Earnings Call: Q1 2020

Apr 28, 2020

Ladies and gentlemen, welcome to the Carrefour Analytics conference call. I now hand over to Alexandre Bompar, Chairman and Chief Executive Officer. Sir, please go ahead. Good evening. I hope you and your families are well and safe. Mathieu Malis will take you through our financials for the first quarter, but I'm here today to address the most pressing topic for all of us, the current COVID-nineteen situation. Our thoughts are, of course, with those who have been affected. This crisis is impacting our colleagues and our customers, and we are protecting them by all possible means while ensuring business continuity. As of now and in most of our geographies, the situation is a sort of in between. We are out of the emergency stage, but not yet out of lockdown nor, of course, out of the crisis. This means that we are still living in uncertain times. I'd like to provide some insights on what we have done so far, therefore, to face this unprecedented crisis. We had the advantage of having achieved the crisis with two years of successful transformation behind us on the far more flexible organization. This puts our people in the right mindset to embrace change. Since the outbreak, we have built on these strengths to adapt in real time to rapidly changing situation. We ensured shorter decision making processes. I had assembled an executive team that has a very complementary skill set, and their experience makes us proactive and quick. Meanwhile, our Board of Directors meets every week, ensuring that we have high level of corporate governance. We set the best practices of what we have learned in this crisis, starting with lessons from Taiwan in February. Our global reach allowed us to save precious days of preparation and to take swift actions in all our countries. At this point, all our measures are in place with four main priorities in mind. First, our top priority is to ensure the safety of our colleagues and customers. We have implemented strict safety rules since the outbreak, going even further than the instructions given by safe authorities. We equipped our teams with masks and gloves and installed protective screens at the front of our checkouts. We enhanced cleaning routines in stores and warehouses. We introduced social distancing measures on regulated de insurance of our stores. These rules are essential for the proper continuity of our mission. This is why they are regularly updated in all our geographies. And beyond the rules, we want to salute the remarkable visitation that our employees are showing by looking after each other and looking after customers. Second, as a food retailer in this crisis, we have a major responsibility making sure that everyone has access to food. Our first course of action is supporting the food supply chain. We are working closer than ever with our suppliers and enabling us to continue functioning properly. We simplified our offering to get more of the most popular products on shelves. We also simplified our logistics plan to favor short circuit and direct deliveries. This is also a way of supporting our local agricultural communities with their seasonal products. Our second course of action is one of solidarity. We created dedicated services for medical workers and vulnerable customers such as express ordering service with free home delivery, special hours in stores to free shopping of free meal baskets. We accelerated our food donate donations. And through our foundation, we devoted €3,000,000 to supplies for hospitals. All these initiatives demonstrate our sense of responsibility. This social responsibility is also why our Board of Directors decided to reduce by half the proposed dividend for 2019 at €0.23 per share as a balanced answer between responsibility and fair remuneration of shareholders. And I'm waiving a portion of my fixed salary as is the group executive committee for the two months that correspond to the peak of the crisis. Further, to properly recognize the exceptional effort of those working in stores, drives, and warehouses, we awarded brochures or one off bonuses in one in all our geographies. This, of course, means payroll expenses are going up as our supply initially and protective equipment expense, which is how we stick to our values and assume our responsibilities as a group in a period of severe crisis. Third, we are serving customers with dedication and care. I'd said that we would devote we would devote a lot of energy to customer satisfaction in 2020. I must say that our teams have gone above and beyond. I'd like to say how very proud I am of them. So many more customer friendly initiatives have emerged from this crisis. We froze prices on everyday products in our key countries. We opened new channels, new services, and new partnerships to respond to booming e commerce demand. We saw many employees from our headquarters volunteer to staff customers, and our underground teams became more flexible and pitching where needed. All these initiatives resulted in an above market wise in our Net Promoter Score. We stand out as an essential ground according to many surveys. In France, notably, two weeks into the crisis, we already were in customers' top three most necessary ground. Through our purposeful actions, we are winning the heart of our clients. Lastly, we are monitoring our activity very