Companhia Brasileira de Distribuicao SA (CBD) 2013 Q3 法說會逐字稿

(Interpreted) Good morning, and thank you for waiting. Welcome to Grupo Pao de Acucar Conference Call to Discuss the Results for the Third Quarter of 2013.

This event is also being broadcast via webcast. And it can be accessed at www.gpari.com/br and www.gpari.com/ir where you can find the presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website.

We inform you that the Company's press releases about the Company's results are available at the IR website.

This event is being recorded and all participants will be in listen-only mode during the Company's presentation. After GP's remarks are completed there will be a question and answer session when further instructions will be given. Should you need assistance during the call, please star-zero to reach the operator.

Before proceeding, I would like to mention that forward-looking statements that are being made are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996.

Forward-looking statements are based on the beliefs and assumptions of GP's management and on information currently available to the Company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events. And therefore, they depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors may also affect the future results of GPA and could cause results to differ materially from those expressed in such forward-looking statements.

Now I would like to turn the conference over to Ms. Daniela Sabbag, Investor Relations Officer of the Company.

Good morning, everyone. And welcome to the third quarter results conference call today. With us we have Eneas Pestana, our CEO and all the business officers of GPA.

I would like to remind you that we are in the silent period regarding the offer of (inaudible). And therefore, we will limit ourselves to what can be discussed during this call. And before we start the presentation, I would like to give the floor to Eneas for his opening remarks.

Good morning, everyone. It is a pleasure for us to be with you. Thank you very much for participating in our call.

And here we have the main officers of the Company that came to talk to you and to clarify any doubts that you might have. And with the limitation that Daniela referred to regarding the silent period. So I count on your understanding.

It was a good quarter with acceleration of our sales in spite of a scenario that was forecast as not being very good. And in spite of that, we were optimistic. And this is an optimism that was based on a strategy and not on wishful thinking or a dream.

So we have very clear strategy, very well-defined. And a strategy that has been in place ever since we started this three, four years ago. And some of them have already been mentioned at the beginning of this year. And we'll be talking about them further.

So acceleration of sales, vis a vis, the first quarter. And this shows that the Company has consistency of results because it stems from a strategy that is being very well executed.

Regarding our team -- our team is extremely competent and they are all very seasoned and very well organized in terms of management, et cetera. And therefore, they have been carrying out a very good job, overcoming difficulties and reaching their targets. And I'm very pleased with the team we have in place.

And this is the first call that we've had with the participation of [Ali]. I'm very happy. He came on board a short while ago. However, he brought a lot of knowledge to the Company and he engaged with the Company very quickly. And together with (inaudible) and (inaudible) and all the others that are with him there.

They are doing an outstanding job with the execution of the plan and the strategy that we determined last year. And for the first time, we will have the participation of Ali. And I hope it will be the first of many, many to come.

Still regarding the strategy, I would like to make one remark that I think will help you understand the issue of competitiveness. Some people ask if this strategy of competitiveness and price management in a structured fashion has anything to do with the macro scenario.

Not necessarily. What we are doing is a classical retail operation. We are a retail company, a distribution company. And the health of a business such as ours depends on our competitiveness.

When I talk about the structured competitiveness strategy, this means that, first, it has to do with intelligent pricing based on information, based on knowledge. And with diligence in the category management in a very careful fashion, in a very intelligent fashion, always working with a mix that takes into account, first and foremost, our client, which is the core of everything that we do. But also all the issues having to do with specificities of regions, et cetera, so that we can really transform into a clear perception, a complete perception for our clients.

And we have totally competitive prices in all businesses and all categories and in all locations. Our strategies are being executed in a very careful manner and with amount of assertiveness. As well, we know that our business is not only in food retail, but also in (inaudible). And also (inaudible).

And this is the basis of the sales growth that we have been delivering and that you have been analyzing and perceiving, and in a consistent fashion.

In a macro scenario, of course, but it's not very helpful. The macro scenario is for everybody. And what we tried to do within this macro scenario, or within any other macro scenario, we have to do our job. And we have to do our job with a lot of attention, with our best endeavors, and in a consistent fashion with our strategy. And our competitive strategy supported by efficiency gains.

We do not have a more drastic strategy in order to look for market share and for volume increase. We don't do this to the detriment of our profitability and to the detriment of our returns on equity.

Our strategy is based on incentive control of expenses. And that we generate (inaudible) fashion the value which is necessary so that our competitive strategy may be consistent and ongoing. This strategy is here to stay because it guarantees the health of our business. So we are doing this and we will continue to do it very well.

