August 29, 2013 / 6:11 AM / in 4 years

UPDATE 3-Carrefour profit rises as French recovery plan delivers

* H1 recurring op profit 766 mln euros vs 771 mln poll

* French recurring op profit 482 mln euros, up 75.4 pct

* CFO keeps 2013 EBIT guidance

* Carrefour mulls roadmap for Brazil, China expansion - CEO

* Shares jump over 4 percent (Adds CEO, fund manager comments, updates shares)

By Dominique Vidalon

PARIS, Aug 29 (Reuters) - Carrefour, the world’s second-largest retailer, reported a sharp improvement in profitability at its core French business as a turnaround plan started to pay off, raising hopes it can do the same in austerity-hit southern Europe.

Chief Executive Georges Plassat also said that, after a period of selling assets to cut debt, the group was now looking at how to accelerate growth in China and Brazil.

Carrefour has struggled for years in Europe, partly due to a reliance on the hypermarket format it pioneered as time-pressed customers shop more locally and online and buy non-food goods from specialists.

Plassat, who joined in May 2012, has responded in France by cutting costs, revamping stores, improving price competitiveness, simplifying product offerings and giving more autonomy to store managers.

“The improvement in France is impressive. We did not expect the new management to do it so quickly given an unfavorable economic climate,” said one Paris-based fund manager with shares in Carrefour, speaking on condition of anonymity.

Europe’s largest retailer said on Thursday its first-half recurring operating profit rose 4.9 percent to 766 million euros ($1 billion). That was just below analysts’ average forecast of 771 million but included a 75.4 percent leap in operating profit in France, where the group makes more than 40 percent of sales.

“The hard work we’ve been putting in is bearing fruit,” Plassat told a news conference. “We have a challenging environment, but France is coming back to the fore”.

At 1300 GMT Carrefour shares, which are up 48 percent since Plassat’s arrival and trade at a premium to French rival Casino and Britain’s Tesco, were 4.1 percent higher at 23.71 euros, in a European sector up 0.7 percent.

Plassat told Reuters after the news conference that he hoped to have decided on the terms of Carrefour’s expansion in China and Brazil “in the next twelve months”.


Many retailers across Europe are struggling as consumers’ disposable incomes are squeezed by rising prices, muted wages growth and government spending cuts. Casino last month posted a big drop in first-half French hypermarket sales.

France, the euro zone’s second-biggest economy, saw a bigger-than-expected rebound in the second quarter but could be shrinking again, a survey showed last week, with jobless claims rising every month over the last 27 months.

Carrefour said its operating margin in France improved by 120 basis points to 2.8 percent of sales, helping to lift the group margin slightly to 2.1 percent, although that still lagged a peer median of 3.4 percent, according to Thomson Reuters data.

A stronger France helped counter a 120 basis points drop in the profitability of the rest of Europe, which accounts for a quarter of sales and was dragged down by austerity-hit Spain and Italy to 0.4 percent of sales.

But Plassat said he was optimistic for a turnaround in Italy, which had a particularly big hit on the figures.

“Many will say ‘if they can fix France then they can fix Italy’ and thereby not worry too much about the decline in profitability at this business unit,” Citi analysts said.

Chief Financial Officer Pierre-Jean Sivignon said Carrefour remained comfortable with analysts’ average forecast for 2013 earnings before interest and taxes of around 2.2 billion euros, provided there is no big swing in Latin American currencies.

That is good news for top shareholder Blue Capital, controlled by LVMH CEO Bernard Arnault and U.S. investment fund Colony Capital.

To raise cash to defend positions in its key markets of western Europe, China and Brazil and to strengthen its balance sheet, Carrefour has been exiting several non-core countries such as Colombia, Malaysia and Indonesia.

This helped cut net debt by 3.7 billion euros to 5.9 billion euros at end-June and boost free cash flow by 243 million euros.

Plassat said Carrefour had no plans to make further asset sales for now, adding he did not rule out partnership deals.

He said he wanted to expand in China, which accounted for about six percent of revenue in 2012, although he had not yet decided how to do so.

“We have a nice business in China. We have been opening 20-25 stores each year for five years. I am convinced we can accelerate that growth,” he said. “We are searching for the best way to do that, with local support ... We need to build ties and understand the country well”.

Earlier this month, Tesco said it would fold its unprofitable operation in China into a state-run company as a minority partner, becoming the latest foreign retailer to give up on trying to crack China on its own. [ID:nL4N0GA081

This has left world number one Wal-Mart and Carrefour for now slugging it out alone, though there have been suggestions Carrefour too could be seeking a local partner.

$1 = 0.7496 euros Editing by Emma Thomasson and Mark Potter

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