closely. We had a quarter of solid activity characterized by highly different phases on volatile consumer behavior. Matthieu will walk you through the detailed figures. I just had two remarks. In this crisis, our group is being tested, and it is responding efficiently. We are leveraging our strengths, being global, having responsive team, helps us confront the different challenges we face, and having a strong multi format model helps us address the different consumption pattern we see. Then looking at the future, I'd like to share with you some of my beliefs. I do not overlook the scale and severity of this crisis, which is still ongoing, and we cannot predict what will happen. But it is already clear that the crisis is intensifying existing trends. In fact, this whole crisis underscores how relevant most of our transformation was. First, e commerce and convenience stores that we have been rapidly investing and expanding are emerging from the confinement period of key formats. Second, the value proposition of our hypermarkets, however, formats will be further enhanced by growing concerns about processing power. Hypermarket offer the highest degree of sanitary protection, thanks to the greatest space, and they are a one stop shop for families who want to limit their movement. I believe that this format will emerge from this crisis with a reassuring and convenient place to shop. Third, today's crisis highlights how crucial food security is and how much what we eat matters for ourselves. This will provide further intentions to carve forth a leading role in the food transition for all and support our efforts to develop organic products on grounds and local producers. Four, the crisis increases the need for a sound financial structure. Since 2018, we have exceeded our cost cutting objectives and built a strong balance sheet. And since the outbreak, we have secured an even better liquidity position, as Matthieu would explain. Many initiatives that we started two years ago as part of our transformation plan will greatly matter in the coming months. We are still managing for this further crisis, but it is already clear that we are living in a defining moment for our sector and beyond, one that will have lasting effects on our economies and societies. For the future, we are laser focused on how the situation is evolving, most notably on customer behavior. At this stage, we will continue pursuing our transformation with even greater confidence in our actions by reaffirm all the objectives of the Careful 2020 plan. Thank you for your attention. I now hand over to Matthieu. Thank you, Alexandre. Good afternoon to all of you. I'm very happy to be with you today. I hope you are all well and safe. This Q1 was obviously atypical, marked by high volatility on the back of unusual consumption patterns and unprecedented lockdown measures. Q1 sales were up by a strong 7.8% like for like, reflecting a good commercial performance in January and February and a great execution by all Carphone teams to respond to the peaking demand in March. The strong dynamic of like for like growth occurred in all the countries. Overall, the consumer's reaction to the pandemic was very similar from one country to another. So how has the quarter played out? What we can say is that this Q1 was marked by two distinct periods. First, in January and February, Carrefour continued to advance in its transformation plan with good sales and market share momentum and encouraging signs in terms of volumes and price perception. In the first two months of the year, like for like growth was plus 4.3%. Then in March, we recorded a strong increase in sales ahead of lockdown measures with consumers making precautionary purchases mainly in dry groceries and products with long shelf lives. All store formats and e commerce benefited from the strong momentum in food. Traffic and baskets hit record levels. Once the lockdown measures were put in place in the last days of the quarters, consumers turned to proximity and supermarkets closer to their homes at the expense of hypermarkets. Across all formats, the number of visits was lower, while the average basket increased significantly. Food e commerce continued to post strong growth. A few key consumption patterns are worth mentioning. E commerce sales rose plus 45% in the quarter with very high growth in March when demand for e commerce ticked up. Non food sales were down minus 3.5% with markets particularly penalized notably certain categories such as textiles, which were not considered as a priority. Public authorities in countries like Spain or Italy even closed certain non food departments. Demand for organic products remained strong with sales up 30% in the quarter. Carrefour branded products progressed throughout the quarter as they respond to two sustainable market trends, the need to protect purchasing power and attention to food quality. The penetration rate was up by circa two percentage points versus Q1 twenty nineteen. Let's now look at our performance per country. In France, like for like sales increased by 4.3%, growing plus 5.9% in food, while non food was down 61%. We saw growth in all of our formats. Like for like increased by 0.9% in hypermarkets. Underlying sales trends improved in both January and February versus previous quarters. Then hypermarket benefited from precautionary