Carrefour Sa

Good evening to all of you. Thank you for joining today's call to present our performance for the first half of 2024. Before giving numbers, I'd like to provide context about our current situation. The current economic context is mixed. In Brazil, we see more positive consumption trends with higher food inflation and lower interest rates. On the other hand, consumer spending in Europe remains low, even though inflation rates have stabilized. People keep shopping more frequently, but buying fewer items each time with a focus on promotions. In addition, adverse weather conditions across most European countries have significantly impacted traffic in hypermarkets on the sales of non-food items or seasonal products. Some factors seem to fuel a gradual recovery in purchasing power. In particular, real wage growth should ultimately result in giving households more budget flexibility. The French National Institute of Statistics forecasting a growth of 0.9% in 2024 after only 0.3% in 2023. However, many uncertainties remain regarding how fast these factors will translate into consumption. Against this backdrop, since last February, we have delivered strong results in our two main geographies. In France, Despite the still tense consumption landscape, we achieved a good performance. Our pricing strategy, progressively deployed category by category, has allowed us to restore a good level of competitiveness, putting us back to where we were before the waves of high inflation. This shift is already well perceived by customers as reflected in a positive trend in net promoter score and in our market shares in volume. As planned, we manage these price investments without compromising our profitability. Besides, we have completed the acquisition of hypermarket chain Cora on supermarket chain Match from the Louis Deleuze Group. This acquisition will enhance our commercial dynamism bring in talented teams, and create strong synergies thanks to a network of robust and highly complementary assets. In Latin America, our recovery is accelerating and boosting our profitability. Supported by a better economic environment and higher food inflation, we delivered strong performance, increasing our ROC by plus 46% in the first half, reaching €366 million. This performance comes from all our formats and the ramp-up of converted stores. Apacado is outperforming the market and continuing to deliver impressive growth. This demonstrates the relevance of our commercial model, with new services being rolled out in an increasing number of stores. Retail and Sam's Club also achieved very good performance. In addition, e-commerce contributed significantly to this commercial result, with gross merchandise value rising by plus 45%. Besides, we generated substantial synergies amounting to 2.3 billion CHF by the end of June, which is higher than our initial goal of 2 billion, and we achieved this 18 months ahead of schedule. We believe that the integration has not yet reached its full potential. Progress of converted stores will continue to yield results. Therefore, we are raising our synergy target to 3 billion reais by 2025. Meanwhile, in Argentina, we have maintained a good performance thanks to a strong commercial dynamic and disciplined cost management. Moving on to our global recurring operating income, it has increased by 6.2%. This growth reflects our solid achievements in Brazil and France, the acceleration of our cost savings, reaching €580 million, and the more mixed performance in other parts of Europe. In European countries, We faced the conjunction of a low commercial dynamic in hypermarkets due to unfavorable weather across many regions, impacting non-food sales and generating less traffic in stores, combined with a lot of negative factors specific to each country on our price investments. Turning now to free cash flow, our performance is in line with last year. Over the last 12 months, we generated more than 1.6 billion euros. This level confirms our ability to maintain a very high level of cash generation and keeps us on track to reach our goal by 2026. Our strong results also extend to our corporate social responsibility policy. Our index reached 107% in the first half of the year. We continue to progress in several key areas with our biggest progress being on our climate change goals. 47 suppliers among our top 400 have now committed to a WAP 1.5 trajectory by 2026. Besides, we have reduced our scope one and two emissions by 49% from 38% at the end of 2023. As part of the CSR strategy, we also partnered with Green Yellow to install and operate photovoltaic power equipment in about 350 of our hypermarket and supermarket car parks in France. Green Yellow's expertise will enable us to achieve our goal of using 100% renewable electricity by 2030. Behind these results, this first half has highlighted three of our key achievements that will ensure future growth and accelerate our transformation. First, our growth Our growth is driven by two engines now operating at full capacity. Our private label products now representing 37% of our total food sales. On the other end, our digital transformation with e-commerce gross merchandise volume increased by 30% compared to the first half of 2023, particularly boosted by strong dynamics in France and even more so Brazil. Besides, retail media keeps developing. Unlimited is progressing rapidly, now being active in 13 countries across Europe and Latin America, on services servicing about 30 food and non-food retailers. More importantly, Unlimited has now built the second largest client database after Amazon in Europe, growing from 40 million to 160 million addressable customers in one year. Non-food retailers provide a more comprehensive view of customers, and allowing for better targeting. These are strong assets, which give us a lot of confidence in unlimited potential. Second, we are also very active in rolling out our successful formats. We are now operating at the Cadeau in France, with our first store open in June. And in Brazil, we have opened three smaller stores to reach new customers called Atacadinho. Regarding franchising, we are expanding and attracting new franchises, adding a total of 166 new stores in the first half in France. We expect 200 new stores to open in the second half, which would lead to a record number of franchises opening in one year. demonstrating the strong appeal of our franchise model. We are also forming new partnerships with retail banners, such as Marché Frais. Last, one of our strengths is the ability of our team to simultaneously manage multiple integration projects, which is crucial for reinforcing our presence in our key geographies. This has been demonstrated through successful integrations in Brazil, in France, Spain, and Romania over the last year. In this regard, 2024 will be definitely one of the most active years for growth. For all these reasons, we look at the second half of the year with confidence, and we are confirming our objectives for growth in EBITDA, recurring operating income, and free cash flow in line with the CAFOR 2026 plan trajectory. Finally, with just two days until the opening ceremony, let me say a last word on the Games. This event is a unique opportunity for our brand and our engagement. We are proud to be the first retailer to partner with the Games, providing a unique showcase for our brand on a global stage. Additionally, this partnership is fantastic for the engagement of our teams with multiple sport-related initiatives, which boosted cohesion and enthusiasm. The Games are also an occasion to leave a lasting legacy, reinforcing our mission of making sustainable food accessible to everyone, and our dedication to supporting disabled persons on making our society more inclusive. To wrap up, I would like to thank our teams and franchise partners who make all these transformations possible. Our performance is the result of their exceptional commitment and their expertise. Thank you for your attention. I will now hand over to Mathieu.

