Annual Report 2002 - GPAirgpa.grupopaodeacucar.com.br/grupopaodeacucar/web/...4 Grupo Pão de Açúcar Annual Report 2002 5 Grupo Pão de Açúcar Annual Report 2002 However, 2002’s

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01 Corporate Profile 02 Key Indicators 04 Letter from the President 06 CBD’s Positioning 08 Pão de Açúcar 12 CompreBem Barateiro 16 Extra and Extra Eletro 20 Supply Chain 22 Information Technology 24 Commercial Area 26 Private Brand Products 28 Products and Financial Services 30 Human Resources 32 Social Responsibility 34 Sales Performance and Results 40 Investments 2002 42 Corporate Governance 46 Risk Management 47 New Projects 48 Shares as Investments 52 Executive Management / Board of Directors / Advisory Board 53 Corporate Information 56 Credits

Annual Report 2002

Number of stores *(Dec/2002)

São Paulo Pão de Açúcar 123Barateiro 130Extra 38Extra Eletro 54Sé 39

Pão de Açúcar - 188

Barateiro - 148

Extra - 60

Extra/Eletro - 54

+ CompreBem - 50

Total - 500

* Until December 2002, 13 stores of the Sé chain were already converted into Pão de Açúcar, 3 stores into Barateiro and one store into Extra.

Rio de JaneiroPão de Açúcar 11Barateiro 18Extra 8

Distrito FederalPão de Açúcar 12Extra 3

PernambucoPão de Açúcar 2CompreBem 11

ParaíbaPão de Açúcar 6

PiauíPão de Açúcar 3

BahiaExtra 3

Minas GeraisExtra 2

GoiásExtra 1

Mato Grosso do SulExtra 1

ParanáPão de Açúcar 12Extra 2Companhia Brasileira de Distribuição

Companhia Brasileira de Distribuição

Corporate Profi le

With an annual gross turnover of R$ 11.2 billion, in 2002, Companhia Brasileira de Distribuição/Pão de Açúcar Group continues to be the largest retail company in Brazil: at the end of the year, it had around 58 thousand employees and 500 stores, distributed in 12 Brazilian states, totaling a sales area of around 980 thousand square meters. The format diversity of the stores is one of the main competitive advantages of the Group, which operates four banners - Pão de Açúcar and Barateiro (supermarkets), Extra (hypermarkets) and Extra Eletro (electronic/home appliance products) - with specifi c sales strategies and focus, directed to consumers with different profi les. This ability to manage various formats has been fundamental to guarantee clients’ satisfaction and loyalty. Based on three pillars - technology/logistic, human resources and solid capital structure -, the Company’s strategic positioning is another differential that guarantees the market leadership. With the aim of an organic growth in the sales area of around 10% per year, the Company focus on the regions in which it already operates in and on the search for the balance between the supermarket and hypermarket formats. CBD tries to reinforce the differentials of each banner, enhancing the specifi c knowledge of each market and searching for the best opportunities. Pão de Açúcar Group is a pioneer in technological applications in the retail industry and it believes in the benefi ts of a centralized distribution structure. It also invests continuously in training and developing their collaborators, having as a mission to internally search for quality of life in order to be able to sell quality of life. CBD maintains a strategic partnership with Grupo Casino - one of the largest companies in the retail industry in France -, which allows for an exchange of information and know-how, besides allowing for synergies among important areas, such as global purchase and private brands.

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Grupo Pão de Açúcar Annual Report 2002

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Key Indicators

Gross sales

Net sales (*)

Gross Profit

Gross Margin

EBITDA

EBITDA Margin

N. of Shares (1,000)

Net Margin

Net Income

Net Income per 1,000 shares (R$)

Total Assets

Total Shareholders Equity

11,154

9,455

2,645

28.0%

781

8.3%

113,186,139

2.6%

245

2.17

9,188

3,592

9,533

8,055

2,247

27.9%

634

7.9%

113,061,139

3.1%

251

2.22

7,281

3,404

9,052

7,630

2,101

27.5%

604

7.9%

107,372,033

4.3%

332

3.09

6,691

2,962

6,943

5,830

1,567

27.0%

423

7.3%

97,261,274

1.1%

62

0.64

5,154

2,315

5,133

4,429

1,189

27.1%

272

6.2%

78,116,125

3.6%

159

2.04

3,024

972

19981999

3,638

3,114

830

26.7%

159

5.1%

78,116,125

4.6%

144

1.84

2,079

858

1997200020012002

EBITDA: Earnings before interest, tax, depreciation and amortization.(*) Includes Net Sales from Rede Peralta in February 1999 (R$ 27.0 million) when these stores were not yet incorporated with the other divisions of CBD.

Also included in 1998 were Rede Millo's first quarter Net Sales and Barateiro's Net Sales in June.

(Brazilian Corporate Law – R$ million)

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97 98 99 00 01 02

EBITDA andEBITDA Margin

159

272

423

604

781

634

5.1%

6.2%

7.3%

7.9%7.9%

8.3%

EBITDA Margin

EBITDA – R$ million

97 98 99 00 01 02

Average TicketR$

22.5

25.5

22.8 23.0 23.822.8

97 98 99 00 01 02

Sales area'000 m2

350

471

663

815

980

866

97 98 99 00 01 02

Net SalesR$ million

3,114

4,429

5,830

7,630

9,455

8,055

Sales by region2002

67.6% – São Paulo

11.3% – Rio de Janeiro

0.6% – Mato Grosso do Sul

2.7% – Paraná

1.6% – Minas Gerais

0.3% – Piauí

4.9% – Ceará

5.4% – Brasília

1.3% – Pernambuco

1.0% – Paraíba

0.4% – Goiás

2.9% – Bahia

Sales by forms of payment2002

53.7% – Cash

31.9% – Credit card

6.5% – Food voucher

4.8% – Post-dated checks

3.1% – Customer credit financing

Sales by format2002

46.8% – Extra

3.5% – Extra Eletro

4.0% – Sé + CompreBem

29.6% – Pão de Açucar

16.1% – Barateiro

Sales by department2002

79% – Food

21% – Non-food

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Letter from the President

In 2002, the Brazilian economic, political and social conjuncture reflected a difficult scenario for several sectors, including the retail sector. The beginning of the year was calmer, but the second half of the year was marked by strong turmoil, due to the fact that the elections were near and the economy was unstable. This insecurity brought a large devaluation of the Real against the dollar, which made us relive an inflationary process that was under control for some time.

Evidently, Companhia Brasileira de Distribuição felt the effects of this adverse environment. However, proving the fact that a professional and efficient team reveals its strengths even more in times of crisis, we had important achievements. We reached gross sales in annual basis of R$ 11.7 billion, 18.4% higher than the previous year, consolidating our leadership in Brazilian retail. We accumulated a net income of R$ 245.1 million and reached an EBITDA margin of 8.3%.

We also presented important operating advances, a consequence of the organizational restructuring occurred in 2001, that transformed the Pão de Açúcar, Barateiro, Extra and Extra Eletro banners in business units responsible for the category management and increased the focus of the commercial area in negotiations with the suppliers. As the purchases are still centralized, we maintained our negotiation strength, reducing the cost of goods sold and increasing the payment terms with the suppliers. Besides that, we inaugurated 16 new stores and finished the acquisition of the 60 stores from the Sé Supermercados chain - an important and strategic initiative, as it guaranteed a complement to our supermarket stores in the state of São Paulo. The relationship with our partners from the Casino Group was also consolidated, through continuous dialogue, which has contributed, in an increasingly relevant manner, for our Company’s growth.

Abilio Diniz, standingAugusto Marques da Cruz, sitting

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However, 2002’s most important factor for CBD was the Management’s restructuring, which occurred at the end of the year. Based on the work initiated in the first half, we formulated a management model that respects the most solid corporate governance’s practices, with a stronger and more structured Board of Directors, counting on the support of specific committees for certain controlling areas. In this new structure, the Board will be responsible for leading the corporate governance process of the Company. The business daily management will be in the hands of the Executive Management, formed by respected professionals, and its president will be the former Administrative and Financial Vice-President, Augusto Marques da Cruz Filho.

As the Board’s chairman, I will monitor the Company’s work, contributing my knowledge and experience in the market that I have accumulated over the years.

Our belief has always been that, after reaching a certain size, a company cannot depend on one person or one family, having to find professionals in the market to manage it. Thus, this movement in the search of a more intense professionalization of CBD should be considered a daring strategy, however balanced, as it is happening in a period of growth and of certain tranquility for the Company, and not pushed by a crisis. That is why we can say that we are changing with safety. Every collaborator involved in these changes is aware of the work performed and enthusiastic about the expectation of individual growth. We have no doubt that this process will guarantee efficiency, besides offering a better relationship among the executives and the shareholders.

We are still dedicated in maintaining the CBD’s three basic pillars: have a solid capital structure; dominate all the technology and knowledge existing in our market; and invest constantly in people - so much so that the concept Nossa Gente [Our People] is already a differential against the competition.

In 2003, we will keep on continuing to grow organically under the four banners - Pão de Açúcar, CompreBem Barateiro, Extra and Extra Eletro -, with an expected growth of around 8% in the sales area. Besides that, we will continue to renovate our stores, keeping them in the most advanced level of the market’s technology, in order to always improve our service level to meet customer’s demands.

In this scenario of more stability, optimism and great expectations for Brazil and the Company, I am grateful for the support and trust that the shareholders, clients, suppliers and employees have deposited in the Company - these values make us stronger and stimulate us to face new challenges.

