24/07/2024 - Carrefour SA: Earnings Document

Half-Year

Financial Report 2024

Contents

Business review for the six-month period ended June 30, 2024

1. Main income statement indicators
2. Analysis of the main income statement items

1. Shareholders' equity
2. Net debt
3. Statement of cash flows
4. Financing and liquidity resources
5. Restrictions on the use of capital resources
6. Expected sources of funding

1. Accounting principles
2. Significant events of the period
3. Main related-party transactions
4. Subsequent events
5. Risk factors

1. Business review and consolidated income analysis

1.1 Main income statement indicators

Argentina is classified as a hyperinflationary economy within the meaning of IFRS. IAS 29 - Financial Reporting in Hyperinflationary Economies is therefore applicable to the condensed consolidated financial statements for the six-month period ended June 30, 2024; data for the comparative period presented have also been adjusted for inflation.

1. Free cash flow corresponds to cash flow from operating activities before net finance costs and net interest related to lease commitments, after the change in working capital requirement, less net cash from/(used in) investing activities.
2. Net free cash flow corresponds to free cash flow after net finance costs and net lease payments.
3. Net debt does not include lease commitments or right-of-use assets (see Note 2.2).

Net sales amounted to 40.6 billion euros in first-half 2024, a decrease of 0.3% in comparison with first-half 2023.

Recurring operating income before depreciation and amortisation came in at 1,916 million euros, a 3.4% increase versus first-half 2023.

Recurring operating income totalled 743 million euros, up 6.2% on first-half 2023.

Non-recurring operating income and expenses represented a net expense of 126 million euros, versus a net expense of 186 million euros in first-half 2023. This expense includes (i) restructuring costs following measures implemented at headquarters and stores in Spain, Italy, Belgium and Brazil, (ii) the derecognition of a portion of Belgian and Brazilian goodwill following asset disposals (see Note 4.2.1), (iii) provisions for tax and legal risks in some of the Group's geographies, and

1. impairment and retirement of various assets in Brazil and Spain. The expense was partially offset by (i) reversals of provisions in Brazil, notably for risks relating to ICMS tax credits following the expiry of statutory limitation periods or further relief under tax amnesty programmes, (ii) gains and losses on the sale of 17 supermarkets in France, 16 of which were leased back as part of a sale and leaseback transaction (see Note 4.2.1), and (iii) gains arising on various asset disposals, mainly to franchisees in France.

1. Business review and consolidated income analysis

Finance costs and other financial income and expenses represented a net expense of 430 million euros, an increase of 155 million euros on the first-half 2023 figure, mainly reflecting the higher cost of net debt and deterioration in other financial income in Argentina (see Note 1.2).

The income tax expense for first-half 2024 amounted to 164 million euros, compared with 153 million euros for first-half 2023.

The Group reported net income from continuing operations - Group share of 26 million euros, versus 118 million euros in the first six months of 2023.

Discontinued operations represented a net loss - Group share of 1 million euros, versus net income of 749 million euros in first-half 2023, corresponding almost exclusively to the gain realised on the disposal of Carrefour Taiwan.

In view of the above, net income - Group share came to 25 million euros, versus 867 million euros in first-half 2023.

Free cash flow amounted to a negative 900 million euros, versus a negative 867 million euros for first-half 2023. Net free cash flow was a negative 1,704 million euros, compared with a negative 1,684 million euros for the same period of 2023.

1.2 Analysis of the main income statement items

The Group's operating segments consist of the countries in which it does business, combined by region, and "Global functions", corresponding to the holding companies and other administrative, finance and marketing support entities.

Net sales by region

Net sales for the Carrefour group remained fairly stable at 40.6 billion euros (down 0.3%), but rose by 12.1% on a like-for-like basis1 compared with first-half 2023.

