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Edited Transcript of CO.PA earnings conference call or presentation 25-Jul-19 6:45am GMT

Half Year 2019 Casino Guichard Perrachon SA Earnings Call

Saint-Quentin-en-Yvelines Cedex Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Casino Guichard Perrachon SA earnings conference call or presentation Thursday, July 25, 2019 at 6:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Lubek

Casino Guichard-Perrachon Société Anonyme - CFO

* Jean-Charles Henri Naouri

Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO

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Conference Call Participants

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* Nicolas Champ

Barclays Bank PLC, Research Division - Director

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Presentation

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Jean-Charles Henri Naouri, Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO [1]

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Good morning, everyone. We are going to introduce the results for the first half year. With the highlights in France, as we usually do, first, a faster growth in France in Q2. France Retail same store growth in net sales of 0.7% compared to 0% for Q1 and 2.5% over 2 years versus 1.3% in Q1. Cdiscount, organic growth in GMV of 13% compared to 9.2%. And for e-commerce, including banners, an increase of 11.5%.

In terms of profitability, we have an improvement in trading profit in France, plus 7.8% for organic. We also have the disposal of the closing of loss-making stores, it's the [Eur] Rocade Plan, and then the saving plans at EUR 60 million, as half year 1; and a EUR 200 million, end of 2020.

Then the disposal plan, EUR 2.5 billion, with more than EUR 60 million worth of cost saving achieved to reach to EUR 1 billion as for the results and free cash flow for 2019. And we also announced a speeding up of the deleveraging plan, with minus EUR 0.15 billion (sic - see slide 4, "EUR 1.5 billion"), thanks to the closing of the disposal plan and an overall saving of EUR 500 million.

Here, you can see the development of the disposal plan. I'm going to review all the public elements, the last 2 announced this week. On the Monday morning, we announced the session for EUR 219 million. And yesterday morning, we announced the disposal of 3 hypermarkets for EUR 43. So the disposal plan is at EUR 2.1 million, as from June 2018, EUR 1.5 billion cashed in. The closing of the disposal of Apollo is scheduled by October 2019.

In this disposal plan, we have the disposal of loss-making plan, the so-called Rocade Plan, we'll come back to it in detail, so representing 233 disposals (sic - see slide 5, "EUR 233 million disposals")of integrating stores already signed or completed to date.

In Latin America, the highlights are the sale of Via Varejo on the 14th of June for EUR 615 million by GPA, and the project to streamline the structure in Latin America. It was announced on the 27th of June.

It is a streamlining of a structure to regroup under GPA all of the assets in Latin America. This plan was confirmed yesterday by GPA's Board of Directors, who approved a takeover bid on Éxito at a price of COP 18,000. GPAs filing of its offer will take place after Éxito's approval on the agreement, giving Casino sole control over Segisor and allowing it to purchase Éxito's stake in Segisor based on the price of BRL 109 per GPA share.

The Casino's Board of Directors approved yesterday the offer to purchase at BRL 109 per shares -- per share, sorry, and has been forwarded to Éxito's for consideration.

This streamlining project is summed up in these graphs. There is first a cash tender offer launched by GPA for 100% of Éxito's shares.

The acquisition bank, as you know, have all the shares held by Éxito in Segisor. And third step, the migration of GPA shares to the Novo Mercado and conversion of preferred shares into ordinary shares at an exchange ratio of 1 for 1. On the left-hand side, you have the current structure; on the right-hand side, the final planned structure.

Coming back to the strategic plan for France with the main aspects of it. First, a cost savings plan, which is a classic topic as we do every year, but has been strengthened this year. The objective for cost lowering is EUR 200 million, end of 2020. EUR 60 million have been achieved in H1 2019.

First, there is an optimization of head office expenses for banners and corporate. And, of course, store cost savings, total saving of EUR 29 million for H1, better purchasing conditions for goods, saving of EUR 16 million, and synergies being deployed on logistics between Casino France and Franprix-Leader Price banners. As you know, Casino France has a separate logistics from FLP and the first mutualizing approaches enable us to save EUR 15 million already.