Abilio DinizPresident

We formulated a management model that respects the most solid corporate governance’s practices, with a stronger and more structured Board of Directors, counting on the support of specific committees for certain controlling areas

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CBD’s Positioning

The multi-format concept consolidated Companhia Brasileira de Distribuição - CBD’s positioning in the market. The Group has four divisions - Pão de Açúcar and Barateiro (supermarkets), Extra (hypermarkets) and Extra Eletro (electronic/home appliance products); and this structure makes it possible to serve the specific needs of different types of consumers and guarantee the capillarity of the Company in 12 states of Brazil. Also, the balance seen among the supermarket and hypermarket formats is now a strong competitive differential.To reinforce its presence in the market, CBD maintains a growth strategy focused mainly in the regions it already serves, which allows it to enjoy the benefits of the synergy with the existing structures.

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Characterized as neighborhood supermarkets, the Pão de Açúcar stores offer a great variety of quality products, due to the continuous investments in the state-of-the-art technology and to the various services developed specially to meet the needs of the consumers with cosmopolitan characteristics.

The new concept CompreBem Barateiro reinforces the relationship of the low-cost supermarket chain with the community. The stores offer a varied mix of products - especially in the non-food area -, besides giving more importance to the services and the consumer needs.

The hypermarkets Extra link quality, competitive price and great variety of food and non-food products, within an ample and pleasant environment. The chain also offers diversified services, with the aim of increasing the clients’ convenience during the shopping experience.

Specialized in electronic and home appliance products, the Extra Eletro stores also sell furniture and bazaar items, focusing especially on the consumer’s service excellence.

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Pão de Açúcar

The main differential of the Pão de Açúcar stores are personal service, pleasant environment, frequent investment in technology and a broad mix of quality products. With 188 stores and a total sales area of 239.8 thousand square meters, the banner registered net sales of R$ 2.8 billion in 2002, a 6% growth in relation to the previous year.

Among the highlights of the year was the launch of the line of around 100 Pão de Açúcar private brand products, with the emphasis on differentiated items with high added value. (More details in the chapter dedicated to private brand products).

Other important factors were the renovations and modernization of the stores and the investment in rendering innovative services to the consumers, which has already turned into one of the differentials of the banner. 97 98 99 00 01 02

Pão de Açúcar – Net SalesR$ million

1,393

1,725

2,058

2,446

2,8002,644

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Services

The focus of Pão de Açúcar has been the services provided to costumers. Its goal is to serve the needs of a more cosmopolitan consumer, who aims at practical things. In order to stimulate the consumption and offer information about the product, personalized services were introduced in different sections of the store. Besides the researcher - that helps the consumers in their shopping -, the hostess - that welcomes the client - and the nutritionist - responsible for giving health tips -, the stores also count on the support of assistants in various sections, such as wine, cold cuts, fruit and vegetables and the bakery.

The rotisserie, with ready-to-eat dishes as its strongest feature, was also a highlight in 2002. For its signifi cant participation in the income, the section is not only visually appealing, but consolidated its presence in the layout of the store, offering a higher diversity of

items. Another differential is the specifi c segments, such as organic, light and diet products. The chain has a private brand line with a healthy life concept, the Goodlight line, that, at the end of 2002, had already around 120 items.

Another concept applied by Pão de Açúcar is to introduce new consumption habits, and the banner has been developing the participation of products that so far were not commonly consumed by Brazilians. Regarding the wine, the sales have been showing annual growth. The chain is one of the main sales channels of the product,thanks to the work of the team of 61 assistants,specially trained to offer information to the consumers and help them choosing the right product. Due to the high added value of these items, concentrating on them is a very compensating strategy. In situations of consumption retraction, the Pão de Açúcar stores

Offering special services, such as the guidance given by the wine assistants, is one of the banner’s differentials.


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suffer smaller impact, as they have more products choice than the stores that only sell the basic products. Therefore, they also attract a public less sensitive to

In 2002, Pão de Açúcar maintained the renewal and renovation process of the stores, in order to make them adequate to the concept of Second Generation, with a large section of perishables, differentiated products and high technology. More than half the units were adapted to the new standard. The modernization has an impact on the daily growth of sales per square meter, as technology and new equipment allow to improve the client service and consequently, to assure the increase of productivity. The chain also presented an organic growth, with the launch of 4 stores: three in Curitiba (Paraná state) and one in Brasília (Distrito Federal).

For 2003, the expectation of the Group is to give continuity to the modernization process, with the focus aimed at the interior of São Paulo state, where the majority of the stores of Sé are located. Inaugurations and the increase of the participation of the chain are

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suffer smaller impact, as they have more products choice than the stores that only sell the basic products. Therefore, they also attract a public less sensitive to the fl uctuations in the economy.

Modernization and expansion

In 2002, Pão de Açúcar maintained the renewal and renovation process of the stores, in order to make them adequate to the concept of Second Generation, with a large section of perishables, differentiated products and high technology. More than half the units were adapted to the new standard. The modernization has an impact on the daily growth of sales per square meter, as technology and new equipment allow to improve the client service and consequently, to assure the increase of productivity. The chain also presented an organic growth, with the launch of 4 stores: three in Curitiba (Paraná state) and one in Brasília (Distrito Federal).

For 2003, the expectation of the Group is to give continuity to the modernization process, with the focus aimed at the interior of São Paulo state, where the majority of the stores of Sé are located. Inaugurations and the increase of the participation of the chain are also foreseen in other Brazilian states.

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Cartão Mais

The relationship with the consumer integrates the strategy of the Pão de Açúcar banner, and the card Pão de Açúcar Mais, created in 2000, is the tool that makes this communication possible. By segmenting the consumption profi le of the clients, the card allows for the chain to know their habits and to promote directed actions. The number of cardholders has been growing considerably and reached, in 2002, more than 2 million families, i.e., around 6 million cards were issued. In 2002, this meant the identifi cation of around 54% of the sales.

The focus of the actions related to Pão de Açúcar Mais card, in 2002, was the behavioral segmentation, that has the goal of understanding the consumption habits in order to draw and identify the clients’ profi le. Finding out how each consumer shops, the chain can stimulate the acquisition of other products, that are similar to their needs.

Organic growthIn 2002, 4 stores were launched

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CompreBem Barateiro

98 99 00 01 02

CompreBem Barateiro – Net SalesR$ million

289

681

1,043

1,527

1,107

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In order to guarantee more attractiveness to its stores the new concept CompreBem Barateiro promotes changes in the layout, aggregates services and reinforces the relationship with the community.

Directed mainly at consumers of the C and D classes, the Barateiro division has been facing deep transformations over the last years. This banner ended the year with 148 stores and a total area of 177.5 thousand square meters. The net sales totaled R$ 1.5 billion, a 38.0% growth against 2001, when the project “The Big Barateiro Turn-around” was started. Focusing on a change of concept, the initiative promoted the repositioning of the banner, enlarging the mix of products and innovations of layout and in the visual communication.

From the new positioning, the strategy, in 2002, was to increase Barateiro’s profi tability and market share. With that in mind, some measures were adopted, giving priority to the creation of a smaller cost structure, the implementation of a larger variety of products and services to consumers and having a closer relationship with the community.

Renewed at the end of 2001, the Barateiro private brandproduct line closed the year 2002 with approximately 500 items. The positioning strategy continued to be offering products with the same quality of the leading brands, with prices 20% to 25% lower.

CompreBem

The change was based on the creation of an innovative store model - CompreBem Barateiro. The objective of the proposal is to aggregate two new concepts to the division. The fi rst is related to the brand value, that offers a chain of stores in which the consumer can buy well, with variety, service and good prices. The other one is linked to the social area, to help the community. The need to invest in this relationship was detected from a demand from the consumer itself. So, adoptingthe concept CompreBem, an integration work was

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Sales increased by 38.0% in 2002

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Grupo Pão de Açúcar Annual Report 2002 Grupo Pão de Açúcar Annual Report 2002 Annual Report 2002Grupo Pão de Açúcar Grupo Pão de Açúcar Grupo Pão de Açúcar

developed, between the stores and the community, with volunteering initiatives and donations of winter clothes and food. The banner also created the Super Show Barateiro, a solidarity competition [gincana] in the format of a TV show, that helped charity entities. Besides that, in 2002, part of December profi ts of Barateiro was donated to social entities that took part in the programs developed during the year.

With the new model, the stores have a new layout, more modern equipment, a more pleasant environment and differentiated services, always focusing on saving money. The perishable sector gained importance, with sections such as snack bar, sausage section, cold cuts and savories. In the rotisserie, the ready-to-eat dishes are accompanied by recipes for the consumer’s daily routine. The bakery also gained more importance, offering a larger variety in breads, pastries and cakes. For larger stores, with more than 1.4 thousand square meters, the bazaar section was incremented, with linen and underwear items. This is an evolution in the concept of neighborhood supermarkets, with a strong position in perishables and non-food products - home appliances and textiles -, something new in the segment.

Expansion

In the last two months of the year, the CompreBem concept was extended to 10 stores,with the inauguration of six new units (all in the state of São Paulo) and with the conversion of a Barateiro store and of three stores acquired from the Sé chain. The transformation to the new format will be gradual and priority will be given to the stores of medium to large size, that have space to implement the new layout. We expect to consolidate the concept during the fi rst half of 2003 and, from the second half onwards, begin its expansion to the interior of the state of São Paulo - with the conversion of the stores acquired from Sé Supermercados chain - and in the states of Rio de Janeiro and Pernambuco, where the Company is already present.

