Carrefour SA

PAR:CA

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, welcome to the Carrefour Conference Call. I now hand over to Mr. Alexandre Bompard, Chief Executive Officer. Sir, please go ahead.

[Alexandre Bompard, Chairman & CEO]

Good afternoon, everyone. Thank you for joining us on this call. I think it's still time to wish all of you a happy New Year.As you know, 2019 begin for us with a rather intense period of communication between now and our annual results in February, which will be followed by a roadshow. Our annual publication on February 28 will be an opportunity for us to share with you an in-depth analysis of our 2018 performance, as well as our key priorities for 2019. Our roadshows with Matthieu Malige will complete even further our interactions on our take on 2018, as well as on our vision for 2019.Given this agenda today, I just wanted to say a few words about this past year, 2018, year one, as you know, of our Transformation Plan. Then Matthieu will go in detail into our Q4 performance, and we will be happy to take your questions at the end.Before I share with you our key actions, I just wanted to stress how much the conditions in which we are operating changed over this year. Indeed, what a year. Let me just flag a few events. It ended with a yellow vests protest in France. It saw strong political uncertainty in Brazil as well as in Italy. Inflation hit a week of high in Argentina. Brazil, conversely, was facing food deflation in the first half, which reversed over the summer. Tensions between the U.S. and China triggered concern. And financial markets were rocked by these political and financial uncertainties.This stimulating context, to say the least, comes with game-changing trends. We had currently targeted our Transformation Plan when we set our 2 ambitions: creating the omnichannel universe of reference and becoming the leader of the food transition for all.2018 was the year of healthy eating as well as digital year. The trends we had spotted were the right ones and only developed faster. Our moves were quickly followed by new initiatives by competitors. In short, 2018 confirmed the need for agility and rapid execution, and these attributes are at the heart of the ambitious Transformation Plan we launched one year ago.I'm not going to review our plan or outline in detail today, but I just want to point out the strength of what we undertook. First, our transformation has no boundaries. Every business line, every country, every process is being remodeled. Second, our transformation is not a long-term marathon, but rather a succession of intensive overlapping strengths. Third, our transformation tackles what had been considered until now as Carrefour's intangible features.In 2018, we set new standards for our organization. We completed 3 voluntary departure plans in France, Argentina and Belgium. We exited unprofitable ex-Dia stores in France. We merged the group's headquarter with Carrefour France in Massy. We introduced new management profiles and fostered diversity. All this workforce make us more agile and more open to others.Thanks to our renewed mindset, Carrefour is now at the center of key strategic partnerships. We now work with the best-in-class on digital, Google, Tencent, Sapient. We've strong players at our allies in joint binding partnership, Tesco, Système U, PAM and VéGé, Provera. We've started that complete our healthy eating digital offer Quitoque, Greenweez and Planeta Huerto. And these partnerships are key assets in building an omnichannel universe. One year ago, Carrefour was a siloed organization. Today, the cultural shift we initiated makes it natural for our physical and digital assets to work together.Talking about assets. We built in only EUR 1 on e-commerce infrastructure that enables us to challenge the best. Back offices, applications, website, logistics, drives, payment tools, delivery services, we are now fully equipped to become a food e-commerce leader. These major breakthroughs have started to pay off, with 2 consecutive quarters of 30% growth of our food e-commerce sales in the second half of 2018. The complete [Audio Gap] the renovation of our in-store commercial offer. We challenged historical givens of our model. We managed, in a year, to begin reducing store areas, to open on Sundays, to switch to lease management contracts 5 hypermarkets in France, to redesign our nonfood offering with outlets on shop-in-shops, to enhance our food offering with extended and modernized fresh products and organic areas. We accelerated on our winning formats by pushing strongly our cash & carry formats in our convenience stores throughout the world.In less than a year, Carrefour managed to position itself as the global reference of the food transition. I was surprised by the magnitude of the impact that our Act for Food worldwide campaign had on our customers, partners and competitors. We are now a global reference for healthy eating, and that's why we managed this year to work with diverse communities who are interested in taking part in this journey. Nongovernmentals, experts, agricultural organizations, antiwaste status, suppliers as well as competitors now turn to us for best practices on common actions on blockchain, responsible agriculture, animal welfare as well as on reducing waste. We are at the heart of the transition.Of course, this ambition also boosted our [ participation and ] engagement. It's a radical shift in the way we work, in the way we deal with our suppliers, in the way we communicate with our clients on the substantive move from mass consumption to quality eating. And it strikes me when I see our measure with teams and voice our ambition and take pride in leading this global trend.This powerful dynamic has already delivered promising results. Take, for example, our sale of organic products. We reached EUR 1.8 billion this year against EUR 1.3 billion in 2017, thanks to the extension of our organic products range as well as to the increasing store and online visibility. These game-changing actions come with a renewed financial and economic model. In 2018, we started building synergies between countries and business units. We implemented industrialized lean methodologies and protocols in order to challenge our processes and spendings. These moves enabled us to massively reduce our costs and to make our economic and financial model more sound and solid. And our joint processing alliance with Tesco and Système U are now fully operational.Indeed, what a year. A pivotal year. A milestone year. All of our game-changing actions led the ground for Carrefour to develop a new growth model. In addition, a culture of operational efficiency and financial discipline has been implemented.Quick word on our key figures. Our sales growth in the third quarter was better than in the first half of 2018. We confirmed the positive trend this quarter with like-for-like sales growth at 1.9% versus 1.1% in the first 9 months of 2018, which is satisfactory.I want to stress the point that better managing our costs has a clear impact on our performance. After a difficult year in 2017, our recurring operating income is expected to grow by 4% at constant exchange rates in 2018. This is a very positive turnaround. It's a good news for our team, and I take it as a great encouragement to pursue the implementation of our plan in 2019.Carrefour has also a very solid balance sheet. It's a key asset in this transition period. We successfully carried out several refinancing operations that confirmed the quality of the Carrefour group's signature.I will have the opportunity to comment on these trends in depth in February. I believe that everything we have achieved this year is a clear sign that Carrefour is on the right track and that it has the potential to achieve the objectives we set for the group with our ambitious Transformation Plan.I will now leave the floor to Matthieu Malige. Thank you very much.

