Carrefour S.A.

Good afternoon to all of you, and thank you for attending this Q1 2023 sales call. Let me start with a few high-level comments before we get into the details of the first quarter performance.

Continuing the trend of H2 2022, Q1 '23 was marked in all our markets by high levels of inflation, and in particular, food inflation, which continued to put customer purchasing power under strong pressure. Consequently, volumes kept decreasing by low to mid-single digits across our markets.

In this context, Carrefour kept deploying its strategy and delivered another solid quarter with positive market share trends in all key countries, along with significant customer gains, notably in France. Sales grew 12.3% on a like-for-like basis, a sequential acceleration over Q4, and 13% in total.

A few strategic initiatives were particularly important over the quarter. First, private-label products resonated particularly well with customers seeking value.

In Q1, they represented 35% of our sales, a record increase of 3 points compared to Q1 last year, accelerating versus the previous trend of plus 2 points per year. This is driven mainly by the traditional Carrefour private-label brands and to a lesser extent, by our simple entry range product.

This contributed to a solid market share momentum and competitiveness versus competitors. Carrefour's discount formats also resonated particularly well with customers.

Hypermarkets also started benefiting from the deployment of the Maxi productivity and competitiveness method. E-commerce performed well with GMV up 26% in Q1 driven by a sharp increase in Brazil, and double-digit growth in France.

Along with these commercial initiatives, Carrefour kept adapting its operating model to declining volumes and trading down and made good progress on its EUR 1 billion cost-saving program. In Brazil, the integration of Grupo BIG is progressing well.

We confirm our BRL 2 billion synergy target. I'll come back to this in greater detail in a minute.

On a side note, we started executing our EUR 8 million -- EUR 800 million share buyback program with EUR 200 million already completed. Now moving to Q1 revenue analysis, starting on Slide 3 of the presentation.

Sales for the quarter reached EUR 22.1 billion, increasing by 15.4% at constant currency. Group like-for-like sales were up 12.3% driven by food sales up 13.2%.

Nonfood sales increased by 6.7% like-for-like with some sequential improvement versus Q4 in Western Europe. Expansion and M&A contributed for 4.3% driven mostly by the consolidation of Grupo BIG.

Petrol contributed negatively for 2%. ForEx was a negative 2.4% over the quarter, primarily due to the depreciation of the Argentine peso.

In total, reported revenue was up 13% in Q1. Moving on to a more detailed look at the performance in France on Slide 4.

Like-for-like sales increased by 7.1% over the quarter. All formats posted satisfactory growth including Hypermarket, which delivered a solid sequential acceleration at plus 6% like-for-like, reflecting the attractiveness of their discount positioning.

France maintained solid market share dynamics. Our performance was particularly strong on the volume front with consistent gains of around 50 basis points every period from P1 to P3 according to [indiscernible].

This was driven by rapid acceleration in our private levels which not only outpaced national brands, but also all the other private levels of the French retailers. That translated into an additional gain of more than 560,000 new customers over the quarter.

E-commerce GMV increased double digits in Q1. Once again, this growth was amplified by our success in home delivery, the fastest-growing segment in the market, where our full GMV was up 23% in Q1.

This consolidates Carrefour market share in the home delivery segment, now firmly above 35%. We continue to transform our model with an additional 4 hypermarkets transferred from integrated to lease management to date, out of 16 stores planned for the year.

Expansion in convenience continued in Q1 with the addition of 44 stores in France. Europe delivered another satisfactory performance, as you can see on Slide 5.

Like-for-like sales increased by 8.8% in Q1 with noticeable positive inflections in Spain and Belgium. Like-for-like sales in Spain increased by 9.3%, with food sales up 11.7% and nonfood back in positive territory at plus 2.3%.

We continue to benefit from our strong exposure to hypermarkets, which are price leaders in the country, and we continue to gain market share. Our Italian business continues its positive momentum with 5.6% like-for-like growth reflecting improvements at all key operating levels, including price positioning, price image and Net Promoter Score.

Belgium continues to recover at a good pace. We resumed market share gains in Q1 and delivered a very satisfactory 9.9% like-for-like sales growth.

To be complete, we also benefited from disruptions at one of our competitors in March. Like-for-like sales in Poland were up 6.1% on the back of high costs linked to the beginning of the Ukrainian war in March last year.

Lastly, Romania remained strong in Q1 with solid market share gains and like-for-like sales up 12.5% despite pressure on volumes. Moving on to Latin America on Slide 6 starting with Brazil.

