can see on the newspaper, news, even the most pessimistic ones they are really talking about good negotiations with the industry so that the negotiations can really happen and also the sales the consumer. There is no use accepting a higher sale price and not being able to pass it on to the consumer.

As for payment terms, for the consumer there have been no changes, there have been no changes in that area as well. We have been maintaining our policy to work with very good levels of stock that are really adjusted to the sales demand. So, we are trying to maintain the payment terms and the stock that we have been practicing so that we can really improve our cash situation.

Thank you.

The next question is by Daniela Bretthauer from Goldman Sachs.

Good morning, everyone. Congratulations on the results. It seems like 2008 is done, you have won and the question is about 2009. What can we expect from the company in 2009? How about margin and cost reduction? What could Claudio tell us about these areas for 2009? Or can't he say anything?

Well, Daniela, what Eneas said is true. We are still, I wouldn't say that are preparing our budgets in our expectations for next year, of course these are ready. And we are now analyzing the different alternatives that we have based on different scenarios. But we are not yet announcing any piece of information because we haven't approved yet these measure vis a vis our Board.

We will approve that in November and we will provide the guidances in the beginning of next year. What I may assure you is that we are preparing a sequence of new mantras that will really guide our year of 2009. And it's going to be aggressive but common sense will prevail and we'll be readily prepared both in terms of cash or working capital and in terms of talk and planning. We will prepared not only for the year-end that is something that is now monopolizing our immediate attention, it's something that is going to happen now but in 2009 we'll announce the measure.

So, let me ask a different question. Do you view the opportunity for cost reduction and margin gain in 2009 for the company?

Well, Daniela, I think that by principle the company should never give up trying to promote margin gains and cost reductions. Perhaps we are not going to have the same gains that we have just achieved. It's difficult to keep on reducing costs and keep on gaining margins but it's a permanent goal that we have. It's something that is part of our daily routine and do not forget about my nickname, Claudio Sciccorshands.

Well, as for the competitive environment, have you witnessed any changes in September, more specifically in October? Have you witnessed any stagnation in the market? Or do you think the sales are the same? Please talk about the competitive environment.

Daniela, this is Tambasco. Daniela, what we observe in the market is that our performance is higher than the market's performance. When you see data announced by the supermarket's association, we can see that. In the past we were as likely lower than the market in general but today we have a significant difference as compared to the market in general. Even as compared to the projections introduced by the supermarket association.

From the competition point of view what we sense, and it's very difficult to talk about that, very difficult to clarify what is bringing the impact, if it is the tax system, if it is the invoicing that the supermarkets are now issuing on account of incentives that the government administrations have been promoting, all of that has a certain impact in the market and we observe a slight change in our competitiveness especially when we talk about CompreBem because we have a more informal competition with CompreBem and we have great gained competitiveness in the range of 1.5% to 2% without actually changing our strategy.

The strategy for CompreBem has been based on a stable price policy. But I think perhaps we gained 1.2% or 2% from the competition and it's something related to the price adjustment of our competitors which proves to us that in this competitive environment, Pao de Acucar based on everything that has been developing, Pao de Acucar really has the capability of maintaining this very good performance and really aim at extrapolating that in all of the banners.

Just supplementing, Daniela, and this is Claudio. You may imagine that right now we are in a very privileged position in terms of negotiation. For instance if a price is increased and we do not buy, what will the industry do with the stocks. So, it may really be that we have a gain in margin or that we transfer that advantage that we have right now to the consumer, to the market. This is the matter of policy of circumstances. And I'm talking about the year-end now.

Thank you, congratulations and good luck.

The next question is by Ricardo Fernandez from Itau Bank.

Good morning, everyone. I would like to address the changes in the banners that you presented in the press release. You were talking about Extra Perto and you have a reduced 10 stores in Extra Perto and turned them into Extra and also Sendas and CompreBem and ABC so I would like to better understand these changes. Have you changed banners?

Ricardo, this is Tambasco. No, no, there have been no changes. In the case of Sendas the CompreBem at the ABC region and CompreBem is a banner that we still have in Rio de Janeiro and different region that is ABC CompreBem. There have been no changes. None of these stores were converted. But all of them belong to Sendas Distributors. Here is Extra Perto, yes, there was a change in terms of the store concept. We had really separated these concepts, Extra Perto should be a store with approximately 1,100 square meters up to 4,000 square meters and now we took all of the stores with an area higher than 2,700 square meters and we started naming them as Extra without the Perto word because it is a hypermarket.