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routine. The bakery also gained more importance, offering a larger variety in breads, pastries and cakes. For larger stores, with more than 1.4 thousand square meters, the bazaar section was incremented, with linen and underwear items. This is an evolution in the concept of neighborhood supermarkets, with a strong position in perishables and non-food products - home appliances and textiles -, something new in

In the last two months of the year, the CompreBem concept was extended to 10 stores,with the inauguration of six new units (all in the state of São Paulo) and with the conversion of a Barateiro store and of three stores acquired from the Sé chain. The transformation to the new format will be gradual and priority will be given to the stores of medium to large size, that have space to implement the new layout. We

the fi rst half of 2003 and, from the second half onwards, begin its expansion to the interior of the state of São Paulo - with the conversion of the stores acquired from Sé Supermercados chain - and in the states of Rio de Janeiro and Pernambuco, where

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Extra and Extra Eletro

97 98 99 00 01 02

Extra – Net SalesR$ million

938

1,821

2,754

3,736

4,422

3,926

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Perishables, non-food products and services are the differentials of the banner

Extra

Represented by the Extra banner, the hypermarkets division is responsible for a share of 46.8% of CBD’s sales, the largest among all of them. The chain closed 2002 with 60 stores, which totaled a sales area of 456.6 thousand square meters. The net income was of R$ 4.4 billion, a growth of 12.7% in comparison with 2001.

The focus of 2002 was a large work of consolidation and formatting of stores, which reinforced the banners’ margins and results. The layout was redefined, structuring the categories in a more productive manner; the product line was better adapted according to the region in which the store was located; and advances were made in the development of planograms by category, in order to determine the space that each product would occupy on the shelf, which will allow better margins mix.

Besides that, the professionals in each category were trained with the aim of specialization, in order to attract more consumers to our stores. One of the differentials of this initiative is its multiplying effect, i.e., certain stores are responsible for disseminating the defined concept to the other units.

It is also worth mentioning the organic growth, with five new stores being inaugurated, and the reduction of the investment and functioning costs. New stores were inaugurated in São Paulo (3), Goiânia (1) and Brasília (1), adding around 47 thousand m2 in sales area to the Company. The credit systems were also improved in 2002, mainly in the analyses phase, that became more selective.

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Extra Sales represented 46.8% of CBD’s total income

In order to strengthen the convenience concept, increase the traffi c of people in the stores and promote the clients’ loyalty, Extra counts on various services, among them we mention the petrol stations with the Extra brand, present in 9 stores, and the drugstores inside the sales area. The banner also gathers a broad line of private brand products, reformulated at the end of 2001 and with more than 600 items launched in 2002; Extra credit card; the commercial galleries, that offer various services, such as a food court and banks; and the website (extra.com.br), that is in a phase of sustained growth, with the home appliances sales and the increase of the participation of bazaar and textile items.

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Extra Eletro

The merger of the Extra and Eletro banners, in November of 2002, was fundamental to guarantee the synergy between the two formats, mainly regarding the categories management and the purchasing process, which now is amplerand common under both banners. The banner presented net sales of R$ 326.9 million in 2002, representing 3.5% of the total sales of the Company.

In order to guarantee the synergy process, the main differentials of each division were adapted and transformed in a unique concept to both. At Extra, the differentials are the competitive prices, co-brand card, modernity and a pleasant environment. The Eletro differentials are the marketspecialization, tradition in consumer credit and specialized services, such as insurance and extended guarantee.

The initiative also provided a reduction in communications and marketing costs, integration of the Human Resources area, rationalization of work and productivity and competitiveness gains. Besides that, the Eletro stores and theelectronic/home appliances products sections of Extra hypermarkets gained a new and unique concept of visual identity. 97 98 99 00 01 02

Extra Eletro – Net SalesR$ million

281

322311

405

327

379

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Supply Chain

The Supply Chain is a strategic area for CBD and it covers every commercial and logistic function of the categories that have a differentiated development, such as Fruit, Vegetables, Meats & Poultry and the Private brand products of every Business Unit.

The logistic structure is responsible for supplying the stores with products, from the inventories management to the physical flow of goods. This area can add value to the operation by improving the income, reducing the lack of products at the stores and cutting costs and investments in inventories.

CBD’s logistic capacity can be shown by the example that, in 2002, around 10 million kilograms of onions, grapes and mangos were bought directly from the producers of the São Francisco River Valley to the consumer’s tables.

The company operates multi-format stores in an efficient fashion, thanks to a centralized structure, that operates through Distribution Centers - [Centros de Distribuição - CDs].

The Group ended 2002 with a 77% centralization ratio. The expectation is to exceed the 80% centralization in 2003, a percentage close to the best international practices. For comparison purposes, at Sé Supermercados chain - acquired in June 2002 - only 10% of the distribution structure was centralized. Another benefit of the centralization was the investments reduction in inventories, due to the increase of the product’s turnover.

The logistics structure of the Group is formed by 10 distribution centers, representing a storage capacity of 316 thousand square meters of built-in area. In Brasília, Curitiba, Rio de Janeiro, Fortaleza and Recife (which was opened in the second half of 2002) the Company operates multi-category distribution centers, which serve certain regions within a range of up to 600 kilometers. In São Paulo, in the region of Anhanguera freeway, CBD has four distribution centers specialized in fruit and vegetables, non-food products, frozen goods and groceries. The transport is made by 60 outsourced companies, which maintain 800 vehicles responsible for the deliveries to

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the stores of the Group. The average is 1.5 thousand trips per day, having achieved the record of more than 4 thousand trips in one single day, before last Christmas.

One of the highlights of 2002 was the investment in the perishable area. The distribution centers in Brasília and Recife and the fruit and vegetables distribution center in São Paulo were equipped with refrigerated chambers to guarantee higher quality to the products. Furthermore, in Brasília and São Paulo a process of sprinkling water on some perishable products was implemented, which reduces the temperature and recovers the humidity, guaranteeing freshness to fruit and vegetables. At the end of the year, the Company inaugurated a distribution center dedicated exclusively to fl owers in the interior of São Paulo.

Another important highlight was the evolution of the cross-docking concept, initially at the distribution centers in Rio de Janeiro and São Paulo, following an international trend. With this system, the inventory level is reduced and the supply is faster. When the product is sold in the store, this information is sent to the supplier, who knows the exact amount, per store, to be sent to the distribution center. When the goods arrive in the Distribution Center, they are immediately directed to

the stores, staying for a small period in inventory. The cross-docking is used in products that demand fast turnover and large reposition frequency, such as fruit and vegetables, as well as industrialized products of high consumption. The differential of the system is the information: the more effective it is, the smaller the investment in inventories will be and higher the gain in speed and competitive advantage.

For 2003, the challenge is to maintain the quality in supplying the stores with a special emphasis on the perishables (guarantee of origin) and in the costs competitiveness (with the increase of the centralization’s percentage). Another goal is to continue the fl eet tracking and management process, that will bring productivity, effi ciency and security. Currently,a part of the fl eet is already tracked via satellite - for more expensive products, such as home appliance products.

Finally, the logistics structure will receive investments in order for it to continue to be one of the strategic platforms for CBD’s growth and a competitive differential ahead the competition.

Centralization percentage close to 80%

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Information Technology

The continuing investment in technology has always been one of the differentials of CBD. Aware of the world trends, in Brazil the Group is a pioneer in the application of tools of international standards. In 2002, the Company continued its projects aimed at improving the internal processes. Among a number of initiatives, we highlight the adoption of a platform to serve clients, capable to handle around 60 thousand occurrences per month, which allowed to improve the service level of the Casa do Cliente (“House of Client”, a fast and interactive communications channel between the client and the Company) increasing the productivity and rationalizing the costs. The Company also initiated the implementation of a new integrated platform of Human Resources (Peoplesoft) that will implement a more efficient management of the policies and of the development of the area.

The Data Warehouse project - database that stores the knowledge of various areas in the organization - was expanded and will begin to incorporate other themes related to the stock, inventory areas and even themes related to the clients. Pd@net - a B2B platform (business to business) - implemented in 2001, was consolidated as an important tool, singular in the market, for the relationship with more than 6 thousand suppliers. Continuing its positioning in the B2B market via the Internet, CBD started using the tools of the World Wide Retail Exchange (WWRE) to execute a number of processes of e-procurement, such as collaborative, reverse and plain auctions. With the reverse auction, the Company can make offers to purchase certain products from suppliers - previously registered and analyzed - from all over the world.

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CBD is a pioneer in the introduction and application of technologies of world standards

CBD also started a pilot project of an electronic catalogue, with the aim of standardizing the information about the products of the main manufacturers. Besides this, CBD joined the Executive Committee in the Global Commerce Initiative, an independent entity with the goal of establishing business and technology standards to improve the management of the supply chain and the relation between retail and industry all over the world. It is part of the activities of the group to foster the inclusion of Brazil in global pilot projects for the use of radio-frequency labels, with the development of local case studies.

Concept Store

For CBD, the investments in technology are seen in a pragmatic and rational manner, and have the objective to increase sales and to reduce or avoid costs. The

fast development of technology allows for these objectives to be reached, but it can also represent, in some cases, a permanent challenge. This explains the constant concern of the Group in the search and in the evaluation of new tools, following the rational standards for a retail company. In order to make the technology economically viable to the consumer, the company works with the so-called Concept Stores, which work as a laboratory to check the feasibility for implementing certain technologies and systems. We highlight Store 1, the fi rst unit opened by the Group, in 1959, that was remodeled and converted into a Concept Store.