So having said that, I would like to talk about some figures of our consolidated results. Very robust growth in our sales, 15% for total stores. From a same store standpoint 8%. This is an outstanding [growth] in the macro scenario that I have already referred and that is not favorable.

And we see still a consumer market that is robust. A robust domestic market. And more selective, more careful. But in a strategy such as ours, with the right price, the right variety, we are able to make our sales and deliver very good service to our clients. And this is how we will continue.

And still talking about our figures, you can see that our expense control brought about a reduction in our expenses, dropping by 60 basis points on a year-on-year basis comparison.

And with that we have an increase of 7.4% in our EBITDA. And in our net income, we see R$417 million and a 2.5% net margin, vis a vis, 1.7% last year.

In terms of our investments, our investments were close to R$450 million, reaching R$1.3 billion for the nine months or the year-to-date. And the number of stores, 132 new stores in the last 12 months. For the quarter, 20 new stores. And this continues.

Our cash generation is very healthy. In this our work is not limited to expense control. It is also very effective incentive work which is being led by our CFO, Christophe, in the control of working capital. And this has been giving us a very good contribution to our cash generation.

So we are prepared to continue integrative investment plans. And looking for our guidance for this year. So I think these are the macro points that I wanted to mention to you.

So now I would like to give you more details. And for this reason I would like to ask each one of our business owners to give you more precise and detailed information. And I wills stay here to participate in the Q&A session.

I would like to give the floor to our CFO, Christophe.

Good morning, everyone. Let's start with page number two of the document. For the period, the opening of 21 new stores. (Inaudible) area, as you can see, representing 71 new points of sale. And same store sales reached 10.8% increase in the quarter. In the food category, 7.9%. And non-food categories as well growing by 13.1%.

Also the results of our expense control and EBITDA growth of 30.4% due to the strategy of centralized processes in GP foods. And net income up 69.8% during this period.

Now regarding the outlook for the give businesses of the GPA Group. The outlook for this period for food retail will be reinforcing the competitiveness on all categories and also in the communication strategy. And also discipline in the implementation of our strategy.

Assai EBITDA margin recovery due to the focus on spending in states where it is already present. And Viavarejo will continue to carry out its initiatives of optimization expansion and ecommerce, strong sales growth for the next few periods. And strong, where feasible, area expansion. The goal is 35,000 square meters additional by the end of 2013, of which most have already been delivered in the last nine months.

Now let's go to page number three. And here we have the main financial indictors for the Group in the first three quarters of the year. Sales exceeded R$15.7 billion in Q3 of '13, a 15% growth total. And 10.8% same store sales growth. And for the year-to-date more than R$45.6 billion and 12.6% growth. And same store sales 8.3%, as you can see.

EBITDA exceeded R$1 billion. It was R$1.036 billion, a 30.4% growth. And also 90 basis points improvement in the EBITDA margin, 7.4% in the period from 6.5%. And lastly, the income reached R$357 million [reset] stemming from the permanent discipline in all our businesses. Net income going from 86.2% which is growth, vis a vis, previous year in the year-to-date EBIT.

The continuous deleveraging of the Company is confirmed in the third period of the year. And, in fact, the Group deleveraged in a relative fashion (inaudible) the EBITDA, reaching R$4.7 billion net debt from the R$250 million (inaudible) we had in the previous year on a year-on-year basis. And now we are able to maintain also net financial expenses close to 2.2% of our net sales.

Now let's go to the next page. And now I would like to talk about the opening of 15 new stores, 12 (inaudible), two Assai and one Pao de Acucar. And we have a little bit more than 1.6 (technical difficulty).

We have 976 stores and (inaudible) the area of 1.6 thousand square meters. In Viavarejo, five new stores were opened -- three Partiu and two Casas Bahia, with 975 stores, 1.4 million square meters of sales area.

Now I would like to give the floor to Alexandre who will be talking about GPA malls.

Good morning, everyone. As we have been seeing the last few quarters, this is the real estate arm of our Company. Our primary goal is to take care of the expansion of GPA food.

We are positioned as a business unit and we have to generate recurrent revenue from our commercial spaces. We need to strategically operate these spaces by means of convenience and --

This goal of creating convenience by means of opening of [GLA] and rentals of (inaudible) and rentals of our gross leaseable area, our general results are consolidated here in the results that you have already seen.

