Carrefour Sa

Good day and thank you for standing by. Welcome to the Carrefour half year 2023 results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alexandre Bompard, Chairman and CEO. Please go ahead.

Good evening to all of you. Thank you for joining today's call to present our performance for the first half of 2023. Before diving into the numbers, I want to highlight the landmark event of our first half, the acquisition of hypermarket chain Cora on supermarket chain Match from the Louis Deleuze Group. This acquisition stands as a major milestone since it is the most significant deal we've carried out in France in the last two decades. More than just another transaction, this acquisition is a clear signal of the strength and robustness of our model. The fact that such an operation has become possible today underlines the resilience and adaptability of our operations. This move solidifies our leadership in the French food retail market and demonstrates our commitment to seizing opportunities that create value for our shareholders. This first half of the year was also marked by a significant milestone in Brazil with the completion of the conversion of Grupo Big Stores. It is an achievement set to drive long-term value for our operations in Latin America. And with the finalization of the sale of our stake in Carrefour Taiwan on July 1st, our group has firmly established its geographic footprint. We are now focused on consolidating our leadership within our key operating countries on two continents. This first half of the year has also been an active period for the deployment of our CARE42026 strategic plan. Numerous projects are being implemented at a swift pace and these initiatives are already beginning to deliver tangible results. Our Carrefour branded products have posted remarkable growth, indicative of the trust and loyalty of our customers. These products have accounted for almost 35% of our half-year sales, an increase of 3 percentage points compared to the first half of 2022, fueled notably by 300 innovations and the higher penetration of our simple brands. The deployment of the Maxi methods in our leading hypermarkets and supermarkets across Europe has been very encouraging. As you know, Maxi is a method to deploy an end-to-end productivity model to improve our profitability along with a strong price image on the rationalization of our assortments. We see substantial potential in this initiative and believe in its capacity to continue delivering meaningful results in the future. In addition, we've seen an acceleration in our efforts to mutualize our operations at the European level. This involves our purchasing platform, Eureka, which is now active and producing its first optimizations. It has already started making payments, facilitating orders, and enabling deliveries. And we began the optimization of our headquarters with a view to improve collaboration between all European countries and to streamline our operations. On top of that, we achieved several CARE426 projects that leverage our assets to generate added value. First, we have initiated projects to enhance the value of our real estate assets. In France, we joined forces with the French property development leader, Nexity, to establish a real estate vehicle for the conversion of 76 sites. This partnership is expected to generate around 70% of our 500 million value creation target over the next few years. We also launched Unlimited, our joint venture with Publicis, which aims to become the leader in European retail media. With 13 initial clients, we are off of a promising start. This partnership combines Publicis' marketing expertise and our retail leadership offering unique synergies and value for our clients. we anticipate that Unlimited will be a significant driver of our performance in the coming years. More broadly, this half we stepped up and accelerate our AI and data solutions and their impact on our business. In particular, we were the first food retailer to integrate OpenAI solution into our website. And we also developed our digital solutions to improve our processes, such as our marketing studio in partnership with Google, to automate the production of thousands of marketing campaign assets. Reflecting on these initiatives, our results for the first half reaffirm the solidity and resilience of our business model. Looking at the top line, we delivered a strong H1 with plus 11.2 like-for-like growth on a strong H1 2022 base. In addition, our e-commerce gross merchandise volume increased by 20% compared to the first half of 2022, which reflects the higher importance of digital channels in our model. Turning to EBDA, it has increased by 4% as constant exchange rates, reflecting our continued focus on operational excellence and profitability, notably fueled by our cost-saving plan with 490 million euros achieved in the first half of this year. This performance reflects various situations within the group. We saw a solid performance in Europe, supported by Spain, and the H1 performance in France is the best of the past five years. In our home market, we have significant improvements in our margin rates, which gained 36 basis points, and we've continued to gain volume market share. These strong results reflect the effectiveness of our operations and the dedication of our teams to implement our business strategy. Turning