[Matthieu Malige, Chief Financial Officer]

Thank you, Alexandre. Good evening to all of you. Let me also wish you a happy New Year.Before I get into more details, let me highlight the key financial messages of our presentation tonight. Q4 shows solid sales growth of 1.9% like-for-like despite the effect of the yellow vest movement in France. This quarterly performance is in line with Q3 and well above H1, showing an acceleration throughout the year. We expect 2018 recurring operating income of around EUR 1,930 million, an increase of EUR 85 million or 4% at constant exchange rate versus 2017 reported recurring operating income. These numbers highlight that a powerful transformation dynamic is in motion within Carrefour. We are building a growth model on top of a culture of operational efficiency and financial discipline.Let me now get into more details. The solid performance has been achieved in the context of competitive markets and complex macroeconomic environment in a number of our geographies.As shown on Slide 8 of our presentation, our total Q4 sales reached EUR 22.6 billion at 2.7% at constant exchange rate, of which 1.9% like-for-like. On the one hand, the quarter was impacted by a strongly unfavorable currency impact of minus 5%, largely due to the Brazilian real and the Argentinian peso. On the other hand, our sales were supported by a positive 1.2% effect from store openings notably at Atacadao and proximity stores. This Q4 performance concludes the year in which Carrefour steadily improved its operations with growth accelerating in the second half of the year.In 2018, Carrefour posted total sales of EUR 85.2 billion at 1.4% like-for-like and 2.5% at constant exchange rate.Let me now take a look at our Q4 sales performance by geography, starting with France. Total sales in France were at EUR 10.6 billion, broadly stable on a like-for-like basis. This quarter was, of course, impacted by the yellow vest movement. Some stores and distribution centers were regularly blocked. These protests affected the consumption mood and customer behavior at a crucial period of the year for our business. These days were difficult for our teams in our stores, logistic centers and head offices. They were mobilized to limit disruptions as much as possible and to maintain a high level of customer service at a critical certain period. They showed a high degree of commitment and adaptability.Let me highlight 2 key takeaways regarding the Yellow Vest protest. First, their effect was felt most strongly on hypermarkets, especially the bigger ones. Hypermarket sales were down 2.2%. The effects were also felt to a lesser extent in supermarkets, notably the bigger ones. Nevertheless, supermarket sales were up 1.9% like-for-like in the quarter, clearly showing encouraging trends once again.Convenience and other formats were up by 3.1%. Drives also performed very well.Second takeout. Nonfood was sharply down over the period. On the other hand, food sales growth is positive in the quarter. It is stable in hypermarkets while posting interesting growth in supers and, obviously, in convenience. Let's move on to our performance in other European countries. Sales in the region reached EUR 6.4 billion, down 1.7% like-for-like, the trend broadly in line with Q3 and H1. Our performance showed contrasting trends. In Spain, in a less dynamic market, still very competitive, Carrefour showed a sequential improvement in like-for-like sales, which were down 1.4%. This performance was supported by the accelerating implementation of the 2022 transformation initiatives, notably very strong growth in digital, fresh and organic assortments as well as private label products.In Italy, at minus 4.6% like-for-like in Q4, sales showed a similar trend as in Q3. The new CEO, who took over in October following a period of diagnosis, is starting to implement a thorough action plan. In Belgium, sales were down 3.1% like-for-like in Q4. Carrefour is penalized by a very competitive market that slowed down sharply after a very dynamic third quarter. The group has implemented new initiatives to relaunch commercial momentum. Romania showed a new quarter of positive like-for-like growth at plus 2.3%, as did Poland, with growth of 2.1%.Now turning to Latin America. Carrefour continued its strong sales momentum with sales of EUR 4.3 billion, up 15.4% at constant currencies and up 12.9% on a like-for-like basis. In Brazil, like-for-like sales sequentially improved to 6.2%, with solid growth both at Atacadao and Carrefour Retail in a quarter that confirmed the return of food inflation.Atacadao's strong growth was supported by continuous gains in volumes and was further boosted by expansion with 20 additional stores in the full year, of which 6 in Q4.Carrefour Retail for its part showed a sequential improvement from 2.5% like-for-like in Q3 to 3.5% in Q4, leveraging on group commercial dynamics, a successful Black Friday and the continued rollout of Drives and omnichannel services. Financial services in Brazil also posted another excellent performance, with total billings of 25% in Q4, driven notably by the fast growth of the Atacadao credit card, which now has 1.6 million holders and accounts for almost 1/4 of total billings.In Argentina, like-for-like sales were up 39%. In a complex macroeconomic environment, commercial measures taken in favor of the purchasing power of consumers are bearing fruit, boosting both traffic and volumes. It is worth noting that Argentina, which is one of our integrated countries, is officially considered to be in a hyperinflationary situation. As such, we are applying the IAS 29 accounting rule to our 2018 numbers, which impacts our sales and results, as mentioned in our press release.We conclude our geographical review with Asia. Total sales stood at EUR 1.3 billion, down 4.1% like-for-like. In China, like-for-like of minus 6.2%, sales remain under pressure in a challenging macroeconomic and competitive environment. Carrefour is continuing to proactively adapt its commercial model with a sales area reduction and reallocation, including a partnership with Gome for 11 shop-in-shops for consumer electronics, development of fresh and digital, logistic integration and cost reduction. Carrefour kept accelerating its e-commerce activities, which benefit from the implementation of new technologies and new partnerships in the O2O offering. Scan & Go technology has been rolled out in less than 3 months in all stores. Self checkout is being deployed and the penetration rate of digital payment has risen sharply. In Taiwan, commercial momentum continued with another quarter of like-for-like growth, despite weaker markets ahead of the local elections.Before concluding, let me highlight, once again, that Carrefour benefits from a solid financial structure. This year, the group successfully carried out 4 bond issues for a total amount of EUR 1.8 billion. These bond issues were largely oversubscribed, which confirms the quality of the Carrefour group's signature. In addition, Carrefour has undrawn credit facilities from its banking partners for EUR 3.9 billion maturing in 2022 and 2023. I'll remind you that Carrefour is rated BBB+ with negative outlook by S&P and Baa1 with a stable outlook by Moody's. We remain committed to a very solid balance sheet, which is a strong asset in the context of rapid changes in food retail.In conclusion, in the fourth quarter, the group posted solid sales momentum despite headwinds in some key markets. New milestones were achieved in the implementation of the Carrefour 2022 plan, confirming the powerful transformation dynamic at work within the group. These elements reinforce our confidence in our strategy and the strength of Carrefour business. We confirm all our targets.Thank you very much for your attention, and we are now happy to take your questions.