Among the various technological innovations, the emphasis is on the multifunction kiosks, that provide, besides the price of the product,

additional information about products, clients, images and videos; the wireless appliances at the checkout counters, that guarantee more agility to the checkout counter clerks in the serving of the clients; the bioptical scanners, that make faster readings; the Compra Fácil (“Easy Purchase”), whereby an employee scans the value of customer’s purchases while in the checkout line and seals the cart, reducing the time wasted in the lines; and the self check-out, whereby the consumers make all the checkout operations themselves.

CBD believes in technology as a competitive differential and in its leadership role in Brazil and in Latin America, which translates into the pioneerismof certain initiatives that are incorporated by the market.

CBD also started a pilot project of an electronic catalogue, with the aim of standardizing the information about the products of the main manufacturers. Besides this, CBD joined the Executive Committee in the Global Commerce Initiative, an independent entity with the goal of establishing business and technology standards to improve the management of the supply chain and the relation between retail and industry all over the world. It is part of the activities of the group to foster the inclusion of Brazil in global pilot projects for the use of radio-frequency labels, with the development of

For CBD, the investments in technology are seen in a pragmatic and rational manner, and have the objective to increase sales and to reduce or avoid costs. The

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Commercial Area

For the commercial area, 2002 brought several achievements. One of them was the contracts negotiation with suppliers, to maintain the goods costs in levels that allow the Company to sell products at a lower price in the market, assuring a return from its investments. Besides signifi cantly increasing the productivity in the commercial area, this initiative transferred to the contracts the major part of the bonifi cations, which occurred throughout the year. Therefore, the negotiations with the suppliers considered the Group’s size, the fact that the stores are a quality way of showing Products and Brands and the strong attraction and the competence of its banners.

As a result, in 2002 more than 70% of the bonifi cations was contract-based and occurred once in the year and only 30% of them represented specifi c negotiated contracts. In 2001, these indices were 38% and 62%, respectively. Besides increasing the commercial area’s

productivity, the change in the characteristics of the contracts allowed for presenting planned actions, such as the campaign Marcas Campeãs [Champion Brands] - the fi rst large global operation made together with the French partner Casino.

Another fundamental action was the consolidation of the Índice de Desempenho Comercial - IDC [Commercial Performance Index], created in 2001 as a tool to measurethe competence of the commercial area. This index was based on a basket of products and it is calculated from the sale price presented by the competition and from the net cost of the products sold by the group. IDC ended 2002 with a percentage of 30.2%, against 27.7% in 2001, proving the effi ciency of the negotiations compared to the competition.

Another part of the Group’s commercial strategy was to develop partnerships with the international market

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in order to make global purchases. The fi rst experience in this direction occurred in 2002, in partnership with Casino Group. In São Paulo there was a Chinese non-food products fair, with the participation of representatives of the Casino Group from Argentina, Colombia, Uruguay and Venezuela, besides Pão de Açúcar itself. Brazilian products were also offered to those countries and there were positive results: they were extremely competitive.

Another important area was the technical training of the commercial team, throughout Brazil, with the implementation of the Projeto Águia [Project Eagle], one of the largest training courses ever offered in the retail segment around the world. The objective was to develop the CBD’s negotiation standard, focusing on the defi nition that the Company is always aware of its size and magnitude during the negotiation process, but is absolutely ethical andtransparent in the relationship with its suppliers. An example of this was the campaign “Say no to this product”, which alerted the consumer regarding the

lack of products on the shelves, due to the excessive price increases by the producer.

ExportaPão

With the aim at promoting Brazilian products exports, the project ExportaPão makes CBD a partner of small and medium-sized domestic suppliers, commercializing their products through its international partner, Casino Group. The project is aligned with one of the main economic goals in the country: to increase the surplus of the balance of trade and foster the domestic industries’ development. The basis is to support and foster the Brazilian producer in order to get ready to participate in the competitive global market. In order to structure the ExportaPão, the Pão de Açúcar Group reactivated the Pão de Açúcar Trading, that will have the role to manage and execute the operations as well as coordinate all the exports of products from America to the Casino Group around the world.

International partnerships, technical training and launching programs with suppliers were the main achievements in the area

Faces of Brazil

The program Faces of Brazil, launched in the end of 2002, aims at identifying differentiated Brazilian products that are sustainable, i.e. ecologically correct, that can be commercialized by the three banners of the group. Besides contributing with the wealth production, the program opens a sales channel for the small Brazilian communities, stimulating the preservation of traditional activities in various regions.

to the Casino Group around the world.


Faces of Brazil

The program Faces of Brazil, launched in the end of 2002, aims at identifying differentiated Brazilian products that are sustainable, i.e. ecologically correct, that can be commercialized by the three banners of the group. Besides contributing with the wealth production, the program opens a sales channel for the small Brazilian communities, stimulating the preservation of traditional activities in various regions.

product”, which alerted the consumer regarding the to the Casino Group around the world.


Faces of Brazil

The program Faces of Brazil, launched in the end of 2002, aims at identifying differentiated Brazilian products that are sustainable, i.e. ecologically correct, that can be

production, the program opens a sales channel for the small Brazilian communities, stimulating the preservation of traditional activities in various regions.

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Private Brand Products

Aligned with the world trends of the retail market, Pão de Açúcar Group bets on the private brand concept as part of the strategy to make its banners more profi table.Besides being an additional opportunity of higher profi tability for the Company, the segment is an importanttool of achieving consumers’ loyalty.

The restructuring phase was initiated in 2001, with the re-launch of the Extra and Barateiro brands. They went through a big conceptual change, that culminated in the migration of products with focus on the price for items with similar quality to the leading brands in the market and with prices, on average, 20% to 25% cheaper than the leading brands.

Now the goal is to strengthen the participation of the segment that had, at the end of 2002, more than 1.4 thousand items and presented a 53% growth in the sales of private brand products of the Company. At the

end of 2002, the Pão de Açúcar brand had 100 items and Goodlight had 120 products and an average sales growth of 20% per month. Extra brand grew around 65%, compared to 2001, with the incorporation of more than 600 products launched. At Barateiro, that has around 450 items, the sales growth was around 24%.

The restructuring process continued in 2002, with the launch of a mix of high added value products with Pão de Açúcar brand. The focus of the project was to present a line of differentiated products, even in comparison to the Brazilian industry, with a range of new items, such as fresh pasta with fi lling, quiches, ice-creams with Italian technology, prime meats, imported olive oil and dry fruits.

When adopting the industry concept, with the development of products, the Group started making laboratory analyses, tests with consumers and auditing

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the suppliers. In the packaging area, each project maintains a specialized agency that develops the design of products, creating a unifi ed visual identity. The launches follow a quantitative strategy, focusing items with larger volumes, sales and profi tability. Besides, each brand has a marketing support, which includes

promotional efforts to advertise products, in tabloids and product tasting in the stores, increasing their visibility in the point of sales. For 2003, the expectation is to increase the products basis, with launches in the three banners, and continue the innovation of work and aggregate value for the brands.

Private brand products sales presented a53% growth against the previous year

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Products and Financial Services

With almost two years in existence, the Products and Financial Services area has been developing tools to increase the competitiveness, creating financial differentials for each banner of the Pão de Açúcar Group. One of the challenges is offering products and financial services that bring convenience to clients, besides producing income and reducing the Company’s operational cost.

The highlight of the year was the supplementation of the private cards portfolio, the so-called private label, with a basis of more than 1.3 million units. Launched in 2001, private label are cards whose usage is restricted to the stores of the Group. The division among the three banners is: 380 thousand Barateiro cards, 110 thousand with Pão de Açúcar Mais card (credit) and 860 thousand Extra cards. One of the main benefits of the private label is the lower management cost in relation to the cards of unrestricted usage. This allows for the cheapening of the payment means costs - fundamental

for the profitability of the operation. Another advantage is that the cards have all the information of the items purchased by the consumers, functioning as a loyalty and relationship component. For these reasons, the focus of the area for 2003 will be the private label, with the re-launch of the Pão de Açúcar group card, such as the Pão de Açúcar Mais (credit). The aim is to stimulate the activation, through promotions in the point of sales and direct marketing, in order to increase the percentage of participation of the usage within the banners.

The Group also has three co-brand cards, of unrestricted usage, in partnership with Credicard: Pão de Açúcar Group (140 thousand units), Extra (390 thousand cards) and Eletro (36 thousand units). These cards are issued with the MasterCard and Visa banners. In the same manner as the private label cards, the Pão de Açúcar Group card will also be re-launched in 2003 with the brand Pão de Açúcar Mais Credicard.

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Services

In the services area, the important fact was the sales growth of the Extended Guarantee contracts and of Financial Protection Insurance, revamped in 2002. With more than 250 thousand contracts signed in the year, the Extended Guarantee allows the consumer to extend the guarantee of the purchased electronic/home appliance product, besides the one already offered by the producer. The Financial ProtectionInsurance - an insurance policy that covers the installmentspayments by the consumer, as a result of loss of earnings, caused by redundancies (for those that earn a salary) or by income loss (for those that are self-employed), protecting the consumer of the delinquency - had an increase of its participation in sales, with more than 340 thousand contracts sold.

