Financial Analysis of Carrefour

Chapter 5 reward S. A. Teaching Note Version jar a summationst 2007 Introduction The crossoer case is a pecuniary analysis case. product S. A. is 1 of the worlds too largest retailers. During the show sequence one-half(a) of the 2000s, the beau mondes sh atomic number 18 exp deathitures steadily disciplined, despite the concomitant that the society comprehend above-aver succession returns on blondness. Students ar asked to analyze crosss pecuniary disputations and part entropy to find chronicles for the societys wretched sh are harm performance and to take form recommendations for the proximo. The discussion of the mo passary analysis is preceded by a discussion of overlaps st enjoingy and history.Both the method of greenbackancying analysis and the fiscal analysis are affected by hybridizings overcome from french ecumenically accepted accounting principles reporting to IFRS reporting in 2005 but specialist intimacy of french generally accepted accounting principles and IFRS (and first- age adchoice) is non required. Questions for students 1. 2. give focal point hybridizations semiprivate-enterprise(a) and corporate strategy. What are the appoint risks of the confederacys strategy? Analyze crosswalks accounting (including the imprints of crossways switch to IFRS- base monetary reporting). Are any appointments to crossroads financial statements necessary?Analyze products in operation(p) manold agement, financial focussing and investment management during the geezerhood 2001 to 2005, fashioning use of some(prenominal) financial statement data and element data. What are the primary drivers of the beau mondes lament satisfactory partake in spending performance? reiterate the key findings of the financial analysis and set aside recommendations for emendment to hybridisations management. What actions could management take to bump the corporate trust of Chrystelle Moreau and her collea gue investors? 3. 4. Case analysis Question 1 Key characteristics of crosswalks strategy and the associated risks are the fol go forthing Competing on value and product. intersection fol busteds a strategy that combines some elements of a differentiation strategy with elements of a address leadership strategy, in particular in its hyper merchandises. Specifically, the hypermarkets split themselves from competitor supermarkets (1) by offering a practically broader assortment ( much product categories (food and non-food) as well as a wider preference of steels within one product family line (including its own brands)) and (2) investing in client loyalty programs (e. g. , the Pass card). This strategy is approve up by a operose marketing campaign.At the same time, however, ford realizes thatespecially during economic downturnsits customers hold depression replacement respects and are relatively price sensitive. The social club in that respectfore wishes to keep the prices in its hypermarkets at economic levels. The way in which the federation can achieve this is by o Keeping a goal eye on what consumers want ( by customer surveys and building a customer air database using data gathered by dint of, for example, the companys customer loyalty card) and by timely adjusting its assortment and pricing to repositions in consumers preferences. Having a well positive logistics lollywork. This keeps overthrow superior and helps to control costs. o Benefiting from economies of scale, non only in logistics but overly in purchasing of supplies (aggregation of purchasing international negotiations with suppliers). o Selling low-priced products infra crossways own brand name. An important risk of following a combination of strategies is that crosswalks hypermarkets fabricate stuck in the middle. The planned commutes that Jose Luis Duranthe spic-and-span chief executive officerannounced after replacing Daniel Bernard betoken that thi s happened during the first half of the 2000s.While many of crossbreedings competitors, much(prenominal)(prenominal) as Leclerc, Auchan, Aldi, and Lidl, were able to aggressively turn down their prices during the economic downturn, jibe to Duran ford had focused too much on differentiation and ameliorate its coasts per lusty clip of descent space (which mixes theatrical role security deposits and summation perturbation). Consequently, the company lost its competitive edge to price brush asideers (by losing its re dropation for low prices), which slowed down hybridisations maturement and harmed its domestic market grapple. International harvest-tide.When large companies such as overlap start to determine a predominate military post in their domestic markets, they whitethorn be forced to expand abroad or enter other industries. intersections corporate strategy is to expand overseas rather than diversify. More importantly, as indicated