Casino, Guichard-Perrachon S.A.

Press 1 to listen to the last recording. Press 2 to listen. The playback of the recording will now begin. Welcome to the first quarter 2021 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, everyone. Thank you for attending our quarterly results conference calls. I hope you are all remaining safe and well. This time last year, our Q1 2020 conference call took place during a stringent lockdown at the beginning of the pandemic. A lot has changed in the year. All companies have had to adapt to a new environment. With the rollout of the vaccine campaigns, we can start to envision a return to normal in the coming quarters. Of course, we must remain prudent and the future remains uncertain, but we can already draw lessons as to how we fared during this crisis, our current situation, and our future perspectives. In short, we are coming out of this period in significantly better shape, as shown in our Q9 results today. This is a result of our strategic positioning, the speed at which we acted, and the total dedication of our teams. Compared to a year ago, I would sum up our situation in three key assessments. First, our operations are much more profitable. Second, our financial situation has clearly improved. And third, our growth opportunities in the most attractive segments of the market are bright. We are now set for clear leadership in the group's areas of excellence and are best placed to take advantage of the key megatrends in our relevant markets. First, we are much more profitable. Group EBITDA increased by 21% year-on-year at constant exchange rate, with France and Latin America both contributing to this improvement. Let's start with France. EBITDA grew plus 19% over the quarter, and EBITDA after rent payments was up 372%. These are very pleasing numbers explained by two key achievements which were already seen in Q3 and Q4 2020. First, strong efficiency plan in our stores. As mentioned during our full year results, our hypermarkets are now profitable and all the other banners have reached an excellent level of profitability. We have made the most of technology to streamline our operations. Automated checkout, sales scanning and digital couponing have all been implemented, and we are adding the rollout of leading-edge AI technologies to monitor shrinkage and product availability. All of these have contributed to sustained cost savings while also improving our customers' experience, as we can see from NPS improvements across all our banners since the beginning of the year. Second, extremely strong and profitable growth at C-Discount, The marketplace revenues and digital marketing both growing 43% during the quarter. We are very pleased with how CityScout has performed since the beginning of the pandemic and I will return to discuss CityScout in more detail later on. So both our brick and mortar operations and CityScout have contributed to this strong increase in the BGA in France. In addition, Food e-commerce has grown plus 38% over one year and plus 97% over two years. This is structurally profitable growth powered by our exclusive partnerships with two key players, Ocado and Amazon. This is a unique edge and it positions us very well for future growth. A few comments on sales in our brick-and-mortar stores. As was expected, Q1 sales showed a decline compared to Q1 2020, which was an exceptional quarter. In March 2020, we faced unprecedented demand, especially in our urban and proximity formats, with consumers stocking up at the beginning of the first lockdown, leading to a surge of plus 6% in like-for-like over that quarter and double-digit growth in our proximity stores. Sales have normalized in Q1 2021, and we saw a temporary reduction of inhabitants and tourists in the Paris area and also temporary restrictions on our store operations during the latest lockdown. The decline in sales makes our bid-year growth more impressive, with bid-year margin up 130 bps over the quarter. Looking forward, we expect sales growth to resume when we start to lap a more normalized comparative period and when we start to see the impacts of our expansion plans in proximity formats. We expect this to be as soon as this summer. We are already making good progress on our expansion plan with 115 stores opened over the quarter, 15% more than in our target. Our target for Q2 is 200 more stores, and we are confident on our ability to deliver. Our proximity stores, Monop, Fremperie, Vival, Naturalia, casino shops are very attractive to franchisees and quick to deploy in attractive settings. Now, a few words about Latin America, which also contributed to our profitability growth. Both ASSAI and GPE have just published their Q1 results, and I encourage you to refer to their detailed publications. I will highlight the key takeaways. In short, this was again a strong quarter for both companies, with combined EBITDA growing plus 32%, from 1.2 billion reals to 1.6 billion reals. All of this in the context of the pandemic, which has proven particularly difficult in Brazil, Colombia, and Uruguay. This overall context makes their performance even more remarkable. Sales growth was again high in Brazil, with organic growth at plus 12.1%, This includes a strong dynamic in cash and carry with ASSAI posting plus 21%. At GPA, some of our key assets also performed very well. Proximity store sales were up plus 38% and online delivered an impressive plus 137%. One last comment on LATAM. The spin-off of ASSAI was very well perceived by the market. Since the announcement of the spinoff of our side, the combined listed value of both companies has increased from 62 real per share to 125 real per share, or 12 US dollar per share to 23 US dollar per share, since they are also listed in the US. This has resulted in an increase of the value of our stakes from 1.1 billion euros to 2.1 billion euros, over 9 euro per casino share of additional value. In our view, this is just the beginning. We're excited by the prospects for both companies, which we consider as strategic assets. Acai is the only pure cash and carry company in Brazil and the fastest growing by far over the past 10 years. GPA owns a unique combination of premium stores such as Pão de Açúcar in Brazil and Queirulha Fresh in Colombia, hypermarkets attuned to customer needs such as Exito World, strong supermarket brands such as