Earnings Call: Q2 2020

Jul 28, 2020

Ladies and gentlemen, welcome to the Carrefour Analyst Conference Call. I now hand over to Mr. Alexandre Bompard, Chairman and Chief Executive Officer. Sir, please go ahead. Good evening. Thank you for joining us on this call. Matthieu Malige and I are going to take you through our half year results. When I look back at the past few months, it's very rewarding to see how well we performed in an extremely difficult environment. The 2020 proved to be an operational and managerial challenge between ensuring the safety of our colleagues and customers, making sure that everyone had access to food while listening attentively to clients. Having embarked on our transformation three years ago, we entered this unprecedented situation in a position of strength and our performance reflects that. We successfully weathered the storm in a period in which many companies and sectors have been struggling. We set a clear course of action from the very beginning, thanks to our proactive governments and we adapted in real time, thanks to our responsive teams. We continue to be extremely vigilant as the virus is still actively circulating in several regions, notably in Latin America and has lost intensity without yet disappearing from other parts of the world. What's more, our business model proved to be not only resilient but successful and profitable. Before commenting on the figures, allow me to say that they are the results of the exceptional commitments of our teams who went beyond the call of duty for customers, for their colleagues, for their families. They take pride in our performance and I thank them for that. Looking at our top line, we posted very strong plus 7% like for like growth in H1. Q1 growth was 7.8% like for like, driven by all our geographies. Q2 growth continued to be robust, up 6.3% like for like despite several weeks of lockdown measures. Growth varied strongly between countries as local measures on health conditions were not uniform, but most of our geographies reached a satisfactory level of performance. On Brazil and Spain, two of our major growth engines were able to further accelerate during the crisis and are running at full speeds, performed strongly. Hypermarkets, which were showing improving sales momentum at the start of the year, were the most penalized by limitations on mobility. Since May, the momentum in hypermarket has picked up again. Having a strong multi format and omnichannel model helped us adapt to each moment of the crisis. Turning to our bottom line and to cash generation. Our recurring operating income was up by an impressive 29% at constant exchange rates to EUR $780,000,000. And we also improved our free cash flow after two consecutive years of progress. This strong increase reflects a solid retail performance given the additional costs incurred on the fact that we were required to stop some of our activities while others were negatively impacted by the crisis such as B2B in Europe, financial services and other services like rentals or ticketing. Structurally, this demonstrates how well we monitor our cost on our inventories, how selective we are with our CapEx and how financial discipline is embedded in our DNA in all our geographies. This allows me to announce today that we are raising our savings objectives to EUR 3,000,000,000 on a full year basis by 2020. I'm also announcing that we will cap our CapEx to a maximum of EUR 1,500,000,000.0 this year. Lastly, our liquidity position was further strengthened during the crisis and our balance sheet is one of the strongest in the industry. These are very positive results. Yet as strong as they are, they don't capture all the value we created these past few months. We created value for our clients. We launched customer friendly initiatives and our teams worked with dedication and care to make clients feel safe and welcomed in our stores. This resulted in an above market rise in our Net Promoter Score, up three points since January. We also created value for our planet. Even when the crisis was most intense, we stepped up our efforts. As we are outperforming our objective to reduce our store related carbon footprint, we have decided to set a new ambition. We are now targeting a 30% reduction of carbon emissions on products sold in our stores, a new objective aligned with the two degree scenario. On a larger scale, we are well on track to achieve our CSR objectives for 2020. All this progress enables me to confidently confirm that we will meet or exceed the objectives of our Carrefour 2022 transformation plan, both financial and extra financial. Looking at our results, it is clear that the transformational work we had done over the past few years was crucial to our ability to successfully navigate through this crisis. We have also learned from this crisis, and we are taking action on the operational conclusions we have drawn. It starts with a confirmation. The choices we made a few years ago are aligned with the future direction of our industry. First, this crisis is a tipping point for food e commerce. Market share will consolidate much higher than before. We are well positioned, thanks to our increased investments, our rapid expansion in Drive and pedestrian Drive and our partnerships with best in class delivery companies such as WAPI, Globo or Uber Eats. Our commercial and operational models are running well. This enabled us to strongly benefit from the booming demand during the crisis. As a result, we posted record 70% growth during H1, gaining 850,000 clients, among which 500,000 in France and further improving our economic model. We've launched new initiatives to keep the momentum growing. As part of our strategic partnership with Google, we launched a new voice based e commerce grocery shopping experience in France. We are the first retailer in the world to offer such an innovative service. Second, in the aftermath of the crisis, we may be faced with a decline in consumer purchasing power. We are responding in two ways to this challenge. We are enhancing our price competitiveness. In Latin America, in Taiwan, in Spain, we have already gained price leadership. In our other geographies, we have improved our price positioning by boosting loyalty program on everyday low prices. We are now accelerating our catch up efforts, particularly for our own brand. At the same time, we will continue to expand our discount on cash on carry formats that have proven to be successful during this crisis. Third, this crisis highlights the need to improve the way we produce and consume. Customers are