Created by the Treasury and managed by the Products and Financial Services area, the Banking Correspondent

service also presented positive results in 2002, the year of its launch. It allows the consumer to pay energy bills, water bills, etc at the checkouts of the supermarkets. Initially implemented by Barateiro, the service is already available in every store of the Group. Only in the fi rst six months of operation, at Barateiro, 1.1 million bills were received. The goal is to reach 1.5 million bills per month in 2003. The initiative aggregates services to the client and generates traffi cto the stores, besides aggregating income to the Company, which receives a percentage over effected transactions.

Customer credit fi nancing

In relation to the customer credit fi nancing operations, more common in the Extra and Extra Eletro stores, more than 1 million fi nancing contracts were approved in 2002, which represents around 81% of the credit’s applications. During the year, this concession policy was reevaluated, besides the consolidation of the central collection agency (it was under the responsibility of a third party fi rm), which improved the performance of the area. At the end of 2002, the Company had 150 positions of service and more than 300 employees in operation. The Credit Score policy was also implemented - a credit granting process that guarantees security and control -, without having an impact on sales. The system helps in the credit analysis and decision, that is not subjective anymore, but scientifi c, supported by statistics.

Multi-benefi ts

Also in order to conquer the loyalty and reduce the costs, the multi-benefi t products suffered expressive changes in 2002, and already represent the second largest volume in relation to other food voucher companies. Following a market trend, the Multi-Alimentação is not on paper anymore - now it uses a card. It is a product ruled by thePrograma de Alimentação do Trabalhador - PAT, that demands the companies to pay for part of the food expenses of its employees. The differential of the Multi-Alimentação is that nothing is charged from companies and employees. The Pão de Açúcar Group gains in the reduction of the management cost and in the guaranteed purchase every month.

The Multi-Cheque allows that the Company offers a benefi t to the employee, debiting the payroll, and went through a restructuring, gaining commercial and marketing reinforcement. The third product is the Multi-Cash, used for specifi c awards for employees.

In 2002 CBD launched more than 1.3 million private label cards

Created by the Treasury and managed by the Products and Financial Services area, the Banking Correspondent


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Human Resources

Through the Human Resources Department, the Pão de Açúcar Group develops a series of activities of professional training, tuned into the concept to form the Dream Team. This initiative has the aim of developing competencies that aggregate value to the business, besides improving the quality of life of the employees. In 2002, around R$ 7 million were invested in training programs, in a total of 660 thousand hours of formal courses, not including the activities promoted in the stores, through the multiplying agents. Besides that, more than 1.2 thousand executives participated in training events.

The Model of Competency-based Management, adoptedby the Group in 1999 has been fundamental for developing the Programs of Training and Development

offered by the Human Resources Department, allowing for the development of strategies and abilities that result in a differential for the Company. The focus on 2002, the competency People Development gave origin to the Program “Programa Gerente de Gente Feliz” [Manager of Happy People], implemented in May, with the aim of transforming every manager in the company into Human Resources representatives.

Another action developed was the program of trainingand recycling courses of the Service and Operational Standard, which establishes the benchmarks for a more efficient service in the stores. This program involved 9.5 thousand employees of the Group in 2002. Following the same philosophy of demanding excellence from the managers, the Program of New Leadership Formation promoted 180 trainees to leadership positions at the CBD’s stores.


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Code of ethics

The relationship of Pão de Açúcar Group with all its public - suppliers, collaborators, clients, community, press, shareholders, vendors, government and academicbodies and the competition - follows a solid Code of Ethics, that is distributed to every employee. In its foundation, the organizational structure of the Group maintains an Ethic Committee, formed by employees of the Human Resources, Legal, Security and Commercialareas, responsible for acting as advisors to the managersin unusual situations or when ethical dilemmas arise.

Internal communication

The internal communication is an important managementtool in search of the results of the Company, as it providesthe employees with the necessary informationand guidance so that they can be aware of the strategicgoals of their area/company, giving them better conditionsto perform their job in a better way and toachieve their goals. It alsocontributes in that each collaborator understands his/her role within the Company and be responsible for the results.

The employees have access to the information through various communications tools (printed, electronic, audiovisual media and corporate campaigns). All this aligned with the concepts of Mission and Culture of the Group and Positioning of each Business Unit.

Quality of life

The goal of the program Quality of Life of Pão de AçúcarGroup, the Viva Melhor [Live Better] is to promote the physical, social and emotional well being, as well as to stimulate the employees and their families to develop healthier habits. The principles of the program are dedicated to answering the needs in the fi elds of Health, Education, Working Environment, Family, PhysicalActivity and Leisure, with more than 20 actions. In 2002, the highlights were:

• More than 2 thousand collaborators took part of the PODE - Programa de Planejamento do Orçamento Doméstico [Home Budget Planning Program]

• More than 7.4 thousand massages were given to collaborators in the Administrative Offi ce

• More than 40 thousand collaborators were vaccinated against the fl u

• More than 2 thousand people received nutritional guidance

• Nearly 25 million balanced meals were offered accordingto the Cardápio Viva Melhor [Live Better Menu]

• More than 40 thousand sessions of Stretch-break were held

• More than 100 collaborators were transferred by the program O Lugar Onde Você Mora [The Place Where you Live], that aims at allocating the employees to work near their houses

Benefi ts

Besides fostering the professional growth of its employees, the Pão de Açúcar Group also offers a range of benefi ts that reduce the budgetary cost and expand the personal horizons of their collaborators. One of the new actions of 2002 was the distribution of 4.1 thousand school sets, containing school materials,for the employees’ children that are enrolled from the kindergarten to secondary school. In the educational area, the Company gives scholarships - a reimbursementof 50% of the amount of the enrollment fee and the monthly fees in courses in primary schools, secondary schools and universities. Also, the employees with disabled children receive scholarships that guarantee a reimbursement of up to 80% of the monthly fees in special schools they have to attend to. In 2002, the company continued offering the EducaPão, a program that benefi ted more than 2.4 thousand people, by complementing, with classes given within the Companyitself, the primary and secondary studies.

• More than 2 thousand collaborators took part of the PODE - Programa de Planejamento do Orçamento

• More than 7.4 thousand massages were given to

• More than 40 thousand collaborators were vaccinated

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Social Responsibility

The belief that the enforcement of citizens’ rights is the shortest and fairest way for the prosperity of the country and of those who are proud to be Brazilians is what guides the actions taken by the Pão de Açúcar Group in the social area. The ethical values of the Company are expressed in its operational and commercial practices, and they also guide its interventions in the human resources policy and in cultural initiatives, in environmental defense and citizenship promotion.In 2002, the Group invested around R$ 22.6 millionin various programs developed mainly by the Instituto Pão de Açúcar and by the Institutional Marketing area.

The Company adopts a stance of being socially responsible, trying to take into account the interests of each one of its publics - shareholders, employees, suppliers, vendors, consumers, community, governmentand environment - and manages to incorporate them

when planning its activities, with the aim of meetingeveryone’s demands.

At CBD, the social responsibility is much more than a concept; it is absorbed in the business strategy, transforming the Company in a partner, being co-responsible for the social development. Thus, with the aim of disseminating this concept as a real value among its collaborators, in 2002 it created the Social Responsibility Committee as a discussion forum for the issues related to social responsibility within the Company. The goal is to integrate information and actions among the areas directly related to the theme, involving the business units of the Company, and expanding its range of performance from the management posture to the practical consequences in the business operation. Each one of the areas has its mission, its principles and a performance plan, which follow the global concept of social responsibility adopted by the Company. The goal is to


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seize the opportunities in each segment, reinforcingthe practices that already exist and start to develop and consolidate other actions.

Institutional Marketing

More than promoting or sponsoring events, the Institutional Marketing Area of Pão de Açúcar embraces causes. In 2002 we consolidated this concept, that has been disseminated for four years by the Group, by promoting Brazilian culture, sports, solidarity, responsibleconsumption and recycling. This concept is the foundationof the construction of a unique corporative language,which aggregates competence to every banner of the Company and stimulates their 500 stores to promote local actions for interaction with the communityand its leaders. Among the main events in the social, sport, culture and environmental areas, the highlights of 2002 were:

• The launch of the Program “Faces of Brazil”, that opened a sales channel for the small Brazilian communities, stimulating the preservation of traditional activities of various regions;

• The increase of the project “Paratodos” [For Everyone], to make the stores accessible to everyone, now reaching 30 units;

• Events for the community, such as Pão de Açúcar Relay Marathon, that attracted a record public of 22 thousand participants and the Pão de Açúcar Corpore Running Circuit, with 19.5 thousand participants;

• The celebration of the 10th anniversary of Pão Music, CBD’s main initiative in the cultural area that offers free concerts to the population;

• The extension of the project Estações de Reciclagem Pão de Açúcar Unilever [Recycling Stations] for 20 stores that accounted for the receipt of 1.8 tons of recyclable residues in the year. The consolidation of the Projeto Jardineiros [Project Gardeners] of Barateiro, with two teams of gardeners trained by the Projeto Crer-Ser [Project Believe-Be] that worked recovering and maintaining 12 squares and leisure areas in several neighborhoods of Greater São Paulo, where the Barateiro stores are located.

• Surpassing the goals for the collection of PET bottles and aluminum cans foreseen in the Projeto Recicle e Ganhe [Project Recycle and Win] of Extra: more than 18 million packages were collected and did not go to embankments, waste, streamlets and rivers but were sent to recycling industries.

Instituto Pão de Açúcar

Created in November 1998 to be the agent of the social responsibility of the Company, the Instituto Pão de Açúcar de Desenvolvimento Humano received investments of R$ 8.5 million in 2002 - for 2003 R$ 11.8 million more are foreseen -, to be invested in the programs developed by the areas of Educational Qualification and Community Relationships. The Instituto’s activities are guided by the Mission of the Company, which is to contribute to improve the quality of life of Brazilian people.

