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.

Thank you. So if you would like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1 and 1 again. Once again, that's star 1 and 1 to ask a question. Thank you. We'll now go ahead with our first question. Please stand by. Your first question is from the line of Isabel Joffreva from Morgan Stanley. Please go ahead.

Hello, good evening, and thank you for taking my question. I have three questions. So the first one is on France. Your margin there was up very strongly over the period. The level of increase year on year is also sustainable for the back half of the year. And more broadly, could you comment on how your price index has evolved in France over the period so that we can understand the sustainability of that margin increase we have seen over the first half? Then my second question is on Europe. I didn't see a comment in the slides in terms of what the Belgian profits have done over the period. And I think last year you were sitting on losses close to 50 million due to the strikes. So could you give us a sense of what happened to profits in Belgium this half and whether Poland was the main region responsible for the drag? Because I guess the market will be a little bit surprised why the profit in Europe was not up more considering the losses last year in Belgium. And then my third question is shorter. On the buyback, could you explain what is stopping you from increasing the buyback rate already in the second half of the year, considering your ample headroom from a balance sheet perspective? And more broadly, what is your intention for the one billion of Taiwanese cash proceeds between now and next year when you have to pay for the deal you have announced?

Thank you for your question. On France profitability, You're absolutely right, and we are, of course, very happy with the performance in H1. This performance and this improvement follows a very constant and steady trend in France with plus 10% to plus 30% gain every year for the past five years. It means that there's not one single driver behind that. All levers are contributing. And, of course, it's based on the CARE 422 and 26 plan, including market share dynamics, private label, strong cost discipline, and all that. We do think that we have the same strategy since the beginning on price. Our strategy has been to improve our operations and reinforce our competitiveness in order to generate market share. And we fueled that by significant cost savings. And we are absolutely obsessed by the competitiveness of our offers. What is very important to understand is that in an inflationary environment, the customer sensitivity to prices has been stronger again. And it means that we have had to have a very precise, granular, fine-tuned approach to making adjustments on a daily basis. To tell that in a different way, it means that to analyze our competitiveness, of course, permanent price is important, and we continue to invest on our permanent price, but what is more significant is the fact to have a comprehensive view of that. It means that price competitiveness includes direct and indirect promotions, It includes multi-buy mechanism. It includes the attractiveness of our loyalty program. It includes the quality, price, and share visibility of our private label and many other factors. So as you see, we are very satisfied with our price competitiveness. Price competitiveness is the result of all these mechanisms of price. The teams work every day to adapt all these mechanisms to have the best proposal for our customers. And the result of all that is the fact that we continue, after an extraordinary year last year on market share gains on volume, we continue to gain market share in volume this semester. That's why we do think that we have a very sustainable approach on that. On your question on Belgium, As you know, I appointed last year, I think beginning of July, a new management team. And I'm very satisfied with what has been done by all the team for a year. They have recreated a top line on market share momentum since the beginning of the year. We are very happy with the trajectory. They gain market share. They gain new customers. It's really... a positive momentum, and even they are in advance with our forecast. For the moment, it has no effect on the profitability because the cost distributions are still under pressure, which is mainly related to the fact that there's indexation of salaries and the cost of energy also are very high. So we have a very good commercial momentum. For the moment, there's no impact on the profitability, but we are very confident on the future due to the fact that we have restored our competitiveness. Mathieu, on share buyback? Yes.

So on share buyback, so indeed we announced and we're implementing, as I said, the share buyback of 800 million euros for 2023. and would probably stay at this level for the year. We think it's already an attractive level of return to shareholders. The buyback represents around 6% return to shareholders, and if you add the dividend, which is about 3%, the total shareholder cash return amounts to 9% at current share prices. So we decide to remain with a very strong balance sheet in order to seize M&A opportunities such as Corop.

Thank you. So that last comment, should we interpret that to mean that you're keeping some firepower in your back pocket should there be another M&A opportunity in the French market?

I don't think I said that. I'm just saying that we're trying to implement our capital allocation policy, which has been in place now for a number of years, which was confirmed at the time of the presentation of the Carrefour 2026 plan, which is quite balanced, and we try to stick to this policy.

Okay, thank you. Thank you. We'll now take our next question. Please stand by. This is from the line of William Woods from Bernstein. Please go ahead.

Hi, good evening. Just two questions for me, if that's okay. In Brazil, have you seen any change in the current trading environment? And then how comfortable are you with the Brazilian bank right now? Should we expect a growth in delinquency or NPLs up to the market level as a result of the trading environment? And then secondly, you've obviously launched your mutualized Eureka platform. How are the negotiations with the FMCG and CPG companies going? How have they responded to your cross-geography buying, basically? Thank you.