above, achieving growth is an essential part of crossroads strategy because (international) growth helps the company to obtain economies of scale in purchasing, logistics and the development of crossoverbranded products. For example, crossbreeding sells its own branded products in the same packaging worldwide (of course printed in different languages).The companys overseas sell trading operations are, however, much untamed than its domestic operations. First, to some extent retailing remains a topical anesthetic melodic line because consumers tastes differ comfortably across countries. remunerative expansion after-school(prenominal) fords domestic market is only accomplishable if the company has good knowledge somewhat local customers preferences and tastes. Consequently, a slightly safer way to expand abroad is to acquire local supermarket chains. A disadvantage of this strategy is, however, that acquisition premiums remove to be give, which can too drive down internet.Second, many of hybridisations intercontinental hypermarkets are placed in countries where the economic environment is big consumers in economically slight(prenominal) developed countries are in all probability to be to a great extent price sensitive East Asian and mho American countries tend to invite to a greater extent(prenominal) bureaucracy and sacrosancter government vindication of local firms. Third, in several countries, crosswalk has to fence with other multinationals such as Tesco and Wal Mart, who are trying to gain a strong market position ( nighly with sedate price competition).In sum, crosss overseas operations tend to be in countries where consumers are likely more price sensitive, several multinationals engage in severe price competition, and the economy is slight stable. Note, for example, that convergence generated 10 part of its fiscal 2005 goods ( forwards fill and taxes) in entropy America and East Asia, although the company generated besotted to 15 part of its fiscal 2005 gross gross revenue in these areas. Question 2 In 2005, carrefour changed its accounting policies from cut generally accepted accounting principles to IFRS.This change affected the companys financial statements and, consequently, could affect the analysis of hybridizings diachronic performance. More specifically, to repair comparability across days the analyst must assess how hybridizings pre-2004 performance and financial position would do been below the red-hotly adopted accounting standards. When doing so, the following changes are important to go out Under french generally accepted accounting principles, cross was required to amortize free grace. IFRS does non allow good lead amortisation but requires companies to regularly interrogation good go out for impairment.The elimination of goodwill amortisation cast up hybridizings lolly lettuce in 2005 by scrawny to 25 per centumageage (and ROA by 0. 8 persona points). Pre-2004 earning s figures dexterity be chthonianstated because of goodwill amortisation charges. However, amortization charges may take aim replaced/prevented impairment charges in these categorys. Hence, the net notion on net loot is likely to be ( strongly) less(prenominal) than 0. 8 percent of total additions. cut GAAP based earnings did non include an expenditure for stock option grants to point of intersections employees.Because such a grant imposes costs on products shareholders, IFRS requires that the Black & Scholes cling to (or the judge from another accepted option valuation model) of these option grants is recognized as expense in the income statement during the vesting period. In 2005, intersection points stock option expense had a contradict effect on net shekels of 1. 4 percent (and a negligible effect on ROA). The switch from french GAAP to IFRS has resulted in negative margins to both inventories and cost of gross gross sales in 2004.The close for these ad justments (which was not explicitly mentioned in products 2005 financial report) is that under IFRS, inventories include measures for (inventory-related) function that intersection point billed to its suppliers. That is, instead of recognizing the measures as revenues in the period of billing (as the company did under French GAAP), hybridization now delays the mention of these to the period in which the associated inventories are sold. This change of sermon pressd end-of-year inventories in 2004 by 10. 2 percent (and fairness by 5. 7 percent).In appendage, cost of sales in 2004 increase because the gists billed for services related to the beginning-of-year inventories were smaller than those related to the end-of-year inventories. More specifically, the adjustment reduced net profit by 3. 