Mercado Extra and Comprebem, and a clear advance in online capabilities. We see lots of potential for further performance and further increase in the value of both our stakes over the next years. Now, getting to the second point of my assessment, we are not only much more profitable, we also have a much stronger financial situation. With the improvement of our results and constant discipline on cash flow management, our debt reduction has accelerated. Net debt reduction over one year, including TRS and wanding, has reached €715 million at the end of March. That is €150 million better than at the end of December 2020. Over one year, our cross-debt to EBITDA ratio in March has decreased by 1.2 turn of leverage from 6.8 to 5.6 times. The credit market has taken notice of the dynamics of the last few quarters. We have successfully refinanced our €1.2 billion 2024 Terminal B, cutting its costs by almost one-third while extending its maturity by 18 months. We have regained full access to the unsecured debt market with a cost of funding in our latest unsecured issuance that is lower than the initial cost of funding on our secured debt. We remain fully committed to financial discipline, cash flow generation, and further reduction of our leverage. Inventory management remains a daily focus of our teams, with added input from the latest available technologies, including artificial intelligence. Our capex is well managed and our exceptional cash costs are decreasing in line with the finalization of our transformation plans. One other important factor has been noted by the credit markets. Our key assets have been strongly increasing in value. This gives us a lot of options for the completion of our 4.5 billion euro disposal plan in France and various opportunities to turbocharge the growth of two of our star assets at this stage, Citiscount and Guignolo. This leads me to the third part of our assessment. We are ideally positioned to take advantage of secular megatrends to boost our growth. We have identified these market trends for a number of years now, and the pandemic crisis has made them even more relevant. I will stress four of these key trends. The first one is customer need for immediate service in food retail. This means proximity to the customer for brick and mortar stores and a seamless experience in online food delivery. We have both. We have proximity, of course, with our unique mix of brands from Franprix to Vival and including Monop, Naturalia, Casino Shop, Spar, casino supermarkets, and our new formats such as Casino Tout Prêt and Casino Bio, we have all the right tools to grow fast in our franchise model. Our banners have been collecting awards from Best Franchise and Best Superette at Franprix to most recently the recognition of Naturalia as a benefit corporation, first in the French food retail market due to its strong ESG commitment and customer transparency. Owning such a portfolio of brands allows us to adapt to local needs both for franchises and customers. It allows for faster and more efficient expansion. We expect this expansion to accelerate starting from 115 stores in Q1 to at least 200 in Q2. This will deliver significant growth in our sales. We also have an edge in online food delivery. As mentioned before, we have two key partners in this market. Ocado, and Amazon. Our logistic warehouse is already running at 100 million euros per year, with sales in Q1 up plus 166% compared to Q3 2020. Its full capacity is 500 million euros per year. Beyond this first warehouse, we are already thinking about further extension of Ocado operations. And for our partnership with Amazon Prime now, it has become even stronger. Monoprix now the only provider of express food delivery and Amazon apps in the Paris area and four other key big cities. This is a clear recognition of the excellence of our model and it allows us to extend our reach to new customers. There is also a connection between these two key trends, proximity and online. A dense network of proximity stores allows for various last night solutions building on our leadership in our key geographical areas. We have extended partnerships, most recently with Uber Eats, 500 stores planned by Q3, coming on top of our operations with Deliveroo and Shopopop. We have rolled our click and collect and home delivery apps in all our banners, including Franprix, where online sales have been growing triple digits. This gives our customers lots of different options, and allows for various ways to reach new customers. Online and proximity both correspond to the structural needs of today's customers. We are ideally positioned to grow on both these channels in a synergistic way. The second trend is the shift to technology and data management in retail. We have a real advantage here, being a first mover in this space. 63% of our sales in hypermarkets and 53% in supermarkets are now done either through cell checkout or through our smartphone apps. We have successfully streamlined our front office and we are now rolling out solutions for our back office as well with the use of artificial intelligence tools to monitor inventory, shrinkage, and layout optimization. We have put in place personalized couponing and data monetization solutions through advertising with relevancy. This is a clear driver of improved profitability in cash management. It is also a boost for top-line growth. The tools that we have used to improve our customers' experience and optimize our promotional management can now be sold to other companies. Relevancy already provides such services and has moved decisively this quarter with three key developments. The first one is a partnership with Unify, the digital arm of Groupe TF1, giving access to 26 million profiles. The second is the acquisition of InLead, a technological platform that will allow relevancy to complete its offer to small and medium businesses in any country. The third one is our digital partnership with Intermarché, which will greatly enhance relevancy's offer to suppliers. We have been talking more relevancy recently. Their retail media activity has grown 50% here on the R&Q1, As you remember, they were already strongly profitable with €18 million of EBITDA in full year 2020 and they are just starting their journey as a B2B company with software as a service component. We are particularly excited about