Casino, Guichard-Perrachon S.A.

Ladies and gentlemen, welcome to the third quarter 2020 of Casino Group Conference Call. I now hand over to Mr. David Lubeck, Chief Financial Officer of Casino Group. Sir, please go ahead.

Thank you. Good evening, and thank you for joining us for our third quarter sales conference call. I'm here with Lionel and the IR team. We hope you are safe and well. First, a few words about the current environment. As we are experiencing in every country, the evolution of the COVID-19 pandemic is difficult to forecast. In France, we came out of lockdown in May, and daily life reverted to some degree of normalcy during the summer, albeit with restrictions on international travel that severely curtail tourist flows from abroad. Against this background, we have delivered stable sales in France and a 46 million euro improvement in EBITDA in the quarter, principally due to our swift action on cost and strong performance from the CDiscount marketplace. In recent weeks, we have clearly seen an increase in infection rates and hospitalizations. Nighttime curfews were recently imposed in part of the country, and now a new national lockdown has been decided, effective this evening at midnight. I will discuss the possible impact of these restrictions later, bearing in mind that there are different factors at play. Less eating out at restaurants will likely increase sales in retail stores and restrictions on movements would boost proximity and e-commerce. At the same time, new restrictions could also impact consumer morale. Forecasting is not straightforward in this environment and we are ready for a number of different scenarios beyond the recent announcements. In any event, We have already been operating our stores in the past months fully complying with the security constraints of the pandemic and we do not expect additional sanitary costs beyond Q3 level. How do we adapt to this environment? Simply put, we are keeping our focus on our four strategic priorities as outlined in July during our H1 results presentation. We have continued to advance quickly on our commercial and financial priorities which allows us to be well prepared for the coming quarters. Before going into our detailed performance per banner, I will first go through the main action plans in France, how they already produce effects on our Q3 results, and how they are expected to develop in Q4 and beyond. Our first priority is sustainable growth in e-commerce and proximity. The COVID-19 pandemic has accelerated an ongoing shift to these formats, and in Q3, We have seen this trend continuing. At C-Discount, we have been focusing on marketplace growth, with marketplace GMV up plus 9% year-on-year and marketplace revenues up plus 17% this quarter. Marketplace revenues is the key metric we are following, underpinning C-Discount's profitable growth strategy. At the same time, we have accelerated the shift in direct sales towards higher margin and and recurring categories, such as hygiene, dirty self, or gardening, which proved particularly useful to our customers during the lockdown period. These categories maintained a strong growth of plus 16% in Q3, while we put less emphasis on non-profitable categories in line with our strategy, leading to overall stable GMV. This has allowed CityScout to continue its trend of profitable growth, contributing to the increase of IBTA in Q3. In food e-commerce, the shift already underway before the pandemic has continued with sales up plus 44% in Q3. We have continued the rollout of the Monoprix Plus offer powered by Ocado technology with orders up 60% at end of September compared to end of June. The warehouse located in Fleury-Mérogis now accommodates a casino offer on top of the Monoprix offer. Our exclusive partnership with Ocado is a key differentiator in this high-growth market, and our mid-term outlook for this first warehouse remains the same, €500 million of incremental sales. Finally, we have continued our expansion into proximity, with 37 new stores this quarter, bringing the total opening of new stores to 105 since the beginning of the year, in line with our target to open 300 stores by end 2021. As for our like-for-like sales performance, the numbers were as expected, impacted by the lack of foreign tourists, especially in July, which explains our overall stable sales during the quarter, with growth picking up since August. Q3 growth on average was very good in convenience and in supermarkets outside of the Côte d'Azur area, while Franprix and Monoprix had positive numbers outside of Paris. In the inner city of Paris, our banners outperformed the market, which was very soft until September, with a lack of tourists and Parisians moving out away from the city. This has improved recently, with sales picking up notably in October. Also, sales in our priority category, organic food, were strong again at plus 8%, with its share of our sales reaching 9% in Q3. Overall, we are pleased by the progress that has been made across e-commerce and proximity, and we remain confident that we are well positioned in the market. Our second priority is continued improvement in profitability through the ongoing implementation of our cost-saving plans. Since last June, we have accelerated our previous initiatives to streamline the operations and take advantage of increased