Thank you, Alexandre, and good afternoon to everyone. It's a pleasure to be with you all to cover our H1 2024 financial results in detail. Let's start our review with Q2 sales on slide seven of the presentation. Total sales for the quarter reached 22.7 billion euros, increasing by 8.9% at constant currency. Group like-for-like sales were up 10.8%. Expansion and M&A had a negative contribution of 0.2% over the quarter, mainly due to the transfers to franchise and lease management in France. Petrol contributed negatively for minus 0.8%, and the calendar effect was a negative 1%, reflecting the timing of Easter in March this year versus April last year. Forex had a strong and favorable impact on total sales growth of minus 11.7% over the quarter, essentially reflecting the depreciation of the Argentinian peso and the Brazilian era. In total, reported revenue was down minus 2.9% in Q2. Before getting into more detail on our different markets, let's have a look at food inflation in Europe. After a sharp and regular slowdown most after months in each of our European countries, food inflation stabilized over the last three months at low single-digit levels. On a month-to-month basis, you can see that prices have remained relatively flat in France over the last 12 months. Let's now detail France on slide 9. In Q2, the market was marked by the slowdown in food inflation and still negative food volumes. In H1, Carrefour has implemented an aggressive price investment policy with no particular reaction from competitors to date. As a consequence, Carrefour France competitiveness has substantially improved. and is now back to where it was before the wave of high inflation. This has been well perceived by consumers as reflected by an increase in NPS and market share dynamics, which stabilized in volume terms at the end of the quarter. In this context, like-for-like sales were down 2% in the first half. In Q2, adverse weather conditions impacted our sales, notably non-food and the traffic in hypermarkets. This resulted in a decrease of minus 3.5% of like-for-like sales over the quarter. At profit level, we managed to offset the price investment thanks to a reinforced cost reduction dynamic. We also benefited from the contribution to profit of the strategic initiatives of the Carrefour 2026 plan, including the increase of sales of Carrefour branded products, the conversion to franchise, and the continuous improvement of the profitability of digital activities. Thanks to this, Carrefour France kept growing profitability, both in absolute terms and in percentage of sales. Over the first half, recurring operating income was up 6.2% at 286 million euros, with a 14 bps increase in operating margin to 1.6%. Moving on to slide 10 and our performance in Europe. Our European markets also experienced slowing food inflation over the first half. In most of our markets, the impact of the past high inflation wave is still present. Consumption trends are sluggish, with volumes still under pressure. Our Western European markets were also marked by adverse weather conditions, especially compared to last year, impacting seasonal non-food and traffic in the hypermarkets. On top of this, we had a number of country specifics which led to a recurring operating income down to 84 million euros in H1. Recurring operating income decreased in all our European markets except Belgium, which was up. Country specifics include the following. In Spain, in order to reinforce our price competitiveness in the country, we invested in price across H1, which had a direct impact on sales and profitability. The profitability of financial services was also down on lower interest margin. Italy suffered from the decrease in sales and the promotional market, but maintained its competitiveness. Like-for-like numbers for Belgium are blurred by comps. We had delivered a record high level of performance in H1 2023 on the back of large disruption at one of our key competitors, which had strongly lifted sales up 12% in Q2 last year. We are now back on a normalized situation and the underlying performance is satisfactory, both in terms of top line and margin. Recurring operating margin was slightly up in Belgium. Romania was a slight decrease in like-for-like sales, reflecting some stabilization in volumes, offsetting the drop in inflation. June was actually quite strong, Romania being the country with favorable weather conditions. In parallel, we are actively integrating the core hypermarkets we acquired last year with some temporary costs related to stock conversions affecting recurring operating income in H1. Last, Poland faced highly competitive markets. To conclude on Europe, as various negative drivers were either one-offs or temporary, we believe that recurring operating income trend of H1 should not replicate in H2. The situation is clearly different in Brazil, where a number of signals have now turned to green, as you can see on slide 11. The Brazilian market as a whole has improved, with both volumes and prices in positive territory. In this context, Carrefour Brazil delivered solid figures, which were lifted by our self-help initiatives. Atacadao, which accounts for more than 70% of total revenue in the country, delivered a strong Q2 sales growth of 7.4% like for light, a clear acceleration versus Q1. The rollout of service corners in AT stores today and a very efficient commercial strategy towards B2B customers were incremental to the performance, together with a ramp-up of converted big stores, which delivered a solid plus 21.4% like for light growth during the quarter, maturing as expected. Retail also posted solid