So we can see that we have created last quarter 18.5 thousand new gross leaseable area with the integration of new commercial centers together with our (inaudible) shopping will open the first (inaudible) with diversity of this space, allowing a space for the students. And this generates revenues for us up to the end of the year.

We will have concluded the second phase in the venture. We'll receive the second phase, and like we opened this year, introducing the last nine months, we delivered 32.6 million square meters of new gross leaseable area. And this gives us a guarantee that we will have 280,000 square meters of gross leaseable area by the end of the year.

Now I would like to give the floor to Christophe.

We see the financial performance of the food segment. And here we have Pao de Acucar and Assai. And we also confirm accelerated growth in the period, R$8.4 million. And growing by 30% in the year-to-date. We had growth of 10.8% in sales. EBITDA R$546 million. And reaching 7.1% in the third quarter. And 7.2% EBITDA margin in the year-to-date.

Net profit we also had a positive performance -- R$176 million. Net margin 2.3% of sales, growing to R$554 million in the year-to-date, 2.5% up. The net margin of 2.5% of net sales in the food segment.

I'm going to pass the floor to (inaudible) who is going to talk about food retail.

Good morning, everyone. Talking about retail food with the (inaudible) and Eneas has already given you an overview of our plan to increase competitiveness so that we can create more flow into the business.

The highlights that we've got here in the third quarter are good sales performance as a consequence of the plan. And virtually all brands all locations. And we've had a first half year with a good performance in food, but some hardship in non-food, particularly in supermarkets. And now in this last quarter, the third quarter of the year, we see a non-food performance in line with the food category.

And this happened because in the first half year we suffered with the performance of this category owing to migration of lower tax products. And I mentioned the sales migration of notebooks and PCs and tablets. But this is exactly where we were betting the sales would grow. And this has become more apparent. And so we've had growth over the past two months in excess of two digits.

Our purpose in these two brands, Pao de Acucar and Extra, is to keep up with this policy pursuing greater efficiency in the control of losses and pursuing efficiency in the operations. And therefore, ensure investment to the improved operations of the stores. And to be more price competitive so that we continue growing in terms of client traffic and market share. And like Eneas said, this plan is part of our daily routine.

And over the past quarter, the third quarter, we posted positive results in expense accounting, which enables us to reinforce this plan to grow sales.

Now I pass the floor to [Bill Mido] who is going to talk about Assai.

Thank you (inaudible). In the third quarter, we had strong sales growth, [37.7] moving from (inaudible) from the third quarter 2012 to [173]. And this was a result of strong growth in same store sales, but particularly owing to the expansion that we saw over the past two months.

This increase, in addition to the sales volume, we have to talk about the growth in numbers in lines seen by Assai in this quarter against last quarter was 30%, which shows great acceptance of the stores in expansion, particularly taking into consideration that we've doubled the number of (inaudible) now present in 12 states rather than six, as we had last year. So these are (inaudible).

But we've had excellent acceptance by the clients which is our focus in these locations in the quarter.

The elements responsible for this growth was exactly that. And we had an increase of 2.1% in net profit, expenses 3.9%, also impacted by operating expenses owing to the new store openings. When we see same store sales, expenses dropped by 0.33% in our pursuit to cut expenses that the Group has done.

We are very much focused on expansion of Assai. The market has shown to be very receptive to our model, which is cash and carry. This segment has posted 16% growth. And Assai has grown double that.

The year-to-date we have more than 33% growth, increasing GPA's penetration of the segment. We expect the fourth quarter to be strong with new store openings. We opened a new store in (inaudible) Santana in [34th Avenue] operation. And we are focused on expanding and opening at least five new stores, reinforcing our positioning on this market.

Thank you very much. And now I pass the floor again to [Valeen] of Viavarejo

Thank you very much, Bill Mido. It's a great pleasure to be here for the first time to be part of (inaudible), particularly in a culture that is bringing excellent news at Viavarejo

And this semester, we have same store sales growth of 15% year-to-date, 11% growth in sales, which leads us to believe that we have grown market share in a significant way, showing that with EBITDA and profit we see a significant growth well in excess of what we had in the past.

EBITDA with a margin of 7.7% and growing. And 67% up from this quarter last year. And income grew 326% comparing with the same period last year. And income in the year-to-date in 2013 is greater than for the entire year of 2012.

And this growth has been very assertive for our people have been able to capture special commemorative days. And even more complex dates and holidays that coincided with weekends, our commercial strategy, which was very well implemented, ensuring that sales would grow in this quarter.