Perspectives for H2 to be over EUR 60 million, that's an additional EUR 70 million additional savings or EUR 130 million for the whole year, and the initial target was set at EUR 100 million. You have the breakdown of the various figures in the table.

Second action plan is the Rocade Plan, the plan to close or to dispose loss-making stores. It was launched end of 2018 and has been completed more than half. It is generating a full year gain in trading profit of EUR 52 million on the integrated stores perimeters.

For integrated stores, we already disposed of 15 hypermarkets out of a total of 20. We disposed of 13 supermarkets and 11 Leader Price stores. And we closed 56 integrated stores. For master franchises, we disposed of 8 supermarkets, 9 Leader Price stores and closed 62 franchised stores.

Perspectives for H2 to complete the plan, so to dispose of 5 additional hypermarkets and to close or dispose of other stores for an additional gain of EUR 38 million on a full year basis and to achieve a full year target of EUR 90 million, in addition to the EUR 52 million already completed.

Now you have all the figures for integrated stores. As we indicated, the full gain for full year would be EUR 52 million; for H1, it's below, it was EUR 6 million; it should be EUR 19 million for H2. In terms of revenues, these disposal closures lead to a decrease in revenues EUR 500 million. But this figure is being offset by business volumes by the number of new franchisees, including the family of Mr. Quattrucci. Disposal revenues of EUR 250 million (sic - see slide 10, "EUR 233 million").

For franchised stores, figures are of EUR 27 million full gain in trading profit, EUR 13 million gain in net profit group share for the Casino Group. You have all the figures for integrated stores and signed closures, EUR 230 million. Those that are closed on the 24th of July, that's representing EUR 150 million. Exceptional costs for H1 of EUR 50 million and EUR 6 million for H1, EUR 19 million for H2, and full year EUR 50 million in terms of trade impact on trading profits. And below you have the figures for master franchisees store.

Third topic, the acceleration in buoyant formats. We improve on more buoyant formats. We are going to open 30 premium and convenience stores in H1. For H2, perspective is to open 50 premium and convenience stores. And we also have a improvement synergy plan among different brands.

Now we want to accelerate in e-commerce and digital solutions. Gross sales in food e-commerce was up 28% in H1. The Casino Max app launched 18 months ago is already representing -- customers representing 19% of net sales for hypermarkets and supermarkets versus 15% end of March. And this app has been duplicated for the Leader Price stores.

Perspective for H2, faster deployment of the Amazon offer in Paris in the suburbs and major provincial cities, that's for food, with Monoprix. And the development of Amazon Lockers in 1,000 Group stores. Confirmation of the Ocado service launch in early 2020 and a highlight for Cdiscount is an increase in the marketplace share, varying from [4 pounds] to [5 pounds]. And of course, the international development for Cdiscount is to be noted.

New activities that were not very much important over the past years, but are now representing substantial amounts, we have GreenYellow. GreenYellow, we follow this with a pipeline at the end of 2018 was 350MWp, which was only 150MWp at the end of 2018. For H2, the objective is 450MWp. It is the main profitability vector for GreenYellow. But the energy-saving contracts are being developed.

And the last activity is the ultrafast charging solution for electric vehicles, 3w.relevanC, net sales of EUR 24 million in H1, up 38%; and ScaleMax, still small but developing rapidly. It is the first ScaleMax data center installed in a Cdiscount warehouse. We're already 10,000 cores deployed and a pipeline of 16,000 additional cores, end of June. We confirm the 2019 guidances for France, retail, Cdiscount, Brazil and Colombia.