With all the lines that we have in the complete supermarket of course with a slight changes, it's like modifications in terms of assortment but we are not eliminating any categories at the store. Something that would prevent us from classifying it as a supermarket. So, you hear us talking about Extra and Extra Compact but all the stores are based on the same policies and the same strategy and for the consumer there have been no changes. If a consumer enters the Extra Compact or an Extra store, it is as if the consumer is entering the same store.

So, Extra Perto is being phased out, is that right?

No, no, no. It's not being phased out. We are maintaining the Extra Perto stores that are the stores with the smaller areas, smaller than the 2,700 square meters and these stores are more like supermarket but they have an assortment that is different. For instance, we have the electrical equipment, the electrical electronics and a category that has a larger area than hypermarket. It's not a hypermarket but it's a robust supermarket. We have no textiles for instance. So, the Extra Perto banner remains under the same concept. If we analyze by banner, Sendas has very high revenues.

Does this include CompreBem? Is that because of the replacement of CompreBem by Sendas?

Well, there have been no changes. Everything is under Sendas Distribuidora. I do not know about the figures but when we address Sendas we are always talking about the Rio de Janeiro region as a whole.

At the CompreBem stores in Rio, were they part of Sendas Distribuidora before?

Yes, they were part of Sendas Distribuidora before. There have been no changes.

Okay. The second question is about the tax system, the invoicing, the tax refunding. Do you know the magnitude on tax refund per product or what percentage of the products sold have this kind of benefit? Just to have an idea if in five or ten years the tax on the circulation of goods will be removed.

Ricardo, this is Eneas. Thank you for your question. You see shows the migration of products to this new categories, this is a process that is going on for quite some time. The state of Sao Paulo we were a little bit late, in other states of Brazil region, maybe for example we have already a basket in the tax regime that is much larger than we have in Sao Paulo.

The former Governor in the state Sao Paulo set out to ask me we're work very strongly in the sense of strengthening this tax regime. And this year as we have been seeing there is a migration, a very strong migration. Of course, that the governments is heading, is leading this plan and in this tax regime we have a higher level of application of tax from the point of view of collection of taxes and utilization of course this new regime is much more efficient.

For us we don't disagree with this concept, much to the contrary. For formalized companies such as ours this is very good because the trend is that this reduces the level of informality and bringing fair competition to the market, companies that are all under same rules and that they pay for the taxes. So, we don't disagree with that.

Sometimes we argue the tax burden, the margin that is attributed in terms of calculation and attributation of the VAT tax under this regime but in spite of that we're saying that it's for formalized companies, this is very good for the state and for the country especially when it comes together with further measure such as electronic receipt. And we are now partners from the tax department to the state tax department, pioneers in implementation, the pilots, planned for the electronic receipt and now if this new spared plan.

I don't know exactly how many products are already under the regime. I will have to list for you state by state because this categorization is the first in each state but I can assure that in Sao Paulo we are working strongly in this direction and we hope for the end of the year to have more movement in liquid products that will happen now, that they will be included in this new tax regime. This is the answer that I can give you in this moment.

In the detergents and beers, liquids, you mean detergents and beers or something like this?

No, beverages. Not detergents, not detergents. Beverages in general.

Oh, I understand. But you're reading about this new tax regime is that governments take, governments are focusing on all products that are offered in the supermarket and retail in general. Are all of these products be under this tax regime for retail? And what about manufacturing?

Oh, of course, there are other tax regimes for example what they call the basic basket is that we probably they had planned for new tax regimes, I don't know but from our point of view everything that we can migrate to this tax regime of a new tax distribution, I think that it will happen in the next years.

And under this scenario do you think that you will have more market share? It seems like it's happening. Or would you be more, would you tend to buy more new store chains? Or is this because, will you be able to expand more your business because you will pay less taxes?

Well, in terms of sales, that's exactly that. We wish to get more market share as Eneas said. Our gains are distributed between the average ticket and more customers coming in to the store something that a while ago our sales growth will all come through the average ticket and now we know that we have clearly more customers coming to the stores and is our consequences of this new competitiveness that we are seeing in all of our banners.