purchases in March. The format clearly provides consumers with a broad offer, attractive prices and the convenience of concentrating purchases in a single place. Supermarkets grew 8.1% like for like and benefited from their intermediate positioning combining proximity and broad choice. Carrefour also strengthened its loyalty scheme with the new market loyalty premium program launched in January. This new loyalty premium recorded strong success. Convenience sales were up 11% like for like, highlighting a very strong momentum. Promo cash activities were penalized by restaurant closings. Turning now to Europe. In January, February, growth in all countries improved sequentially compared to previous quarters. In March, our European operations also benefited from precautionary purchases ahead of lockdowns. The region has been particularly affected by the pandemic with very strict lockdown measures, including closures of most nonfood categories in Spain and Italy. In Spain, for like sales increased by 6.6%. The approach based on customer satisfaction was a key differentiator and resulted in a new improvement in Net Promoter Score. In Italy, like for like sales were up by 2.5%. With a strong presence in the north of the country that was particularly affected by COVID-nineteen, therefore, has capitalized on its multi format presence. In Belgium, like for like growth was plus 6.2%. We resumed market share gains, including in the period preceding the COVID-nineteen crisis. In Poland and in Romania, momentum remained very solid, growing plus 8.8% and plus 9.7% like for like, respectively. In Latin America, which was impacted later than Europe by the pandemic, we continued to see very strong momentum. In Brazil, Q1 sales were up 12.2 at constant exchange rates with like for like growth of 7.6%. Foreign exchange had an unfavorable effect of minus 14%. Carrefour retail posted sales up 8.9% on a like for like basis, notably thanks to strong momentum in food. Solid growth in e commerce continued despite a slowdown in non food. Q1 sales at Hakadau were up 7% like for like. The banner continued to expand with the opening of four new stores in Q1. Financial Services posted a new increase in billings. Carrefour Bank reinforced its selectivity in granting credit during the quarter. In Argentina, where like for like was up 70%, strong commercial momentum continued with traffic and volumes increasing continuously. Carrefour, again, acted in favor of consumers by freezing prices on 1,300 products. Finally, in Taiwan, sales rose plus 6% like for like. Effects linked to the pandemic situation were less marked than in other geographies. Carrefour Taiwan benefited from the integration of eight iSUCO stores in 2019 and successful commercial operations around Chinese New Year. As Alexandre shared with you, Carrefour is entering the current period strengthened by two years of implement of the Carrefour 2022 plan. Let me complement this analysis with a word on financial and cost discipline as well as Carrefour's solid balance sheet. Over the past two years, we have revamped a number of processes and simplified organizations. We have developed deep expertise in the transformation of processes with an industrial approach. We have also shown strong selectivity and productivity in our CapEx policy. This helps Carrefour reinforce its balance sheet. We now have one of the strongest balance sheets in the industry. Last month, we further increased liquidity with a bond issue for an amount of €1,000,000,000 with a maturity of over seven years. The success of this issue attests to the great confidence of investors in the Carrefour signature. In addition, a few weeks ago, Carrefour Brazil signed a bank financing for 1,500,000,000.0 Brazilian real over two and three years. Moreover, the group has two undrawn credit facilities totaling €3,900,000,000 with a maturity in 2026. Carrefour's solid balance sheet is an important asset in the context of the fast changing food retail sector as well as in the face of the current economic environment. Let me now conclude. Even if it's, of course, too early to grasp the full extent of the crisis we are going through, we are continuously assessing the impacts of the COVID-nineteen crisis and its effects on the economy and on consumer purchasing behavior. As you understood, the orientations of the Carrefour 2022 strategic plan are very relevant in the current context and are reiterated. We also confirm all operational and financial objectives. As far as our agenda for meetings with investors is concerned, we have decided in the current context to postpone to a better date the semantic event in Spain as well as the Carrefour Brazil Investor Day in Sao Paulo. Thank you very much for your attention. Alexandre and I are now very happy to take your questions. The first question comes from Cedric Lecaville from go ahead. Yes. Hello. Can you hear me? Yes. I hear you very well. Hello. Okay. Good. Thank you for taking my questions. Hello to all the team. I have actually two two questions. The first one to understand potential stocking destocking impact you've had with precontainment, postcontainment. Could you help us maybe with current trading and tell us if trading has normalized in April versus a lot of volatility in the weeks of March? The second question is in two parts. Did you see the same kind of