In addition, we have managed to control costs, as you can see on page seven. And brick and mortar stores could expand their sales. And there was a significant cost reduction focused particularly in logistic costs, i.e., telecommunication costs, service contracts and other administrative expenses causing the margins, as you can see on the chart, grew in the same proportion as expense of sales, which is a clear signal that we continue to be aggressive and grow on the bottom line. But focusing strongly our cost structure, keeping competitiveness.

I'd now like to pass the floor to the star of the day (inaudible).

Thank you, [Valeen]. It's a pleasure to be with you. (Inaudible) had a wonderful quarter. We increased client traffic and commission rate. And we had a fantastic result. We had more than 44% growth year-upon-year, which is double the growth of our market share. It was a very good result.

But the most important thing is that we have planned profitability so that we'll close the year in the break-even point. And our growth is supported by the process improvement and control of fixed expenses. We have also increased our service revenue. And we're having very good cash creation.

Our service level is still much better than the competition, which is testified by the [Exermia] awards that we've received. And the best company in terms of client satisfaction. And among all the companies, it's the first time that any company goes to the first ranking position. And this confirms our focus on the client.

And in this quarter, we concluded the aligning of our operating costs. And our service in the northeast has improved considerably. This is in Bahia. And there was a synergy with Viavarejo. We also have a pipeline in new regional services for the coming years. All of them with synergies with Pao de Acucar.

Now I'd like to talk about the achievement, which is the Nike account in Brazil. We had lengthy negotiations. Nike is present in a number of countries. And they sent teams to assess our operations. And we like it when the assessment is strict. And this contract is for the next three years. And will include the World Cup in Brazil.

The Nike store is already live. It took us a year to take it live. The store is beautiful. And there's an invitation for you to see www.nike.com/br. And Nike joins another 30 companies that are operating in Brazil -- HP, Amazon and Pao de Acucar, as well, which is our technology.

And lastly, I'd like to thank the team of Nova Pontocom, a team that really brings lots of pride to us and to the Pao de Acucar Group. And I'm sure we can make a difference if we work together. Now to Diana.

Now we can open for questions. Now I would like to open our Q&A session. Please ask all your questions at one same time. (Operator instructions). Our first question comes from (Inaudible) from JPMorgan.

Good morning, everyone. And congratulations for your results. The first question I have is about the [Banchita] operation, if possible. I know that you are in the silent period now. But I would like to understand what this could bring in terms of synergy to you?

And also regarding Nova Pontocom and the evaluation that was made, I would like to know more details. What were the evaluation criteria?

And the other question has to do with your results. The outlook that you mentioned is very good regarding Q4. And it seems that you are quite well prepared in terms of inventories until the end of this year. So how do you see the end of the year? And could we believe that we will be achieving the same growth level in your sales for Q4?

Ali will be answering your first question regarding Banchita. And afterwards, we'll be answering your other questions.

Now talking about Banchita, your first question -- during the general assembly that will be held on the 31st of this month. Well, the signs are that the option exercise will be approved. But, of course, this depends on the CADE approval of the process. And we have already made a consultation with CADE.

And we understand that today we consume 100% of Banchita's production in the Viavarejo in Casas Bahia stores. And the idea is to continue to explore this furniture market because we believe there is a very interesting opportunity to increase our share in this market. So with this situation, the Banchita deal should be approved by the board and then we wait for the CADE approval as well.

Now regarding the outlook for the year. You see that in Q3 we had a demand, as Eneas said, which was a major one. And with this kind of demand we will continue to gain market share, as I said before. And we see no reason whatsoever to expect any slow down or a downward trend by the end of the year.

What about Nova Portocom? Any gains expected in your synergies because the participation now is already aligned with the Viavarejo? Could you say a few worlds about that.

Andreas, this is Eneas. Thank you for your question. We will continue to do our job. And by that I mean that we will continue to capture all the synergies that we see and developing our strategy in a strong (inaudible) fashion, as you read in our material fact that was published yesterday.

Now we have a more clear alignment. And with the development also of an operating agreement that will help the strategy of each one of our businesses.

It will continue, yes. And we place our faith in the possibility of capturing even more synergies over time. And guaranteeing our multi-channel operation, which is a major step -- or the major step in our strategy from now on.

You asked about the evaluation criteria. We cannot talk about that. What we can tell you is that we reached the fair value. That's all I can say because we are in our silent period.