[Operator]

[Operator Instructions] We have our first question coming from Cedric Lecasble from MainFirst.

[Cedric Lecasble]

It's Cedric Lecasble from MainFirst. Can you hear me?

[Matthieu Malige, Chief Financial Officer]

Yes, very well.

[Cedric Lecasble]

I have 2 questions, if I may. So first one on the initiatives with Sapient, with Publicis. Could you maybe tell us, even if you will elaborate further in a few weeks, what has been done and what still needs to be done in terms of a big measure to implement a pure omnichannel model? You gave some elements, Alexandre gave some elements, but maybe it would be interesting to know what's down the road. So second question is on Belgium. Maybe you could elaborate a little bit on this competitive evolution in the fourth quarter. What went wrong or what changed in the fourth quarter? And the last one maybe on your shop-in-shop initiatives. You have 2. You have some with Darty in France. You have some in China I wasn't aware of. Could you maybe tell us what you've seen so far? If they are encouraging in France with Darty and what you can expect from these initiatives? Are you going to develop them on a larger scale?

[Alexandre Bompard, Chairman & CEO]

Thank you, Cedric. Firstly, let's speak -- let's answer your first question about the omnichannel universe and about inside Sapient. As you will probably remember, our conviction when we joined the company, is the fact to have siloed organization was preventing from really building an omnichannel model. So what we have tried to do after arrival was to break the silo and to make all the formats work together with the digital, in other words, to create a real universe joining articulating the physical and the digital assets and to make them work together. It means to accelerate on the e-commerce, on the omnichannel universe. It means to work on a holistic approach, work on the back office on the logistic, be capable to have the best-in-class logistic and back office adapted to the area. As you will remember, it's what we have done with PPC. It's what we have done with Drive. That is the first part. The second part is to think, imagine and develop all the services that fit with the customer expectations, Drive, pedestrian Drive and, of course, delivery services in all the cities. We have developed that in all the geography. And last of all, last but not least, to rethink about our front office. In the huge majority of our geographies, we used to have many applications, many websites, and it was impossible for our customer to understand what was the real offer from Carrefour. That's what we have done in all the geography, creating one front office. And that's what we have done with Sapient in France. We have asked Sapient to help us to build a new front office, to build new applications, to be capable to have a real website, make it attractive for our customers. We launched that during the last quarter in France. We are quite pleased with the first performance. It's more attractive. It's more user-friendly. It's more natural for the customer, and that's exactly what we want to do to have a natural offer, best-in-class, user-friendly, and that's something very important. We have developed that in all our geographies, but it has to be thought in a holistic approach, including back office and services. That's for your first question. For shop-in-shop -- and Matthieu would say a word about Belgium. For shop-in-shop, as you know, we have decided -- or our analysis is that on a certain number of categories, we have to partner with best-in-class players, particularly in the category of consumer electronic goods under what we call [ the EGS ]. We have consequently decided to develop in 3 different geographies partnership that is a case in Poland with Media Markt, that's a case in China with Gome, and that's a case in France with Darty. It's very interesting because we have different approach, we have different partners to do that. It's very new because we have developed that -- let's take the example of Darty in France. We developed that in November. So November, we had free weeks, then we had the yellow vests phenomenon, so it's quite difficult to absolutely analyze the figures. But more than the figures, what is very interesting for us is that we learned a lot. We clearly see that we have a best offer for our customers, that we probably will have the capabilities to offer better services, and it's important to have better services in all our hypermarkets. It's very promising initiatives in different geographies. Matthieu, on Belgium?

