Casino, Guichard-Perrachon S.A. (CO) Earnings Call Transcript & Summary

Welcome to Casino Group's Third Quarter Revenue 2022 Conference Call. I now hand over to Mr. David Lubek, Chief Financial Officer of Casino Group. Sir, please go ahead.

Thank you. Good morning, everyone. Thank you for attending our quarterly sales conference call. Before going into the details of our release, there's a few words of introduction regarding our Q3 performance in France and Latin America. In France, the return to growth outlined in our Q2 release is confirmed. Our food retail sales are up 3.9% in like-for-like in Q3 with a clear recovery in our Parisian banners, Monoprix and Franprix. Our expansion plan in franchise stores has continued to deliver, reaching a total of 527 new stores added since the beginning of the year. And Food E-commerce is up 22% during the quarter outperforming the market. The overall improvement in commercial dynamic in our food retail operations, combined with strict management of OpEx and CapEx has translated into additional EBITDA and cash flows. Q3 EBITDA after rents is up 26% year-on-year in France, and operational cash flows are up EUR 276 million. Net debt valuation over the quarter has shown an improvement of EUR 415 million compared to Q3 '21. Net debt in France is now stable over the last 12 months at the end of September before taking into account the disposal of GreenYellow. Pro forma the disposal of GreenYellow for EUR 600 million net debt improved by EUR 560 million over the last 12 months, resuming our deleveraging trajectory. In Latin America, we have witnessed once again a strong performance of our 2 main business units, Assaí and Grupo Éxito. Assaí sales were up 29% in Q3 in local currency, including a 20% impact of new stores, while Grupo Éxito delivered 20% in like-for-like. Combined with the ongoing appreciation of Brazilian real, this has led to a total growth of 23% in Latin America as measured in euros. This number includes the impact of the closure of 70 extra hypermarkets, which was sold to Assaí to be converted into cash & carry. 45 of these stores will reopen before the end of the year which should translate into a strong acceleration of Assaí sales from Q4 on. Our Latin American assets now have a total market valuation of more than EUR 2 billion, the spin-off of Éxito, which was announced in September, should be completed during H1 2023. We expect the separation of Éxito and GPA to increase the combined valuation of the company has happened before with the spin-off of Assaí. As you know [indiscernible] 3 separate listed companies with various options to take advantage of the current favorable macroeconomic conditions and of a strong operational performance. Finally, on our deleveraging strategy. We have moved further into the completion of our EUR 4.5 billion disposal plan in France with EUR 4.1 billion secured and EUR 4 billion cash in at the end of October. We are confident that the plan will be completed before the end of 2023, which was the target announced at the beginning of the year. And we plan to make use of our disposal proceeds to address our 2024 bond maturities well in advance. In addition, we have announced this morning, last night to be precise, a new initiative to crystallize some of the value of our Latin American assets and accelerates our deleveraging with the disposal of part of our stake in Assaí. Going now into the details of our quarterly numbers. At group level, sales were up 5.4% in like-for-like. Total sales were up 10.6%, including a positive ForEx effect of 6.9%. Let's start with France and with our food retail business. Three main takeaways: first, improved like-for-like growth with a confirmed recovery of our Parisian banners, Monoprix and Franprix. Second, the fast development of our expansion plan in franchise; and third, the strong performance of our Food E-commerce operation. First, sales trends. Like-for-like sales trends in France have improved quarter after quarter since the beginning of the year coming from negative territory in Q1 to plus 3% in Q2 and plus 3.9% in Q3. In Q3, this performance is linked to the clear recovery of Franprix and Monoprix, our premium banners, most exposed to the Parisian area. This was notably driven by the return of [ food ] with a particularly strong impact of Franprix. It also reflects the better shape of the Parisian market overall and renewed commercial initiatives at Monoprix under the new management. Like-for-like sales were up 4.1% at Monoprix and was 8.4% at the Franprix during the quarter. This translates into plus 4.8% of the total of our Parisian banners to be compared to 2.1% in Q2 and minus 2.9% in Q1. It is a key step in the recovery of our French food retail profitability with operating leverage, translating into higher EBITDA. As for the Casino banners, in hyper and supermarkets like-for-like growth was plus 2.2% and plus 1.6%, respectively. We are rolling out the transformation of our hypermarket stores into Casino Hyper Frais with a best-in-class offer in fresh food. 19 such stores have already been converted. Commercial initiatives meant to boost our customer purchasing power have also continued with discounts on the subscription-based loyalty program, regular low price offers, such as [indiscernible] and targeted operations around gas stations. The highlights of the Casino banners performance this quarter is the continued excellent commercial dynamic in proximity with 8% total growth, reflecting a strong 6.1% like-for-like and the positive impact of the expansion plan. This leads me to my second key takeaway in France, the ongoing successful rollout of our expansion plan in franchise. We have opened 527 stores since the beginning of the year in keeping with our objective of at least 800 in December. Our diversified portfolio of banners gives us a clear edge in the convenience market with the possibility of finding exactly the right store for the right location and the right franchisee. We have opened 67 Franprix in premium areas with high purchasing power, 81 Marchés d’à côté, a simpler version of Franprix in other urban areas; 94 Vival and Spar in touristic and rural areas ,38 Epiceries d’à côté, 16 Monop’, and 17 Naturalia. One key advantage, which explains our fast development is the density of our network. This allows for more efficient logistics since each of our trucks can deliver a number of stores in the same area. This translates into lower costs and better service to franchisees. It is a significant advantage in the context of higher transport costs, and we are convinced a growing number of existing independent operators to leave some of our competitors and join our network. 