Thank you very much, Eneas. And what about Assai? I would like to know about the investment you have been making in terms of (inaudible). Also in the food area. What (technical difficulty). This investment was offset by the lower operating expenses. But I would like to know if this means a new positioning on your part and whether this should be expected for the future?

Thank you for the question. Assai is expanding. And this is a process. And we are getting to other locations so we have to make investments. And after investments, then you start stabilizing. And also you have a different mix of products. And we have different needs on the parts of our consumers. So we have to adapt our brands regionally. And there is a maturation period for the investment.

And the beginning of the year was more difficult. And for the second quarter we concentrated in the states that we already have our stores. However, with the opening of new stores, as well. So we have a very strong expansion process going on. So they are, as expected, in terms of results, in terms of expense reduction, and same stores also have been improving efficiency levels (inaudible).

So in Q4, we will have five new stores. And we should expect a strong increase in our sales and better margin levels. And more similar to the ones delivered in Q3.

And Eneas, going back to Nova Portocom, what changed? Could you tell us the main points of change?

It's a shareholder agreement, practically nothing. Some things regarding resources and corporate governance and the establishment also of the two new committees that will be very useful. And this will be very good to guarantee better levels of governance and also the proper tracking of our strategy.

On the other hand, it will give a very good contribution to our alignment because the capture of synergies is very much aligned with -- the changes have to do more with the operating agreement and not the shareholders agreement.

There is nothing different from what you can expect from a three-year learning process. Three years ago it would have been impossible to do this. But three years later, working hand in hand and learning what we have learned, we were able to understand this very clearly. And now materializing this and this operating agreement and carrying out this development in an aligned fashion, between online and offline.

And this agreement is very good in this regard because it is based on the learning curve that we had during these three last years.

And I understand that you are already using all the tools that will be useful and I believe that you are now totally free to develop?

Yes. This is how you should -- and we can guarantee that this will happen. Working very strongly on the multi-channel strategy. We have already done the pilot. And as soon as we conclude our test, this will be [air]. And we intend to roll out and develop this initiative. But it is exactly what you said.

Well, congratulations for the results achieved.

Mr. (Inaudible) Monte would like to ask a question.

Good morning, everyone. I'd like to go into SG&A for Extra Pao de Acucar. (Inaudible) has talked about it a bit. But the SG&A fell 9% and selling went up in line with sales. But I'd like to understand what exactly was the improvement, if you could shed some light on it. And to understand the SG&A on sales if there's room for improvement? Or higher dilution of expenses for the coming year, specifically for Extra Pao de Acucar?

Good morning, Fabio. In fact, this pursuit for greater efficiency in expense control is something that started earlier this year. Obviously, we see now this result owing to an improvement in sales performance. And precisely because of the investment that we've made to improve competitiveness.

Now what we have tried to do -- in fact, we have two major fronts. One of them is to seek store efficiency by implementing a few technological improvements that will ease up funds to improve customer service and have more effective service. And this also requires investment in logistics and in the supply systems of the stores.

But also because the Company is focusing all projects on what can add value to the store -- our major focus. So, actually, we made choices that some projects that would not have a direct impact on the store performance would be left aside. Because we really wanted to have an impact and to add value to clients and to the business results.

Now from now on, this is the focus. We are seeking efficiency gains. We are seeking to gain synergies with the other businesses. And among the various brands as well with the delivery of Extra Pao de Acucar we are attacking these synergies between the businesses.

And the expectation is that we will continue after improvements and always with this focus. All the expense reduction and efficiency gains should have a positive impact on our price competitiveness and customer service at the store.

Thank you very much, Don Bosco. Another question about Viavarejo. Valeen talked about the growth in market share. And it's obvious that there was a market share gain in Viavarejo. But I'd like to understand where do you see -- where this gain has come from. Obviously, in the new locations in the northeast where you're snapping up shares.

But I'd like to know whether there's any other region -- Sao Paolo. Sao Paolo is a location where your growth is on even keel with the rest of the market. So do you see any players that are getting more small regional players? If you could talk about this, even if qualitatively about this gain in market share?

This market share chain is happening in every region. We cannot say that there is a highlight region. Obviously, the northeast is growing faster. But also because, proportionately, we have more stores in the northeast. And therefore, growth is stronger, although the market share was smaller.

But we do not have precise information. And the general impression is that there is an even growth with highlights on the northeast.