moving faster than ever towards good quality and eco design products and this provides further impetus to Carrefour's leading role in the food transition for all. Since January, we've extended our lead over competition on the organic market with solid 25% growth. And with our specialty Sobio, we have a successful format that we continue to expand. Lastly, the crisis also brings some new opportunities. Thanks to our sound financial structure, we have made bolt on acquisitions part of our strategy as evidenced by our transactions for Macro in Brazil and Welcom in Taiwan. We will continue to assess the market to identify targets with high value creation potential. The crisis has also further strengthened two convictions of mine. First, everything starts and ends with client satisfaction and performance will follow. We've done this well in many countries. Second, there are always more opportunities to streamline our operation and be more agile. And in the light of the crisis, I have identified some of them. To deliver swiftly on these operational takeaways of the crisis, I appointed new heads of France, Spain, Italy and Poland with proven track records on the strong customer and action oriented approach, notably in France. The mission of this highly driven trip team is to roll out the Carrefour customer centric approach based on the five-five-five method that proved to be successful in every country in which it has been implemented. In this method, client needs dictate every decision. This delivers improved NPS which in turn results in improved like for like sales. The keys are operational efficiency, quality of service and a sense of ownership. Our clients' problems should be our managers' problems. To conclude, this crisis intensify pre existing trends, ones that we placed at the core of our transformation plan three years ago and that now put us in pole position. At the February, I said that 2020 would be a year of unprecedented customer mindset for our group. This is exactly what's happening with even greater force as a result of the crisis. We've taken further action to intensify our pace and accelerate our profitable growth path. Thank you for your attention. I will now hand over to Matthieu. Thank you, Alexandre. Good afternoon to everyone. I'm very pleased to be with you today. I'm going to walk you through the key financial highlights of the second quarter and the first half They demonstrate that the initiatives we have launched since the beginning of the transformation are bearing fruit. This allows Carrefour to post a robust performance despite the COVID-nineteen pandemic. I will be making reference to the presentation starting on Page 10. Let's first look at our overall Q2 performance by commenting on our first half financial aggregates. On a like for like basis, Carrefour's Q2 sales were up by a strong 6.3%, demonstrating a good execution and the strength of our multi format and omnichannel model. We saw particularly strong growth in Latin America whose like for like sales were up by almost 21%, driven by an outstanding performance in Brazil. We also recorded robust plus 4.7% growth in Europe with Spain confirming its solid momentum. French sales were up plus 0.7% with good performances in Convenience and Supermarkets, while Hypermarkets are improving well since May after being penalized by the lockdown in April. Food e commerce performed very strongly in the quarter, doubling its sales. This confirms that all the investments made over the past three years to digitalize Carrefour and improve e commerce capacities have allowed us to take full advantage of the surge in online demand. Total reported sales at €18,700,000,000 were down minus 6.3%, penalized by two strongly unfavorable impacts in the quarter. First, a minus 5.8% petrol effect due to the combination of lower traffic during lockdown and lower oil prices and a minus 6.7% foreign exchange effect due to the strong depreciation of Latin American currencies. As you can see on Page 11, after increasing our growth rate in 2019 versus 2018, H1 twenty twenty marks another half of sequential like for like acceleration. Given the particular profile of this quarter, we have decided to share with investors more details on the backdrop in which we operated in Q2. Q2 was marked by two distinct periods. April was impacted by lockdown measures in most of our countries. During that period, we observed very similar customer and shopping behaviors across countries, notably in Europe. Customers favored proximity. Our convenience stores were up by a very strong 19% and our supermarkets grew 8.3%. Online continued to grow very strongly after the surge in March. Hypermarkets were penalized by limits on mobility. Their sales were down in April by minus 4.6%. Food sales were up while non food was down, notably due to non food department closures in some countries such as Spain and Italy. Average basket increased across all formats while traffic was down, showing that customers limited their movements. Overall, group like for like sales evolution in April was a stable 0.3%. As of May, European countries began easing lockdown measures while they continued to be enforced in Argentina and in some, but not all, Brazilian states. Situations varied from country to country, but overall, we posted a very solid plus 9.4% like for like growth in May and June. Some overarching trends emerged in this May period. First, food continued its solid momentum as our markets benefited from the shift to in home consumption from out of home consumption. Second, non food regained attractiveness as departments that had been closed reopen and shoppers returned to stores. Non food sales grew by a strong 19.9% in May. Third, multi format proved its efficiency with each format playing a specific role at any given time of the crisis. Hypermarkets regained favor, growing by 8% in the May period, while other formats continued to perform well, although at a lower pace, with supermarkets up 5.5% and convenience up 8.9% on a like for like basis. Across the quarter, our other activities such as travel and ticketing, cash and carry in Europe and gasoline sales were negatively impacted. Consumer credit production was voluntarily constrained to mitigate credit risk. The food e commerce market has accelerated strongly in the first half and in Q2 in particular. We are convinced that the share of e commerce in food consumption has made a quantum leap and will not return to where it was before. This demonstrates the relevance of Carrefour's strategic direction. For instance, food e commerce penetration