behavior of the consumer for physical constraints in containments in all the countries with your hypermarkets? Did you see a general pressure on traffic? And did this the second part is, did this context lead you to accelerate all the services you were pushing to add service and add value to the consumer like food deliveries, etcetera, all the services associated to the hypermarket and part of your omnichannel strategy. What can you do today to to bring back customers to the hypers when the containment fill in? Thank you, Derek. Let me maybe start with the second one. Well, obviously, different lockdowns in different countries. The level of constraints imposed to the populations has clearly varied in times and in locations, sorry, and also in time. And the way that has impacted our hypermarkets, as I said in my comments, has varied with some governments deciding to close down nonfood. Then we have different types of hikers. Obviously, some big ones which are located in shopping malls. These ones are clearly more difficult to be accessed in the lockdown situation. Other hypermarkets of smaller size, which have more of a proximity role. So very different performance throughout the geographies. And then different relative strength and attractiveness for the customers depending on the geographies. You've seen over the past few quarters clear difference between the performance, let's say, of our hypermarkets in Spain, which had a very solid performance and in France, for instance, where it was a little more difficult. So these underlying trends, obviously, are still here during the period. Yes, but that's all the time. Alexandre? And for the first part, a few questions on the consumption pattern. What you have to have in mind is the fact that the I would say, the most prominent point of this crisis and potentially linked to the lockdown is the huge volatility and the huge unpredictability of the consumption model. To tell that a little bit differently, no week is really similar to the previous week or to the week after. And consequently, what we see in this crisis is that the key point to analyze to be performance is the capability to have permanent assets that are capable to answer to different moments of this crisis. And what we clearly see since the March is the fact of being multi format is really a key asset when consumption trends change very rapidly. Just before the lockdown, it was, of course, a moment of huge consumption, particularly in hypermarket. Just the days after the lockdown, when the lockdown was very strict, of course, the performance is better in supermarket convenience. And you know we are clear leader on convenience. Food e commerce has been outperforming during all the period, particularly after March. And what we see is that the key point is that, and the fact to have this multi format organization to have been capable to develop e commerce capabilities because, of course, the level of demand on e commerce is strong on the winning course all the time. So I think it's able also to develop a a performance on that strategic therefore branded products with organic products because we clearly see that linked to purchasing constraints, the relevancy of Carrefour branded products is strong. And last of all, to have competitiveness on price, and it's probably a long term also element. And as you know, thanks to all what we have been capable to do on costs savings in the last two years, we have been capable to restore price competitiveness. So I would say, of course, there are different weeks, but no week is really similar to the other one. And the and and the key point is to have all these assets and to be capable to accelerate on on on on different formats according to the moment of the crisis. And if I may, how does April compare to January, February if we exclude March? Sorry. Can you say that again? Yes. Yes. Just just about the the contracting and the way April compares to January and and February if we exclude the strong volatility in March. How have things settled down during this phase versus January, February, all formats together? Well, today, we're already commenting Q1, Cedric, and we'll have a discussion in July about Q2, if you agree. The next question comes from Carole Mageau from Exane. A few questions from me. First of all, you mentioned that the group LSL growth reached 4% in the first two months of the year. Can you maybe share the LSL of the French supermarket for the period? Second question, beyond France, Poland and Spain, what are the countries which you wish you gave some policies to the staff, if you can share that? And maybe the last question. So as you mentioned, of course, the situation is driving to higher costs. So maybe can you give us your thoughts on the EBIT consensus at this stage? On your first question on the French hyper like for like in January and February, what we said is that the trend improved I think I said that in my speech, the trend improved versus previous quarters. So clearly, there's been an acceleration in March on the back of the precautionary purchases, but still an improving trend in January and February. On the bonuses to the staff, there is a number of so we disclosed the amount. It's pretty much the same approach in all geographies with a number of measures, be it cash, vouchers, different schemes, to thank our colleagues