Okay. Just another very brief question about Viavarejo. The weight of the book list was falling and now it fell from 15% to 12.7%. And I'd like to understand, in terms of strategy, if we can expect another full -- what do you think is happening?

Well, this is Victor. Yes, you're right. There was smaller (inaudible) of payment books and cards and means of payments in favor of an increase in the cash payments.

So that was around 25%, 26%. And now it's at 29%. We believe that this resulted from a change in project mix and specific campaigns, specific marketing campaigns and commercial strategies that attached priority to items which have a more suitable assortment for this kind of means of payment.

It's not a trend that cash payments will grow above 30%. And as well as a more drastic reduction in the use of cards or payment books. We expect levels -- we expect these levels to be the same for the coming quarters.

Okay. Great. And just confirm this fall in payment books, this included Nova Portocom? The statistics that you've shown also include Nova Portocom?

Yes. This participation ended up being impacted by the fact that Nova grew a bit more.

Okay. Thank you very much.

This will be (inaudible) from Credit Suisse would like to ask a question.

Good morning, everyone. I would like to understand something. The level of competitiveness that you reach now in gross margin in food, have you reached the point that you wanted to reach? Do you intend to maintain it?

Or, as (inaudible) said before, he said we have to reduce more expenses and we will further become more competitive? So your margin is already much better? You're more competitive than you were in the past? So are you satisfied with this level? Or are you going to reach another level because of initiatives that you have implemented recently? Thank you.

This issue of competitiveness has always been relative to the market. What I can tell you now is that we have reached the level of competitiveness that we consider as very good.

But there are changes in the market. This is dynamic and our job is to be prepared to further increase our competitiveness if the case may be. And reduce the margin with no impact whatsoever on our results.

What I can tell you is that, both from the viewpoint of global prices and the activation that we have been seeking, we try to increase our activation to make our stores more aggressive. So I would say that our level is very good, vis a vis, our main competitors.

And what I am telling you is what we see not only in Sao Paolo but in all the other states where we have stores. And in this business we have to be ready. We have to be ready to face any reaction on the part of our competition. And if we have to do something else, we will do something else.

Are you being more promotional on certain dates and events, or products or categories? Or in general, you are repositioning your prices -- I would say our average portfolio?

And one last question, please. The change is very big from one year to the other, especially for a company the size of Pao de Acucar. So you thought that would be the right moment to lead this movement? Because it didn't seem to us that the market was so promotional. It is more something that started, or was started by you.

(technical difficulty) regarding whether we were the first to do this in the market, whether we are leading this market. Well, two or three years ago Pao de Acucar had a very strong growth and our main competitors were less present.

And in the last few years, this changed. However, this was not a decision that we made as a reaction to the market. We made the decision to look for more efficiencies so that we could guarantee that the Company would be always ready to cope with any kind of situation, with any kind of competition, any kind of market situation. And whether in good times or bad times, further improving our competitiveness.

And when we talk about competitiveness, it is not only prices. It has to do with better conditions for our clients. The conditions of our stores. And we have been investing quite heavily in our stores to give our clients a better and better purchasing environment from the general viewpoint.

Of course, each one of our brands, each one of our banners, each one of our markets has a different strategic view, either by category or more promotions in a certain location. And the price movement is in all categories, both in the regular prices and also in the promotional prices.

Of course, our focus is always on what really makes sense to Pao de Acucar as a whole and for Extra, and the situation of Eletro where we really needed to have a bigger endeavor. And we have been able to do that in our hyper market.

So this is on a monthly basis. And we further adjust for our competitiveness. We do all the necessary streamlining to achieve competitiveness.

[Allen Candosa] from Banco (inaudible).

Good afternoon. I have a few questions. (Inaudible), during your presentation you talked about the prices in Q3 of (Inaudible). And how you financed the price reduction. Could you give us more details about that?

You remember that the market was very competitive. And we talked about that. And, basically, what we were going to do is to preserve our profitability. But we have to prepare ourselves for further competitive environment. And, of course, we were not going to wait (inaudible). Quite the opposite.

And we said that Nova Pontocom had a very lean cost structure. And we have been further improving this on a year-on-year basis. And we also had an opportunity of synergies with the Group also in the commercial area. So it seemed to us to be more intelligent to be aggressive our competitors were operating at the break-even point. So we started to prepare ourselves.

And some time ago, I said continuous process improvement is something important. And this is what we are doing. We are automating our processing more and more with algorithms and supply, pricing, purchasing and procurement and many of our processes. And this allows us to be prepared for a higher (inaudible) in our businesses.

