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

Welcome to the 2023 half year results conference call. I'll now hand over to Mr. David Lubek, Chief Financial Officer of Casino Group. Please go ahead, sir.

Good morning, everyone, and welcome to Casino H1 results conference call. A few words of introduction before going through our presentation. On May 25, 2023, the President of the Paris Commercial Court decided to open a conciliation procedure for Casino Group for an initial period of 4 months which may be extended by a further month. The purpose of this procedure is to enable the groups to engage in discussions with its financial creditors within a legally secure framework. The conciliation procedure only concerns the financial debt of Casino, Guichard-Perrachon S.A. and certain of its subsidiaries. All information regarding the conciliation procedure is available on the company's website, and no comments will be made on this procedure during this presentation, which is focused on H1 results. As an aside, given this ongoing procedure and the legal framework within which we have to operate, there will be no Q&A session after this presentation. Our presentation starts as usual with a summary of our H1 financial figures. Page 2, the main result highlights. Group sales were down minus 4% in H1, minus 1.3% at constant exchange rate. Sales were down minus 5% in the France Retail segment and up 10.4% at constant exchange rate in Latin America. Group EBITDA was down minus 51% due to the sharp downturn and price repositioning in our hyper and supermarkets in France, while our premium banners and Cdiscount had a positive EBITDA variation as well as our LatAm segment. We will get into the details of these numbers later on. Moving first to the Q2 sales and then to the details of H1 results. Page 3. Q2 sales at group level were down minus 1.2% on a like-for-like basis. In the France Retail segment, sales were down minus 4.2% on a like-for-like basis, reflecting growth in Parisian banners and convenience had a sharp decline in Casino Hyper and Supermarkets, including the impact of a significant price repositioning. At Cdiscount sales were down minus 22% due to the decrease of unprofitable direct sales consistent with our strategy to reposition the business on the profitable marketplace. Marketplace sales were closer to equilibrium at minus 2.5%. This led to a new improvement of the share of marketplace to 58% of total GMV for the half year, up 9 points compared to 2022, with positive impacts on Cdiscount's margin. In the LatAm Retail segment, like-for-like growth of 7.6%, with a strong performance by Grupo Éxito had a successful turnaround of the Pão de Açucar premium banner in Brazil. Let us get into the details of Cdiscount in France. Page 4. Same-store sales were down minus 4.2% in Q2 with very different dynamics in the Parisian and convenience banners on the one side and hyper and supermarkets on the other side. Parisian banners and convenience delivered positive growth with relatively higher consumption in the Paris area compared to the rest of our geographies. Franprix was up 4.3% like-for-like. Monoprix City was up 2.5%, with Paris up 4.5%, and the Convenience Monop' format was up 5.3%. 95 Franprix and Monop' stores opened since the beginning of the year. Casino Convenience was up 2.7% on a like-for-like basis, with a continued expansion 271 stores opened in H1. In our Casino Hyper and Supermarkets, sharply negative sales trends reflected both the impact of volume drops, and the impacts of the price repositioning, which is now complete. This price cuts amount to minus 10% on average and have led to a 15-point improvement in relative pricing. Hypermarkets are now in line with the target of 110 relative pricing index, which translates into 100 for loyal subscribers at level of the market average. Supermarket price index is at 113, slightly below our target of 115, that is [ 105 ] for loyal subscribers. In supermarkets, this price repositioning has led to a return to positive customer traffic and volumes back in line with the market, as we will see on the next slide. In hypermarket, the recovery has been lagging with traffic still negative. Page 5. This slide shows the recovery in supermarkets in traffic and volumes following our price cuts. As you can see, traffic came from minus 11% at the end of the first quarter to plus 1% at the end of the second quarter. Volume trends have improved as well from minus 23% to minus 4% coming back to market trends in volume. IRI market trends showing at minus 5.4%. This is the first step of the targeted recovery in the supermarket format. As for hypermarkets, there has been some sequential improvement since the price cut in terms of both customers and volumes, but they are still lagging and trends remain significantly below market. It will take longer to get customers back to this format. Now moving to H1 results, starting with France. Page 6. Sales in France were down minus 5% in H1 with Provision and Proximity banners up and hyper and supermarkets sharply down. EBITDA in the retail banners recorded a sharp drop from EUR 478 million to EUR 101 million. Again, this results from very different dynamics in our hyper and supermarkets on the one hand and our operation banners on the other hand. Due to lower sales and investments in price, as well as the impact of higher energy costs, the EBITDA of our hyper and supermarkets dropped by minus EUR 344 million year-on-year. The EBITDA of our Provision banner [ Monop' and Franprix ], however, was slightly up during this semester with growth in sales more than outweighing inflation costs. Total EBITDA dropped from EUR 539 million to EUR 102 million, taking into account the disposal of GreenYellow and the end of property development contribution. Page 7, moving to the e-commerce segment, Cdiscount. Cdiscount's EBITDA doubled in H1 to EUR 32 million. The driver behind this performance was: first, the improvement in the mix of business; and second, the significant cost cutting implemented in the last year. Marketplace share of GMV improved by 9 points year-on-year from 50% to 58% with marketplace