Promoting human development through education is the most important cause embraced by the Instituto Pão de Açúcar, which maintains creative and innovative educational programs, dedicated to children and teenagers from 7 to 18 years old, combining learning technical knowledge and abilities with the development of skills such as to learn, share, participate and be somebody.

The programs bring together students, families and the community, acting as efficient transforming agents.

The aim is to reinforce and supplement the knowledge given by formal schools, contributing to a solid foundation and preparedness for life. The competences are developed in every program, that answer to specific needs of each age group and theme: children’s education, school supplement for the primary school, information technology, sports, culture, music and preparation to enter into the job market.

In 2002, the Instituto Pão de Açúcar implemented the Grupo Voluntário [Volunteer Group] - a corporate volunteering program - which guides the employees’ solidarity to make campaigns that will answer the needs identified in the communities and, at the same time, show the population how to find solutions for their problems. In the 87 involved stores, more than 3,000 collaborators are volunteers. The program will be gradually implemented in every store and also in the administrative office.

Under the guidance of the Instituto Pão de Açúcar, the Company maintains the program Parcerias contra o Desperdício [Partnership against Waste], where every supermarket and hypermarket help fight against the inequalities and support the social organizations of the neighborhood.

Knowing the reality of their communities, the stores register institutions to receive products that are not within the ideal standards to be exposed on the shelves, but are still in good consumable condition. Besides food, the institutions receive cleaning material, bazaar products, domestic appliances and groceries. Currently, there are around 1200 social institutions registered in the 12 states where Pão de Açúcar Group operates.


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Sales Performance and Results2002 was marked by a strong confidence crisis, originated from the turmoil in the political and economic scenario of the period. The instability generated by the presidential election and the soaring dollar (valuation of more than 50% in the year), together with the slowdown of the United States economy and the worsening of the Argentine crisis, reflected in the increase of the interest rates, inflation and country risk. As consequence, the consumer’s confidence level was negatively affected.Even in this unfavorable environment, in 2002, the Company registered gross sales of R$ 11.2 billion and net sales of R$ 9.5 billion, representing growth rates of 17.0% and 17.4%, respectively. The gross sales, if annualized with the sales of the acquired chains, reached R$ 11.7 billion, representing a 18.4% growth against 2001.In the total of the year, same stores sales of food products increased 5.0%, while non-food products registered an increase of 0.1%, which reflects the consumer’s caution.


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Grupo Pão de Açúcar Annual Report 2002Grupo Pão de Açúcar

Gross Sales in annual basis reached R$ 11.7 billion in 2002, a 18.4% growth compared to 2001

Sales Performance

Pão de Açúcar

The Pão de Açúcar Division continued the process of updating and refurbishing the stores, converting them into the “Second Generation” concept, with a large section of perishables itens, differentiated products and services and high technology. The majority of the units were already converted to this new store standard. We highlight the launch of the line of Pão de Açúcar private-brand products, with emphasis in differentiated and high value added products. Pão de Açúcar Mais card reached around 2 million families and identifi ed around 54% of the sales in that format.

Barateiro

In 2002, the Barateiro Division had the best sales performance among the Company’s formats, proving the sustainability of the changes implemented in the format during 2001. The progress made during the year originated from a larger assortment of products and services to the consumers, reformulation of the private-brand products, store layout and environment, narrowing the relationship with the community (including the introduction of the concept CompreBem Barateiro), improvement in the consumer’s assistance and loyalty actions through the Clube Barateiro card.

Extra

With the aim of strengthening the convenience concept of the hypermarkets and increasing the customer traffi c in the stores, the Extra Division continued investing in the effi ciency and quality of perishables operation, in increasing the line of private-brand labels products and in the offer of services such as gas stations and drugstores with the Extra brand. The year 2002 was also marked by the incorporation of the Eletro format by the Extra Division. The main benefi ts of this merger were the synergies in the categories and purchases management strategy, and the human resources and marketing expenses dilution.


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Sales Performance

Productivity indexes

In 2002, CBD presented an improvement in its productivity indexes. The sales per square meters/month reached a 6.4% growth in comparison with the same period of last year. The sales per employee/month presented a 3.7% growth and the average ticket grew 4.4%, reaching R$ 23.8.

Gross profi t and gross margin

In 2002, CBD registered a gross profi t of R$ 2,645.1 million, with a 17.7% growth over the previous year. The gross margin of the period was of 28.0%, slightly

higher than the margin of 27.9% calculated in 2001. It is worth mentioning that while we obtained gains in negotiations with suppliers, category management and losses prevention (the losses were reduced from 1.6% to 1.3%), we also invested in the price competitiveness, with a positive refl ex in sales, market share and dilution of operational expenses.

If the gross margin presented itself in a lower level, it is worth mentioning the positive effect of this strategy in the dilution of the operational expenses, which represented 19.7% of the net sales in the year (20.0% in 2001).

EBITDA

The Company’s EBITDA reached R$ 781.2 million and grew 23.1% in 2002 or 24.5%, if we exclude the extraordinary expenses of R$ 8.7 million with the acquisition of Sé, registered in the 3rd quarter. The EBITDA margin registered in 2002 was of 8.4%, excluding the extraordinary expenses, which meant an improvement over the 7.9% margin obtained in 2001. This factor refl ects positively in the gains of scale obtained by the Company in recent years, which allows for an increased price competitiveness, without deterioration of operational margin.


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Financial Result

The Company’s fi nancial result was R$ 162.9 million negative, while in 2001 the Company presented a net fi nancial income of R$ 3.1 million. The decrease of the fi nancial result is explained by 3 main factors: increase of funding costs for short-term fi nancing (funding for receivables), extraordinary fi nancial expenses of R$ 18.8 million from Sé’s acquisition (interest in arrears) and the market still slow in the non food segment and consequently reduced income with credit. It is worth mentioning that CBD is not exposed to the effects of the currency variations, as since 1999 the Company has had a rule of adopting swap mechanisms for CDI [Interbank rate] in its debt in foreign currency.

Net income

The net income of the year was R$ 245.1 million, 2.2% below the result calculated for 2001 (net income of R$ 250.7 million). If we exclude the extraordinary expenses with Sé, net income was of R$ 272.6 million, 8.7% higher than 2001’s profi t.

Working Capital

The year 2002 was important for the Company regarding the working capital management, which reached 7.4 days, with a gain of 9.4 days over 2001, due to a faster turnover of our inventories, together with longer terms with our suppliers. All this refl ects the Company’s effort to increase the operation’s effi ciency, as well as the commercial area restructuring that occurred in 2001 and the maturing of all the investments made in the distribution (78% of centralization in 2002) and information technology (98% of the suppliers operating via our system pd@net).

Barateiro Division presentedthe best performance of the year


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Operating & Financial Highlights

Pão de AçúcarNet Sales (R$ million)No. of storesSales area (m2)BarateiroNet Sales (R$ million)No. of storesSales area (m2)ExtraNet Sales (R$ million)No. of storesSales area (m2)Extra EletroNet Sales (R$ million)No. of storesSales area (m2)CBDNet Sales* (R$ million)Change – Same-store basis (%)No. of storesSales area (m2)No. of employeesNo. of transactions (000)

2,644176

219,559

1,107150

178,074

3,92655

427,41837962

41,229

8,055-2.6443

866,28052,060

353,849

2,446186

228,873

1,043111

130,312

3,73653

415,142

40566

40,964

7,6305.5416

815,29150,160

332,232

1,393147

156,906

---

93814

116,348

28167

36,850

3,114-2.2238

350,41019,653

116,392

2,058146

174,183

68183

99,391

2,75446

350,794

31174

38,869

5,8304.5349

663,23739,642

256,349

1,725149

166,052

28929

49,308

1,82130

215,682

32276

39,549

4,42912.5284

470,59131,343

173,446

19981999 199720002001

2,800188

239,762

1,527148

177,540

4,42260

456,569

326,88354

36,709

9,4554.0500

979,72357,898

405,375

2002

In 2002, Total CBD Consolidated includes 50 stores acquired from Sé e CompreBem chains. These stores will be converted into CBD’s formats and represents 69,143 m2 of sales area.* Includes net sales by Peralta chain in February 1999 (R$ 27.0 million) before the effective absorption of Peralta into CBD. 1998 figures include net sales by Millo ‘s chain (first quarter) and Barateiro chain (June). The item “Total net sales” also includes the extinct Superbox division.** The productivity indicators were calculated based on average values proportional to the period in which the stores were open.EBITDA = earnings before interest,tax,depreciation and amortization.

Corporate Law

Sales per m2/month (R$) **Sales per employee/month (R$) **Average ticket (R$) **Gross ProfitGross Margin (%)EBITDAEBITDA Margin(%)Net income/(loss)Net Margin (%)Earnings per 1,000 shares (R$)Shares outstanding (thousands)Cash & Banks/Short-term InvestmentsAccounts receivableInventoryTotal AssetsFinancial DebtNet Financial DebtShareholder's Equity

82717,485

22.82,24727.96347.92513.1

2.22113,061,139

1,048976686

7,2812,1751,127

3,404

85817,142

23.02,10127.56047.93324.3

3.09107,372,033

892888795

6,6911,848

9562,962

81514,824

25.51,18927.12726.21593.6

2.0478,116,125

370447345

3,0241,144

774972

87813,756

22.81,56727.04237.3621.1

0.6497,261,274

1,261507538

5,1541,286

262,315

83713,493

26.883026.71595.11444.6

1.8478,116,125

425361221

2,079620195858

88018,124

23.82,64528.07818.32452.6

2.17113,186,139

1,1351,088

9819,1882,9161,7813,592

2002 19971999 199820002001Corporate Law - (R$ million)


40


41

In 2002, CBD invested R$ 683 million, excluding the acquisitions. This amount was directed mainly to open new stores, renovate existing ones, convert acquired chains, besides the investments in technology, logistics and land acquisition.