to Latin America, in Argentina we continue to see exceptional growth, under H1 profitability is the best ever recorded. In contrast, Brazil has experienced some challenges in the first half of the year. Our legacy business in cash and carry has shown resilience, but the acceleration and completion of the big store conversions was a significant undertaking under the temporary impact on our operational performance. Additionally, we've been facing difficult market conditions. Nevertheless, we remain fully confident that our emphasis and performance will yield better results shortly. Turning now to cash generation, here too we confirm our objectives and our resilience. Free cash flow improved by €196 million in H1, reflecting our operational efficiency. Finally, regarding our CSR performance, We continue to progress in several key areas, including sustainable agriculture, fighting climate change, reducing packaging, combating deforestation, particularly in Brazil, and developing our solar energy project across the group, especially in Spain. Our CSR on food transition index reached 108% in the first half of the year, highlighting our commitment to sustainable and responsible practices. To wrap up, despite the challenging economic environment, Carrefour's performance in the first half of 2023 demonstrates our resilience, the efficiency of our strategic initiatives, and our potential for future growth. I'd like to thank our team who make this transformation possible. Our solid performance is the result of their exceptional commitment and expertise. As we look forward to the second half of the year, we anticipate a reduction in inflationary pressures. We are confirming our objectives for growth in EBITDA recurring operating income and free cash flow for the full year. And last of all, thanks to our robust balance sheet and substantial cash generation, we will continue to strengthen our business seizing opportunities as they arise, as we've done with Louis Deleuze, and to provide a consistent return to our shareholders, notably through our recurring share buyback program. Thank you for your attention. I now hand over to Mathieu.

Thank you, Alexandre, and good afternoon to everyone. Let's start our financial review with Q2 sales on page six of the presentation. Carrefour posted solid growth in Q2, with total sales reaching 23.4 billion euros, up 9.5% at constant currency. Besides the strong like-for-like performance of 10.3%, expansion and M&A contributed 4.3%. Petrol sales had a negative impact of 3.4%, mainly linked to the general decrease in oil prices. Forex was a negative 5.4% over the quarter, primarily due to the depreciation of the Argentine peso. In total, reported sales were up 4.1% in Q2. Like-for-like food sales were up 11.1% at group level over the quarter, in line with Q1, while non-food like-for-like sales grew by 4.5%. E-commerce GMV increased by 20% over the first half, reaching 2.4 billion euros, with particularly strong performances in France, Brazil, and Argentina. Moving on to slide 7. The group's recurring operating income for the first half reached 700 million euros, down 2.2% at constant currency, or minus 9.6% at current exchange rate. Gross margin was marginally down versus H1 2022 at 19.8% of sales, while increasing by 25 basis points at constant forex, which is purely related to the evolution of the country mix. Gross margin kept decreasing in Europe in line with previous years, driven by our investments in competitiveness and transfers to lease management. It increased slightly in Latin America, driven by both Argentina and Brazil, with consolidation of Grupo Big perimeter and some purchasing gains. Distribution costs represented 15.6% of sales, a slight increase versus last year. This was primarily driven by the integration of Grupo Big with one-off operating conversion costs and converted stores that have a higher cost-to-sales ratio as they ramp up sales gradually. Once again, we delivered strongly on our cost savings plan with €490 million in H1. On this basis, we confirm our cost savings target of €1 billion for full year 2023. Depreciation and amortization increased by €65 million due to the consolidation of Group B over a full half compared to just one month in H1 2022. All this leads to a 30 basis point operating margin decrease versus H1 2022 at 1.7%. This drop is fully related to the group of big scope, its integration and conversion. X big operating margin was stable in H1, driven by a very strong performance in France. Before diving into regional performances, let's pause for a minute and take a look at inflation. As you see on the chart on slide 8, food inflation progressively slowed in Q2 in each of our European countries. We expect this slowdown to continue in H2. Let's now move to France on slide 9. Like-for-like sales were up 7.3% in Q2, a touch above Q1's growth of 7.1%, pointing to a 7.2% increase over H1. This performance was achieved in a fairly stable business environment, shaped around ongoing pressure on volumes, notably in non-food. The food inflation curve, which peaked last March at 16%, reversed in April and progressively eased since then to reach 13.6% in June, so still at a high level. In this context, Carrefour maintained its solid business momentum. Our market share was stable in value, but more importantly, we kept gaining share in volume, with a positive 30 basis point gain over the half, according to Kantar. This reflects the gain of more than 560,000 new customers in the first half. This top-line performance was pretty even across formats. E-commerce GMV maintained steady growth, up 14% over Q2 and H1. Once again, Carrefour France gained market share in e-commerce in H1. The store network transformation continued. 