revenues and advertising revenues growing year-on-year by respectively 2% and 5%, both of these [ sharply ] up compared to 2019. Combined with the cost saving plan revised upwards to EUR 90 million and a decrease in unprofitable direct sales, this has led to an EBITDA margin of 5.3% compared to 1.9% in H1 2022. Page 8, moving to Latin America. Our 2 business units have published their results in detail. This slide presents the main highlights. Sales in LatAm were up 10% at constant exchange rates. Following its repositioning out of the hypermarket format, GPA was back to sales growth at 3.6%, with some market share gain and strong growth in its EBITDA of 45% with the successful turnaround of its premium format Pão de Açucar. Éxito delivered sales growth in Colombia and Uruguay. Its EBITDA recorded in our accounts was slightly down at constant exchange rates due to the impact of the 2022 tax reform and some nonrecurring real estate profits in 2022. Recurring EBITDA as published by Grupo Éxito was up 7.8% in Colombian pesos. The speed of the project of Grupo Éxito is proceeding with the most recent milestone being the approval by the SEC of the 20-F on July 25. We expect the shares distributed to GPA shareholders to start trading by the second half of August. This will give, as you know, full optionality to handle separately its stakes in GPA and Éxito in order to maximize value. Page 9. Net normalized result was strongly negative in H1 at minus EUR 1.344 billion. Compared to last year, the decline was due for 1/3 to operational performance already commented and to an increase in financial costs linked to the increase of interest rates. 2/3 of the decline is explained by one-off noncash impairment of deferred tax for EUR 683 million in application of IAS 12 following the review of the business plan of the French perimeter. Tax loss carryforwards have no time limit in France, but only the tax laws that can be activated in the midterm business plan are recorded in our accounts, hence the dispensation. Page 10, nonrecurring expenses totaled minus EUR 1.665 billion in H1. This exceptional loss is mostly due to noncash depreciations in LatAm, of which EUR 951 million of goodwill and brand depreciation at GPA and EUR 219 million of impairments of Éxito goodwill. These business units were previously valued with a discounted cash flow method as long-term strategic investments. In view of the decision to dispose of our LatAm business units as part of the Group's updated business plan published on June 26, and in line with IAS 36, realizable value is now based on the valuation parameters used in a potential disposal. As for exceptional costs in France, the main factor were: first, EUR 216 million write-down of distribution of Casino France goodwill following the review of the business plan; and second, restructuring costs in connection with our cost-cutting plan. Page 11. Consolidated net income group share is strongly negative in H1 at minus EUR 2.231 billion and mostly reflects the impact of the various depreciations already mentioned in deferred taxes and impairments at Casino France and LatAm. Excluding goodwill impairments and changes in deferred tax, the change in net income between H1 '22 and H1 '23, would amount to minus EUR 488 million, mostly due to the hyper and supermarket results already commented. Page 12. The free cash flow in France. Free cash flow in France deteriorated in H1 compared to last year due to 2 phenomenons. First, the loss of working capital financing for EUR 800 million, already commenced in our June 26 presentation; second, the drop in EBITDA in hyper and supermarkets. Excluding the loss of working capital and CapEx financing, free cash flow is EUR 410 million lower than last year in H1, of which EUR 389 million is due to lower EBITDA, mostly in hyper and supermarkets. As for our cost cutting and inventory reduction plans, 40% of the targeted cost cutting has been realized in H1 and 31% of the inventory reduction plan has been realized as well. Page 13, net debt in France. At the end of June, net debt in France stands at EUR 5.5 billion, up EUR 300 million year-on-year. This variation includes the impact of negative cash flows and the loss of working capital financing, partially offset by our disposals, including EUR 910 million in H1 '23, consisting mostly of the remainder of our stake in Assaí. Page 14, Group's net debt. Group net debt was closed to stable over the last 12 months at EUR 6.059 billion end of June '23 against EUR 5.971 billion at the end of June '22. The aforementioned increase in the French perimeter net debt was mostly offset by the reduction of GPA's net debt due to the sales of hypermarkets to Assaí. Page 15, finally to conclude on our liquidity position in France. June 20 -- June 30, The Group had cash and cash equivalents of EUR 1.135 billion, of which EUR 917 million in available cash, EUR 166 million of cash in [ TLs ] and EUR 52 million of immobilized cash. The Quatrim sequestered accounts amounted to EUR 19 million. All confirmed credit lines have been drawn and remain growing as part of the ongoing conciliation procedure. Looking forward, Accuracy's reports on the group's liquidity is forecast first produced for our June 26 release and a [ deed ] as of July 25, does not anticipate any liquidity issue between now and the end of fiscal year '23. This forecast is based on a number of assumptions already disclosed in our June 26 release, including the deferral of EUR 300 million in group tax and social security charges as per our agreement with the French state and the continued freeze until the end of the year of financial expenses and debt maturities. It also takes into account the disposal to [ entire Assaí ] of the stores mentioned in our press release. Another key assumption of this forecast is the continuation of current supplier payment terms with the support of credit insurers. On this basis, and on the assumption that the group's financial restructuring will be completed successfully, the interim financial statements have been prepared on a going concern basis. This concludes my presentation. Thank you for your attention.