Like-for-like sales were up 5.7% in Q1 in Brazil and 37.1% in total, thanks to Grupo BIG consolidation and organic expansion. Sales growth was similar at Atacadão and Carrefour, both up 5.7% like-for-like.

This is a slowdown versus previous quarters as food inflation has materially slowed over the quarter and as purchasing power is under pressure following quarters of high inflation, which translates into declining volumes in the market. In that context, Carrefour discount formats performed well, with market share gains over the quarter.

In Argentina, business remains very solid with positive volumes and market share gains for Carrefour. Like-for-like sales were up 117% over the quarter.

The integration of Grupo BIG continues to progress well, as you can see on Slide 7. We converted 23 additional stores to our banners in Q1, reaching a total of 82.

All store conversions are now planned to be completed by the end of Q2, 6 months earlier than initially planned. So from H2 this year, we will no longer be impacted by the negative effect of conversions and we will start to see the benefits of the ramp-up in synergies in Brazil's recurring operating income.

In parallel to store conversions, integration streams are progressing very well including purchasing, head office and logistics synergies. Purchasing synergies are notably stronger than anticipated.

All this gives us comfort to confirm our BRL 2 billion synergy target by 2025. On February 14, we announced the launch of a share buyback of EUR 800 million over 2023.

We already bought 11 million shares between February 27 and March 31 for a total amount of EUR 200 million. As of March 31, the total number of net outstanding shares amounted to 720 million shares.

So to conclude, this was another strong quarter for Carrefour with positive commercial momentum across the board. We continue to execute our strategic road map with the progressive rollout of the Maxi competitiveness and productivity methods in our stores, the launch of many initiatives on the mutualization of our European businesses and the integration of Grupo BIG.

Despite an uncertain and changing environment, we keep progressing with reinforced confidence in our capacity to perform and reach our objectives as we did over the past few years. With this in mind, we are happy to confirm our full-year 2023 targets, including year-on-year growth in EBITDA, recurring operating income and net free cash flow.

I thank you for your attention, and I'm now happy to take your questions.

Congrats for the strong performance. Three questions on my side.

The first one is, could you please quantify the level of full inflation in Q1 to put your 5.7% like-for-like sales growth in Brazil into context? The second question is about the price reduction.

Could you please elaborate a bit about the drivers and the reason behind this price reduction? There has been no formal communication.

I mean, no -- you didn't comment during any conference calls since this announcement, and there have been some article in the local press. So could you clarify on this?

The reason behind the price reduction. And the third question is about the improving performance in Belgium.

As you rightly said, you benefited from disruption at 1 competitor. Is it possible to quantify what is attributable to this disruption?

What is attributable to your underlying improvement? And since we are almost at the end of April, did you see also this improving trend continuing since the start of April?

Thank you, Nicolas. So your first question relating to food inflation in Brazil.

I don't have the numbers with me, but that's public data. So I'm sure you can access to that.

What is particularly striking is that it has declined very significantly notably in March. And in March, we experienced even negative month-to-month inflation.

So that's the trend we have in Brazil. On your second question relating to the price adjustment, if I understood it well, the price adjustment on the acquisition price of Grupo BIG, which we disclosed a few weeks ago.

Well, I think it's quite standard. You know there is -- like in any SPA, the sellers agree to a number of indemnification obligations.

So we are now 9 months after the closing. So we've had a chance to conduct an in-depth review of Grupo BIG.

And so following this, we have agreed to this BRL 1 billion price reduction against the release of the sellers' indemnification obligations. And so that's the counterpart to the price reduction.

So my take out from this, it's quite normal. In an M&A process, you always have post-closing adjustments that can either lead to price complements or price reductions.

We are satisfied with the results of the discussion we had with the sellers. So that's the elements behind this price reduction.

Your third question relates to Belgium. It's really hard to quantify what is due to some operating difficulties at one of our competitors.

Behind my comments, you should read that as was the case actually in -- at the end of last year that the underlying sales trend is improving month-after-month and quarter-after-quarter in Belgium. I said in my speech, we've been gaining market share in the quarter, whereas market share has stabilized at the end of last year, and it's not only a March effect, it's also January and February effect.

So positive underlying trend. And on the last point of your question, the difficulties are still present at the -- to a much lower extent at the beginning of April, and things are now relatively normalized as we speak today.