And the order of magnitude that we have today, our business is even higher than we had in Pao de Acucar before. We have just finished our CBB, a very healthy CBB. This is a very good moment to establish CBB when the Company is going well. And also process improvement.

Our level of services have been improving. Ecommerce is one of the channels -- and other channels as well. So we have a higher profitability there.

And with the help of Pao de Acucar, the financial system of Pao de Acucar, we have been improving our cash. And we adopted many actions to improve our competitiveness. It is going very well. And I would like to thank Valeen for coming on board and (inaudible).

And the synergies have to do with the prices and other strategies. Well, not only pricing. And we are getting better and better prepared in order to tap into these synergies.

Thank you, Quiroga. The second question has to do with the working capital of the food area and the inventory levels. And (technical difficulty) with slight degrees now. Have you changed your strategy, vis a vis, your suppliers and your inventories?

The situation doesn't mean that things are deteriorating. There are a number of factors. The opening of new Assai stores and obviously we had to increase inventory.

And this doesn't mean that the situation is getting worse. But there is the pre-opening inventories that we have to carry. So we carry inventory even though the store has not opened yet. This has an impact.

Another situation that I could mention is the preparation for end-of-year retail sales. And we are prepared. We are stocked up. And it doesn't mean that we are using working capital. This inventory increase is being financed by payment terms offered to suppliers. We're retracing it.

The decision to up inventories does not impact the need to use working capital. And this is a decision that we've made in preparation for year-end sales.

And also, taking into consideration the support the Group provides to Assai store openings. Well, in the case Assai, we have a strong campaign for the anniversary and a few store openings that are happening. We've had one earlier this month.

One of the characteristics of wholesale is that we do not need to have a logistics and [DC] structure to supply because we receive straight from supply. So there is a period to form inventory before inaugurations. And this is about 30, 40 days before. So the movement in inventory going up is nature.

When we look at turnover and average sales, average purchase terms, we see that we are inline. And in the case of Assai. So there is always this growth in inventory for end-of-year (inaudible) and store openings.

And last question. Could you give us more details about the strategy to spur price competitiveness in food? In fact, are you focusing on a specific category? Are do you think there is a disparity among regions? So what's the intelligence behind the price reduction?

It's Don Bosco again. Well, Fabio had asked about this already. I have a team, around 180 people who spend the whole day doing market research and researching product assortment and exposure at the store.

So there's a technical team that helps us and provides us with information that we need to have the best product mix at the best price range. Obviously, we always look at the traditional pricing for each category. And then when we include promotions, we have to highlight a few points so that consumers can see the change.

So, yes. At a certain moment in time, you can have certain categories with stronger promotions. But this is always the purpose, that they see the category as a whole.

So this is not an isolated movement with a single strategy. This is part of a whole strategy that deals with assortment, promotional pricing, and exposure at stores. Or of the store display.

Obviously, this depends on the store model. What you do at Pao de Acucar is completely different from what you do at Extra. And also taking into account the competition, consumer behavior in each of the regions as well.

Perfect. Thank you very much.

(Inaudible) from Goldman Sachs would like to ask a question.

Good afternoon. I have two questions. One has to do with Nova Pontocom.

You are delivering a very strong growth. And I would like to (inaudible) the remark that you made about your competitiveness in terms of prices. And with the situation that you described in the gross margin and the net margin.

So could you talk about the strategy? Are the same gains we saw in Viavarejo and Brick and Mortar, and logistics gains also in the DCs? And you said that you opened a new DC in the northeast. And I would like to better understand what led you to achieve this increase? And whether we could work with this level from now on?

And maybe you could also talk about the distribution center strategy? Will you be making new investments in new distribution centers for Nova Pontocom? So these are my two questions. Thank you.

(Inaudible), thank you for the questions. We are studying and focusing on logistics as it has to do with DCs and it has to do with transportation as well.

We have been developing this study together with Pao de Acucar. This is something that we have established a committee for with the participation of all the companies in the Group -- Assai and the others with the support of our real estate area as well because we have to understand, of course, the opportunities that are made by (inaudible) malls (inaudible).

And this year, we have the first centralization of our heavy cargo. And we will further consolidate all the DCs in Sao Paolo, most probably for the next year.