Finally, the Board of Directors will propose to the 2020 Annual General Meeting to pay no dividend in 2020 for the 2019 fiscal year and have decided not to pay a 2020 interim dividend for the 2020 fiscal year. This is representing a cash saving of EUR 500 million end of 2020, taking into account the absence of interim dividend decided for 2019 fiscal year. Given the cash flow objectives, the EUR 2.5 billion disposal plan, which is expected to be completed by Q1 2020 and the absence of dividend, the group is targeting net debt in France of less than EUR 1.5 billion at the end of 2020 and foresees us to maintain it under this level over time.

The coupon payment of TSSDI will be maintained.

I give the floor to David to give you the results.

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David Lubek, Casino Guichard-Perrachon Société Anonyme - CFO [2]

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As a synthesis, before I show you figures, this first half is [supporting] the objectives for 2019 in terms of objective of results and cash flow.

In France, more specifically, the energic plans for cost reduction and reduction of CapEx and stores and inventories enables us to have a consistent reason for our budget, with a cyclical seasonality and the flows of the half year.

For consistency reasons with our yearly guidance with the conversion of the previous figures, I'm going to introduce the results before IFRS 16. And, of course, IFRS 16 will be detailed in the accounts being published elsewhere and in the appendix. And I will also comment on priorities, the organic variations of the major aggregates with consumer and outside the exchange rate effect.

So turnover, EUR 8 billion. With organic growth with respect to the first half of 2018, EUR 347 million group except Brazil with an improvement in all different segments, Cdiscount and Retail. Last year, the tax credit in Brazil, were mainly focused on the first half, with 100 million tax credits in the first half.

For 2019, no tax credit being recognized, knowing that we are expecting a certain amount further in the year after the proceedings. So the turnover is now decreased due to this seasonality and the tax credits.

The net result, our standardized net result is at minus EUR 16 million, connected to this tax burden in the first half. And the net financial debt of the group is at EUR 4.7 billion, an improvement. And the net financial for France is at EUR 2.9 billion, reducing by EUR 1.1 billion, connecting -- connected to the good progression.

So now let's look at the results per segment. I will detail mostly the French results, and I will be quick on the Latin American affiliates because GPA is going to comment its results this afternoon and Éxito in [14th August].

So for the France Retail segment, it's increasing the first quarter -- the second quarter, sorry. The comparable growth is at plus 0.7% over 1 year and 2.5% over 2 years. Now all the segments, profit from this speeding up with a benefit at 1.4% comparable base. And the hypermarkets 3% in organic growth, including the evaluating of franchisees.

So over 2 years, Géant is progressing over 4% in comparable basis. France Monoprix we noticed an improvement of the trend with positive comparable plans due to the reduction progression of the impact of the yellow jackets and Saturdays in Paris. Traffic is well oriented. The mix is improving, with a strong improvement in organic segment at Franprix. And we still have very good performance in convenience stores with 2.5% in comparable basis and 2.4% in organic growth.

If you look at the wholesales made in France, Cdiscount included, on the France Retail, the impact on the total turnover of Rocade Plan, so we expect to carry on this effect over the whole year, which is partially compensated by the evaluating of franchisees, such as the family of Mr. Quattrucci, has a positive impact on the full year basis.

So for Cdiscounts, we note a strong acceleration of the GMV at 13% with the market share at 41% (sic - see slide 18, "40.1%") of GMV. It is a major lever for profitability at Cdiscounts, so it's in line with the objective to reach 50% of the marketplace. And another gross leverage is the B2C with Cdiscounts travel or tickets being a real success story since their launch. So the volume of business is at plus 0.1% after the results -- after sales now results in France. So the trading profit is increasing.

So for the distribution and for real estate. So the margin for trading profit is improving. So it generated EUR 60 million at first quarter. So it compensated for the additional rents and the Macron Premium of EUR 10 million and inflation of salary costs and energy decreased.

So it's a good performance, which is consistent with our yearly objective of a growth of 10% for the trading profit for distribution because the benefits of this Rocade Plan are going to be amplified for the second half, as we saw first. So it was a cumulative impact of EUR 60 million. It should be at EUR 90 million for the second half.