The first 2, just on France. I wondered if you've seen any changes in the pricing landscape since some of the movements in the kind of deals you've made with the government on pricing.

And secondly, I suppose, are you concerned about any of the discussions in the media about consolidation attempts in the market? And then kind of finally, on Brazil, and on the finance side of the business, I just wondered if you've seen any kind of upticks in nonperforming loans and some of the issues in the consumer credit business at all there.

Thanks, William. So first question on pricing in France.

So we're at a point today where we finalized the annual round of negotiations at the beginning of March, a number of competitors have communicated on high single-digit level of inflation coming out of these negotiations. And you probably saw that inflation -- month-to-month inflation is still positive in France.

So there is still inflation going through to the end customer, which puts pressure on purchasing power, hence all the trading down and negative volume trends that we see in the market. Now as you rightly said, the government has expressed its desire that the negotiations be reopened, which will occur in the coming weeks -- which will start to happen in the coming weeks.

Clearly, the objective of these negotiations is to achieve price decreases. As you know, the suppliers send their tariffs, which are the basis for the annual negotiations on December 1.

And obviously, a number of raw materials and energy costs have significantly decreased since December 1. So we'll try to have this be reflected in the upcoming, next round of negotiations.

Second question is on the consolidation attempts in the market. You're probably referring to Casino.

Again, no comment to make on this topic. It does not concern Carrefour.

The present of Carrefour is its good result the fact that our strategic initiatives are being implemented and they are resonating with customers, and this is what we are focusing on. Then on consumer credit, a few different trends that are worth sharing with you, and maybe even beyond Brazil.

There's quite a good commercial momentum on financial services, as you may have seen from market data both in Europe and in Brazil. In Brazil, I'm sure you picked the number that the production is going very fast, notably because the teams are quite successful in enrolling former Grupo BIG customers.

And so the credit portfolio has increased 29% year-on-year, which is a strong increase. Clearly, cost of risk is a point of attention, as you probably also saw in some market data.

You may have noticed in the Brazilian press release yesterday that we are more cautious than the average market in the granting of credit because clearly, there is a tension on purchasing power and the risk of -- higher cost of risk. So the teams are already paying a lot of attention to that, having a conservative approach to new credits and actually are quite used to this kind of environment.

Two questions, if I can, both on Brazil. So I mean firstly, I suppose an observation, which would be, are you buying back the wrong stock.

Obviously, Carrefour Brazil has been very, very weak. So maybe just your understanding of that.

And then connected, is it possible to buy back some of the minorities? I appreciate there are perhaps some local need for some free float.

And then second one, just probing the market a bit more. I mean Carrefour Brazil spoke about a significant increase in competition in Brazil, notably the addition of a lot more cash and carry stores.

So is there something else going on there? What should we be aware of?

Thank you, Andrew. On your first question, we have, I think, quite clear capital allocation policy that we shared with you back in November and -- which we are implementing.

And so we -- it does not -- we do not consider buying back -- buying some Brazilian stock. The strategy is clear that acquisitions should be towards bolt-on M&A in order to consolidate our presence in existing markets.

And so that's our road map, and that's what we focus on. On new cash & carry stores in Brazil.

So clearly, we are referring to some extra stores, which were sold from GPA to Assai and then closed and then reopened as a side store. So there's been a significant number of new Assai stores opening on the market.

Nothing that we were not really not expecting. We're actually very used now to competing with Assai.

As you know, there a lot of locations really across the street from the Atacadão stores. And as -- when any cash & carry store opens, there is an opening campaign with very aggressive promotions, clearly at a loss, in order to attract customers to the newly opened stores.

I mean all retailers do that and so do we, when we convert Maxi or big stores to an Atacadão. So we've been impacted by these reopenings and these temporary promotional pressure in Q1.

Last year, if you look back at our numbers, we benefited from the closure of the stores. So I think it's just the other side of the coin.

It doesn't lead to any strong -- or stronger competitive pressure in the Brazilian market. It is a vast market.

And Atacadão, as you all know, is the most competitive cash & carry model in Brazil. So it's more a few months event than anything more structural here.

Okay. That's all very clear.

I'm just going back to the first question. Was your sense of what's happening to the share price of Carrefour Brazil?

It's clearly been a very substantial move.

Well, it's not my role to comment on the stock price. But what you find is that we feel very, very confident.

Clearly, there is an economic movement in Brazil with very high interest rates without putting pressure on consumer purchasing power. Food and even general inflation are declining consequently to that.