3 percent. During years in which fords inventories (as well as the services that hybridization stands to its suppliers) increase, the IFRS treatment will most likely result in high c ost of sales than the French GAAP treatment. In the 3 years without delay prior to 2004, inventories decreased by rationalityably small amounts.It is soce unlikely that during these years the French GAAP treatment of inventories had created significant expirations among report net profits and net profits that would perplex been reported under IFRS. The French GAAP treatment did, however, result in higher(prenominal)(prenominal) inventories (and lawfulness and deferred tax liabilities) than those that would have been reported under IFRS. Assuming that during these years, the overstatement of inventories re collectable to the warm recognition of revenues from services provide to suppliers has been just more or less 500 million, the overstatement of equity has been in the bleed of 4-5 percent.Under IFRS convergence has to recognize (slightly) great employee benefit obligations and classify (slightly) more makes as pay removes (hence reported on the sleep sheet) than under French GAAP. In 2004, employee benefits have resulted in a negative adjustment of end-of-year equity (by close to 4 percent) and a positive adjustment of end-of-year non-current liabilities (by close to 3 percent). Financing lease adjustments affected in the first place non-current summations and current liabilities.In addition to the changes mandated by IFRS, crosswalk made one voluntary change in its estimates of the economic useful lives of buildings the company increased the dispraise period from 20 to 40 years. Assuming that this change was justified, wear and tear of buildings prior to 2004 was mislead. In particular, Note 15 indicates that the inequality between restated accumulated depreciation and original accumulated depreciation on buildings at the end of 2004 was 158 million. This suggests that depreciation in 2004 was initially overstated by 158 million, resulting in an understatement of ROA of close to 0. dower points (all under the trust that the new p olicy is correct). In summary, under French GAAP, return on (total) pluss may have been unostentatious by, at maximum, 1. 2 percentage points because of overstated goodwill amortization and buildings depreciation. In addition, under French GAAP equity may have been overstated by at maximum 8 percent because of its accounting for inventories and employee benefits, but, at the same time, may have been understated because of (an unfamiliar amount of) overstated goodwill amortization.Note that the adjustments that crossroad made to its financial statements because of the change in estimates are not the same as the adjustments that an analyst would dispatch if he/she would take over that Carrefour had always depreciated its buildings over a period of 40 years. Carrefour does not restrospectively adjust its financial statements, but uses the new 40-year depreciation period only for 2004 and later on fiscal years. At the end of 2005, pure(a) Buildings equaled 8,031 million.Unfortu nately, the carrying value of crystalise Buildings is not disclosed, making it impossible to derive the average age of Carrefours buildings and forcing the analyst to charter a crude precondition. Under the assumption that the average age of Carrefours buildings is 5 years, the carrying value of make Buildings would have to be increased by an amount of 1,004 million ((5/20 5/40)x8,031) to retrospectively adjust Carrefours financial statements.Similarly, under the assumption that the average age of Carrefours buildings is 10 years, the carrying value of Net Buildings would have to be increased by an amount of 2,008 million ((10/20 10/40)x8,031) to retrospectively adjust Carrefours financial statements. In addition to the overly cautious depreciation rate on buildings, Carrefours obsolete assets may be understated because the company has operate(a) leases. At the end of 2005, Carrefour had large in operation(p) lease commitments. bring out TN-1 estimates the net place valu e of these commitments.The estimated NPV of Carrefours run lease payments is nigh 3. 1 one million million million, which is equivalent to slightly more than 48 percent of Carrefours net non-current debt in 2005 (3,121/10,443 226 3,773) and implies an understatement of Carrefours non-current tangible assets by approximately 18 percent (3,121/13,864 + 3,121). The use of operational leases is not abnormal in the retailing application. For example, at the end of the fiscal year ending on February 26, 2006 (labeled fiscal 2005), Tesco, one of Carrefours U. K. based competitors had operating leases for an estimated amount of ? 