Carrefour: First-Half 2017 Results

Regulatory News:

Carrefour (Paris:CA):

• Net sales up +6.2% to €38.5bn, reflecting the combination of a good like-for-like performance and the effect of expansion:
  • Opening of 352 stores under banners in the half, of which 290 convenience stores, mainly in Europe
  • Successful integration of the Eroski stores in Spain and Billa stores in Romania
• Recurring operating income (ROI) of €621m, down 12.1% at current exchange rates, resulting in an operating margin of 1.6%, notably reflecting:
  • A 70 basis point drop in operating margin in France, due to a strongly competitive and promotional market and the increase vs. H1 2016 of losses at ex-DIA stores
  • An increase in losses in Argentina, where the economic recovery is taking time to materialize

These results also reflect:

• A pause in profitability improvement in Other European Countries, notably linked to the non-recurring impact of integrating acquisitions
• A first improvement in operating profitability in Asia
• Margin holding up well in Brazil, despite lower contribution from financial services, notably linked to a regulatory change on consumer credit

• Free cash flow excluding exceptional items and Cargo of -€2,587m vs. -€2,106m in H1 2016, due to a short-term variation in working capital requirements
• Successful stock market listings of Grupo Carrefour Brasil and Carmila in July 2017
• Carrefour’s new management team is fully focused on improving the Group’s performance and adapting to the rapid and far-reaching evolutions within the industry. Management will come back to the market by the end of the year.

First-half 2017 key figures

H1 2017 SALES INC. VAT: Solid sales in the first half

Carrefour’s first-half sales including VAT stood at €43,053m, up +6.2%. Over the period, currencies had a favorable effect of +2.8% while petrol had a favorable effect of +0.5%. Carrefour’s first-half sales grew by +2.6% on an organic basis, with a contribution from emerging markets that remains solid at +6.4% despite a slowdown of inflation in several countries, and an increase of 1.1% in Europe, including France.

In the second quarter, Carrefour’s total sales grew by +6.1%, and by +2.8% like-for-like.

In France, sales grew this quarter by +0.8% on a reported basis and +1.9% like-for-like. In Other European countries, second-quarter sales once again increased sharply, by +8.6% in total and +3.4% like-for-like.

In Latin America, second-quarter sales were up +6.9% like-for-like and +20.0% in total, including a favourable +8.9% currency effect. This good performance was achieved in the context of a strong slowdown of food inflation in Brazil and a challenging economic environment that continued to weigh on consumption in Argentina.

In Asia, second-quarter sales were down by -2.3% in total (-4.7% on a like-for-like basis). China posted a drop in like-for-like sales of -6.6% and like-for-like sales in Taiwan improved for the tenth consecutive quarter by +0.6%, on the back of a high comparable base.

First-half 2017 results: Recurring Operating Income of €621m

Income statement

Group Recurring Operating Income (ROI) stood at €621m and adjusted EBITDA¹ stood at €1,431m, slightly down by -1.2% at current exchange rates and -7.0% at constant exchange rates.

In France, the Group continued to roll out its multiformat and omnichannel strategy in the first half of 2017. ROI stood at €199m, representing an operating margin of 1.1% (-70bps year-on-year). This evolution takes into account higher promotional investments in a very competitive environment, as well as targeted price adjustments in certain stores to improve Carrefour’s competitiveness. France’s operational performance was also impacted by the increase vs. H1 2016 of losses at ex-DIA stores.

In Other European countries (excluding France), ROI stood at €149m, with operating margin slightly down by 10bps to 1.5%. This variation includes the impact of the transformation and integration of Eroski stores in Spain and Billa stores in Romania.

In Latin America, first-half ROI rose to €293m, up +7.5%, while operating margin stood at 3.6% (down 60bps). In Brazil, the profitability of our distribution activities continued to increase, while financial services were impacted by a change in regulation on consumer credit as well as by start-up costs linked to the launch of the Atacadão card. The consumption environment remained very difficult in Argentina, marked by pressure on volumes and high inflation, impacting the Group’s margin.

In Asia, the first half saw an improvement in profitability, with ROI of €12m vs. an operating loss of €7m in H1 2016. The Group is reaping the benefits of the action plans implemented in China, in particular in terms of cost reduction, in a very competitive environment marked by rapidly-changing consumer habits. In Taiwan, sales growth continued and operating margin posted further improvement.

In the first half of 2017, non-recurring income was a charge of €150m, principally attributable to reorganization costs in various countries. This compares to a charge of €114m in H1 2016. Net income from continuing operations, Group share, stood at €79m, including the following elements:

• a share of Net income from companies accounted for by the equity method that improved sharply by €33m;
• Stable net financial expenses;
• An effective tax rate that stood at 37.5% vs. 31.3% in H1 2016.

Net income, Group share, stood at €78m. Adjusted mainly for non-recurring income, net income Group share stood at €154m.

Cash flow and debt

In H1 2017, gross cash flow stood at €976m vs. €1,088m in H1 2016. Working capital requirements went from -€2,052m in H1 2016 to -€2,517m in H1 2017.