for the impressive work that we have done at the time of the peak. On your fourth question related to the EBIT margin, well, as you know, we don't disclose on a quarterly basis. But what can we say? There are clearly pluses, notably volume uplift, but also minuses of which are circumstantial additional costs. In Q1, thanks to the 8% of growth, and we have a positive operating leverage, thanks to this increase in volume. But of course, regarding costs, we have several additional costs, which are highly linked to the choice we have made to be very responsible during this crisis. So it's costs related to the protection of employees and customers, of course, equipment, new process, new way of working during this moment. Exceptional bonuses, I'm not just aware of that, on all the geography and, of course, mainly in France. But there's also the decision we have taken at the beginning of the crisis to be capable to create new services for the most vulnerable people, for health people and so on. So we are trying to work on that because to open all these new services, of course, they are not profitable and that was not the choice we've made at this moment. All in all, as understand, we have this process into the volume, and we have this exceptional cost linked to the choice of responsibility of protection of recognition for our employees. Your next question comes from Clement Genelo from R and D. Please go ahead. Good evening, everyone. Just two questions from my side, if I may. The first one is linked to your pricing investment policy. I understand that in France, you are another partners credited to need stable prices. But does it mean that you are being you are putting on all your investment policy and especially an hypermarket, the first one. And the second one is linked to your cost of marketing plan. I understand you have that throughout 2014, by the end of the year, you still get €2,800,000,000 but do we have to expect some kind of slowing down trend in H1 and a catch up in H2? Because of course, I guess, that in H1, you are all focusing on the requiries and not so much on the OpEx control. Thank you. Thank you, Clement. Well, on price investments, I think it's really a long term strategy and policy that we have. It started two years ago. As we highlighted, that has continued in the course of Q1. We mentioned a few initiatives. One of them is the Marche, the royalty premium in the French supermarkets, granting a 10% discount on all fresh products every day. It's not a special promotion, and that has been going on through the crisis in March. We have also decided, and that's part of our investments, but also of the responsible approach and philosophy of the group in the current context to freeze a number of prices. We commented that the B and B table, 5,000 private label products in France, which has been blocked, and that pretty much happened everywhere. So this pricing investment strategy already keeps going and keeps developing. On your second question relating to the phasing of the cost savings, so you're right. We have confirmed our €2,800,000,000 target on cost savings by the end of the year. It's a number that will increase in February. Well, it's really I think we discussed that on previous calls. It's really a high number of initiatives in all our geographies. You're right, some of them may be slowed down, but we have other initiatives that are still working and progressing very well. So no big seasonality effect anticipated. It's really a mass of local initiatives, we have not left our eye from the ball and from the cost cutting initiatives in the current environment as you can imagine. Thank you. The next question comes from Neu Jolie from Societe Generale. I have three questions. The first one, so you have a jump in your online grocery sales. I'm just wondering whether it helps you to improve the profitability of your online operations. And maybe if you can give some flavor on the level of services, in particular, regarding the product shortages? My second question on French hypermarkets. I'm wondering what kind of initiatives you plan to relaunch traffic, let's say, in the coming weeks? And do you think that you will have to be much more aggressive on prices? And maybe the third question, when do you believe or when do you plan to relaunch, let's say, kind of normalized marketing and pricing policy? I think that over the last few days, you started to launch, you know, email to and to by offering discounts and promotions in your hypermarket. So when do you plan to have a kind of normalized marketing policy? Thank you. Thank you, Arnaud. First question on e commerce. Just before discussing about the profitability of e commerce, We we tend to consider around that on on e commerce, this crisis is is is an opportunity for us on e commerce because we clearly see that we managed to convert customers that did not choose online shopping for for food before the crisis. Of course, it's it's a huge acceleration and a huge opportunity for us to present to all our customers the different services that we have been capable to develop the last two years, of course, drives, pedestrian drives, delivery, express delivery. And as you know, during all these crisis, we have tried to continue to propose new services such as the essentials, for example, inquiries. And we have tried to be capable to