So clearly, strong pressure. We have witnessed negative volumes in the market.

So this is here. But on our side, again, we're gaining market share.

We're progressing very well on the Grupo BIG integration. I even gave you some color on a number of streams of synergies, which are progressing ahead of planning or even better than we hadn't initially anticipated.

So it's all quite positive on our side, and we remain very, very confident. It's life of this kind of market where you can have some moments where you have economic pressure, anxiety into the market.

That's life of doing business in Latin America. We've also witnessed some difficulties accounting, operational difficulties in the market since the beginning of the year at some of our competitors.

Carrefour has none of these issues. And so maybe that has changed a little bit the vision of that some investors have around the industry, the sector, the retailers in Brazil.

But again, Carrefour, we feel very strong, very comfortable with our operations in Brazil.

I have 3 questions. I guess the first one, just from your side, you're happy that despite the fact that we're seeing really quite strong growth in the core Banco Carrefour financial services book that's been done at a pretty tight criteria in terms of recruiting those new customers.

So that's just really to get a reiteration of that. And secondly, one, can you remind us sort of timetable of disposal process, and whether you have more thoughts around the potential use of the proceeds there?

And lastly, absolutely take your point in terms of you lost a number of trading days that you shut down those BIG stores in second half last year and first half this year. And of course, you gain all of those back.

Can you give us a sense of just how much of a dilution that was in the second half of last year and the first half of this year, please?

Thank you, James. Yes, first question.

So on the bank, the customers at the bank in Brazil. So yes, we are very happy because behind the growth of the credit portfolio is the recruiting of customers which were Grupo BIG store customers.

And when they visit the same store, which is now a Carrefour store, we have offered to them to have access to the Carrefour Brazil financial services. And we see that the enrollment of these new customers is very satisfactory.

So we're very happy with this. And this is behind the growth in the portfolio of credit that I mentioned earlier.

So that's the main driver there. Second question relating to the disposal of Taiwan.

Nothing new to share with you, the Taiwanese antitrust authority is still in its review process of the project. And we still expect to have an approval of the transaction from this authority probably in Q2 or beginning of Q3, but we still expect closing around the mid- of the year.

And nothing new, and so it's really per plan. As far as the use of proceeds, no specific thoughts here.

Again, when the deal is completed, we will share with you what's the decision of the use of proceeds. This is still premature.

Then on Grupo BIG conversion and the dilution, we -- so you're right, when we close the store, obviously, it doesn't generate any sales. It doesn't impact the like-for-like, okay, because it is not all noncomparable perimeter, and then we reopen.

When we do that in this process, all the costs incurred relating to this are borne in the recurring operating income when we sell some inventories at a discount before the closure of the store, this is accounted for in our recurring operating income. When we pay the teams and still have some expenses during the works.

This is also an operating expenses. And then we have an opening campaign, which is additional marketing expenses, which are also in our operating expenses.

So that clearly has a dilution effect on the profitability. And so that will stop from H2 2023 onwards.

What we said at the time of the publication of the full year results is that if we excluded these one-off effects in the recurring operating income, the margins in Brazil would have been flat for you to reconcile.

That's very clear. Can you perhaps remind us, Matthieu, in terms of how -- on average, how long these stores are disrupted for or indeed shut for as they go through that process of rebranding?

Well, it really depends. So I'm not going to give you a single-point answer.

It depends, obviously, on several things. First, if the store remains in its concept.

If it's a big store moving to a hypermarket BIG moving to a Carrefour hyper, then obviously, it sees lighter changes to the commercial concept. And so it can be shorter works.

Obviously, it also depends on the maintenance level of the stores and if we need to remodel it more or less. The same analysis would apply for the cash & carry stores, Maxi switching to Atacadão.

When we transfer a store from BIG to Atacadão. So from a hypermarket concept to a cash & carry concept, obviously, the works are more important.

We notably, in a number of cases, have some structural works to do because we need to reinforce the floor because, as you know, we have BIG racks at Atacadão, and so we need more resistance on the floor. So hard to be more precise than this, sorry.

But perhaps if you could comment on early performance or other ways of the converted Grupo BIG stores versus the plan, please? That's the first one.

Secondly, stores picking with Brazil following up on Andrew's question earlier on a little bit here. Has your view changed at all on the business case on Grupo BIG acquisitions, particularly in terms of the sales recovery that you're expecting or very confident given clearly some of the changes in the competitive landscape that we discussed a little bit around that converges.