33 stores, of which all 16 hypers planned and 17 superiors, were converted to lease management to date this year. The last eight supermarkets planned for this year will be transferred over the coming month. Over the first half, a strong achievement in France was obviously profitability. As a matter of fact, recurring operating income was up 39% to 270 million euros, with an operating margin of 1.4%, implying a 36 basis point increase. This new improvement follows a very steady trend in France, with an average gain of 10 to 30 basis points every year for the past five years. There were a variety of drivers behind this performance, which is based on the very deep transformation of our model since the launch of the Carrefour 22 plan, which continues with the Carrefour 2026 plan. These drivers include our market share dynamics, driven by customer satisfaction, our push on private level, the transfer to lease management and franchise, a material improvement in the profitability of our digital initiatives, all combined with continuous cost discipline. All in, everything played out quite well, this half in France, and we're confident in the continued momentum. As you can see on slide 10, like-for-like sales in Europe were up 7.4% over the quarter, with all countries in positive territory, ranging from plus 0.4% in Poland, to 12.5% in Belgium. Spain, our main contributor for the region, delivered a solid 7.7% like-for-like revenue growth as we continue to benefit from the strong competitiveness of our hypermarkets. Food sales were up 11.3% in the country, whereas non-food was negative in Q2 on the back of unfavorable weather conditions affecting summer sales. We saw some material improvement in market share and top line in Belgium, where like-for-like sales increased 12.5% over the quarter. There were various moving parts in the country in Q2, but we see evidence that all the measures implemented over the past 12 months to recreate top line momentum are paying off. Poland generated marginally positive sales growth in Q2. on the back of very high comps last year, driven by the outbreak of the war in Ukraine, as millions of refugees had fled to Poland. All this was also reflected at profit level, as Poland was the only outlier in our solid European portfolio of markets. Spain was particularly strong, with steady increase in recurring operating income. Italy continued its recovery path, with profit and margin improvements, and Romania, was also very well oriented. All-in recurring operating income for the region was stable at 164 million euros versus at 1, 2022. Let's move on to Latin America on slide 11. I will start with Argentina and spend more time on Brazil, which is obviously the key driver for the region. Argentina keeps delivering stunning growth at all levels. starting with like-for-like sales up 127% in Q2, driven, of course, by triple-digit inflation, but also, amid this challenging context, by positive volumes, customer gains, and market share growth. As a result, recurring operating income grew by 77% of over half to 53 million euros, with operating margin up 130 basis points to 3.4%. In Brazil, sales were down minus 3.2% on a like-for-like basis in Q2. This reflects a difficult market environment with a sharp slowdown in year-on-year food inflation, meaning sequential month-to-month deflation and negative volumes due to pressure on purchasing power amid high interest rates. This performance compares to a record high comparable base in Q2 2022 at plus 19% like-for-like. Sales at constant exchange rates were up 9.7% in Q2 thanks to a 13.5% contribution from openings and acquisitions, mostly Group B. Sales at Atacadao were particularly affected by the deflation of agricultural commodities. which account for a significant proportion of sales. The format was also penalized by the B2B business, with clients destocking and postponing purchases in the context of declining prices. On top of that, the cash and carry segment saw a record high number of openings and reopenings from competitors and ourselves alike in H1. As a consequence, like-for-like sales were down minus 4.3% in the quarter on a particularly high comparable base of 22.4% like-for-like in Q2 last year. Carrefour Retail posted stable like-for-like sales also on a high comparable base of 10.5% in Q2 2022. Non-food sales continued to grow strongly at 5.4% like-for-like. As in all other countries, Carrefour branded products reach a record share of sales. The financial services business continued to grow strongly with a plus 28% increase in credit portfolio and a plus 13% rise in billings in Q2, notably driven by the recruitment of ex-Grupo B customers. E-commerce GMV confirmed the fast pace observed in Q1, growing 30% over the quarter. We finalized the conversion of GroupoBig stores six months ahead of schedule, rebranding a total of 129 stores to the Carrefour, Atacadao, and Sam's Club banners, five more stores than initially announced. The integration and conversion