Acquisitions

The acquisition of the Sé Supermercados chain was the highlight of the year. The purchase price was R$ 375 million, including the absorption of financial liabilities in the amount of R$ 124.4 million. With 60 stores in operation in 16 cities of the state of São Paulo, including the capital, the Sé chain achieved a gross revenue of R$ 1 billion in 2001. An innovation in relation to the other acquisitions made by the Group

was the inclusion, in the purchase price, of 12 real estate properties, whose market value is estimated to be R$ 70 million.

Within the 60 units acquired, four were closed, one was converted to the Extra Hipermercados format, 13 stores are under the banner Pão de Açúcar and 3 under the banner CompreBem Barateiro. The process of conversion of further stores will take place in the first half of 2003: there will be 23 conversions to Pão de Açúcar and 16 to CompreBem Barateiro.

Another important fact was the reintegration, in June, of 12 stores in Recife (Pernambuco state), of the CompreBem chain, that have a total sales area of 11,840 square meters and presented a gross revenue of R$ 122.2 million in 2001.

Investments 2002


40


Highlights

• Acquisition of Sé Supermercados chain

• Integration of all Sé stores and conversion of 17 stores acquired from Sé chain

• Reintegration of 12 stores of Comprebem chain

• Finalization of the stores conversion of the acquired from the ABC chain in Rio de Janeiro to the Barateiro format

Inaugurations

One of the focal points in 2002 for CBD was the organic growth, with the inauguration of 16 stores: four Pão de Açúcar, seven Barateiro and fi ve Extra. The Company increased its presence, covering 12 states, with the inauguration of an Extra hypermarket in Goiânia (Goiás state). Besides that, it reinforced its presence, with the Extra banner, in important markets, as the capital of São Paulo (in the neighborhoods of Jaguaré and Freguesia do Ó) and in the cities of Mauá (São Paulo state) and Brasília (Distrito Federal). In the logistics area, the highlight was the inauguration of a Distribution Center in Recife (Pernambuco). The reduction of construction costs of the stores was another important factor of 2002. The conception of certain areas was improved and adapted to the proper size of the operation, which assures a higher profi tability, with the reduction of the investment cost and the increase in of return.

Highlights

• 4 Pão de Açúcar stores

• 7 Barateiro supermarkets

• 5 Extra hypermarkets

• 1 Distribution Center in Recife

Reforms/Refurbishments

The constant investment in the stores is one of the differentials of CBD. In a total of 500 units, 52 were renovated in 2002. The updates include changes in the layout and the improvement of technology and equipment. This is a continuous and strategic process for the Group, as the changes generate an increase in productivity and of sales per square meter. Another benefi t was the reduction of the operational costs. Regarding stores lighting, for example, the use of transparent tiles, that permit the entry of daylight, has been allowing for a reduction in the energy consumption between 15% and 20%.

Highlights

• 22 Pão de Açúcar stores

• 24 Barateiro supermarkets

• 6 Extra hypermarkets

41


42


43

Corporate Governance

CBD made the statutory change of its administrative structure in order to improve the relationship with shareholders and investors and to adhere to the corporate governance principles, in the most satisfactory manner. The changes were communicated and approved in a General Meeting, on December 9th, 2002 and will come into effect on March 1st, 2003.

With the restructuring, the current controlling shareholders of the Company left the Executive Management to take part in the Board of Directors. The founding shareholder, Valentim dos Santos Diniz, becomes the Honorary Chairman of the Board of Directors. In March 2003, Abilio Diniz will

leave the position of CEO of the Group to be the Chairman of the Board of Directors. The Presidency of the Group will be occupied by Augusto Marques da Cruz Filho, the Administrative and Financial Vice-President. Under this new model, the director vice-president position will cease to exist.

The Board of Directors is responsible for leading the corporate governance process, and the Executive Management is responsible for the daily management of the business. From 2003 onwards, the Board, elected for a three-year mandate and comprised of 14 members,will be formed by four shareholders, seven external and independent counselors, two representatives of


42


43

Objectives of the change

• To implement a more active Board of Directors, creating conditions for the shareholders and offi cers to perform their own role;

• To give autonomy to the President and to the Executive Management, that become less dependent from one person and answer to the Board of Directors;

• To strengthen CBD’s leaderships, giving them more autonomy and responsibilities;

• To create transition mechanisms to benefi t from the leadership and experience of the current CEO and controlling shareholder;

• To create adequate structures to introduce controlling and planning processes among the Board and its Committees and the Executive Management.

Committees

The main role of the Committees is to interact with the Executive Management, previously preparing the themes to be discussed and approved by the Board of Directors. Each Committee should present challenges to the Executive Management, aiming at the improvement of the responsibility, quality, controlling and productivityindices. They will also evaluate the Company’s performanceagainst the previous plans and market practices.

our French partner Casino and by the president of the Group. The collegiate meets six times per year, to evaluate the development of the business operations and to defi ne goals and guidelines for the Company. In order to make the interaction between the two areas easier, the following committees were created: Executive, Financial, Development and Marketing, and Auditing.

Grupo Pão de Açúcar Annual Report 2002 Grupo Pão de Açúcar Annual Report 2002

45

Executive Committee(Monthly meetings)

• To establish goals and approve budgets and investments plans;

• To monitor the Company’s performance in several dimensions;

• To demand results from the offi cers;

• To monitor the career plans of the main offi cers and approve the remuneration plans;

• To defi ne guidelines and to review the strategic planning;

• To discuss strategic themes to be approached by the Board, such as, for example, changes in the acquisitions and capital structure.


44


45

Development and Marketing Committee(Meetings will be held every two months)

• To present innovative challenges for the Company;

• To survey the CBD’s institutional marketing activities, such as cultural and sports events;

• To decide on investments allocation in marketing.

Financial Committee(Fortnightly meetings)

• To monitor the development of financial indicators, mainly the cash flow and cash position;

• To monitor the capital structure, indebtedness and its cost;

• To identify themes to be discussed by the Executive Committee;

• To invite officers from the financial area to clarify questions or to request new report formats;

• To use the Executive Committee to discuss more relevant financial themes;

• To identify opportunities and risks of financial deals.

Auditing Committee (Quarterly meetings)

• To receive and evaluate the external auditing reports;

• To suggest the Board to change the external auditing firm, if necessary;

• To receive and evaluate the internal auditing reports about the procedures and controls in the financial area.

Board of

Directors

Development

& Marketing

Committee

ExecutiveManagement

ExecutiveCommittee

FinancialCommittee

AuditingCommittee


46


47

Risk Management

In order to assure the leadership in the Brazilian retail market - one of the most competitive markets in the economy - the Pão de Açúcar Group seeks to undertake specific actions whenever necessary to minimize or eliminate the risks resulting from internal or external factors, with negative effects for its operations.

In order to reduce the exposure to the obligations in foreign currency to the minimum, the Company makes currency swap contracts and interest rate swaps contracts, with the aim of hedging the debt against foreign exchange variations. Usually, these contracts are signed with the same institutions that

provide the financing in US dollars. The swap contract term is the same as the financings and CBD does not terminate these contracts before their maturity.

Another measure adopted by the Company to managethe risks caused by a possible scenario of high interest rates - and that ends up affecting the credit expansion - is the implementation of a selective credit analyses of the clients, which allows for a low delinquency rate. CBD manages the risk through a rigorous qualification and credit-granting program. In 2002, the customer credit financing represented 3.1% of the total sales.


46


47

New Projects

CBD is prepared to face the challenges of 2003.As the leader in the market, CBD will invest R$ 540 million in new projects. It is worth to mention that this is a 12-month Plan, with its beginning foreseen for the second half of 2003: R$ 240 million for new stores, R$ 200 million for renovations of existing units and R$ 100 million for logistics, technology and others. The Company will maintain its organic growth strategy, with the addition of 8% in sales area during the year, and focusing on the regions it already operates in. The search for the balance among the multi-formats - supermarkets and hypermarkets - also integrates the Group’s strategy.

Besides that, in 2002 it absorbed the collection agency, that was previously outsourced - an initiative that helped to improve the credit performance. It also implemented the Credit Score policy - a statisticalanalyses of the client’s profi le, which guaranteessecurity and control in the process of credit granting,without causing an impact on sales. The system helps in the credit analysis and decision, which is not subjective anymore, but scientifi c, supported by these statistics.

The Group also has an insurance coverage to protect itself against events that might affect its inventories and fi xed assets, such as fi re, thefts and diverse risks.

In 2003, the Company will open fi ve new Pão de Açúcar stores, four Extra hypermarkets and ten Barateiro units. To consolidate the organic growth of the Extra banner, the Group is planning to open stores in states where it is still not present, mainly in the Northeastern region of the country. In the fi rst half of the year, the focus will be on converting the stores from the Sé Supermercados chain. We expect that, by the end of the year, every Barateiro store will also be under the new format CompreBem Barateiro.