• In France, first-half 2024 net sales decreased by 2.9% and by 2.0% like-for-like. This trend reflects the sharp slowdown in inflation, compounded by Carrefour's offensive price investment policy, in a market where volumes remained slightly negative. Market share momentum is gradually improving, with market share by volume stabilising in the second quarter. Sales during the second quarter were adversely affected by unfavourable weather conditions, which weighed on sales of seasonal products (beverages, textiles, garden furniture, etc.) and negatively impacted hypermarket traffic.
• In Europe (excluding France), net sales were fairly stable (down 0.1%) and decreased by 1.5% like-for-like compared with the first half of 2023, reflecting the slowdown in food inflation. Western European markets were particularly hard hit in the second quarter by unfavourable weather conditions affecting certain product categories, notably non-food and seasonal products, which generate traffic for the hypermarket format.

1 Like-for-like (LFL) sales generated by stores open for at least 12 months, excluding temporary store closures, at constant exchange rates, excluding petrol and calendar effects and excluding the IAS 29 impact.

• 1. Business review and consolidated income analysis

• In Latin America, sales rose by 4.1% versus first-half 2023 and by 46.2% on a like-for-like basis. In Brazil, net sales rose by 4.7% and by 3.8% on a like-for-like basis, with a sharp acceleration in May and June amid an increase in volumes and inflation. In Argentina, Carrefour once again demonstrated the strength of its business model in a highly inflationary environment (247.1% LFL).

Net sales by region - contribution to the consolidated total

At current exchange rates, the portion of sales generated outside France continued to rise, representing 55.3% in first-half 2024 versus 54.1% in first-half 2023.

Recurring operating income by region

Recurring operating income totalled 743 million euros in first-half 2024, up 6.2% at current exchange rates, resulting in operating margin growth of 11 bps to 1.8%. This reflects growth in Brazil and France, as well as a challenging market environment in Europe.

In France, recurring operating income for the first half of 2024 totalled 286 million euros, up 6.2% compared to first-half 2023. The strong cost-cutting dynamic enabled price investments to be offset and, in line with the target set at the beginning of the year, to increase the operating margin, which increased by 14 bps to 1.6% (compared with 1.4% in the first half of 2023). The Group has also continued to benefit from the strategic initiatives of the Carrefour 2026 plan, including the increase in sales of Carrefour-brand products, the transfers of stores under lease management and franchise and the ongoing improvement in the profitability of digital activities.

In Europe (excluding France), recurring operating income came to 84 million euros, versus 164 million euros in first-half 2023, representing a decrease of 49.0%. It was penalised by business momentum, price investments and specific situations in each country. Recurring operating income improved in Belgium as a result of strong sales momentum over the last few quarters. It was under pressure in the other regions. In Spain, recurring operating income was adversely affected by business levels in the hypermarket format due to weather conditions and exposure to non-food, by its commercial investments, and by the decrease in earnings from the financial services business. Poland and Italy continued to face fierce competitive pressure, while recurring operating income in Romania was temporarily impacted by the costs of integrating the recently acquired Cora stores.

In Latin America, recurring operating income rose by 37.3% versus first-half 2023 to 417 million euros. In Brazil, recurring operating income was up 45.7% to 366 million euros versus 251 million euros in first-half 2023. Operating margin improved by 107 bps to 3.8% versus 2.7% in

1. Business review and consolidated income analysis

Gains and losses on disposals of assets

Gains and losses on disposals of non-current assets mainly comprise gains and losses on the sale of 17 supermarkets in France, 16 of which were leased back as part of a sale and leaseback transaction (see Note 4.2.1). It also includes gains and losses arising on various asset disposals (store premises, land and businesses), notably to franchisees in France.

Restructuring costs

Restructuring costs recognised in first-half 2024 mainly correspond to restructuring measures implemented at headquarters and stores in Spain, Italy, Belgium and Brazil.

Other non-recurring income and expenses

Other non-recurring income and expenses recorded in the first half of 2024 chiefly comprise provisions for tax and legal risks in some of the Group's geographies, offset overall by reversals of provisions in Brazil, notably for tax risks relating to ICMS tax credits following the expiry of statutory limitation periods or further relief under tax amnesty programmes.