Now let's look at Cdiscount's results. They have been published yesterday by Cnova. So let's look at the highlights. So increase of GMV in organic of 11%, with sales of minus 0.5% due to the increase of marketplace and B2C services in GMV. It's very dynamic of profitable growth, with an increase in number of plans.

Cdiscount is now a platform of varied services for the sale of products and also subscription of electricity contracts, insurance contracts or the purchase of entertainment tickets or plane tickets. So base is over 2 million, whereas it was 1.7 million, so they saw a growth of 18%. And Cdiscount confirms its position as #2 in France in terms of monthly unique visitors with a base of 20 million unique visitors for the first 4 months of the year.

This loyalty is also with an increased profitability, 83 basis points in organic. It is due to the increasement of marketplace and the fulfillment also. So the delivery by Cdiscount of third-party vendors, which increased by 57% for second half, and it accounts for 27% of marketplace GMV. So also that is a major acceleration in B2C services such as travel and energy, 41% in between Q1 and Q2. So all these elements are consistent with the profitability of Cdiscounts, so we have a strong improvement this year.

So now, as we mentioned earlier, and I'm going to be quick here on Latin America, which are going to be detailed by the listed companies. So plus 10% in organic globally, driven by GPA, but also Éxito. So we have a sequential improvement from one quarter to another. So the EBITDA of this segment, an improvement of 4.2% in organic.

In Brazil, we have trading profit increasing up 7%. So as we mentioned earlier on, we have a different calendar for the tax credit, which were mainly concentrated in H1 for 2018. And even if it's difficult to plan the figure in advance, we still put a significant amount to monetize the tax credits.

I'm now going to address the other elements of the profit and loss account. So underlying net financial expense. So it's flat, EUR 213 million. In France, we have a slight increase of financial expenses over the first half due to the reduction of the cash products, following the repatriation of funds formally held in BRL. In Colombia, financial expenses improvement follows a debt reduction of EUR 10 million.

The net result of group share is at minus EUR 16 million, and decreasing with respect to last year due to 2 elements: the high level of tax credits in Brazil in 2018 that we commented already; and the change in income tax expense rate, in particular, to the transformation of the CICE, the tax credit for employment and competitiveness into a taxable social expense without any impact on trading profit.

Before addressing cash flow and debt, a few words on the other operating income and expenses with no impact on the standardized income but impact on cash flows. Major element to the line is the decline in restructuring costs in France. So the graph shows the evolution since 2016, excluding the Rocade Plan. And we saw that it was self-financed.

So we see that these charges are divided by 4, EUR 115 million for H1 2016 to EUR 28 million H1 2019. So we are completing the major plans, and we can now anticipate exceptional and extraordinary expenses. And for the other -- the impairment of some assets with noncash effect and for the cash part except the EUR 22 million of restructuring costs for the Rocade Plan, we have EUR 50 million connected to the Rocade Plan being self-funded.

Now if we look at free cash flow in France. As you know, it's a major priority in the way we are operating our business. All the brands and the support functions are mobilized to reach the generation of EUR 500 million free cash flow and reduction in CapEx in inventory and costs. We follow carefully all these plans at any level of our organization and it is translated into premiums and bonuses for the whole organization.

So we are in line with our objectives, which enables us, as we announced, to confirm our annual or yearly guidance. So we already detailed the cost and plan and the decrease in restructuring costs. So we will have an inventory reduction. First, inventory reduction should generate EUR 200 million of variation of positive working capital requirements, (inaudible) of 7,000 reference, which are cash costly, extension and weekly follow-up at each bond level. So these plans are -- and the targeted plan is a decrease of EUR 105 million decreased inventories at end of June.

Usually, the WCR has been at minus EUR 350 million over the last 3 years, and we should have an improvement of around EUR 100 million. At less than EUR 140 million, it's a consistent comparison for this trajectory. And as such compared with seasonality as we can see on the graph. The objective of plus EUR 200 million for the WCR is concerned.