[Matthieu Malige, Chief Financial Officer]

So on Belgium, a number of considerations to understand what's underlying the Q4 sales trend. First, there is a -- as I said in my introduction, a decline in the markets. You may remember, I think, we commented that in our Q3 sales call that we had a very dynamic market in Belgium over the summer. The market has substantially reduced its pace in Q4 on the back of complex social environment and a drop in consumer confidence index in Belgium. In parallel to that, in all markets, we see strong competition and, in particular, in Q4 from discounters and from other competitors. So that generated a disappointing sales trend in Q4. We are working on launching a number of actions to accelerate even faster the repositioning of the commercial proposition by investing on key pillars of the Carrefour 2022 strategy plan, like private labels, fresh, healthy segments, so all that kind of products. That's the key items around the Q4 induction.

[Operator]

Next question comes from Xavier Le Mené from Bank of America.

[Xavier Le Mené]

Two -- 3 questions actually. First, just on...

[Alexandre Bompard, Chairman & CEO]

Cannot hear you very well, Xavier, sorry.

[Xavier Le Mené]

Okay, is it better?

[Alexandre Bompard, Chairman & CEO]

Yes. Thanks for that.

[Xavier Le Mené]

So I'll start again. Just yellow vest impacts, are you able, actually, to quantify it in terms of sales and as well as EBIT, so it would be helpful, actually, to get a sense? The second thing is, in France, you got a lot of change actually coming with a new regulation. So how do you see 2019 versus 2018? What do you think we should expect in terms of competition? And how do you see it actually? And lastly, can you give us a word on the 2019 negotiation, especially with system in France? How does it go?

[Alexandre Bompard, Chairman & CEO]

Thank you. So let's begin with the yellow vests. As Matthieu said, and of course, we clearly felt the impact of the yellow vest movement, of course. Overall, everyone would agree that the general mood was not absolutely favorable to shopping. We had to close some shops, gas stations here and there for safety reasons, of course. Some roads, some tolls, some highways were blocked, which at times cut off access to warehouses and stores. Of course, some stores, Matthieu said, were, obviously, more impacted than others, among which big hypermarkets to the extent that nonfood was more impacted than food also. Our teams have made an incredible work in order to welcome our customers. The level of mobilization of the company has been huge during this period. In terms of the concrete impact on our performance, of course, it has some direct impact both on sales with closures, missing projects due to logistic problems as well as caused shrinkage, extra hours, delivery -- extra delivery. But at the same time, there have been also, let's say, some substitution effects from format to format, from the weekend to the week. Given all that, for us, it's not possible to properly evaluate the net impact, and we have decided not to provide a comprehensive evaluation, as in fact, it will require entering into a highly debatable assumption, which, as you know, is not at all the approach of the team. Your second question, I think, is on the new regulation, more precisely. So as you know, the calendar has quite moved because the law was passed in Parliament in October. Specific decision moved, finally, was published in the second half of December, so we have maximum discount of 34% since the 1st January. In February, since the first, we will have minimum gross margin of 10%. And finally, in March, we will have total promotion volume which will represent less than 25% of sales on a given category. So what we can say is that we are in a sort of transitional period, which will last, of course, Q1 and probably the beginning of Q2. On all the retailers, and it's our case, we think and we shape the commercial strategy and, consequently, we do think it's a bit early to draw any conclusions. What we do think, additionally, is that private labels, loyalty programs could be stepped up. It's a good news for us because they are both key pillars of our 2022 plan, which fits well with the logic of the new regulation, but we are in a transitional moment where we think we are expecting, of course, many change in the commercial strategy of the players. So let's speak about the subject soon. Last of all, 2019 negotiation, so I'd be shorter. It begins -- it's beginning, and we'll speak about all of that at the end of this negotiation, which as you said, in France in the new context with [ the food retail ] entity.

[Operator]

Next question comes from Arnaud Joly from Societe Generale.

[Arnaud Joly, Equity Analyst]

I have 2 questions. The first question on France. So you seemed to accelerate the openings of Drive pedestrian. Can you please give us some flavor on the basket size, on the nature of products to see if it is very different from what is sold in the convenience stores and potential cannibalization, if any, for the convenience store? And my second question on China. We have deterioration in like-for-like sales growth in Q4 versus Q3. Is it driven by a social macro? Or is it more a company specific, such as you mentioned reduction in pace just to have a better view of what's going on in China?

[Alexandre Bompard, Chairman & CEO]

When you asked to speak about Pedestrian Drive because it's exactly what we want to be able to do to launch new services in short time that fulfill customer expectation. What is Pedestrian Drive? It's a service that allows customer to order online and pick up their basket in a city center location of their choice and, consequently, to benefit from the attractive prices of our hypermarkets. We do think it's a very interesting service, and we are in advance against competitors. We have already launched 42 Pedestrian Drives. We are investing heavily. We need to push our advantage further to develop the service rapidly. It's not exactly the moment for us to give you any elements on -- as we imagine there are some competitive elements about the basket. We don't think that it cannibalizes that, and we clearly see it's not the case. And we clearly see that our franchise partner want today to develop their own Pedestrian Drive, which is a very interesting sign. We do think that our customer are used to have different stores and different prices with the proximity stores on the hypermarket in similar neighborhoods. Consequently, we think it's a good service. It brings in the center of the city the price of the hypermarket, not only the price, the amplitude of the offers. It's not the same types of purchases, and we are very pleased to have been able to take the leadership on that, and we will continue to accelerate. Matthieu, the second question?