in France has surged from 6% before COVID to ten percent today. In this context, Carrefour has performed very well with food e commerce sales growing plus 100% in Q2, a sharp acceleration in all our geographies. VCSUS X has been made possible, thanks to the strong commitment of our teams and the investments and determined efforts put into e commerce since the launch of the plan. The last significant impact on our reported sales I would like to mention is the negative ForEx effect. Indeed, our results in H1 were impacted by strong depreciation in some currencies, the Brazilian real dropped by 20% and the Argentine peso down by 34%. This translated into a negative impact of minus €86,000,000 on recurring operating income in H1. Before I go into details of our results, please note that the positive and negative effects of the COVID-nineteen crisis are reflected at all levels of the income statement. The incurred costs were recognized in H1 recurring operating income, including extra costs relating to labor, logistics or product distribution as well as costs relating to protecting the health of employees, customers and service providers. Focusing now on our H1 numbers. Our sales stood at €34,300,000,000 rising 7% on a like for like basis. This represents a sharp acceleration from 3.1% like for like in full year 2019. Further investments in price competitiveness weighted on gross margin, which has been down minus 21 bps to 21.8%. This drop also reflected the momentary increase in logistic cost and the evolution of the integrated franchisee mix. This was partly offset by purchasing gains. In parallel, Carrefour continued its cost savings program in all geographies and benefited from a positive operating leverage. Distribution costs improved to 16.6% of net sales versus 17.2% in the same period last year. They benefited from the cost reduction plan and include extra costs related to sanitary protection, new stores and new customer services notably in digital. This resulted in the strong increase of plus 29% at constant exchange rate of recurring operating income to EUR $718,000,000. The strong year on year growth of plus EUR 181,000,000 at constant exchange rates in recurring operating income reflects on the one hand the strong overall performance of retail activities and on the other hand a circa €70,000,000 negative impact at constant currencies or €90,000,000 at current currencies due to the increase in the cost of risk in financial services and a circa EUR 50,000,000 negative impact on other services such as travel agencies and ticketing and B2B sales in Europe, including France. Let's now focus on the cost reduction plan. In spite of lockdown measures, the group maintained a strong pace of cost reduction in the half with EUR $480,000,000 of further gross savings. With EUR 2,400,000,000.0 in cost cuts since 2018, the group is ahead of its initial plan. Given the strong momentum, the target is raised once again from EUR2.8 billion to EUR3 billion by end twenty twenty. Reducing cost, being more efficient while improving customer experience is now part of the daily metrics of our teams in all countries. This makes us confident that this cost savings dynamic will continue beyond 2020. Let's now look at our performance by geography, starting with France. Like for like sales increased in Q2 by plus 0.7% on a like for like basis. We saw strong growth in Convenience, up 11.4 and Supermarkets, up 4.3%. Hypermarkets were down minus 3.6%. Since the end of the lockdown in May, however, we have seen a good pickup in activity in French hypers. Non food has been dynamic, notably Bazaar and Electronics, which grew double digit. Textile was difficult. Recurring operating income in France was up 4.2% to €125,000,000 in H1, reflecting favorable dynamics of retail activities despite the drop in hypermarket activity during lowdown. The slowdown in promo cash, the partial closure of service activities like ticketing and the increase in the cost of risk in financial services had an unfavorable impact of approximately EUR 70,000,000 on French operating profit in the first half. Turning now to Europe. Overall sales in the regions were up by a solid plus 4.7% like for like in Q2. In Spain, like for like sales increased by a very strong plus 9.8% as its customer centric approach continued to pay off. Full e commerce sales doubled. In Italy, Carrefour was penalized by its strong exposure to shopping centers, which were closed until mid May and its presence in tourist areas. Like for like sales were down minus 7.4%. In Belgium, like for like sales growth was a remarkable plus 18.9% plus 15.9%. We continued to gain market share in a market that benefited from the border closures as more Belgian customers shopped at home instead of shopping abroad. Carrefour also capitalized on its improved price positioning. In Poland and in Romania, Carrefour's presence in big shopping centers, which only gradually reopened as of mid May, translated into like for like sales of minus 4.2 and minus 2.2%, respectively. Recurring operating income in Europe rose sharply by 59% in H1 or plus €74,000,000 at constant exchange rates to €199,000,000 All countries saw an increase in their recurring operating income. Operating margin improved by plus 69 bps to 1.9%. Carrefour benefited from a significant volume effect in key countries and strong cost cutting dynamics across all geographies. In Latin America, we continued to see remarkable momentum. In Brazil, Q2 sales were up plus 14.9 on a like for like basis, accelerating over Q1. Performance was remarkable for the whole quarter across formats with like for like growth of plus 30% at Carrefour retail and plus 8.6% at Atacadau. Food e commerce posted record growth of more than plus 360%. Financial services posted broadly stable billings as they reinforced selectivity in granting credit. These very strong figures demonstrate the success of the commercial initiatives taken in Brazil over the past two years. In Argentina, where like for like sales were up plus 54%, Strong commercial momentum continued, including in volume terms. Recurring operating income in Latin America rose 27.5% at constant exchange rate to EUR373 million in H1. Operating margin increased by 60 bps to 5.7%, reflecting a virtuous commercial strategy in which lower prices drive volume growth. In Brazil, a combination of strong performance and continued improvement in operational efficiency drove a remarkable increase of plus 20% in recurring operating income in the half, reinforcing Scaffold's leading position in the country. In Argentina, recurring