continue this service while in certain countries, our competitors have stopped due to the high developed demand. And and we have tried to open additional delivery on ticket slots to communicate with the customers on our own page about the difficulties we have to to fulfill exactly the proposals, the initial proposals. We have created a virtual working line. We have geared seniors on fragile people priority. We have created the opportunity to order by phone. So it's really a a complete overall program that we have developed. On on on on profitability, of course, ecommerce has not become in one day profitable for all the retailer. As you know, e commerce, we can make model is margin plus variable cost minus fixed cost. So fixed costs are fixed. And due to the high level of increase in volume, we have seen a positive impact on variable cost margin. And of course, it's a positive tendency to see the volume. And I tend to consider that it would be for a long time moment that we have been capable to convert new customers on that. On the hypermarket, if you may, of course, I would say to share my personal conviction. Contrary to what sometimes I read, I do believe that the hypermarket value proposition would be attractive as soon as the lockdown is eased because we we clearly see the the the the three potentials of the hypermarket. First, I think that we all share here that it's obvious, it's certain in all our geographies that purchasing power is going to be a major concern for customers in the coming quarters in in this economic context. And as you know, hypermarket is a good answer to this purchasing constraint. And I don't see why and how this purchasing concern this purchasing constraint would not favor the performance of the hypermarket. Second, I think that people in this context, particularly in the sanitary transition context, can look for efficient shopping with all under the same roof. Our hypermarket are unique one stop shops. Consumer want to shop all at once rather than queuing up to access multiple stores. And I'm I'm I'm convinced that the efficient shopping will be favorable to the hypermarket. And last, I did it many stores, of course, in the beginning of the the crisis, and and you clearly realized that hypermarkets make it possible for customer to to shop with a safer shopping experience as physical distancing can be implemented in large size stores. So clearly, it is a third advantage. So when you gather this free advantage, you realize when when the the lockdown will be eased, that would be a good value proposition for the hypermarkets. On your last question, it's not so simple to answer about this type of question because as you probably realize, the level of uncertainties about next week, about next month, remain very strong. So it's quite difficult to completely know what would be the situation in May, in the June, in June. And so all the teams in France, all the teams in all the the countries try to reassess the options to think about what could be a good moment to to to to to have a more normalized price on marketing policy. But we had that each week, and we don't have any visibility, of course, like everybody about what would exactly happen when the lockdown would be eased in the different geographies. Thank you very much. The next question comes from Fabienne Carreault from Kepler Cheuvreux. Sir, madam, please go ahead. Yes. Good evening. Two questions from my side. The first one on the French supermarket. You performed in line with the market, which I personally find to be disappointing, reaching a performance of the independent industry, which were much stronger. So what is your analysis? How come you didn't get market change? Supermarket, did you have some issues with logistics or stock outs and any help with the growth on that side? And on the French hypermarkets again, we've seen the release in the chart that have a impact for April, assuming it remains the same for May. And do you believe Carphone is strong enough to offset potential as they reach like for like in store for two months? Thank you. Evening, Fabienne. Thank you for your questions. On the first one regarding the supermarkets, We've not noticed any particular underperformance. However, there's a number of of trends which are going on, you know, from supers, which which we will have in mind and which are basically the high level of investments that we are putting into this with this format. So first of all, we have a strong progression of the private label in this in this format. We we clearly go faster than than the market in in in penetration of increase of penetration of cable in Swedish shippers. That clearly has a dilutive impact on our top line. You may remember that starting from June, we a high number of price investments with the media. And that's the number of investments on on national brands to to reduce and be more and more competitive. We are we have not circled on on these investments yet. So they are still impacting our top line. We we also have a number of works currently going on in a in a number of our supermarket stores. Although we remain very cautious on not over investing, having modern concepts and modern store layout is important for our customers, and so we are investing. Then maybe last point, is more related to the crisis. We've been very strict in implementing all the