digitalization of our business to improve our productivity in stores, warehouses, and headquarters. With around half of our sales in hypermarket and supermarket stores completed through smartphone apps or automatic cashiers, we have improved customer experience while also increasing productivity. We have also ramped up the synergies between our different businesses, such as Monoprix and Grand Prix, and have simplified our back-office organizations. The total impact of these cost-saving initiatives is estimated to be plus 30 million in Q3 and will have the same magnitude in coming quarters. These cost-saving plans come on top of the impact of our 2019 Roquette plan, which had a 15 million euro positive impact in Q3 compared to last year. At the same time, COVID-related costs were sharply reduced in the quarter in line with our last communication. We had 130 million euros of such costs in H1, including 37 million euros of one-off bonuses recorded in our recurring results. These costs also included logistic disruption, exceptional sanitary measures, and the hiring of additional staff. Virtually all of these effects have now disappeared, and COVID-related costs have been reduced to 5 million euros in Q3. They now consist essentially of procurement of masks and gels for our employees at a fraction of the previous price. We don't expect these costs to move from their current low level, even with the new lockdown, since our day-to-day operations are now fully adapted to the context of the pandemic. These developments, combined with an increase in CityScout's profitability have led to a significant growth in total France EBITDA plus 46 million euros compared to Q3 2019. This brings our last 12-month EBITDA in France to 1,572,000,000 euros or 925,000,000 euros after rent. Looking forward, we expect a similar positive impact of our cost-saving plans in the coming quarters, over 30 million euros per quarter, with the new sustainable organization in place in our stores, our warehouses, and our headquarters. Our third priority is cash generation. We have continued with our efforts to reduce inventories and control capex. We put a strong focus on cash management, and overall in Q3, cash generation improved by €130 million compared to the same period last year. This was mostly due to growth and good relative performance in working capital with capex kept under control. As is the case every year, we had a working capital outflow in Q3, but this was smaller than last year thanks to the gradual recovery of fuel sales and continued strong monitoring of inventories. Our liquidity position at the end of September was strong at 3 billion euros. including €2.3 billion in fully-undrawn credit lines and €650 million of cash. Thanks to the EBITDA improvements in Q3 and good control of cash flows, our covenant ratios were once again comfortably met this quarter. Gross debt to EBITDA was 6.46 times at the end of September, which equates to debt headroom of €732 million, below the limits of 7.25 times. As was the case last year, we expect a strongly positive cash inflow in Q4 with a reversal of the working capital seasonality and a strong BDA level. This will contribute to an increase in our cash and liquidity position by the end of the year. Finally, our fourth priority is the reduction of gross debt. As stated in our press release, we now target covenant gross debt of €5 billion or below by the end of 2020. a reduction of at least 1 billion euros compared to end 2019, and the lowest level of gross debt in France in 20 years. This should be achieved mostly through the closing of the leader price deal, which we expect in a matter of weeks, and the proceeds of which will be fully allocated to our segregated accounts. On top of this impact, Q4 cash flows will also contribute to our end-of-year targets. With the proceeds allocated to our segregated accounts at the end of June, we have already started to buy back bonds in the markets. On September 22nd, we announced the cancellation of €160 million of our 22 and 23 bonds, reducing the outstanding amount of the 2022 bonds to €386 million from €452 million, and the amount of the 2023 bonds to €626 million from €720 million. At the end of September, the segregated account still had a positive balance of 114 million euros and our strategy remains the same. Deploy cash either in the open market or through bond buybacks to reduce our debt. We are sufficiently confident in the outcome of our 4.5 billion euro disposal plan to start buying back the 2023 bonds with the disposal already signed combined with the earnouts from the Apollo and Fortress deals securing the redemption or buyback of 21 and 22 bonds. After these initial comments on front and before going into the details of our banner's performance, a few words about Latin America. GPA published its Q3 results yesterday, and their detailed conference call will be held this evening. Their performance has been remarkable in Q3, with GPA publishing sales up 15.5% and EBDA up 30%. Asai's numbers were particularly impressive, with sales up 33% and EBITDA up 48%, while Multivarageur increased its EBITDA margin to 8.1%. Besides the excellent health of the business, the main event of the quarter was the announcement of the study of Asai's spin-off from GPA. This project should unlock the potential of both