numbers with like-for-like sales in positive theory at plus 2.3% over the quarter with strong performance in non-food. We keep optimizing the retail portfolio with conversions of Carrefour stores to Atacadao and Sam's Club and the closure of non-profitable stores, mostly supermarkets. In total, we see margins improving in the retail format. All other business lines are also well-oriented. Sam's Club keeps growing, with seven new stores added over the last 12 months, of which three in Q2, and sounds like follow-up growth driven by a 25% increase in active members. E-commerce keeps growing strongly, with GMV 41.3% in Q2 driven by Atacadao. Banco Carrefour delivered a solid increase in billing and credit portfolio, while the delinquency rate kept improving regularly since Q2 last year, thanks to an efficient credit-granting strategy. At the same time, we get increasing benefits from the integration of Groupe Obigue. The stores converted to Atacado generated an EBITDA margin of 3.6%, which materially contributed to the overall margin enhancement in the cash and carry formats. Ex-Grupo Big stores have now all been converted to the Atacado or Cat4 banners for a year. They have all ramped up and are now outperforming their historical numbers and delivering positive commercial synergies. These commercial synergies add up to the cost synergies, which have already been actively implemented since the completion of the transaction in May 2022. As a consequence, as of June 24, Groupo Big Synergies have reached a run rate level of 2.3 billion reals. This is above our initial target of 2 billion and is achieved 18 months ahead of target. As we keep optimizing costs further and as sales keep picking up in the converted stores, we are confident that by the end of 2025, we will reach at least 3 billion reals of synergies. Regarding Argentina, like-for-like sales were up 233% in Q2. Once again, Carrefour demonstrated the strength of its model as the country faces hyperinflation. Thanks to strict cost discipline, recurring operating income remained broadly stable at €51 million. Moving on to our global P&L on slide 14. Groups recurring operating income increased by 6.2% in the first half to 743 million euros. Gross margin was down 37 basis points to 19.4%, while strong price investments throughout H1 and transfer to franchise in France were the key drivers of this decrease. Distribution costs represented 15.1% of sales a significant reduction of 53 basis points versus last year as we delivered strongly on our cost savings plan with 580 million euros in each one. This is in line with our objective of 1.2 billion euros for the full year, which we revised upwards last April. All this leads to an increase of 11 basis points in groups operating margin to 1.8% driven by Brazil and France. Moving on to the bottom part of our P&L on slide 15. Non-recurring expenses reached 126 million euros, 60 million euros lower than last year, mainly on lower reorganization plans launched this semester. Net financial charges increased significantly in H1 to 430 million euros. As you can see, cost of debt and interest expenses related to these commitments increased only marginally. The main driver behind the increase is the impact of IAS 29 hyperinflation accounting in Argentina. Given the strong variation in inflation and forex, this first half, the impact is significant, mainly non-cash and exceptional in nature. Net income from discontinued operations of €761 million in H1 2023 corresponds to the capital gain on the sale of Carrefour Taiwan. Bottom line, net income, group share, adjusted for discontinued operations and exceptional items, reached €313 million compared to €306 million in H1 last year. Net free cash flow. On slide 16 was roughly stable compared to H1 last year at minus 1.7 billion euros. Let me highlight the key moving parts. The BDA increased by 64 million euros. Change in working capital improved by 149 million euros, notably driven by a recurring reduction in inventory, especially in non-food. Asset disposals decreased by 15 million euros. net cost of debt was roughly stable. Over the last 12 months, we generated 1.6 billion euros in net free cash flow. We confirmed that the full year number should be in line with the initial growth trajectory towards the objective of above 1.7 billion euros in 2026. We provide on slide 17 net free cash flow excluding real estate, capex, and disposals. Carrefour was a net seller of real estate for 112 million euros in H1 2024, compared to 141 million euros in H1 2023. Keep in mind the strong seasonality of real estate CapEx, which are geared to the second half. Excluding real estate, H1 2024 net free cash flow improved by 8 million euros. I will now complete this H1 financial review with a few words on net financial debt, which was slightly up. Our net free cash flow over the last 12 months was 1.6 billion euros, as you see on the slide. Share buyback is quite high, at 915 million euros over the last 12 months, reflecting the seasonality of implementation. This compares to 700 million euros for full year 2024. We had 145 million euros of cash out for M&A. It includes the acquisition of Supercore in Spain and X Casino Stores in France. Forex and others notably include the impact of the devaluation of the Argentinian peso in December 2023, as already presented in the full year release. This completes my presentation. I thank you for your attention. Alexandre and I are now available to take your questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. We will now take the first question. From the line of Sridhar Mahakali from UBS, please go ahead.