measures related to social distancing. This is probably why you may have seen some lines outside of our stores. And, I think we've emphasized that quite strongly tonight. The protection, the safety of the health of our employees and customers is very, very high on the on the priority list. And so we don't play with with these rules that may have a a penalized in first here or there if some direct competitors were less stringent on these on these rules. On on your second question, Fatin, on the hypermarkets, I think sincerely that it would not have any sense to project the performance of the hypermarket in May. Let me try to emphasize that. When the lockdown is very strict, When the lockdown is accompanied by the closure of the totality of the shopping malls, when people don't reduce only their physical move, the the hypermarket is the same. And it's it's clearly the the the situation delays after the lockdown decision. When things begin to evolve day after day and we follow that, we see that the performance of the day to day iPhone market begins to increase and to improve. And now we answer, as you know, in May, in a in a in a new moment in France and because we're talking about France, You've probably seen that all the modalities of the big consignment have been announced today. We clearly see that the capabilities for the consumers to move in one of the is now absolutely free. Of course, it means that with all the advantages of the Iconfica that already mentioned, there are this opportunity. Additionally, of course, there is still a the capability to capture share of wallet in the out of home news. So when you gather all these elements, it's really impossible to to to tell and to extrapolate the performance in May. As I mentioned previously, the performance evolved very strongly week after week. So the the key question for us is to be capable to have the best performance, best new format organization to capture the consumption patterns where they are with this point. Okay. Just to make sure, regarding promotions, when will the new sites start again to be distributed in France? Well, I think, Fabienne, that was answered by Exxon previously. It really depends on how the market evolves. And as you know, it's quite a sensitive topic, so we will not develop this any further. The next question comes from Vincent Lee from Berenberg. Sir, please go ahead. Good evening. I have just one question, please. Will the employee bonuses be classified outside of recurring costs? Well, let me let me come back on on on these exceptional costs. So you're right. It's a very particular quarter. I will not come back on what Alexion said. Clearly, very high volumes and facing that exceptional cost, a number of them coming from exceptional bonuses to the employees in France and outside France and also exceptional logistics costs to cope with the increase in volumes. Overall, I would say that net of these exceptional bonuses to employees, the Q1 profitability is close to our initial expectations, which means that excluding these bonuses, it's ahead of our initial expectations. On the accounting treatment, it's although these these bonuses are clearly excluded from that in nature, it's too early to confirm what will be the the accounting treatment for for that at the end of of June. It's a matter that we need to be discussed with our auditors later in the quarter. Okay. Thank you. The next question comes from Maria Laura Adronou from Morgan Stanley. I actually have two. So the first one, coming back to the cost, I was just wondering if there are any areas in which you're actually seeing cost inflation? And then the second question, which I also had was with respect to nonfood. So for instance, here in The U. K, we saw some of the persons canceling or managing difference in their nonfood orders with their suppliers. Just wondering if you could shed some light on this. And then just on what you just mentioned, so we said that including bonuses, the one key operating profit is in line with your expectations? Thank you. On inflation on food, my future question is on cost. We we we don't see any particular elements in this quarter, of course, except for the exceptional cost we've mentioned. On on on the cost on the the price on food, you probably mentioned that there's no inflation this quarter. There are certain number of prices that have been negative, and they have been compensated by an increase of prices of vegetable and foods, which are clearly related to the to the choice we we have made to favor or to privilege local or national producers. On non food, of course, it has been a very practical quarter on on particular where we have the March, and it was not priority of our customers and not priority of of our ourselves. You probably known that the first number of in certain number of countries such as, for example, Italy or Spain. We even had to close a non food category due to local regulation. In terms of trends, consumer customers were more focused on on food fulfilling basic food needs while limiting time outside the home. Of course, once we have seen the textile has been highly impacted. On the other end, depending on the country, particularly the first day after the lockdown, the consumer electronics or appliances departments were more positive. But overall, of course, this this moment is is negative for