30 independent stores have joined us this way in Q3 and 161 more in October. In total, we have opened an average 1 store per day in Casino proximity and 1 store every other day at Franprix since the beginning of the year. The new stores added this year either through openings or former competitors joining our network will generate EUR 400 million of yearly gross merchandise volume on a run rate basis. Finally, my third takeaway is continued growth of our food e-commerce operations at plus 22% during the quarter, outperforming the market. Our key advantage in home delivery relies on exclusive technological partnerships and on the density of our network. This allows us to grow profitably in this market. Now a few words about Cdiscount. Casino has already published its detailed sales release. In the top market for non-food in Q3, marketplace GMV, our key commercial indicator was up 7% compared to pre-COVID numbers and down minus 3% compared to last year. This resilience on the marketplace has led to a sharp improvement in Cdiscount's business mix with a share of marketplace up 9 points compared to last year at 52%. Direct sales, which do not contribute to the bottom line of Cdiscounts decreased again this quarter as expected. Octopia, our B2B Marketplace-as-a-Service offer now has 25 customers, out of which 9 are already live. Finally, Cdiscount has advanced quickly on its EUR 75 million yearly cost savings plan in OpEx and CapEx with a EUR 30 million impact in H2 already secured. Before moving to Latin America, a few words on financial performance in France at the end of Q3. As we expected, the commercial recovery in France, combined with tight cost control has translated into higher EBITDA plus 26%, which represents an increase of EUR 37 million over the quarter. As for our cash flows, which are our key financial priority, they have improved in total by EUR 450 million over the quarter compared to Q3 2021. This is due first to operational cash flows, which have increased by EUR 276 million over the quarter due to higher EBITDA, better working capital variation and lower CapEx. As mentioned before, our expansion plan is based on the franchise model which allows us to reduce our CapEx while growing the business. We remain fully committed to cash flow management and control, which are a key part of all our management team quarterly objectives. On top of this operational improvement, the EUR 450 million gain in net cash flows during the quarter also includes the positive impact of disposals of EUR 140 million, including the unwinding of the Mercialys TRS. With the impact of this quarterly performance, net debt at the end of September is now stable over the last 12 months; pro forma, the disposal of GreenYellow of EUR 600 million, which was finalized on October 18. Net debt improved by EUR 560 million over the last 12 months, resuming our deleveraging trajectory. As mentioned at the beginning of the year, we remain fully committed to the finalization of our EUR 4.5 billion disposal planning in France, of which EUR 4.1 billion has been signed and EUR 4 billion cashed in. Since the end of July, we have signed EUR 150 million of new disposals, including the sale of 95% of Cdiscount subsidiary, CChezVous to GeoPost For EUR 64 million and EUR 51 million of real estate disposals. We confirm our objective to finish this plan before the end of 2023, and we are confident in our ability to do so with the processes that are now underway. As for our liquidity position expands at EUR 2.5 billion in France at September 30 with EUR 400 million of cash and EUR 2.1 billion of undrawn credit lines since our secured RCF is only undrawn at this date. With these numbers, our RCF covenants are comfortably met at the end of Q3 with a margin of EUR 605 million in secured debt on our secured debt over EBITDA ratio and a margin of EUR 300 million in EBITDA on our EBITDA over net financial cost ratio. Now a few words about Latin America. GPA, Assaí and Éxito sales have already been published, so we'll concentrate on the main takeaways. LATAM sales showed a very good dynamic overall with 23.4% total growth and plus 11.2% like-for-like [Audio Gap] [ 9% ] sales growth in local currency, driven by a solid like-for-like performance of plus 9% and an excellent performance from the [indiscernible] stores opened in the last 12 months. Including the positive ForEx effect, total sales at Assai were up plus 49% in euros. The Assaí format with its growth and low price offering is particularly attractive for customers in the current context in Brazil. The Assaí teams are fully mobilized on the conversion of the 70 extra hypermarket stores bought from GPA. The converting process began in July and advanced rapidly with 19 stores converted to date. Assaí now expect 45 stores to be converted in H2 2022, ahead of its initial target of 40. Combined with organic expansion, this plan should bring Assa'sí total gross sales to BRL 100 billion by 2024 as confirmed again recently by the management. GPA Brazil sales were at plus 7% year-on-year in like-for-like. Total sales at GPA decreased as expected by minus 21% due to the closure of Extra hypermarkets, [ 17 ] stores to Assaí and 23 already converted in supermarkets to date. This strategic move allows GPA to focus on convenience, premium and online with a footfall concentrated on the high-value areas in Sao Paulo and Rio de Janeiro. Convenience recorded plus 21.7% in like-for-like, thanks to the increase in the flow of transit stores. Premium from Açúcar delivered plus 5.5% like-for-like and online food sales excluding hypermarket, grew plus 8% over the quarter. Finally, Grupo Éxito showed again a very strong performance with like-for-like sales of plus 20.3%. Colombia registered 14.8% like-for-like growth, driven notably by a solid performance of the cash & carry business. Our Uruguay posted was 11% in like-for-like. This online momentum should naturally underpin the success of the expected spin-off of Éxito, one of the most attractive food retail assets in the region. To sum up, there are 3 main grounds for satisfaction in the numbers published today. First, a confirmed recovery of our Parisian banners in Q3. Second, year-on-year improvement of our net debt valuation in France, thanks to mostly to our operational cash flows. And third, excellent performance once again at Éxito and Assaí. We are fully committed to the deleveraging of the company. This is why we have initiated as communicated last night the study of a sale of the part of our stake in Assaí for an amount of EUR 500 million, which could be increased as the case may be depending on market conditions. This transaction would take the form of a secondary offering and could be completed by the end of November. It should allow us to accelerate the reduction of our debt while keeping a significant exposure to the high-growth potential of this company. Thank you for your attention and now ready to take your questions.