Total capex stood at €991m vs. €1,057m in H1 2016. Excluding Cargo, capex was €904m, down by €64m year-on-year.

Free cash flow stood at -€2,736m, reflecting the seasonality of our business. Excluding Cargo and exceptional items, free cash flow stood at -€2,587m.

Dividend payments this year will occur in H2. Investments linked to Cargo resulted in a cash inflow in the « Capital increase » line and accounted for most of it.

In total, net financial debt at June 30, 2017 stood at €7.7bn, also reflecting the seasonality of our business.

2017 outlook

Groupe Carrefour 2017 sales will grow by 2% to 4% at constant exchange rates in the full year.

Our 2017 results will be impacted by our H1 performance and an operating environment that will remain difficult in H2 in some countries. At current exchange rates, our full year 2017 ROI evolution vs 2016 should be roughly in line with the evolution we saw in H1 2017.

Carrefour will strengthen its financial discipline, with investments reaching between €2.2bn and €2.3bn in the full year (excluding Cargo Property), vs. the initial forecast of €2.4bn. The Group aims to reach free cash flow in 2017 at the same level as in 2016.

Carrefour’s new management team is fully focused on improving the Group’s performance and adapting to the rapid and far-reaching evolutions within the industry. Management will come back to the market by the end of the year.

Agenda

• Q3 2017 sales: October 18, 2017

APPENDIX

First-half 2017 sales inc. VAT

The Group posted sales of €43,053m. In the half, currencies had a favorable impact of +2.8%, largely due to the appreciation of the Brazilian Real. Petrol prices had a favorable impact of +0.5%. Calendar had an unfavorable effect of -0.6%.

Total sales under banners including petrol stood at €52.1bn in the first half of 2017, up +4.9% at current exchange rates.

Second-quarter 2017 sales inc. VAT

The Group posted sales of €21,759. Currencies had a favorable impact of +1.8%, largely due to the appreciation of the Brazilian Real. Petrol prices had an unfavorable impact of -0.3%. Calendar impact was a favorable +0.3%.

Total sales under banners stood at €26.3bn in the second quarter of 2017, up +5.2% at current exchange rates.

First-half 2017 net sales and Recurring Operating Income by region

First half 2017 consolidated income statement

First-half 2017 consolidated balance sheet

First-half 2017 consolidated cash flow statement

Change in shareholders’ equity

First-half 2017 net income, Group share, adjusted for exceptional items

1 Tax impact of restated items (non-recurring income and expenses and financial expenses) and non-recurring tax items.

EXPANSION UNDER BANNERS – Second-quarter 2017

NETWORK UNDER BANNERS – Second-quarter 2017

¹ Africa, Maghreb, Middle-East and Dominican Republic.

Definitions

Like for like sales growth

Sales generated by stores opened for at least twelve months, excluding temporary store closures, at constant exchange rates.

Organic sales growth

Like for like sales growth plus net openings over the past twelve months, including temporary store closures, at constant exchange rates.

Sales under banners

Total sales under banners including sales by franchisees and international partnerships.

Gross margin

Gross margin is the difference between the sum of net sales, other income, reduced by loyalty program costs and the cost of goods sold. Cost of sales comprise purchase costs, changes in inventory, the cost of products sold by the financial services companies, discounting revenue and exchange rate gains and losses on goods purchased.

Recurring Operating Income (ROI)

Recurring Operating Income is defined as the difference between gross margin and sales, general and administrative expenses, depreciation and amortization.

Recurring Operating Income Before Depreciation and Amortization (EBITDA)

Recurring Operating Income Before Depreciation and Amortization (EBITDA) excludes depreciation from supply chain activities which is booked in cost of goods sold and excludes non-recurring items as defined below.

Operating income (EBIT)

Operating Income (EBIT) is defined as the difference between gross margin and sales, general and administrative expenses, depreciation, amortization and non-recurring items

Non-recurring income and expenses are certain material items that are unusual in terms of their nature and frequency, such as impairment, restructuring costs and expenses related to the revaluation of preexisting risks on the basis of information that the Group became aware of during the accounting period.

Free cash flow

Free cash flow is defined as the difference between funds generated by operations (before net interest costs), the variation of working capital requirements and capital expenditures.

Disclaimer

This press release contains both historical and forward-looking statements. These forward-looking statements are based on Carrefour management's current views and assumptions. Such statements are not guarantees of future performance of the Group. Actual results or performances may differ materially from those in such forward-looking statements as a result of a number of risks and uncertainties, including but not limited to the risks described in the documents filed with the Autorité des Marchés Financiers as part of the regulated information disclosure requirements and available on Carrefour's website (www.carrefour.com), and in particular the Annual Report (Document de Référence). These documents are also available in English on the company's website. Investors may obtain a copy of these documents from Carrefour free of charge. Carrefour does not assume any obligation to update or revise any of these forward-looking statements in the future.

¹ Recurring operating income before amortization and depreciation (including logistics amortization)

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