common food. Did you have a last question? But the line was was bad, Myelo. You you mind repeating that? Or Yes. Sorry. It's just that I wanted to to check that I had heard correctly. So you said that once your operating profit, including the employee bonuses, was in line with your expectations. Is that what you said? Yes. You understood well. Net of these exceptional bonuses, the Q1 profitability is in line with our initial expectations. The next question comes from Rob Joyce from Goldman Sachs. Go ahead. Thank you very much for taking my questions. I've got three. Just to clarify that final point you made there, you're saying that the after the bonuses, but including also including the increased volume operating leverage, you're trending where you expected to be in Q1 prior to the outbreak of the COVID-nineteen. The second one is just on the nonfood side of things. Just if you could say whether the trends you're seeing there would impact your longer term thinking on nonfood in hypermarkets? And whether you could just remind us what percentage of sales those textiles were in the French hypermarkets last year? And then the final one from me, just in terms of the again, thinking longer term, you mentioned there's quite a distinction between the large hypermarket performance and some of the more local hypermarket performance. Could you give us an idea of, in France, what percentage of sales last year came in the hypermarket division came from those larger hypermarkets versus what came from the more local hypermarkets? Thank you very much. Afternoon, Rob. Thank you for your questions. Well, I think you got it right on the profitability. Let's be repeat that. So net of these exceptional bonuses to employees, the profitability is close to our initial expectations, and that obviously increases all the other exceptional costs, including logistics costs due to the high volumes and also the cost associated with protecting our employees and customers. On nonfood, I wouldn't consider that the the performance since the March could be extrapolated in a in a midterm perspective for, I would say, two essential reasons. The first one of is related to the fact that, of course, you understand that the the mood of the the customers were not at all to a certain number of categories in all the geographies. You mentioned textile and, of course, it's a it's a it's a symbol of that. So it's the first reason in favor free. The second, I would say, the thing that we were not I would say, focused on the performance on on the nonfood during this quarter. The the the obsession of the team was to be able to fulfill our mission on food, to give access to everybody, to to manage the supply and France one. So I wouldn't tell that it was the best moment for for for for for them for them on food. And and the third element is related to to what you said about the the the hypermarket. Clearly, we we we we anticipate that the customers would would try to have an efficient shopping after this crisis. Clearly, we do think that the willingness to queue in many many stores would not be so natural. And to the fact we have everything under the same the the the same roof could be an opportunity, of course, if we are if we are commercially attractive. And I do consider that on a on a in the next quarters, we have an an opportunity to reinforce our performance there. Not to say that we we we know that there's certain number of of nonfood players who could could be in a in different position than they were before the crisis. So all all in all, I do think that we we actually have an opportunity for Manfood in in the next quarters from from here to to to what we have been capable to deliver. On on your last question regarding the the the split, well, I I don't have it in my on the back of my mind in in in France between between local role versus a more regional role. I think across all various geographies, you see differences. Instance, I think Belgium is quite interesting and inside the performance of Belgium on the quarter, we have some relatively smaller hypermarkets in Belgium, 6,000 square meters, I think, in average. And and, you know, it's it's probably a more dense country in terms of urban organization. And so they have more of a of a proximity. Well, so, well, different different trends across across countries, clearly, and and also inside inside the front. Thank you very much. Sorry. One quick question I meant to ask. Tesco flagged that there were expected reduced profitability in their bank on the back of lower interest income and also some impairments there. I'm just wondering on your financial business, is there anything we should be aware of on that side of things? Well, it's a normal period to ask the question and focus on risk in the banking activity. We have no specific alert at the March on the basis of what we see. So no particular concern. But given the economic dynamic, we're clearly more cautious. As I commented on Brazil, the policy on granting credit is more stringent. For now, a few weeks, we've reinforced a number of teams to collect credits. So but none so it's basic protocols in these businesses and no specific concern to date. Okay. Thank you very much. Well, you very much. Thank you very much. Bye bye. Have a nice evening. Goodbye. Thank you so much. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.