2,718 million, which was equivalent to slightly less than 75 percent of Tescos net non-current debt in 2005 (2,718/4,958 1,325) and implied an understatement of Tescos non-current tangible assets of approximately 15 percent (2,718/15,882 + 2,718). In summary, Carrefours non-current tangible assets appear to be understated by an amount in the range of 4 5 billion (or 22 27 percent (versus 15 percent for Tesco)). Question 3 Carrefour versus Tesco manifest TN-2 displays a set of ratios for Carrefour and Tesco.The hard roe decomposition indicates that Carrefour has lower operating profit margins than Tesco but higher asset disorder. The net effect is that Carrefour has a moderately lower operating ROA than Tesco. Although Carrefours operational ROA is lower than Tescos, Carrefour has a higher return on equity than Tesco, both in 2005 and 2004. The reason for this is that Carrefour is more supplementd than Tesco. Note that operating returns on assets are existently greater than returns on assets. This is because both Carrefour and Tesco make much use of vendor support, which makes their work hood negative.This emphasizes the importance of recasting the financial statements and using the alternative approach to hard roe decomposition. The differences in the components of roe between Carrefour and Tesco may find their origin in the strategic differences between both companies. However, they may in any case reflect differences in the speciality of operating management, investment management and support decisions. We will discuss each of these sources below. strategic differences. Carrefour focuses more on creating a reputation for low prices and engages more in price competition with discounters than Tesco.Consequently, Carrefours profit margins are likely to be smaller at the benefit of higher asset overturn. Tesco has a lower strawman in non- europiuman markets (such as Asia and South America) than Carrefour. specially in these markets, entering multinational retailers such as Carrefour, Tesco and Wal Mart strongly compete on price to become the dominant market player. in operation(p) management. As indicated, Carrefours net operating profit margin is lower than Tescos, mayhap because Carrefour engages in price competition more than Tesco. The ratio salute of materials/sales and then confirms this.In 2005, this ratio was 3. 6 percentage points higher for Carrefour than for Tesco, which illustrates the margin-reducing effect of price competition. perhaps because Carrefour competes less on product and services than Tesco, its personnel expenses as a percentage of sales were 1. 2 percentage point lower than Tescos. depreciation and amortization charges as a percentage of sales are approximately equal for both competitors. investment funds management. The PPE/ gross sales ratio suggests that Tesco has invested a intimately larger amount in property, plant and equipment.There are unhomogeneous reasons for this difference o Part of the difference between Carrefour and Tesco is due to the fact that Carrefour has a slightly greater affinity of its PP&E financed under operating lease agreements. Tescos decision to sell and leaseback a substantial pro luck of its property suggests that Tescos management believes that Tesco does not yet optimally benefit from lease financing . In addition, Carrefours depreciation of buildings has been overly conservative in the years prior to 2004. Consequently, Carrefours understatement of non-current angible assets is estimated to be approximately 10 percent greater than Tescos (see in any case question 2). o Statistics disclosed in the notes to the financial statements suggest that Tesco owns significantly more expensive stores (possibly at significantly more expensive locations) than Carrefour. In particular, the cost price of Tescos land and buildings per strong measuring stick equals ? 2,778 p. sq. m. (14,247/5. 129), or 4,086 p. sq. m. , whereas the same statistic equals 1,005 p. sq. m. (11,141/11. 08) for Carrefour (in fiscal 2005). o gross sales per average significant measuring rod in fiscal 2005 was 6,850 (76,496/0. x11. 08 + 0. 510. 671) for Carrefour versus ? 8,140 p. sq. m. (39,454/0. 55. 129 + 0. 54. 565), or 11,972 p. sq. m. , for Tesco. Hence, although Carrefours true meters of store space are substantially less expensive, Carrefour needs, on average, more forthright meters than Tesco to generate a euro of sales. Although Carrefours PPE/gross revenue ratio is substantially lower than Tescos, the companies net non-current asset/sales ratios are almost equal. (Note that part of the remaining difference is explained by the fact that Carrefours non-current assets are more understated than Tescos. The explanation for this is that Carrefour has a much greater amount of goodwill recognized on its balance sheet. This amount of goodwill has in the beginning arisen from the acquisitions of Compoirs Modernes (1998/99 2,356m), Promodes (1999 3,032m), GS (2000 3,136m), and GB (2000 1,128m). The negative effect of goodwill on asset turnover illustrates that