Relevancy. We expect them to become as important in their own field as CDscount and Greenyellow, two other previous startups that have grown to fully fledged leaders in their respective markets. This brings me to the third trend, the accelerated transition to online in non-food retail, where Cdiscount is ideally positioned. Cdiscount has delivered another fantastic quarter with excellent growth in its key areas of focus. First, the marketplace. Marketplace revenues grew plus 43%, reaching 197 million euro over the last 12 months. Cdiscount's ecosystem of 13,000 vendors and 100 million SKUs is driving this success, along with its top-quality logistics facilities, which helps expand express delivery for third-party vendors. Fulfillment by CityScout, where CityScout ships the goods for the vendors, ensuring reliable service to the customer, also increased, plus 43%. This is a virtuous circle by which more vendors and SKUs bring more customers which in turn attracted more vendors. Second, digital marketing. As you all know, digital marketing is a strong-worth component of any serious online company today. CityScout has clearly accelerated on this front with CityScout Ads Retail Solution, CARS, a 100% self-care advertising platform enabling both sellers and suppliers to promote their products and brands online. Other features include the recent launch of Google Shopping campaign management for suppliers and marketplace sellers. All of this leading to plus 43% year-on-year growth. Third, Octopia, our turnkey marketplace solution. Octopia offers ready-to-operate services to international retailers and e-merchants. It includes all four key elements needed to operate a successful marketplace. products as a service, merchants as a service, tech solutions and fulfillment as a service. Octopia is the only player in the market to fully handle those four assets. It is a unique value proposition to address the e-commerce market in Europe. 900,000 websites and a 600 billion euro market that is growing fast. Octopia's growth in Q1 was plus 86%. As you can see, capturing just a small part of that 600 billion euro market could transform CityScout's business profile and our teams have embraced this challenge. Overall, the pandemic has accelerated the transformation of CityScout's market and the transformation of CityScout itself. As mentioned in our recent communication, this opens up new possibilities, including potential market operations. This could help strengthen CityScout's leadership and also crystallize some of its hidden value. It is too soon to give any more detailed comment. At this stage, I can only stress that as much as CityScout has already delivered, we see a lot more potential looking forward since you have the right tools to address an extremely attractive B2B market. The fourth trend is the energy transition that we all need to face in the challenge against climate change. Ambitious decarbonization goals, including net zero targets, have been set by countries and corporates alike. The two main drivers of this transition are first, energy efficiency solutions, and second, the development of renewables. Within renewables, the highest growth segment is solar power, and especially decentralized solar power, which is set to grow exponentially. Greener is positioned at the heart of this decentralized energy transition. It addresses its diversified corporate customer base with its unique model combining energy-saving solutions and self-consumption based on decentralized solar production. In a decentralized world, what matters is the right access to customers through the right combined offer, and GreenYellow has both with its unique model. Q1 numbers again confirmed strong momentum with the acceleration of its pipeline of solar projects to 720 megawatts compared to 565 megawatts at the end of Q4 and a pipeline of additional opportunity at 2.5 gigawatts. The energy efficiency solutions pipeline is now at 355 gigawatt hours with a pipeline of additional opportunities at 600 gigawatt hours. Granulo is now shifting to a green IPP model. Instead of selling its assets to fund its growth, it will hold the assets to generate long-term recurring revenues and cash flows. To fund its growth, we are looking, as recently mentioned, at various options to raise additional equity, which could include market operations. The teams involved are particularly enthusiastic with this new phase. At this stage, it is too soon to give any more detail, but we will, of course, inform the market in due time. As with CDScouts, we believe there is a lot of hidden value in this company. Let me conclude before we turn to the Q&A. Kizino is first and foremost a food retail company with a very distinct positioning on a number of brands at the forefront of customer satisfaction. It is also much more than that. Our DNA is constant innovation and the ability to grow companies from small operations to leaders in their field. We did that in Brazil with Assai, which went from a 3.5 billion real estate company to a 40 billion real estate company. We did it with Simscamp, which started as a small website with less than 1 million euro of turnover and is now set to become a leader of the marketplace business in Europe. We did it with Green Yellow, which was an internal startup designed to help us optimize our energy costs and is now a leader in the decentralized energy transition. And we are doing it with Relevancy, which we started as an in-house team and which is now turning into a software company. The pandemic has been a challenge for us, as for others. As shown in our Q1 results, we were well-prepared, well-positioned, and ready to adapt our model even faster. So to make it clear and loud, we now have first, an excellent level of profitability, second, a much stronger financial position, and third, all the levers in place for sustained and profitable high growth in our key priorities within and beyond food retail. Casino, in short, is extremely well positioned to take advantage of the new environment in which we operate. Thank you for your attention. I'm now ready to take your questions.

Thank you, ladies and gentlemen. If you wish to ask a question, please press 01 on your telephone keypad. Please ask your questions at the same time in English. We have a first question from Andrew Green from Exxon BNP Paribas. So please go ahead.