operating income was positive in the first half for the first time since 2012, underscoring the turnaround based on customer satisfaction that has been underway over the past two years. Finally, in Taiwan, in Q2, sales were up plus 2.2% at constant exchange rates, thanks to the successful integration of Taisuco stores. Sales were down 2.5 like for like in Q2 as consumers have put off some non food purchases. In a decreasing market, Carrefour market share remained stable over the period in Taiwan. Recurring operating income in Taiwan increased by 15% at constant exchange rates to €49,000,000 in H1. Operating margin was up 35 bps to 4.5%. This increase reflects good expansion momentum and strict cost control. After this geographic view, let's move down the consolidated P and L. Consolidated net income improved by a strong €463,000,000 year on year and turned positive at €73,000,000 On top of recurring operating income growth, sharp reduction in non recurring expenses contributed to the strong increase in net results. I will detail this in a minute. Financial expenses remained roughly stable. Tax expenses increased to €238,000,000 reflecting a higher profit before tax. As a result, adjusted net income group share from continuing operations stood at €253,000,000 in H1, a 63% gain, added nearly €100,000,000 year on year. Carrefour significantly reduced its non recurring expenses in H1, which stood at €234,000,000 versus €610,000,000 in the year ago period. They include €128,000,000 in exceptional bonuses and similar benefits to group employees paid during the half. It's also worth noting that restructuring costs were significantly reduced by 300,000,000 in H1 to €42,000,000 this half. After this overview of the P and L, let's move down the consolidated cash flow statement. Net free cash flow was up by EUR197 million compared to H1 twenty nineteen. It primarily includes the increase in EBITDA of plus EUR 116,000,000, reflecting the strength of the Retail business in the half. It also includes the following items: the payment of EUR 128,000,000 of exceptional bonuses and similar benefits a lower cash out for restructuring cost of €184,000,000 the absence of a dividend from Carmilla, whereas we received €73,000,000 in H1 last year an improvement of the change in working capital by EUR 57,000,000, reflecting a dynamic activity, a stable level of inventories, an unfavorable calendar effect on trade payables and lower petrol sales. CapEx decreased by €179,000,000 to €449,000,000 in H1. CapEx continued to benefit from selectivity and productivity measures and were reduced in the context of the crisis. For the full year 2020, CapEx are now expected to be contained below €1,500,000,000 All in, adjusted for exceptional items and discontinued operations, the group posted an improvement of €95,000,000 in its net free cash flow. Net financial debt decreased by €935,000,000 year on year at constant exchange rates. It amounted to €5,200,000,000 at end June twenty twenty. This significant decrease was driven by improved free cash flow and proceeds from the disposal of our activities in China and cargo in H2 last year. The group's liquidity was reinforced during the half by the bond issue carried out in March for an amount of EUR1 billion maturing in December 2027. In April, the Group redeemed a bond issue for an amount of EUR $8.00 2,000,000. In addition, the group has two credit facilities totaling EUR 3,900,000,000.0, which have not been drawn down to date. These two lines were recently extended for 95% of their total amount, bringing their Mathieu Oritie to June 2025. Carrefour has one of the strongest balance sheets in the industry. This is an important asset in the current context marked by rapid changes in the food retail sector, the continuing COVID-nineteen pandemic and an economic slowdown. In conclusion, our H1 results are the fruits of all the self help initiatives that Carrefour has undertaken in the past two point five years as part of its transformation plan. These have made us a very resilient group with a solid balance sheet, able to invest in growth initiatives and act as a market consolidator. Management is fully focused on execution. We confirm or raise all our operational and financial targets of the Carrefour 2022 plan as well as our ESG objectives. Thank you very much for your attention. Alexandre and I are happy to take your questions. First question is from Mr. Cedric LeCasbleau from MainFirst. Sir, please go ahead. Mister Lekaslow, your micro has been open. Next question is from Mr. Clement Genelot from Rayon Garnier. Sir, please go ahead. Good evening. Want two questions from my side, if I may. The first one, can you elaborate on the timing of regarding the nomination of Mr. Remy Rabetier as CEO of Carrefour France? The second one is just to have your view on the chance of having a price war in France in the following months. One word about France first and the nomination of a new manager. We have been working the last two years to build the foundation of France. We have transformed the business model. We have worked on digital capabilities. We have developed our own brand, our organic product, worked on partnerships, increased price competitiveness with a variety of initiatives, restructure XDR scope and implemented strong cost savings dynamic. And all these initiatives developed by Pascal Fousa and all the team were validated during the crisis. But this crisis also convinced me about the huge necessity to accelerate again, to put a stronger focus on customer satisfaction, seamless execution. And I did think that when you have this type of conviction, you have to decide quickly and to be capable to take decisions. And that's why I decided to make a certain number of managerial changes, particularly, of course, as you've seen in France, And to appoint Ramy Baetier, we have been facing together strong challenges in the last three years in Taiwan, then in Argentina, then in Spain. I know him by heart. I'm absolutely convinced that he can give a lot of improvements in this customer satisfaction and seamless execution in France. And I'm very happy that he has taken this responsibility, and I trust about his capabilities to accelerate this customer centric approach. Concerning price, since my arrival, I have been hearing about a threat of price war in France. Of course, it's a challenging market for players. It's a very competitive market. And of course, the purchasing constraints would be very central in September as it is today. We have been working very strongly in the last two years to