[Matthieu Malige, Chief Financial Officer]

Yes. On China, I think there is a change I will not pronounce the holiday or the feast in proper terms, but there's been a calendar switch from the end of September to beginning of October or the reverse we had this holiday and campaign last year, which was at the beginning of October and which moved this year to end of September. So it is -- it impacts a little bit the reading between Q3 and Q4, Arnaud. Overall, we don't think there is a deterioration of trend. Even if you look at H1 and H2, H2 is likely improving by one point versus H1. So I think it's a trend where we are still accelerating online with new services, keep investing with our partner Tencent on new features, new services with WeChat. In parallel to that, we are also modernizing our hypermarket offer with more fresh, more quality, more service. We have the new concept, Le Marche, which you may have visited, which is bearing very interesting results. So that's the strategy on what we could say about Q4 in China.

[Operator]

Next question comes from Andrew Gwynn from Exane BNP Paribas.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

So 2 questions for me. I think at the half year stage, you quantified the cost savings. So I'm just wondering if you could do that at this stage. And then sort of connected to that, when we embarked on this plan back in January last year, you talked then quite a bit about effectively not front running the cost savings, i.e. free up some costs and then invest in the offer and then free up some costs and invest in the offer. Where are we in that cycle? Thinking specifically about sort of profit growth in 2019, is it still going to be quite an intensive year in terms of investment into the business? Notice, for instance, that the hypermarket prices in France have seemed to have changed dramatically. But any thoughts on that kind of shape would be greatly appreciated.

[Alexandre Bompard, Chairman & CEO]

Yes, thank you, Andrew. As far as the cost savings, you're right, we quantified that for H1. Remember, it was EUR 520 million. We will give you the number when we meet again in February. It will obviously be an important information to understand the dynamics of 2018, and we took some commitments as to target. So it's absolutely normal that we share the figure. Just wait a few more weeks. On your second question, well, again, not really the time to speak about 2019, but I think that the movement that we have initiated to transform in depth our costs, the way we run the business, and we shared a few ideas with you in our press release tonight to have more industrialized approach to buy incumbent or services and our various goods not for resale. That's really the approach, and that will clearly continue into 2019. These savings allow us to reinvest into the transformation and more competitiveness of our stores, which includes price competitiveness but which also includes new services, and we mentioned new services in a previous question. So no change. That's really a dynamic that is now in play, and that is being rolled out semester after semester.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Okay, fine. Just on the pricing in the hypermarkets. Are we sort of wrong to assume that there hasn't been a particular move in France?

[Matthieu Malige, Chief Financial Officer]

Well, we disagree with that. We think that our hypermarkets have increased their competitiveness through 2018. As you know, we don't want to say too much about it because it's very sensitive data, but we are already implementing the strategy in their various pace and priorities. But clearly, we are implementing our strategy as far as attractiveness of performance.

[Operator]

Next question comes from Sreedhar Mahamkali from Macquarie.

[Sreedhar Mahamkali, Analyst]

Three quick questions then from me also. Just to follow up on Xavier's point on negotiations. Are you able to say whether or not the negotiations are already building in the new food law, i.e., in terms of your discussions on reshaping the promotional funding into potentially other areas? So is this round of negotiations reflecting the law that kicked off of 1st of January? That's the first one. Secondly, in terms of range reduction, you talked about achieving already 7.5%. A couple of questions there, please. Firstly, which areas have been impacted? Which categories have you really touched on? And is 10% still the right number? And also just in terms of hypermarkets, what were the reductions [precisely, was the precise ] question on range reduction? And finally, just on Italy, you've talked about a new turnaround plan being put in place. Can you talk to potentially what are the key elements of this turnaround plan? Is it still the right footprint in terms of 54 hypermarkets and supermarkets and convenience stores? So if you could talk about a bit of the strategy in Italy, that will be very helpful.

[Alexandre Bompard, Chairman & CEO]

First question is very quick to answer. As you may imagine, the new negotiations are being held in the framework of the new legislation, even if the new legislation is not completely in place. But, of course, the negotiations have been held in this new framework of [ past scenario ]. Second question, as you know, we have the conviction that we have to reduce our assortment in a certain number of categories and particularly on profitable categories or part of categories which are unprofitable. That's particularly the case for a certain number of nonfood categories. That's also the case for FMCG we have also reduced. On the final objective we have posted of 10% is still in place. We are already at 7%. We are very pleased with the capabilities of all the geography to participate to this reduction. We clearly see that it improves the quality of the commercial offers on the visibility of the commercial offers we are capable to propose to our customers. And it also has favorable impact, as you imagine, on our logistic costs. So it's positive. For Italy, Matthieu, just a word?

[Matthieu Malige, Chief Financial Officer]

Yes. For Italy, so it's just a few months now that the new Managing Director is into the job. Again, for sensitive reasons, I would not elaborate in too much detail, but there are clearly 2 types of actions. First, short-term actions relating to having a greater control over the operations and having his eye on the commercial policy and promotions to make sure that they are appealing and well appropriate to what are the expectations of our customers. So first point. And then the second type of actions are more longer terms or in-depth action plans. And you're going to see here the main categories for Carrefour 2022 plan, with a review of the assortment with more private label products, local products, obviously, a focus on fresh. And we will also keep developing the growth format, not only proximity format, which as you know, are a priority and are working very well in Italy. We also had, over the quarter, some sales area, reduction in some hypermarkets, and we will also be pushing on e-commerce. So main ideas are common with other geographies. They will be obviously adapted locally. So all this is already taking shape.