CapEx, we have a target of EUR 350 million for this year, slightly higher than depreciation. With the end of the major transformation plans in most of the brands except Monoprix, the CapEx have been maintained at their usual levels. Reduction that we noticed for the first half is consistent with our yearly target. And so we confirm that. And as you see in the graph, there is a progressive trend of reduction over these last years. The same for restructuring charges.

Next table shows the detail of free cash flow in France. Due to seasonality of EBITDA it's only 1/3 of yearly EBITDA at H1 and WCR, so free cash flow is increased by Rocade Plan, is at EUR 133 million, included EUR 55 million of net impact of the Rocade Plan. So reduction of CapEx and action plans are consistent with the target of EUR 500 million of cash flow, excluding disposal plans and Rocade Plan. So we should generate this year, EUR 450 million for the WCR, which is equivalent to the average -- to the historical average over the last 4 years, and more than EUR 600 million of EBITDA connected with the EUR 900 million already mentioned.

So next slide is describing the evolution of financial net debt in France. As a whole, you can see that the net financial is improving by EUR 1.1 billion over 12 months. And as you remember, at 31st of December, it was an improvement of EUR 1 billion. So EUR 800 million, if you exclude the impact of Segisor. So we move forward properly for this disposal plan.

So regarding the assets classified under IFRS 5. So they are classified under this IFRS 5, being reduction of the debt at the end of June 2019. EUR 982 million of assets are classified under this IFRS 5 primarily in relation to the disposal plan and the Rocade Plan.

Out of this EUR 982 million, EUR 761 million are signed already, covering more specifically all the IFRS 5 assets of this disposal plan and 2/3 of the Rocade Plan. During the first quarter -- the first half, sorry, assets as previously classified under IFRS 5 declined by minus EUR 559 million, mainly due to the sale of real estate assets for Fortress and the Rocade Plan.

So the net financial debt is improving over 12 months. Over 6 months it increased by EUR 1.3 billion, connected -- driven by the variation in cash flows. So the major item is the disposal of Via Varejo, and it's improved the cash of GPA.

So to conclude, the bond maturities and cash flow for the group in France. So the -- we have EUR 300 million of debt by 2026. So the bond debt has been improved by EUR 1.2 billion; by buybacks, EUR 128 million; and EUR 348 million bond issues redeemed in the second half of 2018. And the redeem will be under 6th of August without any refunding. So reduction of the debt -- bond debt will be at EUR 1.3 billion in between the 30th of June 2018 and end of August 2019.

A few words on the liquidity position in France. We have EUR 4.4 billion in liquidity at the end of June, of which EUR 1.7 billion in cash and EUR 2.7 billion of undrawn credit lines, confirmed lines can be drawn at any time. So the ratio of the net financial debt and the EBITDA of the group is 3.5 for the most restrictive. EUR 150 million have been drawn at the end of June, so we compensate by the fractioning of our credit lines. So we reduced the outstanding of our commercial paper. So the peak of this commercial paper was at EUR 150 million, so the equivalents of 20% of our credit line system.

So this last graph shows the evolution of cash in France from EUR 2.1 billion to EUR 1.7 billion. So the evolution of our cash of EUR 400 million is due to the reduction of gross debt. We have a reduction of bonded and the outstanding of commercial paper being funded by cash flows and disposal plans for EUR 800 million. And the payment of dividends and TSSDI for EUR 414 million, explaining the evolution of the activity. As it has been mentioned at the beginning, there will be no payment of dividend over the next 18 months due to the provision of the disposal plan.

To conclude, the group is focused on the execution of its strategic plan. First, debt reduction; second, simplification of structures and improvement of the format mix. The completion of the disposal plan and the absence of dividend payment in 2020 will enable the group to accelerate its debt reduction with an objective of net debt for France being less than EUR 1.5 billion at the end of 2020. The areas of strength for the group are confirmed, the adaptation of formats to consumer trends, development of organic food, digital and new activities.