reinforce our price competitiveness. We have made a lot since the beginning of the plan. We launched the loyalty rewards. We launched unbeatable prices. We launched during this semester a new loyalty program in supermarket. We launched the pre Engager on the private label in France. So we have done a lot to restore price competitiveness. As you know, we the starting point was far from the pack. We made some clear on the undoubtable improvements, but we are not yet exactly where we want to be. So we will continue to invest to develop new initiatives to continue to reinforce our price competitiveness. Thank you, sir. Next question is from Mr. Nicolas Champ from Barclays. Sir, please go ahead. Good afternoon. Thanks for taking my questions. You provided more details regarding your performance in Q2, I mean, the breakdown between April, May and June. Could you please also elaborate on your activity at the beginning of Q3 in July and especially in this new environment? I mean, in other words, do you see any, for instance, any negative impact from the lower touristic flows, but again, interesting to hear if performance at French hypermarkets continue to improve in July again? Second question is your performances in Brazil and France have been impacted by us consumer credit division in these two countries by higher cost of risk. Do you see the risk of additional provisions in the second half of this year? Or is it enough, you think? And the third question, so you raised your cost saving plan by roughly €200,000,000 by the end of the year. Could you be a bit more specific regarding the regions, the geographies or the divisions where you have identified additional cost savings potential, please? Thank you. Thank you. I take the first one third. And beginning begin by Q3, As you know, we traditionally don't give any comments on the current Q. To queue a little bit, I would say that we continue to benefit from our positioning across the different countries and don't see any significant impact or change in trend since summer has started. There is no real impact or significant or meaningful impact of tourism. Of course, international tourism is decreasing. It can affect, for example, convenience in Paris. But it is now really meaningful for us as we are present across different countries with different type of format. And international tourism is not central for us. As you know, they eat more in hotel and restaurants. And it is compensated by local tourism, which is gaining momentum. And in the meantime, in this Q3, we continue to see out of home consumption, which is quite continue to decline or which is not at full speed. And consequently, it has a positive a more positive effect on home consumption. On cost cutting, as you know, we have implemented a stronger culture of financial discipline. That's why we are capable to achieve 2,440,000,000 of cost savings since the beginning of the plan. This culture is today widespread throughout the organization. We are keeping up the rates of the pace of cost savings, we are confident in the momentum. That's why we raised the objective. The momentum is strong. And every country, to answer your question, delivered saving It's moving faster in some countries at the beginning. But today, every country managed to deliver saving, and all countries contribute more or less their fair share. On your second question, Nicolas, relating to financial services, you get it right, our recurring operating income has been negatively impacted by €90,000,000 at current exchange rate in the semester or €70,000,000 at constant exchange rate. We have three main geographies, France, Brazil and Spain. We also have a significant financial services activity in Spain. What happened in the course of the semester, I think the teams have been very reactive. They've gone through previous crisis, so they reacted quite well. They've been more selective in granting credit. They also reinforced the credit recovery teams in order to accelerate the recovery, and they implemented some cost saving measures. At the end of the semester, we used our prudential models and indeed booked an increase in the cost of risk. What's the perspective in H2? It will obviously depend on the evolution of the economic crisis and the credit quality of our portfolios. I think we've been quite conservative in the past. The teams are used to that type of situations. We also see that the stimulus packages, which have been put on the various tables in different geographies are very significant. And clearly, they will help us on that matter. Thank you. Thank you, sir. Next question is from Mr. Xavier LeMigny from Bank of America. Sir, please go ahead. Thank you for taking my question. Two, if I may. The first one, you were commenting in Q1 being in line with your budget and despite the COVID-nineteen environment and the bonuses you paid to your staff. So where are you at the end of H1 if you have to compare with your initial budget? So that would be the first question. Second one, are you able to comment at consensus today for the full year? Perhaps I take the one on consensus. You know that the consensus number differs from one provider to another. So I won't comment on the specific number because, as we know, we don't provide guidance, but to try to help you to think about that. This H1 highlights the relevance of the choices we have made so far. Our strategic plan is progressing well. It's gaining momentum. It highlights also the resilience of our multi format and omnichannel model. And all this reinforces our confidence and looking at overall market expectations, I think that they are, let's say, consistent with the current trend of the business on these uncertain moments. On your question on the budget, Xavier, so obviously, I'm not going to share our budget numbers. What occurred in Q2 after the comments we made in for the first quarter? As you can imagine, and we've disclosed the April like for like numbers, I mean, was tough. This is initial expectations. And to the contrary, the May and June dynamic was quite strong. So at the end of the first half, we you've seen the numbers, so you know exactly where we are. But indeed, in terms of profitability performance, there's been also two periods in the second quarter. Okay. Thank you. Thank you, sir. Next question is from Mr. Arvangerie from Societe Generale. Sir, please go ahead. Yes. Good evening, everyone. I have three questions. The first one, regarding your price pricing at French hypermarket. In some cases, we noticed that you can be much more expensive than Leclerc on