Asset impairments and write-offs

Asset impairments and write-offs recorded in the first half of 2024 include the derecognition of a portion of Belgian goodwill following the disposal of seven former Alma store businesses and Brazilian goodwill following the disposal of unprofitable store premises which were closed during the period (see Note 6.1 to the consolidated financial statements as of June 30, 2024). It also includes the impact of a number of asset impairments and retirements in Brazil and Spain.

Main non-recurring items in first-half 2023

Gains and losses on disposals of non-current assets comprised gains and losses arising on various asset disposals (store premises, land and businesses), notably to franchisees in France. The first-half 2023 figure also included the gain on the sale and leaseback of five stores and four warehouses in Brazil.

The restructuring costs recognised in the first half of 2023 related primarily to severance paid or payable within the scope of the voluntary redundancy plan put in place at headquarters in France, involving a maximum of 979 jobs, and, secondarily, to the measures implemented in stores and headquarters in Italy, Spain and Brazil.

Other non-recurring income and expenses in the first half of 2023 mainly included reversals of provisions for tax risks relating to PIS-COFINS tax credits in Brazil following the expiry of statutory limitation periods or favourable judgements, offset slightly by costs relating to store closures in Brazil.

Asset impairments and write-offs recorded in first-half 2023 related to stores in France, Belgium and Brazil. They also included the impact of the retirement of IT equipment in France and Belgium, and the alignment of the net carrying amount of Showroomprivé shares with the stock market share price at June 30, 2023.

Operating income

The Group ended first-half 2024 with operating income of 632 million euros, versus 538 million euros in first-half 2023.

1. Business review and consolidated income analysis

Finance costs, net, remained relatively stable, reflecting opposing trends: an improved situation in Brazil on the one hand, due notably to the fall in CDI (Certificado de Depósito Interbancário) interest rates that started in August 2023; and a deterioration in Argentina on the other hand, owing to investments made at interest rates well below the inflation rates recorded in the country during the first half of 2024.

In accordance with IFRS 16, finance costs and other financial income and expenses also include interest expenses on leases along with interest income on finance subleasing arrangements. The increase in net interests reflects in particular the full-year impact of the sale and leaseback transactions in Brazil (June 2023) and Spain (December 2023).

Other financial income and expenses consist for the most part of the impact of hyperinflation in Argentina (IAS 29), late interest payments on tax and labour disputes (mostly in Brazil) and financial transaction taxes.

The sharp fall in the first half of 2024 reflects (i) a significant increase in the hyperinflation adjustment charge, in counterpart of a hyperinflation income recognised in shareholders' equity, which sharply increased owing to profits generated by the subsidiary in recent years, and (ii) a financial expense relating to the purchase/sale of financial securities to enable the payment of dividends in US dollars by the Argentine subsidiary.

Income tax expense

The income tax expense for first-half 2024 amounted to 164 million euros, i.e., an effective tax rate of 82%, compared with the 153 million euro expense recorded in first-half 2023, which corresponded to an effective tax rate of 58%.

The effective tax rates for the first six months of 2024 and 2023 were mainly impacted by the non-recognition of deferred tax assets primarily in Brazil (at certain Grupo BIG subsidiaries), Italy and Belgium. In addition, the effective tax rate for the first half of 2024 was impacted by certain non-deductible provisions for tax risks and by the absence of any tax effect relating to the derecognition of goodwill during the period (see Non-recurring income and expenses above).

Apart from these factors, the first-half 2024 effective tax rate reflects the geographical breakdown of income before tax, with no other items significantly distorting the tax proof.

Furthermore, the probable recoverability of deferred tax assets recognised in the consolidated statement of financial position at December 31, 2023 was confirmed at June 30, 2024, based in particular on a comparison between the budgeted performance of the different countries and the most recent forecast.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests came to 11 million euros in first-half 2024, versus 4 million euros in first-half 2023.