companies allowing the high-growth cash and carry business and the high-quality retail business of GP and Exeter to focus efficiently on their respective markets. Now let's review the sales dynamic of our banners, starting with France. As expected, Monoprix was impacted by the reduction in tourism, especially in July, and the food market was shut down in the inner city of Paris during the summer. In this context, the banner outperformed its market with live fall ice sales down just minus 1.2% on average during the quarter, with positive sales since August and a significant improvement in recent weeks. Textile sales were positive during the quarter at plus 5%. Looking at our levers for sustainable and structural growth at Monoprix, a key factor looking forward is food e-commerce. Our all-logistic automatic warehouse, powered with Ocado technology, pursued its ramp-up with 60% increase in orders between end of June and end of September, in line with our plan and the strong performance on all our key indicators. Notably, it has the largest number of available food SKUs among all home delivery offers and a very low level of missing items. As for our other indicators, main partnership, the Amazon Prime Now offer focused on five-day delivery. It has been extended to Bordeaux after Paris, Nice, and Lyon. As for our brick and mortar stores, Monoprix continues to innovate with its new concept store in Montparnasse with a high-quality food offer which is strong on local products and a number of innovations. It's time to be tested and rolled out in the network. Monoprix also launched a black box store, 100% automated store, available 24-7, ready to be deployed in many different settings, such as hospitals and train stations. Franprix, with its strong exposure to the Paris area, experienced the same dynamic as Monoprix, with challenging trading conditions in July, followed by an improvement since August. Like-for-like sales declined minus 1.1% on average during Q3, clearly outperforming the Parisian market. The decrease in sales in the center of Paris due to lower tourist traffic and fewer office workers was mostly offset by a good performance in residential areas and suburbs where the shift from eating out to eating at home boosted sales. Grand Prix's non-food offer grew by 6% over the quarter, driven by its partnerships and its 198 corners with specialist players such as EMA on home products, Sinscount on appliances and Decathlon on sports products. E-commerce was up 44% with deliveries available from 79 stores and 59 stores included in the delivery offer. Convenience stores once again recorded a very good performance with 6.5% in terms of like-for-like growth over the quarter. The store base was expanded in line with our development target with 31 new stores open in Q3. E-commerce from our dense network expanded by 57% through the development of click-and-collect services, which were boosted during the lockdown period and have remained attractive to our customers. Casino supermarkets recorded 1.7% same-store growth, with a strong performance in most areas, partially offset by the lack of tourists in the Provence-Alpes-Côte d'Azur region. The focus on organic food delivered good results, once again, with 10% growth in Q3. E-commerce, which was ramped up during the lockdown, delivered very strong growth in Q3 as well, up 81%, driven notably by Click and Collect and by the delivery partnership, which is effective in 70 stores. An important recent development for the casino brand is its inclusion in the all-logistic automated warehouse, powered by Ocado technology, alongside the Monoprix offer. This gives casinos, supermarkets, and Géants in the Paris area the opportunity to optimize online order preparation costs, and at the same time, accelerate the ramp-up of the all-logistic warehouses' capacity. Finally, Géants. Lifeline sales were down minus 2.7%, mainly linked to its exposure to tourist-intense areas in the southeast of France. Our stores recorded good performances within our priority areas, especially organic food, which was up 6%, and e-commerce, which was up 24%. Géant has been rolling out its shop-in-shop strategy with non-food specialists. This includes a partnership with CER, with seven corners already in place, on top of eight HEMA home product corners and 52 Cares accessories corners. That is 36 more over the quarter. Total sales at Géant improved by seven points compared to Q2, with the gradual recovery of fuel sales and the gradual annualization of the Rocket Plan. After our retail banners, a few words on our B2B businesses. First, green-yellow. Our solar panel and energy savings solutions business unit is ideally positioned in a strong growth market and has a bright outlook. Investment in renewables and a reduction of carbon emissions are key priorities for governments and corporate clients. and Greenyellow's one-stop-shop solution is perfectly adapted to these needs. After the end of the lockdown in May, the development of the pipeline has picked up significantly. Greenyellow's pipeline has now reached 543 MW, 100 MW higher than at the end of 2019. Among its recent achievements, Greenyellow recently delivered a 6 MW solar plant for Saudi's fixed-site in Thailand, and finalized a 1.5 megabit project for Soma Energy in Cambodia. Second, our data activity maintained