certain national brands in grocery or prepacked the cold meat, for example. Do you plan to rebalance your pricing policy, so between EDLP promotions and loyalty reward? So in other words, do you plan any stronger focus on EDLP like Tesco plans in The UK? My second question on French hypermarket as well. I understood that you had an improvement in the NPS score at French hypers at the 2019, early twenty twenty. What was the impact of the COVID crisis? So was there a break or not? And the last question on online grocery, so a much higher demand related to the crisis. Have you been able to release efficiency gains? And what was the profitability of your online business with the run rate seen during the lockdown? Thank you, Arnaud. First question on prices. First, I think we have to be very cautious analyzing precisely the prices during the lockdown moments. Was very difficult to precisely analyze what was the situation on the price policy of everybody. What we do see in a longer trend for two years is that undoubtedly, we are we have been capable to reduce the gap we have with the leader. We have been capable to do that using different type of tools, working on loyalty programs that has been developed in hypermarket first and supermarkets in 2020, working on unbeatable prices, working on committed prices. So we try to use all these elements, all these tools to restore attractiveness in terms of price. We are not yet where we want to be. We still have room for improvement. I know Remy is already working on that. The good news is that as we are capable to deliver stronger cost savings than expected, We are fueled for that. So we will continue to invest in terms of price and thinking about different and other initiatives in the future. On your question on NPS, as you know, it's today a key criteria for us to analyze our performance. We have been capable in the first semester, in general, to improve the NPS by 3%. What is extraordinary and proves the commitment and the incredible commitments of the teams in all the geographies is that it has been a strong reinforcement during the heart of the crisis. It has been the case in e commerce. It has been the case in hypermarkets, supermarket, proximity store. That's linked to the fact that the team has been highly dedicated. I've tried to think for the customers that we have been capable in stores and in e commerce to launch new services to help the one that need help during this moment. And it was a real pride for all the team to be capable to improve customer satisfaction during all this period. Of course, we are not in all our geographies at the place where we want to be, particularly in France. There's room for improvement. As you know, Ramy is really customer centric oriented. He's focused on that and obsessed by that. And so I know that we will continue to take new initiatives to improve our NPS performance. As you know, we have a direct consequence between these capabilities to improve our NPS performance and our overall performance. On your last question on profitability on e commerce, perhaps one word on e commerce in general. I would say first, this period has been an opportunity in terms of e commerce for us to convert customers that did not use online shopping for food before the crisis. We have been capable, I told that in my speech, to attract 850,000 new customers worldwide. We have been capable to do that because during all this crisis, we have developed online capacities. We increased first our distribution capabilities, deployed a network of drive and pedestrian drive, build new partnership. We announced one yesterday with Uber Eats, open home delivery service in all our geographies. We have been capable also during these moments to open new in store order preparation areas and accelerated warehouse mechanization. And we have thought about new services, essential baskets, for example, to have a simple offer during this moment or the capabilities to take order by phone on meal deliveries, especially for vulnerable people and medical staff. So we have been working and the teams have made a great work during all this crisis to develop our e commerce attractiveness for the customers. To come back to your question on profitability. As you know, e commerce economic model is the sum of the margin post variable costs minus fixed costs. And if you have a strong increase of volumes, you have a positive impact on your variable cost margin, while fixed costs are fixed. And that's exactly what we've seen during this crisis. The sudden surge in volume has been positive for the profitability of e commerce. And consequently, e commerce has contributed to the increase in recurring operating income this half. And that's very positive for the future as we think that this crisis has made a quantum leap and will not return to where it was before. Thank you very much. Thank you, sir. Next question is from Madame Fabienne Caron from Kepler Cheuvreux. Madame, please go ahead. Good evening. Thanks for taking my question. Three quick ones. The first one, can you single out of the CHF 70,000,000 for France, what was exactly the impact of provision for financial services, please? The second one again on numbers on Rue de Comercio deconsolidate Rue de Comercio because it's sold. Can you remind us the impact on EBIT for H1 and what you expect in H2? Because I see this was a loss making business. And finally, could you give us some qualitative comment on France regarding the like for like performance of integrated versus integrated sorry, integrated versus franchisee hypermarket and supermarket, please? So on Financial Services, on your first one, Fabienne, good evening. Well, we're not disclosing that. As you've seen, we are giving a consolidated number. However, we've given a specific number of fronts with the other activities so you can understand what are the effects outside of core retail. As far as Rue du Commerce, so Rue du Commerce has been what it's not impacting our recurring operating income this year. It was loss making, probably around €20 per semester last year. So we have a €20,000,000 positive impact this year versus last year due to the divestments of Rue D'Commerce. Concerning your question, Fabienne, about, let's say, qualitative behavior of franchisee and integrated. If we try to come back to supermarket, which is probably the format in which we have balanced between integrated formats and franchise format, I would say that we have seen a better performance of the franchised store at every moment of the crisis, which is probably linked to many elements, including