Thank you. We are now going to answer your questions.

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Questions and Answers

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Unidentified Analyst [1]

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I had some questions for you. So to start with, I wanted to come back on the performance of the like-for-like in France for hyper and supermarkets. They experienced a development in Q2 versus Q1. Could you give us some information about the difference between volume and inflation that allowed this improvement in performance between Q1 and Q2 for hypermarkets, if you can make -- making a split between food and nonfood sectors?

For the second question, I'd like to come back on the credit line. You drew EUR 150 million to offset the decrease in outstandings on commercial papers. You had some EUR 1.5 billion cash in your balance sheet, why don't you use it instead of using credit lines?

And a third question, what about the future? You have liquidities short terms for the next year. There are, however, some maturities from credit sized CDSs have increased quite a lot, commercial papers, and the outstandings have decreased. So could you emit debt in the mid to longer-term in order to refinance all this debt? Or are you planning for other disposals post-Latam?

And a fourth question, maybe you mentioned it but I missed it, you had EUR 30 million in contribution from real estate in H1. What are you anticipating for the whole year?

And finally, about the dividend. You split the -- you stopped the dividend shorter term. Could you give us some more information about what you're planning after 2020?

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Jean-Charles Henri Naouri, Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO [2]

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For the like-for-like for hyper and supermarket. We think that the good performance, and I said it during the call of the first quarter, we said that we are expecting a continuation of good performance. It is due to the -- all the action plans carried out in order to have very fine promotions.

We, in hyper and supermarkets with the Casino Max app that covers 20% of revenues, we now have the capacity to efficiently target promotion, reduction vouchers and coupons. There are no movement on our commercial margin, apart from mix effects. The increase in figures is due to this good performance and to all the efforts carried out in stores in order to maintain the excellence level on fresh products, which is considered as a priority.

I would say that some question the possibility for hypermarket to still have a good performance on Q2 versus a very good Q2 last year. And we can see that performance is still with us, and the strategy is efficient.

As for credit line, this is very simple. We consider that we have a short-term system that is commercial paper that is normally used to cover classic needs in distributions in -- throughout month at the full payment of suppliers, offset by the payment of income. So it was logical to use this system provisionally with our credit lines. And again, 20%, 25% of credit lines peak cover all the needs in commercial papers. It confirms that these lines can be drawn if somebody could doubt that.

Now to have new debt. This is not our option today. As I said, the option is to pay back because we want to reduce it. So EUR 2.5 billion of disposal plan with a EUR 2.5 billion paying back EUR 1.2 billion in debt end of August, then we'll still have a possibility to pay back more debt. So new debt, that will come in time. But our approach now is to lower this debt -- the net debt I mean but also the gross debt.

As for real estate promotion, indeed, EUR 30 million H1, we have not given any guidance for the full year on the -- for this amount. EUR 30 million as indicated in my presentation are due to the disposal of the Mercialys shares, mechanically speaking, because when we were doing operations with Mercialys within the past for real estate promotion, since we had 40% of Mercialys, the trading profit of real estate promotion was neutralized in our account up to our level of shares. So we use the accounting standards for this now. And it is a noncash impact.

As for the dividend, we indicated the dividend paid in 2020 because this is information that the market is expecting. So we announced it. Beyond that, your -- no decision is made. But we clearly said that we're aiming at keeping the debt below EUR 1.5 billion in France. So any type of future dividend payment will be decided according to the capacities of the company and consistent with this leverage objective that we think is a good one.

No other question?

Yes?

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Nicolas Champ, Barclays Bank PLC, Research Division - Director [3]

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Nicolas Champ from Barclays. If you come back on the performance of Brazil, a bit surprised by the low level of top line performance 3.4%, given a food inflation that was very high in Brazil during the second quarter, around 6%; and given the figures published by one of your competitors, Carrefour, that is also showing a like-for-like over 6% -- [6.1]%, I think, for Q2. So could you explain the relative weakness of GPA's performances in Q2?