its strong performance, with relevancy GNV reaching €24 million in Q3, a 27% increase compared to last year. The relevancy advertising platform is ranked in fifth position in the SRI ranking of top Internet advertisers, up two places since last year. Our relevancy marketing solution signed its first contract to provide app solutions to third-party corporate clients. This is a very promising new business building on the success of our CasinoMax apps with features such as couponing, self-scanning, loyalty, and partnership programs. Third, ScaleMax, our data-centered business, expanded its portfolio with the signature of a new contract with Illumination MacDuff, the Universal Pictures subsidiary which produced the animated movies Minions and Despicable Me. Moving to CD Scouts, Q3 was another quarter of significant development for CD Scouts profitability drivers, recurring categories in direct sales, marketplace revenues, and digital marketing. Firstly, in direct sales, the mix continued to improve with sales growing 16% in high-margin and high-purchasing frequency products such as home and deco, do-it-yourself, gardening, sports, beauty, food, and IT. Cities Count gained 1 million new customers during the lockdown who started buying such products regularly and have continued to do so. These recurring purchases are a key feature of customer loyalty. During the same period, sales of loss-making categories declined in line with our strategy of shifting them to our marketplace. Secondly, marketplace sales which are the key driver of C-Discount's growth and profits. Marketplace GMV increased by 9% during the quarter, bringing its share to 45% of GMV, up 6 points year-on-year. Total marketplace revenues, including permissions and services to sellers, grew 17% above the 13% recorded over the last 12 months. Those revenues represented 163 million euros over the last 12 months, and this is a key metric we are following to track CityScout's progress. CityScout's strength among marketplace vendors has been supported by its logistic excellence, with fulfillment by CityScout now representing 36% of marketplace GMV. 122,000 FKUs are currently part of this program, and half of the space in CdScout warehouses is now dedicated to hosting marketplace groups. This is a major evolution for CdScout business model since it allows for reduction of inventory in the balance sheet, improving working capital and cash generation. Finally, digital marketing revenues had a strong showing this quarter again, plus 30%. It was supported by our proprietary CdScout ads retail solution 100% self-care advertising platform enabling sellers and suppliers to bid to promote products in the search engine. Its revenues have increased threefold and CityScout is adding features to further expand its services. Overall, GMV was stable despite the high growth of marketplace revenues. This was mostly due to a drop of travel GMV due to COVID-19, significant impact in GMV but small impact on revenues since commission on travel are much lower, the reduced duration of summer sales and the reduction of Cityscount corner sales within hypermarkets. Finally, with increased share of marketplace sales in GMV, total sales are slightly negative since the sales number for the marketplace only counts the commissions received from outside vendors instead of the full amount spent by customers as in direct sales. Overall, this quarter demonstrated the successful and sustainable transformation of Cityscount's platform model with increased customer loyalty, high growth of recurring high margin categories, marketplace revenues, and digital marketing, all of this leading to higher APTA. Looking forward, these pillars of CityScout's model will be enhanced in the coming quarters by the extension of its B2B offering to other websites in Europe. We are particularly excited by the possibilities this market offers with international sales growing 79% in Q3 and 167 websites now connected to CityScout. Finally, One notable development to mention regarding city discount in Q3 is the approval on the 30th of July of a state-guaranteed loan based on its contribution to mass procurement to franchise a need and its strategic role in providing non-food essentials during lockdowns. This €120 million loan was concluded with five banks, and it allows city discount to diversify its sources of funding, which until then mostly consisted of loans from casinos. This concludes our review of the French business. Since GPA published the numbers yesterday and will comment in detail this evening, I will concentrate on the main highlights. In short, this was a very good quarter, both in terms of commercial performance and profitability for our Latin businesses. Life-for-life sales were up 12%, and organic growth, including expansion, was at 15.5%, driven notably by the excellent performance of Acai, Consolidated EBITDA grew by 30% from R1.3 billion to R1.7 billion. In Brazil, organic growth reached 20% over the quarter, and EBITDA growth was 28% from R1 billion last year to R1.3 billion in Q3 2020. Acai posted 33% organic growth during the quarter, reaching R10 billion, adding 2.5 billion reals of sales versus the previous year in a single quarter. On the same store basis, growth was 18.1%, the highest level since the end of 2016. This performance was driven by