the entrepreneurial way, the fact to be a little bit more flexible in the hours of openings. You've probably seen that at the peak of the crisis, we've taken some initiatives in terms of hours of openings on hypermarket and supermarket for all our integrated store because we did think that the priority was the protection of our teams and our customers. Franchise markets have been, of course, more flexible. It's their responsibility to decide precisely what are the hours of opening. And consequently, their performance has been slightly stronger than our integrated store in supermarket during this crisis. Did you see the change for management? For the hypermarket? Repeat your question, Fabienne, you were cut. I was asking if you feel the same as when better performance for the hypermarket in risk management. Yes, it was less obvious. But in the peak of the crisis, we have also this type of slight differences, but probably less obvious than it was for supermarket. Thanks a lot. Thank you, madam. Next question is from Mr. Nick Coulter from Citi. Sir, please go ahead. Hello, good evening. Thank you for taking my questions. Two, if I may. Firstly, just to follow-up on Arnaud's question on EDLP. Just to ask whether you think your customers in France become more price sensitive as they come out of lockdown and less responsive to promotions? And then secondly, should we take the first half restructuring costs within nonrecurring as a sensible guide for the second half? And obviously, I'd interested in both P and L and cash impacts, please. Thank you. If I well understand your question, obviously, the sensitivity to prices was stronger at the end of the lockdown than during the lockdown. During the lockdown, the key priority was to have capabilities to have access to food and with restrictions of mobility. As you know, there was not campaign of promotions with papers, with catalogs. So I would say, of course, it depends on the social category of the population. But I would say, of course, that the price sensitivity was not as strong than it is normally. Since the July, we come back to the world we know with real price sensitivity of the French market and our different markets. Seems to say that the French consumer is getting more price sensitive and some of the twitching data suggests that your hypermarkets are losing more price competitive. No significant new restructurings have been incurred in the course of the first half in non recurring expenses. We think that so we have provisions which have been incurred for past periods with still some cash out. We probably have $250,000,000 to €300,000,000 that will be cashed out over the coming semesters, probably not fully in H2, but probably partially in H2 with the rest coming later on. Okay. Thanks. So just to be clear, you're not seeing a more price sensitive French consumer into the coming months? What is obvious is that related to the economic and social situations, there would be higher purchasing power constraints. And consequently, the question of price would be very central. But as you know, if we stay in France, the centrality of the price is still very is already very strong, so it can be slightly reinforced. But I don't see a major change on that. Next question is from Mr. Andrew Porteous from HSBC. Sir, please go ahead. Hi team. Few, if I may. Firstly, just in terms of the consumer behavior that you've seen through lockdown, has that changed your thoughts around things like ranging and assortment? Is there a potential to perhaps do a little bit more than 15% if consumers are a bit more focused in terms of the products they're buying? And then secondly, one of the targets where there's perhaps still a little bit more work to do is around the space reduction. Could you perhaps talk about the plans there over the next couple of years and which regions are going to sort of see the main action in terms of the remainder of the target in terms of space reduction? And then a short last one. Could you just confirm the color on online profitability was helpful, but is your online business profitable yet? Yes, thank you. First question, it's quite difficult to take real new insights from the peak period of the lockdown, which, as you know, was so particular on the in which the main constraints was the constraints of mobility. So but to try to answer your question about what we've seen and probably we've modified or not modified, but adapted a little bit after the crisis is that on non food, we did measure during the crisis and immediately after the crisis that there was potential for us to reinforce our offers because the hypermarket is the efficient way of shopping in one time. And we know that the customers today hesitate visiting many stores because also there are difficulties of a certain number of players of specialized retailers. And of course, it reinforced mechanically our attractiveness. And because also, we begin to bear the fruits of all the work we have been doing for two years in improving our offers, in massifying between all our countries, in launching worldwide products with attractive price. And so I would say that this crisis has made us to adapt a little bit on the assortments and to be obsessed about being capable to answer customer needs, including non food in all the categories. And that's probably a little adaptation from this crisis on the assortment on non food. Matthieu, on second one? On your second question, Andrew, regarding space reductions, as you saw at the end of our press release, we have kept progressing in the course of the first half on space reduction with roughly 20,000 square meters of further space reduction. Clearly, the pace has slowed down due to the confinement and the impact on works. Where will the further square meter reduction come from? Well, it will basically keep coming from what we've done means big and the largest hypermarkets where we see areas to densify the offering. And we now have commercial models, which prove quite efficient on smaller square meter areas with all the associated benefits in terms of profitability and capital employed. We've seen this surface reduction in pretty much all geographies, Italy, Argentina, France. And so we think it will come from all geographies, mainly focusing again on big hypers. On the e commerce profitability, Don't think that we were thinking about if it is profitable or not because the answer is very clear. It's today, no profitable, of course. But as I previously explained, this acceleration of volume has been positive for the profitability of the e commerce. And