[Operator Instructions] We have a first question from Xavier Le Mené from Bank of America Securities.

3 if I may. The first one, can you please comment your cost structure in France for especially labor cost synergy and what you've been seeing in Q3 and what you're expecting going forward, especially in 2023. So any indication of your inflation for this cost would be important? Just on the debt covenant. Would it possible for you to comment what would have been the impact excluding the EUR 315 million of the bridge loan you have [indiscernible] how long ? Just to understand exactly how it played in September? And lastly, what is rationale behind Assaí's potential placing out. I understand you want to improve, of course, the balance sheet. But you always said that you saw a lot of value creation within Assaí. So why selling it now. Are you potentially seeing more pressure to come in Q1, Q2 2023 with your covenant and that is the reason the Assaí disposal? I just want to understand why do you need now actually?

Okay. First question on our cost structure. Energy, we have worked for years with GreenYellow to control our energy cost, and it has worked well. First, in 2022, we've seen very little increase in our energy cost, thanks to very efficient hedging and cost cutting and cost optimization in the stores. GreenYellow has a very efficient offer on that. And in '23, we expect a lower increase in our energy cost than the average in the market. We have been hedging before the rest of the market from what we understand from what our competitors are saying. GreenYellow has done that. And we are designing new cost saving initiatives in energy. So overall, we're going to keep the costs, be it energy or other cost, the cost evolution below the food inflation and below the growth of our sales. And this is what we've seen so far, and this is what we expect in our budget for next year. As long as the [indiscernible], we have operating leverage, and this translates into higher EBITDA. About the debt covenants, well, it's quite straightforward to make the calculation. You see on Page 2, we gave the headroom of EUR 605 million on net debt. So it should substract from that the EUR 350 million, you get to a margin of EUR 250 million, which is basically the same margin as in Q2. So we have had the same -- actually slightly better margin on the covenant than in Q2 even without the [ Saharan ] operation, which allowed us to buy back bonds with a discount as we have published. As for the rationale for Assaí, I think the release we did is quite clear. We want to accelerate the deleveraging and that is why we are initiating this operation. I understand there can be many questions about this operation. But I think the release is very clear in itself and it's quite straightforward. Of course, we have -- as I said before and I said that in last June, when I was asked about the covenant in Q3, we don't expect, of course, any problem on our covenant. So this is not the issue. The issue is we really just want to accelerate our deleverage.