Hello, William. I'll start with your first question on Brazil. So you've seen that trading in retail has been under some pressure in Q2 with lower LIFO like what we had in Q1. I think we explained the environment. As far as the bank is concerned, I may refer you to the Grupo Carrefour Brazil press release which was issued last night where they have more granularity on the level of delinquencies. And these data do confirm what we said on a previous call that we have been very cautious on our granting of consumer credit over the past quarters and that we have delinquencies levels which have slightly increased in a contest of strong increase in the market. but which are remaining much better than the market. And when we look at shorter term indicators, it seems that the quality of the production is satisfactory. So we remain very cautious about the macro environment in Brazil, about the pressure on consumer purchasing power, but we think that the teams at the bank in Brazil are doing a good job.

On your second question on Eureka, I would say that for the first time of our history, we have now a real European purchasing platform, which is alive, which is now up and running. It means that we have already started making payments, facilitating orders on enabling deliveries. As you probably remember, the objective for the first year is to work with four providers, suppliers. So we are already active with three of them, a fourth one being underway. The ambition is to add another dozen suppliers starting January 1, 2024. So negotiations are underway. But the good news is that, as you know, the first steps on such an initiative are the most difficult. The good news is we are active. We are exactly where we wanted to be. And, of course, it will be part of our plan of cost savings announced by 2026. The objective will be to have 12 other suppliers next year, and we will continue to accelerate year after year.

Understood. Thank you. Can I just follow up on the first point on Brazil? Have you seen any change in the last month in terms of volume buying and cash and carry and any change in the environment in the first month of Q3?

No, nothing specific to share with you on that one.

Understood. Thank you.

Thank you. We'll now take our next question. Please stand by. This is from the line of Sridhar Mahamkali from UBS. Please go ahead.

Hi. Good evening. Thanks for taking my question. I've got three as well. If I can just go back to the French margin for a moment, please, if you don't mind. is clearly a very strong margin improvement and much you've talked about 10 30 basis points has been the range so this is well ahead of that any help at all in terms of potentially even kind of directional contribution was franchising the biggest or cost savings and can i just check if there wasn't any benefit in terms of first half, second half phasing from the over delivery of cost savings or something like that also? I guess what I'm trying to understand is, back to the previous question, if not, should we be expecting similar sort of pace of margin development? in the second half. That's the first question. Secondly, we've seen a pretty big increase in asset disposals in the cash flow statement. You've explained why that is with the Brazil deal. Do you have any idea, is there anything you can guide us to in terms of full year proceeds from asset disposals that'll help on the cash flow statements? Similarly, on cash flow, And I see in the first half restructuring costs are up to 257 million, quite a big jump there. Does that mean we should be anticipating a bigger exceptional item cash outflow in the second half? Thank you.

Good afternoon, Shraddha. To come back to your question about France, The reality is that there's no particular or no specific elements that account for the performance. As you know, we have a very steady trend. All the elements announced in our two strategic plans contribute to the level of performance. Of course, the market share dynamics thanks to customer satisfaction, is key. The push on private level, particularly at this semester, has been very strong. You've probably noticed that we have the penetration of private grounds has increased by three points. Strong cost discipline is at the same level than previously on France. That is as its normal fair share. We have a new improvement in profitability of digital initiatives that contribute too. You're right, we continue and we have achieved for hypermarket for the year the conversion of stores to lease management contracts, 16 of the 17 stores that were anticipated. So it also contributes. We are also the very first results of the progressive rollout of the Maxi method. So all that contributes to the level of performance, no exceptional elements. We are exactly where we wanted to be on all these key elements of the transformation. All these elements contribute to the level of performance. profitability improvement.

I can very quickly follow up. So maybe if you look at channels, would hypermarkets be the segment where you improved the most in the first half? I don't know if you can talk to it in that sense.

No, it's very difficult to differentiate all the formats. As you see, they are very close in terms of revenues in this semester. no more than two points between hypermarkets and proximity and convenience store. So the dynamic of hypermarkets is remarkable. It proves the quality of the job that has been done through the different initiatives that have been developed, 555, TOP, Maxi Methods, and so on. Of course, it contributes at a good level at the performance, and particularly because there's also a lease management contract on hypermarkets. But the two other formats contribute to this good dynamic. And as I've said, e-commerce contributes also to the improvement in profitability.