But we have been opening other DCs throughout Brazil -- in Bahia, in synergy or partnership with Viavarejo. And we already have a pipeline of many DCs in Brazil scattered throughout Brazil. And increasing our footprint in many regions of Brazil. And we do this when the volumes justify this investment. So we have gained in service level for our client and also for costs for the Company.

And as we have the opportunity of opening the space in the DCs of the Group, this is very positive because we can have minimum cost and we can share this with the other companies of the Group.

So our planning for the next few years is ready. And in transportation we have just started. There are many opportunities. Viavarejo has the capacity to delivery products throughout Brazil. And we can work hand-in-hand.

Ali has the same view. And he's helping us do this. And it will be a pleasure to work with [Ali] and his group in order to further explore innovative models.

We are working together with this group and we expect our stores will be ready for internet operations. Clients that hit our website, they will be able to see all the products. And they can either come to the store and pick up the products. Or we can have the products delivered to the clients.

The models are already being tested. And this will further increase our volume. We are sure that we will continue to do our work in terms of reducing our expenses. And the moment is the moment of growing as much as we can and with no problems caused by that.

Thank you very much. And maybe you could talk about your gross margin? The question that I asked about gross margin.

We have been increasing our category mix. We are in some other business models such as marketplace and others allow us to increase our gross margin over time.

And also something that we are just starting but we have great hopes of achieving very quick results. And I'm sorry I didn't answer your question before. I was so involved in answer your other question. But we see a very big opportunity to further increase our margin over time. Thank you very much.

Now we would like to close our question and answer session. And we would like to give the floor back to the Company for their closing remarks.

This is Eneas Pestana again. I would like to say a few words and start by thanking you again for participating in our call.

And reiterate my trust in the work that is being done by this team which is based on clear, well-defined strategies, with discipline, with focus, placing our client, our consumers in the core of our decision-making process.

We have been doing this in a very professional and precise manner with a lot of discipline. Our strategy is totally aligned, supported by our controlling shareholders, by (inaudible). And they are very knowledgeable about the business. And they know of the importance of keeping a company with health, with high competitiveness, with increase in volumes, with increase in market shares, always preserving our profitability and preserving all the capital employed. So this is a major indicator that we use in the Group for all our investment decisions.

So I would like to thank our team and also extend my thanks to the whole Group of Pao de Acucar. These are the people who really deliver the results. These are the people who really enchant our clients. Our people are the most important asset that we have in the Company. And they are the ones that really make a difference. They are the reason why we are obtaining such good results.

And I would like to say a few words about the result of a survey that was published by (Inaudible), by (Inaudible) Institute.

Over 11,000 consumers, over 300 business leaders. And the result of the survey was GPA as the leader in the whole retail segment in Brazil. 60.3% was the average score. And ours was 71.4%. You can see that there is a difference of over 11 points. And of course, we are extremely pleased with the result of this survey.

And this indicator is very important because, in our view, what will really make a difference in the future is the reputation of the Company. And reputation is not just prices. It's not just net earnings. It is so many things because in the world of multi-channels, and knowledgeable consumers, and very quick purchasing decisions what has to be preserved is the reputation of the brand.

And this is what will really make the difference when people choose their channels and ultimately choose their products. So this is very important. It will become even more and more important over time.

So I'm very happy to share this information with you of our reputation and our leadership in the Brazilian retail. And it is very important for us to continue with our actions in sustainability, our social project.

And in this call with you, we like to talk about results and figures and targets. But you must remember that GPA is a Company that takes very seriously its social and environmental responsibility. And we carry out our actions in this area.

We have been learning a lot from Casino. And Casino gives us all their support in all these sustainability actions. And we are totally aligned in the continuation of these actions. And beside the bottom line and besides the competence of our executives, our social actions will further contribute to make our reputation and our Company stronger and stronger.

We are a participant in the development of our country. And I would like to say that I place my total trust in Brazil, in the Brazilian market, in the robust Brazilian market. And we will continue to do what we must do.

The government is taking measures that preserve the growth of the Brazilian consumer market. And that guarantees the possibility for retail to continue growing and encouraging investments. And this ultimately will generate a better country.

Now we will get into the most important period of the year, the fourth quarter. We are totally engaged. We are totally motivated to make a great fourth quarter.

Once again, I thank you very much for your participation. And all my colleagues and all the members of our Pao de Acucar team. Thank you very much.

Grupo Pao de Acucar's conference call is closed. The Investor Relations Department of GPA is available to you to answer any questions that you might have. We thank you very much for your participation and wish you all a very good day.