Yes. Just 1 word potentially on the labor cost wages?

Yes. Overall, you've seen the kind of increase in wages that we had this year. Overall, the total cost that we have -- the total cost of our wages are kept if you include everything at a level that allows us to have sales growth above our cost growth, and you're seeing the kind of growth that we had.

Next question from Andrew Gwynn from BNP Paribas Exane.

Two questions if I can. But firstly, just on Assaí. Is there a plan to sell that stake down even further than the $500 million? And then secondly, on Monoprix. Could you just comment on the discretionary sales that the business has. Should we expect or have you seen any sign of that softening given the consumer.

Sorry, the last question for you, say it again, I don't hear very well.

Discretionary sales in Monoprix is seen as sign of weakness.

Yes. What you call discretionary sales and I suppose it's non-food and textile and all of this. It's performed well as the rest of the Monoprix sales. So there has been no difference. Non-food in general is not performing very well in France today. That's a problem for big hypermarkets with a lot on non-food. It's not the case for the offer at Monoprix, which is a high-value textile offer that people like and an offer in the -- and other non-food offer that you have at Monoprix, same thing, it's a very targeted offer, and they have had good trends in the last few quarters. So no problem here. Same trend as in food at Monoprix. There was very nice recovery we've seen. On Assaí, again, I can't say more than what's in the release. The announcement is on the operations that you're seeing announced last night, and there's no further -- no other thing to communicate at this time.

Your next question from Rob Joyce from Goldman Sachs.

Just firstly, just trying to understand a bit of the Farallon cash-in , and it looks like you said you had quite a bit of headroom anyway. Just wondering why you wanted that cash-in early and how much that actually costs you to access. On Assai, if you do take -- I think the implied your ownership would go down to roughly 30% if you complete the $500 million sale. Will that still enable you to maintain control of the Board with that level of ownership? And then finally, very quick on EBITDA. Is there anything from property in the EBITDA in the quarter?

Thank you, Rob. On your last question, no, there's no property development profit in EBITDA [indiscernible] it's just food retail profit linked to the growth of the sales and goods control of the cost. That's just it. On the Farallon cash in, as I mentioned before, the goal of this operation that we did with Farallon, which was already involved, of course, in the GreenYellow deal. As you remember, they financed GreenYellow's need for CapEx in H1 and helped us in that way, realized a good transaction. The goal was to have available cash quickly to be able to buy back bonds and take advantage of discounts in the market, which are quite significant discounts today, especially on the March 24 bonds. We published the cancellation of those bonds between October has seen that the beginning of October, we have canceled EUR 49 million of bonds. We published cancellation when we reach certain thresholds. Of course, we can buy back more, and we publish it when we reach this relevant threshold. So what I can say is that this operation as we more than self-finance when you take into account the discounts that we captured on the bond buybacks that was to all of this operation. And of course, the government themselves, as you see clearly from the publication, we had the same margin as in Q2 without this operation. As far as Assaí, again, no more comments on the Assai operation than the one in the press release. I'm sorry -- I have several questions on that, but I will speak to the press release and maintain this level of communication.

Next question from Nicolas Champ from Barclays.

Actually to follow up on Rob's, but I think this is important. I mean is it possible to know how much you paid for this [indiscernible] EUR 350 million loan from Farallon. I mean the press reported you possibly pay around 4% interest rates, which represent more than EUR 10 million. Could you confirm this number or provide us a number? And why did that you draw on your [indiscernible] instead, which is, I guess, cheaper. The second question is, again, sorry to follow up, but I think this is important for our models. But following the disposal of this EUR 500 million stake in Assaí, will you continue to fully consolidate Assaí that would be very helpful to know, again, to build our forecast and our model. And third question is about a clarification. Could you confirm that it's a gross debt amount is around EUR 5.7 billion at the end of September, which is, I think, as your -- better view of press release. Does this number include the EUR 350 million from that Farallon place?