Second question is a traditional one about free cash flow in France. Have you used a swap rate during the first quarter? Is it possible to know the cash contribution of the rate swaps? This is something that you will have to disclose in your half yearly report.

And the third question is about the restructuring that you announced for Latin America. Is it the premises of Casino's leaving or a reduction in Casino's participation in GPA, maybe leaving Latin America as a whole?

And the last question for you, Mr. Naouri, you have several hats, if I may say so as CEO of Casino, shareholder of Casino. How can you reconcile these 2 hats, given the current situation, I mean the safeguard procedure for your holdings -- respective in different holdings. Don't you think there could be a risk of conflict of interest between the majority and minority shareholders of Casino, your debtors for Rallye and the various holding companies? So how are you going to give the priority to these various interests?

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Jean-Charles Henri Naouri, Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO [4]

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I may answer the first and the last question, and I'll give the floor to David for the other question. As for Brazil, the exhaustive comments will be made later on by the management of GPA. So it's up to them to ask the question regarding the details of GPA's account and statement that we published yesterday evening and commented upon later on.

As for the safeguard, it's a natural question for review. We cannot communicate on safeguard apart from communication methods planned by law that are different from the channels that we have today, which is Casinos Communication Holdings. Safeguards will communicate on their own processes. It is very well regulated, so we will not comment upon the safeguard as such.

As for conflict of interest, I refer you to Appendix 3 of the financial report. It indicates how the Board of Directors is organized to deal with a possible conflict of interest, giving the Governance Committee of Casino all powers to mention the various topics and to deal with them, if need be.

As for the 2 other questions, the swap rate, debottling, they are not having an impact on the definition of free cash flow that are before interest and dividends, and they have no impact on the debt net aggregates as they are being neutralized. The amount is EUR 25 million for H1. No change in net debt and cash flow before interest.

As for Latin America, so that we have passed a key step yesterday, the approval by GPA's and Casino's boards of the proposed deal, we think that this deal will create value since the current structure is a capitalistic structure that we think is not efficient enough today. And we do think that going to GPA's Novo Mercado should lead to an A rating of the share because then it gives access to a broader base of shareholders internationally. So we want to give more value to these assets and to have a simplified structure corresponding to the market requests to be clearer.

As for the disposals, we said that we would have 2.5 billion disposals in France, that's our plan. And as you already know, permanently, we are looking at a possible mature assets. What assets matures and having no synergy with the rest of the group, and with this in mind, at the right moment, we make decisions. We did that for real estate, we did that more recently for (inaudible). And some years ago, we did that for other sectors.

As for the disposal plan, beyond what David said, the criteria is to know what assets will have a lower value in 5 years' time. So we'll look at the various assets of the group, they're quite numerous. The group has a lot of assets. And in real time, we look at those assets, which -- and given the revolutions of our business, they may think that in 5 years' time, their value would be lower. The format for us and according to us for lower values in France, and we will have a lot of hypermarkets, real estate assets will lose value over the years.

So we have a permanent survey of the various group's assets to see those whose value would increase, those for which the value would be rather stable. And for those, we'll have a decrease in value according to us. For the latter case, we think it is our duty to make a decision and to start a disposal process. This is the guideline. We don't want to sell assets just for the sake of having cash and lowering the debt, which is also good. But we also want to clean up assets because we think that their value will be lower.

The vision for France, as you already know, is well characterized. We have a vision of one format, an ongoing format for the nonbond format, and we can discuss this vision. It is our duty to start a disposal process.

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Unidentified Analyst [5]

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Pierre [Bouchnies]. I have 2 questions. First, on the Apollo deal that I think was to be closed end of H1 and was postponed to end of October. What is the reason for that?

And second, the evolution of EBITDA and operating profit in France for the first half year. Apparently, there is a decrease in depreciation between the two. So could you comment upon that? What are the trends to be expected for the end of the year?