e commerce has contributed to the improvement of our global recurring operating income in this semester. You, guys. Thank you, sir. Next question is from Mr. Shreedhar Maham Kaliv from UBS. Sir, please go ahead. Hi, good evening. Thank you for taking my question. Three quick ones, please. Perhaps in terms of franchising hypermarkets, maybe you can take a step back and give us a bit of a picture into how you see it two, three years out. What is the right level of integrated stores versus franchise model to lease under the lease model? The second one, given what we're seeing in terms of nonfood strength, how does that make you rethink the assortment and the space reduction in hypermarket? Does that change anything? Do you need to do anything different in nonfood? And thirdly, actually, harking back to Fabian's question on the $70,000,000 impact. Even if you're not willing to give us the exact split, would you say majority is the cost of the risk of the $70,000,000 Because it would help us greatly be able to model the second half and beyond. And that would be very helpful if you could give us some color to the comments. Thank you. Thank you. On your first question, as you know, since the launch of this plan, we have developed lease management stores for the first time in hypermarket and transferring 10 new stores of hypermarkets last year. We have accelerated a lot the pace of transfer into franchise market of supermarket this year. For example, it was 30 store last year and it was 34 in the first semester this year. So the pace, the intensity of transfer has been accelerated strongly. It doesn't mean that we don't believe in our integrated stores. And Ramy and the team are working very strongly to introduce this more entrepreneurial spirit in all our integrated store, including the upper market and super market. But we try to build this very balanced model between integrated and franchised store. And of course, we have accelerated a lot since the launch of the plan. On your second question, I don't want to repeat what I've said. I don't think that there is real consequences on our objective of 15% of assortment. But so this objective is still the same and we will reach this objective. But it means that we are very, very cautious on non food, on category, subcategory that we decide to reduce. We really think we really try to be the most attractive positive for our customers. We have today, we see that our basket average are increasing proportion of non food in this basket is strong. So we want to be capable to fulfill our customer needs. Matthieu? On your third question, so I indeed said and that's in the press release that we have a €70,000,000 negative impact from the increase of cost of risk. There's basically three business units contributing to that or three main ones, France, Spain and Brazil. So it is three main business units for €70,000,000 then I would let you make your estimation inside that. But let's say, they have a similar size of businesses, clearly different profiles, but similar size of businesses. I think we have time for our last question. Last question is from Mr. Rob Joyce from Goldman Sachs. Sir, please go ahead. Hi, thanks for taking my questions. So the first one, just a quick follow on from Sridhar. I guess on the banking the impact from the banks, can you say what the split is then between provision levels and lower interest income? Because you said you sort of reduced the risk you were taking there. The second one is, I think you mentioned that the French grocery market is now at 10% e commerce penetration. Can you say what penetration your French business is at? And then the final one, just on e commerce, again, it's not profitable today. What is the key difference in there? Where do you need to see the leverage in that business to gain profitability? Thank you. On your first one, I'm not going to help you much, Rob, on the Financial Services. Obviously, very different business profiles depending on the well, several different parameters. Clearly, what's the maturity of the credits, very different from one country to another. What is the turnover of the customers in terms of maintaining their credit or stopping their credit earlier. What has been the production? We've been quite cautious in the production. You probably saw in the Brazilian press release that at the end of the semester, they're starting production again. There's more profitability on the extra production in Brazil, and they felt that they had risk well under control. So many different parameters. So the main message of giving you specifically a number is because there is an impact this semester, and we want you to understand what are the main drivers behind the performance. No split between provision and interest income. On your online questions, as you know, we don't have our natural market share in terms of e commerce, and that's why we launched this comprehensive plan to be capable to catch up and to take the lead even if we all know that due to our situation on the drive, we are lagging behind the leader. We were behind 10%, around 8% when we launched the plan. We have been capable to improve our market share on online by four or five points. And so we accelerate quite strongly. And I think that the performance of this semester proved that we continue to overperform very, very strongly the market, and we have created all the conditions for that to continue in the next quarters. On your second question, we can spend much time on that. There are many levers to be capable to reach profitability online. I would say that first, we need volume on now very stronger volume. We need volume to compensate fixed costs, and this crisis would be a key moment momentum of for e commerce for food e commerce because now we have the level of volume that make possible the profitability on e commerce. And secondly, we need to work on the industrialization, on the process, on the performance of all the lines, the installed preparation area, the mechanization of accelerated big warehouses, the performance drive by drive, pedestrian drive by pedestrian drive, the capabilities to build clever partnership with home delivery services companies. All that contributes to the improvement of our profitability on online. So it's not one point. It's the all these elements that contribute to the fact that we are now capable with the e commerce to contribute to the improvement of our overall profitability. Thank you to all of you. Have a very good summer. Thank you for your attention. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.