On your second question, Scheda, relating to asset disposal and full year guidance, it's quite hard to do, as you know, a strategy is really that all assets within the company, be it customer data, be it parking spaces, being real estate, they all contribute to the value creation. So we had an opportunity with the sale of this 9 out of 10 real estate in Brazil with a high single-digit capitalization rate, which we found was very attractive. in comparison to a 13.75 risk-free rate of the central bank. So that was interesting. So we decided to seize this opportunity. As far as the Nexity partnership, which was announced earlier in the month, which is a strategic and large-sized partnership, there will be no significant impact in H2 this year. Relating to the third question and the cash outs. So as I said, and as you pointed, you're right, we had less cash out in H1 than we had in H1 last year. As far as the restructuring plan which was announced in France, I think there may be a little bit of cash out later in 2023, but I think one should expect that the bulk of the cash out relating to this plan shall be more in 2024. Thank you.

Thank you. Well, now I'll take our next question. Please stand by. This is from the line of Andrew Gwynne from BNP Paribas Exxon. Please go ahead.

Yeah, good morning. Oh, sorry, good morning. Two quick questions, if I can. So firstly, obviously, as markets disinflate, how is the consumer responding? How are suppliers and indeed some of the competition responding? Is there a Anything to note in that respect? And then just coming back to on group forecasts. So just how happy are you with where group numbers sit for consensus? There's obviously kind of loose guidance, but more precision would be very welcome. Thank you.

Hello, Andrew, and thanks for your questions. So I'll start with the second one relating to the consensus. So as you saw, we confirmed our objectives for the year, which were set at the beginning of the year, i.e. a positive growth in absolute terms for EBITDA, recurring operating income, and net free cash flow for 2023. And as far as the consensus is concerned, I think it currently is consistent with what we see for the rest of the year. It clearly means that we have more back-end loaded contribution of recurring operating income in 2023, so more in H2 than in H1. We think, as we answered to Previously, that in France and Europe, we have good dynamics. And Brazil, we clearly should see much lower one-off integration costs in H2. And we anticipate the ramp up of the profitability of the converted stores and more synergies in H2. So this explains why we should anticipate a stronger H2 this year.

On your question on inflation, on trading down, as you know, we need to separate food inflation from general inflation. We've seen a slowdown in general inflation since the beginning of the year, which is around mid-single digit on average. On food inflation, it kept increasing until March, then stabilized in April. and began slowing down a bit in all European markets. But it remains, of course, firmly above general inflation and wage inflation. And for the moment, we do not see sign of acceleration of this deceleration of food inflation. So we are still in an inflationary context. And consequently, we continue to observe some trading down with several elements, the high level of penetration of private label. If you stay in France, for example, for the market, private labels are growing twice as fast as national brands. We continue to have a pressure on volumes, which have been slightly negative in the markets. And we do not see massive changes in conception behaviors or volume compared to Q1. People continue to visit stores more often. We have smaller baskets. And in this context, our job is to gain solid market share in volumes. And we do think that we will have approximately the same type of environment in the second semester of the year. even if we can count on a continuation of the deceleration of food inflation, but not at the speed pace, which means that we are still in this inflationary environment with trading down, with pressure on volume, with acceleration on private level, on all the new behaviors of the customer we have observed for one year and a half.

Thank you. And just on the suppliers, the conversation of the suppliers turning more assertive, more aggressive?

Yes, as you probably know, negotiations reopened in May following a demand from the government with the objective of achieving price decrease. It's linked to the fact that raw materials and energy costs have significantly decreased since suppliers sent their tariffs last quarter of last year. To be honest, for the moment, I would say that suppliers are not really playing the game. It's more cosmetic negotiation. So there's no real impact on permanent prices. Most of the discussion with the suppliers so far have resulted in promotional campaign, but we see very, very little improvement on purchasing condition for permanent prices. That means that for the moment, our job is to take our responsibility to continue to deliver a price-driven campaign for our customers. We've announced a new campaign for 500 basic products. It's, of course, more positive for our private label suppliers. The negotiations have been more active, and we have been capable to pass this price decrease to customers. But concerning the national brands, for the moment, nothing substantial to announce. Till next negotiation next year, we will continue to be in this type of inflationary environment.

Okay, all very clear. Thank you very much. Have a good evening.

Thank you. Thank you. We'll now move to the next question. Please stand by. This is from the line of Cedric Lecable from Stifel. Please go ahead.

Thank you for taking my question. Good evening, Alexandre, Mathieu and team. I would have three follow-ups, if I may. Well, two follow-ups and another question. The first one on Europe, just to understand the dynamic, it's a follow-up from a previous question. Should we understand that the drop in Poland profitability erases all the gains of the other countries that are heavier? in their weight like Spain, like Italy. You explained that Belgium improved commercially but not yet financially. Is this really the case and what could be the swing in Poland? The second question is on Brazil. I couldn't attend the call today. Could you maybe come back on what enabled the resilience of the legacy business in Brazil? And is this resilience sustainable going forward in this tough environment in H2? That's my second question. And the last one is on France, on M&A. Do you have any interest or any intention to be an active player in casinos restructuring? Or do you think there are legal constraints like too much for antitrust after COVID? Thank you very much.