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Jean-Charles Henri Naouri, Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO [6]

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The Apollo deal has been confirmed. Apollo confirmed its intent to finalize the deal. It has been confirmed for the latest October, maybe before in such operations. Of course, there are different lead times for the closing. So no specific topic. And everything will be met by October.

As for the decrease in depreciation, indeed, we have fewer amortizations, since we have a few assets we sold them. So it justifies in a way the amount of CapEx we are mentioning because the amount last year, our amortization were EUR 320 million, to be lower this year. And when we set CapEx at EUR 350 million, we still have a margin, given the level of amortization.

No other questions? Yes.

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Unidentified Analyst [7]

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[Oliver Dauver]. I wanted to come back about what you were saying. The way you look at assets was their 5-year value. And if you thought that the value would be lower, then you had to dispose of these assets. Should we then understand that the 90 hypermarkets you will have at the end of the year, you think that their value will not decrease in 5 years' time, that you need to keep them?

And I will continue my question that were part of the supermarket -- Casino supermarkets, not those in urban areas or in city centers, but stores in rural areas. Do you think that these in 5 years' time will still have a value which would be equivalent to the one they have today?

Another question about investments in CapEx. Do you think that given the current level, the assets can be kept for the future?

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Jean-Charles Henri Naouri, Casino Guichard-Perrachon Société Anonyme - Chairman of the Board & CEO [8]

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As usual, very good question. Vision of the mix in France and the geographical vision we have in France, there are buoyant formats. There are geographical area that are more or less buoyant. And using these 2 criteria and others -- but these are the 2 main ones -- will give us the evolution in value, we think, that the large hypermarkets, not very much buoyant, but no generalization, apart when they are in areas that are very buoyant.

As you know, more than 2/3 of the group's activity, which is quite atypical, is cut out in 3 regions, Greater Paris, Rhône-Alpes, and the PACA region, southeast of France. These are 3 very much buoyant regions. It's not excluding other cities, cannot mention all of them, but Bordeaux, Toulouse and others.

So our revision is to give priority to the most buoyant regions, the 3 I mentioned and the most buoyant formats. Less buoyant formats in areas that are losing in demography where the perspectives in value evolutions are not very much favorable. We should not generalize.

We look at each site separately. But our approach for us to sell 26 hypermarkets is based on this analysis. The objective there is 20. Will we go beyond? We don't know. The objective and the question is often asked if we want to sell more. As for now, the answer is no. The formal decision of the Board of Directors of management is 20. We think that selling these 20 hypermarket is a wise decision since we think that their value will be below and lower.

So this is our vision for supermarkets. And it is implemented also to different types of formats. Leader Price, is an example, some sites have been disposed of or closed. So this is our vision for our plan, our Rocade Plan.

As for CapEx, David gave you an answer in figures. We invest more than in amortization. So amortization will decrease. We think that the level of CapEx we have is a satisfying level, Monoprix as a priority in CapEx because it was important for Monoprix to have a very well maintained source.

Our vision is that our business should go towards a more CapEx-light industry. So the idea is to have very well-maintained stores, of course, but if we have an asset in which we invest every year because we think that the value will increase, so it is the evaluation of the assets rather than the cash flow that determines the economic value.

We think that this approach is -- belonged to the past. For all our different banners, we think that Franprix has made this intellectual switch. And it means that there is no assets, 80% of stores are franchisees, only [a] percent are owned. And as for the premises, they are rented. And Franprix is the most profitable banner of the group as a percentage of revenue. So the value creation is not made by investing in one asset that will gain value in time. Premises, for example, but this is no longer valid.

We think that the right vision today is that we create value by increasing cash flow and with an investment that must be very low, not because we're not investing in the maintenance of the store, but because this concept of a store will change and will evolve. We invest a lot saying that we can sell the store later on, but it will be at a higher price. It is vision, we think, is evolving today.

Okay. There are no other questions. I thank you very much for your attention.

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Editor [9]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.