48


49

Shares as Investments

With the adoption of a new corporate governance model, CBD wants to assure more information transparencyto the market and to its various stakeholders and toconsolidate the advances achieved in the last years,improving the evaluation of the Company and contributing to increase its market value.

Since the initial public offering, in 1995, one of the priorities of the Group has been to offer a differentiated service to the investor, through its Investor Relations area, whose philosophy is based on the transparency, agility and security in providing information.

CBD follows the determinations of the Corporate Law and adopts the Brazilian accounting rules and the rules for public companies registered at the Brazilian Securities Commission - CVM, also complying with the determinations of the Securities and Exchange Commission - SEC, of the United States, for foreign

companies registered at the stock exchange of that country. In 2002, the Group took part in more than 300 meetings and presentations with investors and analysts as well as conferences and road shows in Brazil and abroad.

Capital markets

The capital markets were mainly affected by the economic retraction in the first half of 2002 and by political indecision in the second half of the year, and presented unfavorable behavior, resulting in a significant valuation of dollar and the drastic reduction in the credit granting.

The investors’ insecurity reflected in the decrease of the volume negotiated in the Bolsa de Valores de São Paulo [São Paulo Stock Exchange] and in the negative variation of the Ibovespa, which accumulated a loss


48


49

of 17% in the year. Besides this scenario, the CBD’s shares presented a valuation of 10.1%, closing the year quoted at R$ 54.5/1,000 shares. In New York, the Dow Jones index presented a retraction of 16.8% and, even before a foreign exchange devaluation of 52.3%, the ADRs negotiated in the NYSE fell 30.5% and closed the year quoted at US$ 15.3.

The Company shares were negotiated in 100% of the trading sessions of Bovespa and NYSE. Also, from January 2003 onwards, the Company has started to integrate the new index IBX-50, created by Bovespa, that will concentrate the 50 more liquid companies, weighted by their market value.

Dividends

The net income registered in the year of 2002 was of R$ 245.1 million and the calculation basis for the dividends distribution was R$ 237.7 million. Thus, in 2002, R$ 59.4 million were paid in dividends, the equivalent to R$ 0.52516 per 1,000 shares.

Shareholder composition

CBD’s capital is represented by 113.2 billion shares, being 63.5 billion common shares (ON) and 49.7 billion preferred shares (PN).

PAIC

Valentim dos Santos Diniz

Península Participações

Abilio dos Santos Diniz

Lucília Maria Diniz Gallo

Board

Total Group

Casino

Other

Total

60.4%

3.6%

10.2%

0.4%

1.4%

0.0%

76.0%

24.0%

0.0%

100.0%

%

7,333

-

8

-

1

-

7,342

13,623

28,751

49,715

PN

45,667

2,281

6,466

254

895

0

55,563

28,841

28,782

113,186

Total

14.7%

14.8%

27.4%

57.8%

100.0%

%

40.3%

2.0%

5.7%

0.2%

0.8%

49.1%

25.5%

25.4%

100.0%

%

38,334

2,281

6,458

254

894

0

48,221

15,219

31

63,471

ONMain Shareholder's

Ownership Structure – Dec, 2002(millions of shares)


50


51

1997

1998

1999

2000

2001

2002

2,245

1,449

2,292

3,617

3,602

1,832

660

696

1,645

2,535

2,362

1,789

Average daily volume

97 98 99 00 01 02

Total traded volume

334.

4

PCAR4 (R$ million)

CBD (US$ million)

CBD(US$ million)

PCAR4(R$ million)

161.

1

366.

616

0.7

580.

039

9.7

911.

562

6.2

893.

257

6.3

445.

446

1.7

PCAR4 (R$)

CBD (US$)

Ibovespa

Dow Jones

US$ (R$)

20.4

19.37

10,196

7,908

1.1164

1997

10.3%

-

44.8%

22.6%

7.4%

Price ∆% year

19.5

15.50

6,784

9,181

1.2087

-4.4%

-20.0%

-33.5%

16.1%

8.3%

1998

Price ∆% year

60.0

32.31

17,091

11,497

1.7890

207.7%

108.5%

151.9%

25.2%

48.0%

1999

Price ∆% year

71.3

36.50

15,259

10,787

1.9554

18.8%

13.0%

-10.7%

-6.2%

9.3%

2000

Price ∆% year

49.5

22.00

13,577

10,022

2.3204

-30.6%

-39.7%

-11.0%

-7.1%

18.7%

2001

Price ∆% year

54.5

15.30

11,268

8,342

3.5333

10.1%

-30.5%

-17.0%

-16.8%

52.3%

2002

Price ∆% year


50


51

Dow Jones

CBD

180

160

140

120

100

80

60

40

20

0

jun/

97

aug/

97

oct/

97

dec/

97

jun/

97

aug/

97

oct/

97

dec/

97

feb/

97

apr/

97

jun/

98

aug/

98

oct/

98

dec/

98

feb/

98

apr/

98

jun/

99

aug/

99

oct/

99

dec/

99

feb/

99

apr/

99

jun/

00

aug/

00

oct/

00

dec/

00

feb/

00

apr/

00

jun/

01

aug/

01

oct/

01

dec/

01

feb/

01

apr/

01

jun/

02

aug/

02

oct/

02

dec/

02

feb/

02

apr/

02

CBD x Dow Jones100 basis

Ibovespa

PCAR4

800

700

600

500

400

300

200

100

0

oct/

95

jul/

96

oct/

96

jul/

97

oct/

97

jan/

97

apr/

97

jul/

98

oct/

98

jan/

98

apr/

98

jul/

99

oct/

99

jan/

99

apr/

99

jul/

00

oct/

00

jan/

00

apr/

00

jul/

01

oct/

01

jan/

01

apr/

01

jul/

02

oct/

02

jan/

03

jan/

02

apr/

02

CBD x Ibovespa100 basis

jan/

96

apr/

96

8,342

US$ 15.30

11,268

R$ 54.50


52


53

Executive Management

Abilio dos Santos DinizPresident

Ana Maria F. dos Santos Diniz D’ÁvilaVice-President, Operations

Augusto Marques da Cruz FilhoVice-President, Administration & Finance

João Paulo F. dos Santos DinizDirector, New Business Development

Jean Henri A. DubocDirector of Operations, Hypermarkets

José Roberto Coimbra Tambasco Director of Operations, Supermarkets

Hugo A. Jordão BethlemDirector, Commercial

Cesar Suaki dos SantosSupply Chain

Caio Racy MattarDirector, Investments & Projects

Maria Aparecida FonsecaDirector, Human Resources

Board of Directors

Valentim dos Santos DinizChairman

Abilio dos Santos DinizJoão Paulo F. dos Santos DinizVice-Chairmen

Ana Maria F. dos Santos Diniz D’ÁvilaAugusto Marques da Cruz FilhoChristian Pierre CouvreuxFernão Carlos Botelho BracherGerald Dinu Reiss José Roberto Mendonça de BarrosLuiz Carlos Bresser G. PereiraLuiz Felipe D’Ávila Luiz Marcelo Dias SallesMailson Ferreira da NóbregaPierre Bruno Charles BouchutRoberto Teixeira da CostaMembers

Andre Claude Luc MercierAntonio MoscarelliAymar Giglio JuniorCaio Racy MattarCandido BracherEtienne SnollaertsFernando Queiroz TracanellaGuido AmadeuJosé Roberto Coimbra TambascoPedro Paulo F. dos Santos DinizSilvio Abrahão Laban NetoAlternate Members

Advisory Board

Manuel Carlos Teixeira de AbreuJosé Luis Bulhões Pedreira


52


53

Investor Relations Team

Fernando Queiroz TracanellaDirector, Investor Relations

Daniela SabbagFinancial Analyst

Cláudio Kioshi FuruzavaFinancial Analyst

Marcel Rodrigues da SilvaFinancial Analyst

Rita de Cassia TheobaldSupport

Information Resources: Publications containing information regarding quarterly results, monthly sales performance, annual reports and 20-F forms are available upon request from Investor Relations Department, or can be found on CBD’s Investor Relations website:

www.cbd-ri.com.br/eng

Investor Relations DepartmentAv. Brigadeiro Luís Antônio, 3.126Jardim Paulista CEP 01402-901São Paulo SP BrasilPhone: 55 11 3886-0421Fax: 55 11 3884-2677e-mail: [email protected]

Depositary BanksIn BrazilBanco ItaúRua Boa Vista, 176, 4° andarCEP 01014-913 São Paulo SP

Depositary BanksIn the United StatesThe Bank of New York101 Barclay Street - 22 WestNew York, NY 10286 USA

Investor Relations Consultants

Thomson Financial Investor Relations BrasilRua Helena, 140, 7° andarCEP 04552-050 São Paulo SP BrasilPhone: 55 11 3848-0887 ext. 208Fax: 55 11 3848-0905e-mail: [email protected]


Credits

Coordination: Investor Relations Department Editorial Design: Editora Contadino

Translation: Adriana Caraccio Morgan e Nicholas Morgan

Graphic Design: The Media Group Photos: Daniel Renault, Elizandro Rabelo and CBD’s image archive

Letter of President’s Photo: Prensa Três

Graphic Production: Excellence

Printing: Stilgraf

56

Printing: Stilgraf

Documents

Annual Report 2002 - GPAirgpa.grupopaodeacucar.com.br/grupopaodeacucar/web/...4 Grupo Pão de Açúcar Annual Report 2002 5 Grupo Pão de Açúcar Annual Report 2002 However, 2002’s