In terms of expansion, new possibilities of acquisitions, I will pass the floor to Caio.

Ricardo, this is Ciao Mattar, good morning. In terms of expansion, until the end of the year we will open new 12 stores, 12 new stores. In terms of smaller retail chains we are studying everything with very strict criteria so these studies are being conducted but we have no concrete plans whatsoever. We are paying attention to new opportunities and acquisitions, they are just like accidents. They simply happen. So, we are studying that but we don't have anything planned now at this moment.

So, I hope we have more accidents in the near future.

I would rather call them incidents.

Excuse me, ladies and gentlemen, I'd like to remind you that to ask a question you should press star one. Now our next question comes from Juliana Rozenbaum from Unibanco.

Hello. Good morning. I'd like to greet you all. For results recorded so far I have some questions. First of all I'd like to understand a little bit better the margin volatility in Sendas. What we saw in that was that...

Excuse me, Miss Juliana was disconnected. Our next question is from [Marcus Getulu] from UBS.

Congratulations for the results. I'd like to know about the comparison in March and between food products and non-food products? We would like to compare margins between food products and non-food products.

Marcus, this is Tambasco. Of course it's varies from banner to banner and category to category. We have textiles that operate with margins that are above the company's average, non-food products, electronic products a are a little bit below but we do not announce that figures in detail. With this performance in terms of margins, it is a uniform performance in the company. Today there's no such thing as an area, there is guiding, there is better competitiveness and impact in the margin differently from the other categories. We can say that it's a very stable situation. And even if now plans, all the guidance that we presented to you in terms of the grown and food and non-food products, it has been very maintain a very balanced way along this situation. So, there's no new fact here that would be worth mentioning.

What we have here is an expectation. Our guidance and the whole strategic planning indicates the need and the search for a greater participation of non-food products and in spite of the crisis we have expectations that these gains will happen through market gains. What's happening in fact?

So, just to conclude, you said that through this margin reflects all categories, is that it?

No.

It's not that one is better than the other, is that it?

Yes, that's exactly that. What's been going on is that we are trying to get more competitive edge in all categories, impact of margin, it's not greater on one category than it is on the other, that could show a very relevant differentiation.

Okay, thank you.

Excuse me, our last question comes from Mr Marcel Moraes from Credit Suisse.

Thank you for answering to those questions. Just to compliment during the presentation, Eneas, you said that margins in Assai and in Sendas then the third quarter there are a little bit above of what we could expect as a recurrent value. I would like you to clarify. You mentioned what would be then the margins for both companies? Just to see if I understood, the fact they were above the expected, is it due to the fact that we had less expenses with promotional campaigns in the third quarter? And what would be the margins if it weren't for that?

Our expectations for Sendas is that the margin returns to early levels, 27, 27.5%. For Assai we would be speaking about 15.5% to 16% of margin. This would be the adequate levels. And subtracting this effect of mix, opportunities, competitiveness, pricing that happen in the third quarter, I will pass the floor to Tambasco so that he has the opportunity to talk about his commercial feeling on that.

Marcel, this is Tambasco. As Eneas had told you in the presentation, guidances are being kept. We shouldn't have any change. We are paying much more attention to this year-to-date margin than in the quarter. In the case of Sendas what we see is a very competitive market in Rio de Janeiro but this is a quarter where you have lesser concentration than what retail conducts normally, usually, which are the anniversary campaigns.

These campaigns are usually very aggressive and they even force you to lower your margins in order to fight in the market. In this last quarter we don't have any kind of action in this sense whatsoever so things will not happen. Things will not happen this way for the last quarter. We have more anniversary campaigns and even anniversary of Sendas was last month, that's why I told that this is our gains that are consequence of seasonability than a consequence of strategy changes in terms of last year, comparison with last year, there's a margin reduction due to this surge for more competitiveness that we have in all of our banners.

Okay.

Is that clear for you?

Very clear. Thank you.

Excuse, ladies and gentlemen. We are concluding now the Q&A session. I'd like to pass the floor to the company for final comments.

Thank you for the participation of you all. In terms of any additional questions please contact Investor Relations department. Thank you. Good afternoon.

The GPA results teleconference is concluded. The department of Investor Relations is available to answer to any additional questions. We thank you for your participation. And have a good day. Thank you.