[Sreedhar Mahamkali, Analyst]

Sorry. Just very quick follow-up on range reduction. The [ 7.5% fees ] for France, can you give us a corresponding number for the hypermarket, please?

[Alexandre Bompard, Chairman & CEO]

Well, I don't have the exact number for the hypermarkets, but it's probably about the same [ in terms of -- or a little more ]. But it's really a common range review.

[Operator]

Next question comes from Maxime Mallet from Deutsche Bank.

[Maxime Mallet, Research Analyst]

I had a few. The first one would be with regard to Leclerc. So what we've seen in the latest comparator is showing that Leclerc [ aggressivity ] has been a bit more aggressive in Italy in the prospective share of voice and in advertising. So just wondering whether you could comment on -- whether you've seen the competitive environment getting a bit worse toward the end of the year in France. I know it's been particularly difficult notably on social inception, but like on the competitive landscape, you talked about the shop-in-shop center test and thinking that, that's the right strategy. So maybe can you elaborate on when you expect you're going to roll it out on like wider scale [ considering what is the timeline ] right now? With regard to the investment that you've mentioned to Arnaud's question that you invested in your store, notably hypers, the thing is, if we look at the comparative sections of H2, that through the year, price perception from a consumer standpoint has been steadily worsening quite materially through the whole year. So I'm wondering, when do you think consumer perception of notably your prices will start to improve? And the last point is, you've mentioned a target of 400,000-square-meter size reduction for your stores. Can you maybe update on where you are on this particular topic?

[Alexandre Bompard, Chairman & CEO]

Thank you. I'm pleased that you read the compare analysis with this careful assumption. So our case, of course. On Leclerc aggressivity, yes, probably, but it's not so obvious. It's many months Leclerc has been saying that he was going to be very, very aggressive on the way we quite see the same competition. So the competition is at a high level. Leclerc, of course, is a main player of this competition, but we don't see real changes from one player, including himself in terms of intensity of competition. So nothing special to be clear on this point. I don't really know the analysis of compare on the customer perceptions. We have made some investments, as Matthieu said. We have listed a certain number of strategies. We have been working on this, [ tweak it ], as you know. And we did price promotion, loyalty program and see what we can do with all of that, including the fact that we knew that the legislation will pass and that we have to think about that, to anticipate that and to test a certain number of new mechanisms. So it's what we have done. And our objective is to be capable in the new framework that will challenge things to have a good offer for our customer, with probably a [ weight ] supplier on private label, with the capability to be good on the loyalty program and seeing to a certain number of new mechanism on which we have been working in the last weeks. For shop-in-shop, we have 7 weeks for [ the trend to emerge ]. So it's not a lot, about 8 weeks. It has been a little bit difficult to analyze during the yellow vests phenomenon. So we'll continue to analyze each week. We try to first analyze, then work on a better approach, try to work with all the data teams for implementing the best shop-in-shop, and after, we'll take a decision more globally. On the reduction of square meters, you're perfectly right, and we posted an ambition of 100,000 for 2020. We have already reduced the size of our areas of 20,000 square meters. We have been quite quick to do that. In December, we have been trying to do more retail reduction of square meters, but we are already at 20,000 square meters. And we have already very interesting informations from that. We clearly see that a certain number of our stores are more adapted, and we have a better commercial proposal for our customers. So it's very interesting for the management, and we will push very strongly in the next months on that.

[Maxime Mallet, Research Analyst]

And -- well, if I may try. It's a bit early, but I see [ current figures ] that EUR 2.06 billion for 2019 for the EBIT. Are you fine with that?

[Matthieu Malige, Chief Financial Officer]

Well, we've not finalized 2018, Maxime. Again, it's a sales call and just an estimate of the EBIT for throughout -- for 2018. So let's finish 2018.

[Operator]

Next question from Andrew Porteous from HSBC.

[Andrew Ian Porteous, Analyst, European Retail]

A few questions, if I could. First of all, I think you've got the Tesco partnership up and running now, and I was just wondering if you could talk through some of the early learnings of that and when you expect that to start impacting your offer. And then a follow-on from that, really, is if we think about sort of 2018, it seems like a lot of the initiatives that you put in place have really been about cost reduction. Should we think about 2019 being, one way, some of the initiatives you've got coming through, and I'm thinking Tesco, Système, et cetera, should impact more of the offering, perhaps to get more of an acceleration and like-for-like growth from that? And then second question was on cash flow, really. I mean, you've talked about EBIT guidance but I'm just wondering, you were very strong on cash flow in the first half from a working capital and CapEx perspective. Is there anything to call out ahead of the full year numbers that you're particularly pleased about -- or any particular big movements on that front?