On the performance of... Of Europe, as you've seen in the figures that Mathieu showed before, we have a very positive dynamic coming from Spain. They've made a remarkable semester both in growth and profitability. other countries contribute to the good performance. Romania is positive too. Italy continues its turnaround and continues to have a very focused customer satisfaction approach to improve its profitability. Belgium slightly or so. So I would say that the only country with a weaker performance in Poland. Of course, it was forecast. We have a particular comp, as you remember last year, with the event linked to the Ukraine crisis. The second quarter last year was not a normal quarter, so the comp is really particular, but we are very confident about the capability of the country to to restore a better level of profitability in a normal camp now. On M&A, and I would let Mathieu answer on Brazil, we are very constant. I know that sometimes it's a little bit boring, but we continue to have exactly the same approach and to tell you exactly the same thing and to do exactly the thing that we tell you. We are open and very selective on Bolton M&A with very clear criteria. We want to be focused on good assets with capability for us to accelerate the development of these assets, easy execution, and that's the way we continue to think about M&A. That's why we were so happy with what we have managed to do with Cora because It was quite a unique, large asset in a country with scarcity of assets. And we know that the quality of the management was there, the quality of the performance was there. And we want, with all the CORA team, to accelerate the development. And we are very, very happy to have succeeded in a very short time to deliver this deal. And we will continue to do that in the different geographies when we do think that all the criteria are wished.

On your question, Cedric, relating to Brazil, so you asked what enabled the resilience of the legacy business. Well, I think the answer is quite simple. You know, it's a very strong business. It's very well positioned in terms of pricing. I remind you that Atacadao is really the best in class in terms of price positioning with a nationwide presence. Carrefour has also quite a unique positioning now in its segment. I answered previously on the bank about the good job in locating risk and choosing the right customers. So when you have solid operations, when you have very reactive teams who have been able to adapt the model to the business environment, which has been changing quite rapidly over the semester, but they have adapted quite in an impressive way, well, this led to a very resilient performance in the profitability of the DGC business. It's been the case historically through the various cycles over the many last years, and it happens again. I think this is what being a leader and having a very strong model offers.

Thank you very much to both of you.

Thank you. We'll now take the next question. Please stand by. This is from the line of Clément Genelot from Brian Garnier. Please go ahead.

Good evening to all of you. Just a few questions on my side. So the first one is on France. Just wanted to come back on the prices and really get a confirmation that you feel comfortable with your current price gap with Leclerc. if I'm right, being around 9% excluding any promotions, and might be a few points lower including promotions. And my second question is on VLA energy. How do you see energy prices evolving in H2 in Europe, and how do we expect to sell wind on this P&L line? Thank you.

Thank you for your question. considering on the price. As you know on Imagine Leclerc it's not our only benchmark and it's important to look at our overall positioning versus competition and this positioning is very stable on this semester. We can't really think about only permanent prices because it's not like that at all that our customers leave our prices and it's not at all the way we manage prices. The prices at Carrefour, it's permanent prices, it's promotional prices, it's loyalty program, it's private label, it's the results of all the policy we have. And believe me, when you are a customer in a store, they don't think about the index. They think about what is the price for the product on this price for the product is the result of different type of mechanism, multi-buy and so on and so on. So I have very, very good team in France working on that, thinking about that all the day, trying to see what is the better proposal we can make to the customers. And it works. And we have two elements that prove that it works. The customer satisfaction continue to be at a very good level in a terrible context of hyperinflation, which is an incredible performance. And additionally, we continue to gain market share in volume while we have a record last year. So it proves that we have, for the moment, the good momentum in terms of pricing. We continue to think about that, to have a very fine-tuned, granular approach. We try to adapt it, and we think for the moment of what we are going to do at the second semester very precisely. But that's the way our price policy is composed.

On your second question, Clément, relating to energy, so let me maybe differentiate the cost of energy and then all our actions relating to reducing our energy consumption. As far as the cost of energy is concerned, we have country-by-country aging policy. So we were partially protected and partially exposed last year to the rise in energy prices, and we commented that at the time on some countries. Similarly, this year, we do not fully benefit from the decrease in the current spot price. We will benefit from that probably in greater extent next year. As far as consumption of energy is concerned, we've been very active. That's part of our strategy. We took some commitments as part of the Carrefour 2026 plan to reduce or energy consumption by 20% in 2026. We've made very good progress in the first half of the year with energy consumption decreasing high single digits in each one, following many campaigns that behavior of the team, making sure that you have behavior in the store and the way you do your work which allows to reduce energy consumption with many investments as well in our cooling systems, in our fridge, in our lighting, and so on. And also some investments on self-produced renewable energy, including solar panels, where we're investing more and more, again, consistently with our strategies.