So those are the 2 questions.

Okay. Thank you, Sreedhar.

So on Grupo BIG, the case is really unchanged. Our level of confidence is growing as we progress into this successful integration and conversion.

I think that's the summary. Now if we get into details.

So first, we're already ahead of plan on the conversion, which is good. I think the teams are doing a very good job at converting the stores.

You may have seen in the Brazilian press release that the pickup in sales is quite different if the store remains in its format or if the store moves from a hypermarket to a cash & carry stores. I think it was mentioned that the sales were doubling when moving from a hypermarket to cash & carry stores.

So this is good. We still have higher expectations through time, but we know that these stores, they ramp up through time, typically converted and reopened stores take 2 to 3 years to ramp up and take its full turnover potential.

So we still bet on further improving on these sales per store. Clearly, we are reopening these stores at a moment where the market is stuck as I said.

So as the stores ramp up and the market normalizes this will draw further revenue growth. Then on the other streams of synergies.

I said that purchasing these COGS or GNFR is progressing very well and is ahead -- above our expectations in terms of level of synergies. And then as far as all the other costs, including head office logistics, this is also progressing well.

The teams are currently moving to the ex-Grupo BIG headquarter as we speak this week. And so we will be in a few weeks or months closing the ex-Grupo Carrefour head office in Sao Paulo.

So you see things are progressing. And so that's why we communicate on a greater level of comfort and we have confirmed our financial objective of BRL 2 billion of synergies by 2025.

I have 3 quick ones to end the call, if I may. But I think would you be able to expand on your bullet point or reference to, I think, a specific action to adapt to a decrease in volumes, please?

And then I have a couple of follow-ups on Brazil, if I may.

Yes. Thank you, Nick, for your question.

You're right. We have, as you all very well know now, our annual cost saving program, which are really structural actions, changing processes, organizing differently, stops doing a number of things, renegotiating on a number of, let's say, GNFR services.

So we keep doing that obviously. And as I said in my intro, we are making satisfactory progress here.

In parallel to that, we have a declining volume. And it's possible even likely that this declining volume trend may still be here for a few months, has pressure on purchasing power is high.

And we still have growing levels of food inflation in a number of geographies. So pressure is high, and so we think it is going to remain high for a little while.

And so indeed, the teams have adapted, but it actually already started last year. They -- it's part of the normal managing of operations in any of our country.

You need to make sure that you adapt the size of your operations, be it hours in the stores of the teams or the logistics and so on to the reality of the volumes that are going through our operations. And so we've been very disciplined in doing that.

It materialized in I think, very good profitability levels in Q4 and overall in H2 last year, as you all saw. And I think it's important to flag that this continues as we still have the negative volume trend.

This overall business -- confirming our full year objective.

Okay. Okay.

So that's kind of ongoing. Then secondly, a couple on Brazil, if I may.

It seems like everything is going very well from a kind of a synergy perspective, should we hope for a better facility outturn or are you kind of conversely more cautious on some of the targets that you have for synergies? And then also just if I may, just to come back to the purchase price adjustment.

Do the indemnifications impact your base case performance for Grupo BIG at all. I guess those indemnifications compensate you for adverse factors that have been subsequently confirmed.

So just trying to understand a little bit more detail or at least the basis for that adjustment, whether it's balance sheet, whether it's operational? How should we think about a material adjustment in the valuation of that M&A?

Thanks. So the synergy, as you said, is we have a strong case here.

We keep -- keeping you posted on the progresses which are made and we keep confirming the number. So we don't have any other number in mind as we speak.

As you know, the conversions of the stores. They were at the end of last year.

We had further conversions in Q1. We're going to finalize that in Q2.

So we need to give it a little more time so that we see exactly how all the streams of synergies are performing. And what we see today is a good level of comfort, which points to the BRL 2 billion target.

Then on the purchase price, as I said earlier, it's mainly relating to the contract and to some indemnification obligation. It doesn't change in our mind the perspective and the value creation of -- that we're going to generate from this acquisition and from the conversion and all the streams that I just referred to.

So it's really -- it's more technical. And as part of a negotiation, again, there's a number of clauses in share and purchase agreements, and that's it.

But as far as the business is concerned, the conversion, the perspective, the objective, nothing has changed in our case.

Thank you all for this discussion and hope to see a number of you at our general meeting on May 26, otherwise in -- at the end of July for H1 results. Thank you very much.