[Alexandre Bompard, Chairman & CEO]

Thank you. First, a word on fiscal. I told you, I think, in a general way, I was absolutely convinced with the team that Carrefour needed to begin attracting this regarding manufacturers and consolidation. And therefore, we push out for Carrefour move from being [ a standalone ] company for being -- to being a company partnering with the best, and Tesco is part of this category. Given both sides on footprint of the 2 groups, we were natural candidates for such a partnership in Europe. And in order to strengthen our attractiveness with suppliers and manufacturers, we decided to offer a long-term strategic alliance governed by a full year operational framework. As you know, the alliance covers joint processing of all products on goods not for resell as well as strategic relationship with global suppliers. And we consider that our combined customer base and joint expertise notably in private label. Labels represent a good opportunity for all parties. So, of course, it's competitive. Mainly, we'll continue to work with suppliers, partners at the local or national level, but there will be also an extra layer of negotiation at the European level. So it's the first steps. We begin to work in common. The quality of the discussion on the relationship is very good. We learned a lot from them, and I hope they learned a lot from ours. We have mainly initiatives that begin to be in place and that will be relieving a lot of the pressure. And we hope to see the first results in terms of initiatives and in terms of results in 2019. Same thing, of course, with -- for Système U because it was your second question. As you know, it's a 5-years partnership. We were absolutely convinced that we have many in common with Système U, the same NDA, the same vision on the role of supply, of retailer, the relationships with the producers, the accent on diet foods, on well-being, on friendly environmental producers. We have built this partnership. We are now in our first round of negotiation with [ the producer in this regard ]. So, of course, the effects [ to address ] the second part of your question, of all this will be going in 2019 as it has been in 2018, because in this year, it has not existed. And we are very interested in seeing how this partnership, which are global partnership, including new initiatives, including -- mainly workshops, will be developed in the future. The progress in the beginning is very good. The atmosphere is very positive. The partnership is at a high level. And we want to be capable to deliver good performance, thanks to that. Matthieu, on the free cash flow?

[Matthieu Malige, Chief Financial Officer]

Well, on cash flow, I will just ask for a little patience for just a few more weeks until we meet again at the end of February.

[Operator]

Next question from Nicolas Champ from Barclays.

[Nicolas Champ, Director]

I have 3. The first one is, could you please quantify the impact of food inflation in France in Q4? The second one is, do you see any improvement or, let's say, less negative impact from the yellow vests event since the beginning of this year at your hypermarket and nonfood? Or is it still the same trend since the beginning of January? And my third and last question, I mean, concerns Casino sold 6 hypermarkets to Leclerc last weekend. It seems that some of these stores are -- will strengthen Leclerc's position in some cities, in some local markets, and you will be directly impacted by this strengthening position of Leclerc. So I would -- wanted to know whether it represents an issue for you or whether you plan to take some legal action, especially vis a vis the French auditors authority maybe to flag Leclerc's monopoly situation in some cities, especially, for instance, in the back country, for instance.

[Matthieu Malige, Chief Financial Officer]

Maybe you can answer.

[Alexandre Bompard, Chairman & CEO]

Yes. On food inflation, there are -- we don't think there's any particular change in the dynamic of inflation. You have a number of various institutes giving that not always into the same direction. So we don't think there's any specific trend in -- of change on food inflation on the last weeks or months of the year. Nothing specific there.

[Matthieu Malige, Chief Financial Officer]

On the yellow jackets, we remain very cautious, of course, about the development of the movement. Of course, you clearly see that it's not exactly the same type of actions. There used to be some more levels, some tolls, some highways that were blocked on that block access to warehouse and stores, and it's not what we see today. So it's the same type of consequences than it was in November and December. It's not the same type of action today, but of course, we remain very cautious on that. On Leclerc, no particular comment. We are not absolutely afraid of having Leclerc in front of us. [ Auchan ] was a critical player, and so we don't see any real consequences. We'll get used to have Leclerc in front of us and control it. With the initial Leclerc, sometimes, the result is positive for us. So we are not absolutely worried about that. It's not a deal at all.

[Alexandre Bompard, Chairman & CEO]

Last question? Two last questions? One last question. Two last questions.

[Operator]

One question from Mr. Dan Ekstein from UBS.

[Daniel Ekstein, Director and Equity Analyst]

First question, I'd like to understand a bit more about the underlying dynamics within your French hypers. I think over the course of -- I know Q4 was noisy, but over the course of 2018, like-for-likes were maybe 1.5% negative. Could you help us out by giving us a split between the food and nonfood sides of the business there and what food like-for-like would have been over the course of the year and any trends there? And then secondly, I think you franchised your first hypers in March of last year. Is there any update you can give on performance there? So that's two-part question. Secondly, it's good to see the profitability of the business growing, and there's fairly lots of progress in implementing the turnaround plan, but I count 5 of your individual markets in negative like-for-like territory at the moment. Do you think you're striking the right balance between how much of your cost savings you invest in the customer proposition and how much you're allowed to rebuild margin at the moment?

[Alexandre Bompard, Chairman & CEO]

Yes. So let's begin with the lease management contract. We announced that in March, you're right, but the first hypermarkets which were transferred into lease management contract were in September. So we just have a quarter of analysis. So it's quite new. What has been, I think, positive is that we have been capable to negotiate a social framework with the employee representatives. We have a social framework that enables us to convince our teams on the interest of these operations. And the first element we have in terms of figures, activities on the way the hypers are going are very positive, but it's very new and we need a little more time.

[Matthieu Malige, Chief Financial Officer]

On the first one relating to the food's performance in the hypers, although through 2018 food sales are stable versus the previous year, in a context where we had the, obviously, yellow vests, but also, you may remember that we were impacted at the end of Q1 by some social transformations, so that's the performance for the year. On your third question relating to the investments and the -- in competitiveness and the cost savings, well, we think and we've tried to share these ideas with you in our press release and our comments tonight that there is a very powerful dynamic of transformation of our commercial proposition, including in the stores that has started to take shape in 2018. So we are very satisfied with that. Obviously, it's the year 1 of the 5-year plan. So there is a lot more to come, as you can imagine. But, yes, we're very satisfied with the way we've been able to improve our commercial proposition in our stores through 2018.