Thank you. We'll now take our next question. Please stand by. This is from the line of Nick Coulter from Citi. Please go ahead.

Hi. Good evening. Two quick ones from me, please. Firstly, can I ask about the recent volume share trends in your hypermarkets over the past couple of months? And I appreciate I'm focusing on only part of your French portfolio. But could you give a sense as to why the momentum on volume share in the hypers has tempered a little in the last quarter and whether that's a concern or just part of the usual market dynamic? And then secondly, on Brazil, just to check where the synergies are in your waterfall on slide 12. I assume they're split between the Legacy assets and the underlying performance of the big conversions, but that would be helpful.

Thank you Hello Nick, thanks for your question. Let me start with with With your second question on the synergies in Brazil So yes, the the synergies are split roughly half and half between the the middle block which refers to the converted stores and the right hand block, the third block, which relates to the legacy business. You know, the allocation of synergies is not always easy to do. You need to make some assumptions. So that's the one we took behind these numbers, but it is how we did it.

Okay, great. And then you're still comfortable with the trajectory of the conversions given that they obviously have synergy benefit and a normal conversion wouldn't.

Yeah, well, I think that's what I tried to share with you. We already have these converter stores which have just been reopened or they went through the conversion process. So indeed, their profitability is negative, but as I showed, It's quite customary, but it actually always happens like that. So, yes, we're confident that these stores, now that they have been converted, that they're going to follow the path, and so they're going to have an improvement in profitability in the quarters to come.

And is there a chance that they move faster if the synergies come through faster?

Well, the synergies in terms of costs, if you compare to what was shared by the local management time just before completion, I mean, I think they had an objective of cost synergies of about $1.2 billion. So we're pretty much there just one year after completion. So that's very positive. And as I said in my comment earlier, we think that we have more to come on the cost side. And then the rest was supposed to come, you know, to be an objective from the improvement of the commercial and profitability performance of the converted stores. And so I shared also with you where we are. And so we think that when these stores do ramp up in terms of commercial and operating performance, then they will contribute to the synergy number. And this is on that basis that we confirm with confidence the 2 billion real objective by 2025. Thank you. That's helpful.

On your first question on volume in France, really nothing special on the second quarter. Still much pressure on volume. The level of inflation was at its maximum in April, so we see a high level of pressure on volume. We continue to gain market share on volume regularly. Last year, we recorded exceptional gains with sometimes more than one point of gains, so It's a very tough comp, but we continue to gain market share in volume, and that's a very positive dynamic, including in hyper markets.

So you think that the peak inflation and the comps contributes a little bit more weakness in hypers than obviously the gains in supers and proximity?

Thank you very much.

Thank you. Thank you.

And we have time for one more question. Please stand by. So the final question today is from the line of Nicolas Champ from Barclays. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. I have two. The first one, I would make another try on the French EBIT. I mean, given your strong performance in H1, do you think that €1 billion of recurring operating profit for this year is achievable in France? The second one is, could you update on your net financial charges for the full year? Should we extrapolate H1 number? And maybe a very last one, what are your expectations in terms of working capital variation for the full year? Should we expect improvement compared with last year? Thank you.

So, French EBIT, obviously we're not pointing to any specific number. Again, there is a multi-year improvement which is at play, which relies on many deeply rooted initiatives which are all contributing to the performance. Everything played out quite well in this H1. And so we want to keep improving. We have a medium-term objective, which is 3%. We keep this objective. Obviously, it's a medium-term one. Second question on financial charges. I'm really thinking out loud here, but I think we had pretty much the full amount of debt in H1 last year. as we had already implemented the debt for the acquisition of Groupe Big. So I think indeed that H2 should be quite close to H1 on that one, unless there are significant changes in interest rates, which we'll have to monitor. And working capital, it's far too early to guide you on that one. We said that we wanted working capital to be a contributor to the cash flow generation. It was the case last year. It is the case in this semester. And so the teams are actively working for that to keep being the case in the future, but no specific No more precise comments on that one at this stage. I'm sorry.

Okay, merci.

Thank you. Thank you so much for this session. We wish you a very good summertime and talk to you very, very soon. Thank you.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect. Speakers, please stand by.