process of GroupoBig obviously weighed on H1 earnings, while the legacy business held up quite well despite the adverse environment. As you can see on page 12, the €163 million decrease in Brazilian profits in H1 can be split into three blocks. First, one-off integration costs, including store closures for conversion and inventory clearance, as well as provisions and acquisition costs in financial services related to the conversion of former Group OB credit customers. These one-off costs amounted to 65 million euros over the half. Then the performance of converter stores after reopening generated operating losses with an impact of minus 85 million euros in recurring operating income in H1. As you can see on the charts at the bottom of this slide, The performance of converted stalls is pretty much in line with the historical margin trajectory of all Atacadao stalls open or converted over the past 10 years. New stalls are typically loss-making in year one and generate profits as of year two with a sharp inflection. The ramp-up then becomes more linear over the next three years to reach cruising speed in year five. This trajectory is strikingly stable over the vintages. The big scope delivered a roughly minus 4% ABDA margin in H1, consistent with historical opening phases. Third block, finally, the performance of Grupo Carrefour Brazil's legacy business, which remained solid despite the tough market environment that we described previously. Recurring operating margin for this perimeter was resilient at 5.2%, only down 20 basis points. The first half, we kept executing fast on the delivery of cost synergies with 530 million real accounted for in H1, which, as you understand, were offset by the operating loss of the Group OB converted stores. These 530 million real translate into 1.2 billion real of run rate cost synergies secured to date on an annualized basis. So as stores ramp up and as we keep building additional cost synergies, We are confident in the 2 billion real target of synergy by 2025. Moving back to group numbers and to the bottom part of the P&L on slide 13. Non-recurring charges mainly represent restructuring costs following the announcement of a reorganization plan at French headquarters. Financial expenses increased to 276 million euros with two drivers. First, the increase in interest rates and higher debt, not only in Brazil and Real, related to the Grupo Big acquisition. And second, higher interest expenses related to lease commitments under IFRS 16 following the integration of Grupo Big and higher interest rates assumptions. The normative tax rate was slightly lower as a consequence of the change in geographical mix. Adjusted net income increased 5% to €326 million. Together with the decrease in the number of outstanding shares following the share buyback program, this drove a 9% increase in adjusted earnings per share. Net free cash flow on slide 14 improved by almost €200 million compared to H1 last year. Let me detail this. As mentioned before, EBDA was stable. Cash-out from exceptional and other items decreased by €142 million as we had a number of one-off cash-outs last year that were not repeated this year. Working capital contribution improved by €68 million thanks to strong inventory management, notably on non-food, to adapt to an environment marked by decreasing volumes. The level of inventories improved by three days compared to June 2022. CapEx increased by 135 million euros to 687 million euros, including 150 million euros related to the integration of Group B. As conversion CapEx will not repeat, we expect lower CapEx in H2 to reach a full year level close to last year's between 1.8 billion and 1.9 billion euros. The cost of financial debt increased by 39 million euros, driven by higher debt following the acquisition of Grupo Bigalong with higher interest rates. Asset disposals were 221 million euros higher than in H1 last year, essentially reflecting the sell-and-leaseback operation announced in May in Brazil. As part of the group's real estate asset strategy, Carrefour Brazil disposed of five stores and four distribution centers for a total amount of 1.2 billion reals, or around 220 million euros. I will now complete this H1 financial review with a few words on debt on slide 15. The group's net financial debt decreased by 1.4 billion euros over the past 12 months, driven by a record high net free cash flow of 1.46 billion euros over the last 12 months and the proceeds of the sale of our 60% stake in Carrefour Taiwan, which was closed in June. In the period, we also returned 741 million euros to Carrefour shareholders through ordinary dividend and buybacks in line with our capital allocation policy. Our balance sheet remains strong, with ample liquidity and capacity to seize creative M&A opportunities, such as the recent Cora and Match announcement in France, while maintaining consistent returns to shareholders. On that, let me remind you that we just completed a second trench of buybacks last week, so we have achieved 400 million euros to date out of the 800 million euro program for the year. Following our buybacks, the Board of Directors decided today the cancellation of 26.9 million shares. As a result, after cancellation, the total number of shares in issue will be 714.6 million. I thank you for your attention. Alexandre and I are now ready to take your questions.