[Operator]

Next question from Mr. Monteyne from Bernstein.

[Bruno Monteyne, Senior Analyst]

Three from me, please. Are you able to measure any improvement of the brand in Carrefour and France yet, especially in relation to quality, given how much focus you put on fresh food quality and organics? My second question is, you referred a few times to being a global reference in food transition for all global reference for healthy eating. Normally, I see those expressed in higher sales penetrations for private label, fresh fruit or organic, but we don't really see Carrefour in the data I see as a global leader in that. So what data do you really have or can share with us to really share that idea that you are the global reference in those areas? And third of all, looking at the like-for-like in China, there has been a big negative number for quite a long while. I know you mentioned the macroeconomic environment in China, but it's clearly not in recession. When -- how confident are you about the plan of China given the very long track record of big negative like-for-likes? And how long will it take before the Tencent deal can make a measurable impact on those negative like-for-likes?

[Matthieu Malige, Chief Financial Officer]

Thank you, Bruno. I will start maybe with your last question on China and then we'll let Alexandre take the other questions. Well, I think you followed very closely the situation of the market in China. The market has evolved very fast, probably one of the fastest evolution through the world from a physical retail to a more online retail, with e-commerce penetration in China, which are probably at the highest levels in the world. So clearly, it takes time to adapt to so rapid a shift in the business. What we are trying to share with you is, all the initiatives that we are taking in order to notify first the commercial proposition in our stores, reducing the sales area in a number of them, investing more in fresh, more imported products. Revisiting nonfood, I think, the example of gourmet speaks for itself. Clearly, we are not there. We are not satisfied with the trend in the like-for-like in hypers. There is still a lot to do. It's a high number of stores, but this is underway. In parallel to that, we are investing heavily into new services, new digital services and in partnerships with a number of players. And we are accelerating quarter-after-quarter the penetration of our online food offer and sales. So we're not there yet, but we are very impressed by the speed at which the teams could grow in China notably in 2018 in transforming the business. Clearly, more to do but a very positive dynamic there.

[Alexandre Bompard, Chairman & CEO]

On your first 2 questions, which, in fact, are quite the same, where is the brand and where the healthy eating. What I did think joining the company is that to increase the value of the brand and to be a powerful group, because of our strong history, we needed a clear vision and a clear mission and a clear ambition. And that's why we have set last year, this ambition to be the leader of the food transition for -- it was not just -- it was not at all a marketing concept. The idea was to be capable to prove to our customers to build an ecosystem of players around us in order to give proofs of this engagement. And the expression of that was the Act for Food campaign that we launched in December. And what is very positive is that it has had a real impact on our customers, on our partners and also on our competitors. And we clearly see the difference of vision of our customers in the quality survey we have because of the fact that we are capable on many concrete actions, block chains, responsible agriculture, animal welfare, you have seen that we have made some announcements about [ audit ] on that, and a lot of transparency, reducing waste. We have proven and we want to continue to do that and to accelerate and to reinforce in all the geographies, I know it's not a French phenomenon, that we are the leader of food transition forward. After you write, there's also a question of products, and there are 2 categories which can be -- there are many categories, but there are 2 essential initiatives that we have to develop. First, we want to be the only leader on organic, and that is already the case in France. That is already the case in a certain number of geographies on where we accelerate. We were around EUR 1.3 billion one year ago. We are this year EUR 1.8 billion, and that is due to the extension of the plays, the role of organic in all our stores, hypermarkets, supermarkets, proximity stores. That is due also to the enlargement of the assortment. That is due to the fact that we have been capable to rethink the role and commercial concept of Carrefour Bio, where we launched the brand Carrefour Bio. We work on that on a certain number of stores in Paris, [ and there -- on the -- in the whole suite ] we work on that. We have also been working to develop on digital, thanks to Greenweez [ and in ] Planet, our store in Spain, in order to have a new [ product ] platform and to be the clear leader on that. The second point, of course, you're right, is the private label. We have very good expertise on that. We have done a good job in the past. But probably, in the recent years, it has not been the priority of the group. This is now priority of the group. We have a new team. We have a new leader coming from the industry. We have been working in all the countries to resume the role of the private label to -- as a deep review of our private label arranged by category, to simplify, to clarify our brand portfolio. So it's a huge action plan we have. Our partnership with Tesco will also help us to accelerate on this. And we have clearly the ambition of 33%, as you know, at the end of the plan, and we will work on that. We have now clear vision of where we should accelerate. We have the good partnership. We have the good team. All the managers in the country are convinced that it's something that can differentiate us. And it's absolutely at the center of our mission of the food transition forward. So we are very active on that, very optimistic, and we do believe that we have a huge capability to increase our commercial offer for our customers on that. Thank you.

[Matthieu Malige, Chief Financial Officer]

Thank you very much to all of you. This ends our call today. Again, we'd like to thank you for your attention and your questions. And we'll be speaking again very soon, as we will be presenting our full year results on February 28.

[Alexandre Bompard, Chairman & CEO]

Thanks to all of you.

[Matthieu Malige, Chief Financial Officer]

Have a nice evening. Bye-bye.

[Alexandre Bompard, Chairman & CEO]

Have a nice evening.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.