the outstanding contribution from the 42 stores opened in the last 24 months, the gradual resumption of food service, and the continued growth in the share of individual customers. EBITDA improved by 48% to reach 750 with a 7.8% margin, the highest level ever recorded by business. As for multivariate, same-store sales were up 10.4% over the quarter, with a positive evolution for all banners. Hypermarkets recorded 7.4% same-store growth, driven by a double-digit increase in non-food categories, even after the reopening of non-food stores. Stores are being successfully renovated with adapted pricing on categories to drive customer traffic, improve services on perishable categories, and a simplification of the product mix. Upon the Azucar, like-for-like growth was 3.6% over the quarter with a strong performance of stores located in remote regions during the lockdown. Mercado Extra delivered 18% same-store growth with rapid maturation of previously converted stores and a successful commercial campaign during the period. Eight stores were converted to the Mercado format in Q3, and 30 additional stores should be converted by the end of the year. Comprebem recorded 35.5% same-store growth, with a significant increase in new clients. The proximity segment grew 36.5%, the ninth consecutive quarter of double-digit growth. Menu to Pender Succar and many extra numbers were driven by a strong neighborhood store performance. Food e-commerce remained particularly strong, with a 240% increase over the period, driven by new customer recruitment and higher average basket size. All-night sales now account for 6% of total international sales, with a particularly high 12% at Pender Succar. With a strong commercial dynamic and with increased productivity gains in stores, distribution centers, and headquarters, the EBITDA margin at Multivisor improved again by 50 bits. This was the third quarter of sequential improvement with close to two points improvement from 6.2% in Q4 2019 to 8.1% in Q3 2020. Total EBITDA is up 9% during the quarter to 546 million reals. As for Grupo Exito, live-for-live growth was 2.3%, and the BTA margin was up 60 bits, reaching a margin of 8.2%, thanks to the outstanding performance of innovative formats such as Terulia. The rollout of the omni-channel strategy across all regions was accelerated by the impact of the pandemic on movement restrictions. Same-store sales in Colombia declined slightly from the same period last year due to the restrictions imposed by the government during most of June 3, 2020. Innovative formats perform well, driven by the quality of fresh products and service excellence at stores, notably Kairoulia Fresh Markets, with 9.8% growth in like-for-like. As for Eurogray, sales were at 11%, with strong progress in the omnichannel segment. To conclude, our teams have been focused and the continued transformation of the business across all our geographies, with increased commercial focus on omnichannel, accelerated digitalization, and significant sustainable gains in productivity. Our business units have performed well in Q3, with good commercial performance in their respective environments, strong increase in ABBA in France, as well as Latin America, with a particularly strong dynamic at ASSAI. Looking forward, we know the global pandemic will present further challenges in the coming months. In France, measures to better control the spread of COVID-19 are being strengthened, and the net impact on sales is difficult to forecast precisely. It is likely that the new shift from eating out to eating at home will reinforce store sales, particularly in proximity, as well as e-commerce. And we know from our experience in Q1 and Q2 that the impact may be quite significant. Our teams are ready to face the challenge with sanitary precautions now fully incorporated in our store operations and supply chain prepared for possible surges in volumes. Importantly, our strategic priorities remain the same and we will continue to execute them accordingly. Firstly, our commercial positioning is particularly well adapted to customer needs with a dense network of urban and proximity stores and a strong omnichannel proposition, powered by the success of CityScouts and accelerated by the quick ramp-up of the Ocado warehouse. Our strong presence in organic food is also well-suited to the growing trend on this category. Secondly, the gains realized in our cost base, first from the Rocket Plan and now from the new initiatives implemented in Q3, will be maintained in the coming quarters and contribute further to the profitability of our operations. As for COVID-related costs, which were high in Q2, they are now incorporated in our day-to-day business and will remain at a low level reached in Q3. Thirdly, our focus on cash flow generation will be maintained with strong control of inventories and capex and strong overall cash flow generation in Q4. And lastly, this cash flow generation, combined with the progression of our disposal plan will allow us to reduce our France outstanding growth debt substantially by more than 1 billion euros this year. Thank you for your attention. I'm now ready to take your questions.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press 01 on your telephone keypad. We have one first question from Mr. Arnaud Jovy from SubGent. Please go ahead.