Sorry, sorry, the last question, I didn't understand very well. What was the last question? .

The EUR 5.7 billion of gross debt that you report in your press release. I think this is on Page 8. Does it include the EUR 350 million of debt from Farallon?

Yes. So the answer is yes. As we mentioned Page 8, in accordance with IFRS norms, the transaction with Farallon had no impact on net debt, which means it had a positive cash impact, and we recorded a gross debt that was, of course, canceled on 18th of October. That's just the IFRS conciliation. So yes, the EUR 350 million is included in the gross debt at the end of September. Again, on the [indiscernible], I think I've been clear, we have used this cash to buy back loans. We don't disclose specific details of private transaction. We don't disclose either how much we pay for each and every one of the advisers we have on every deal. It's part of the overall, let's say, the fees, the overall fees of the overall deal with GreenYellow. So that's it. It's not it's not very material compared to the overall operation. And again, any sales, it was more than paid for by the buybacks we're doing. We consolidate Assai because we control the Board. That is the case today, and that will be the case until changes. But there's no reason to think at this stage that this will change.

Next question from Clement Genelot from Bryan Garnier.

Only one my side, maybe on GreenYellow, if I'm right, a few days ago, the CEO announced a capital raise on [indiscernible] and also others to quickly follow? Also do you intend to really participate in those -- in this capital raises? Or do you -- do you -- is that to save cash and rather being diluted in the [indiscernible] structure.

GreenYellow now that the 15% we keep after the transaction is the financial participations. So we don't intend to participate in capital increase at GreenYellow. That's it.

Next question from James Grzinic from Jefferies.

I just had a quick question around pricing in France. If you can update us in terms of in Q3 how much of the [indiscernible] was driven by inflation and perhaps more broadly would you sense price perceptions are shifting from some of the of your key chains. I'm thinking particularly Monoprix, I guess, that would be very helpful. I don't know if you've got any NPS that you can share with us on that count.

Yes, James, thank you. Well, as a matter of fact, our most premium banners are the ones that are gives as the most expensive, so to speak, all the ones that have performed the best during this quarter. When we look at price, we always have to remember that we are located in high revenue areas. 70% of our sales in France are done in the 3 highest revenue and highest growth regions in France. The Parisian region zone, Paris in the France, the [indiscernible] the southern France. These are high revenue, high growth, both in demographic and in economy. And when you compare the average price in this region, the average price of all the markets, not our price, the price of the market even without Casino, it's basically 10% to 15% higher than in the rest of France. So when you consider the average price on a national basis, you will have to look at how do we compare locally, and we are, of course, concentrated in those high revenue regions. In these high revenue regions, our banners have a value proposition that is obviously in line with the pricing. That is what we see with the good dynamic at Monoprix and Franprix. So we have no issue at all today, especially in our premium banners in terms of relative pricing. What we're seeing -- What we're doing in all banners, actually, the high -- the premium banners and other banners as well, keeping in mind that most of our banners are actively premium now is targeted operations to address purchasing power issues for the customers in general. So we have these offers such as [indiscernible] in the hyper and supermarkets. We have specific offers around private labels, around specific choices every week, every month. But overall, our pricing, we think is perfectly relevant. In terms of NPS, I don't think we have communicated this recent NPS number, but we can confirm that NPS trends are well oriented at Monoprix.

Can you please clarify the inflation component within...

There's obviously an inflation component in the growth of sales. [indiscernible], we actually have increasing volumes in Q3. So obviously, it's not just inflation. And overall, our goal is to have sales -- moving to close to inflation. The average volume in France today is slightly down in food not much, but slightly down. And there's a small mix effect, national brands transferring somewhat to private label. And when that happens, since the average price of the private label is a bit lower than the average price of the national brand, you have this negative mix effect on the sales, but not on the margin since private labels have a good margin. So that's the picture. And the overall goal is to have these sales rather close to inflation and costs are below that level, which is -- creates operating leverage and translates into this 26% increase in EBITDA levels we're seeing in Q3.

Thank you. Mr. Lubek, we have no more question by phone.

Thank you. Thank you, everyone. Have a good day.

Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.