PARIS — Carrefour SA is poised to launch its property and Brazilian units on the stock market next year, chief executive officer Georges Plassat said Thursday.
The French retailer reported operating profit fell 2.8 percent in the first half, as the cost of restructuring its Chinese activities overshadowed strong growth in Europe, excluding France. Meanwhile, negative currency effects wiped out the impact of underlying sales growth in Latin America.
Recurring operating income totaled 706 million euros, or $788 million, in the first six months of the year versus 726 million euros, or $810 million, in the same period last year. This represented a rise of 5.3 percent at constant exchange rates, beating analysts’ estimates.
The news sent Carrefour shares down 5.5 percent to close at 22.40 euros, or $24.64 at current exchange rates, on the Paris Stock Exchange on Thursday.
At a news conference, Plassat confirmed the group would finally go ahead with the long-deliberated initial public offerings.
“We confirm the idea that we will do an IPO in Brazil. We think that Brazil, which has been through a slightly strange period in its political governance, is now emerging from it,” he said, adding that the stock flotation could take place next year, providing market conditions are favorable.
He added that it is also planning an IPO for real estate investment firm Carmila, which is renovating malls that house Carrefour hypermarkets. Carrefour owns 42.5 percent of the unit.
Finally, the retailer is mulling the sale of a minority stake in its Chinese activities to a local company, in line with its setup in Brazil. Carrefour in 2014 sold 10 percent of its Brazilian subsidiary to investment firm Península, chaired by Abílio Diniz, which subsequently upped the stake to 12 percent.
“It is obvious that we are facing a potential consolidation of our activities, perhaps with local players that would be complementary to us,” Plassat said of the Chinese unit. He added there were no talks under way regarding such a rapprochement.
Pierre-Jean Sivignon, chief financial officer of Carrefour, elaborated on the drivers for an IPO in Brazil.
“One is to generate some cash to fund even more growth, even though the business is very profitable and is cash-flow generating, but at the same time as well to show the value of those assets, because one of the things which is misperceived by the market is the real value of that business,” he said.
Both executives underlined the potential for Carrefour to increase its global cash flow and profitability, with Plassat saying the company’s operating margin could increase by 50 basis points within the next two years. It stood at 3.2 percent in 2015.
It was a rare pointer from the company, which does not give official guidance. Sivignon added the consensus forecast for 2016 recurring operating income of 2.47 billion euros, or $2.71 billion at current exchange, was “reasonable,” though he cautioned that target could yet be scuppered by currency volatility.
He confirmed that Carrefour plans to invest between 2.5 billion euros and 2.6 billion euros, or $2.75 billion to $2.86 billion, in 2016 and said it aims to keep its net debt stable this year.
Group share of net profit, adjusted mainly for non-recurring income, rose 0.9 percent to 235 million euros, or $262 million, in the first half. Dollar rates are calculated at average exchange rates for the period in question.
The world’s second-largest retailer behind Wal-Mart Stores Inc. said sales fell 4.1 percent in the second quarter, as the poor performance in Asia was compounded by negative currency effects in Latin America, which otherwise enjoyed strong momentum during the period.
The company posted revenues of 20.50 billion euros, or $23.15 billion, in the three months to June 30. Excluding petrol and calendar impacts, organic growth in the quarter was 2.7 percent.
Plassat said it was a difficult semester, with Carrefour’s core domestic market hit by a series of negative factors including the aftermath of the November terrorist attacks, strikes that cut off the supply of petrol at gas pumps across France, and the country’s wettest spring in 150 years.
France posted operating profits of 312 million euros, or $352 million, down 3 percent at current exchange rates versus the same period a year earlier. In the rest of Europe, operating profit was up 26.6 percent to 155 million euros, or $175 million.
In Latin America, it fell 7.8 percent to 273 million euros, or $308 million. Stripping out the impact of exchange rate variations — principally the depreciation of the Brazilian real and the Argentine peso — the figure was up 12.3 percent.
“We continue to progress with gains in market share, gains in traffic and gains in a number of average baskets. Therefore South America turns out to be one of the company’s levers and a powerful pillar today,” Plassat said.
Carrefour posted an operating loss of seven million euros, or $8 million, in Asia compared with a profit of 50 million euros, or $55 million, during the same period last year. Emerging markets registered a 23.2 percent decline in operating income to 266 million euros, or $300 million.
Plassat said the Chinese economy was undergoing a powerful transition, but he was confident the company’s reorganization would start to bear fruit as early as this year.
Carrefour has closed underperforming stores in China and revamped its supply chain with the opening of logistics warehouses, as part of its plan to increase the in-store availability and traceability of its products and support its burgeoning e-commerce business.
“We have seen a substantial impact on our numbers over the last two years and now I believe we are staring to catch sight of something that, according to my experience, hints at a promising recovery,” Plassat said.