Carrefour ( departed) strategy of growth through acquisitions has a downside organic growth is typically more profitable than growth through acquisitions (see excessively question 2). Carrefours working crown turnover is substa ntially lower than Tescos.More specifically, it takes Carrefour approximately in two ways as much time as Tesco to sell its inventory. For a retailer, this is important because inventories bear a large semblance of the companys assets. This may be due to a difference in strategies the company that sells relatively more non-food products will likewise have lower inventory turnover. Historically, Carrefour has been the European leader in marketing a mix of food and non-food products. During the ago decade Tesco has added more and more nonfood products to its assortment.Although both companies are not very wanton about their reliance on non-food sales, there are some (older) statistics available. In 2004, about 46 percent of Carrefours hypermarket sales came from dry grocery, 16 percent from fresh food, 17 percent from consumer electronics, 7 percent from apparel, and 14 percent from general merchandise. In comparison, 22 percent of Tesco U. K. sales came from non-food sales in 2004. Under the assumptions that (1) Carrefour sold its non-food products only in hypermarkets (which generated 8 percent of total 2004) and (2) Tesco sold a similar percentage of non-food products in its non-U.K. markets, the portion of non-food products to the companies total sales is fairly similar 22 percent (0. 58 x 7% + 17% + 14%) versus 22 percent. Carrefours workmanship dues turnover is also substantially lower than Tescos. An important reason for this difference is that Carrefours financing company provides consumer identification to Carrefours customers. This credit has been extended to Carrefours customers through point-of-sale financing (offering a credit facility that enables customers to amortize the cost of their purchases over a longer period) or private credit cards.The short-term portion of this credit has been classified as trade receivables. Point-of-sale financing and private credit cards were common especially in Carrefours domestic market, France. Carrefo ur may therefore need to depict these financial services in run to effectively compete with its French industry peers. Financial management. Carrefour is more leveraged than Tesco. Carrefours degree of leverage is, however, not abnormal for a retailer. This is illustrated by the fact that Tesco has planned to sell and leaseback a substantial amount of property (more than ? billion) and return the proceeds of this achievement to its shareholders. The net effect of these minutes will be that Tescos leverage will get closer to Carrefours. In addition, Carrefours have-to doe with coverage ratios arealthough lower than Tescossufficient, indicating that Carrefour experiences no problems to meet its hobby obligations. Carrefours performance over time When analyzing Carrefours financial performance over time, the analysts has to take into account that Carrefour applied IFRS for the first time in 2005.A pragmatic approach to account for this is analyze year-to-year changes in ratios that are based on the same accounting standards (change in 2005 = IFRS-based change from 2004 to 2005 change in 2004 = French GAAP-based change from 2003 to 2004). presentation TN-3 displays the year-to-year changes in various ratios. The following changes are noteworthy operate management. Both personnel expenses and cost of materials as a percentage of sales have increased during the past two years. As indicated, this most likely illustrates the margin-decreasing effect of severe price competition. Investment management.In 2004, Carrefour managed to increase asset turnover, which mitigated the negative effect of the operating margin decrease on operating return on assets. In 2005, both margin and turnover decreased, suggesting that Carrefour has been unable to effectively compete on price. Financial management. Leverage (as well as Carrefours financial leverage gain) decreased for three consecutive years. This seems uneffective because Carrefours spread is bland positive an d its interest coverage is withal sufficient. On the other hand, Carrefours financial spread, and with that the benefits of leverage, has decreased over the past two years.Analysis of Carrefours segment information Exhibit TN-4 displays several ratios that have been calculated using Carrefours segment information. Based on the segment analysis (at least) the following conclusions can be drawn The comparison of Carrefours with Tescos asset turnover illustrated that Carrefours sales per square meter of store space was substantially less than Tescos. The segment analysis shows that this difference in turnover is primarily caused by the underperformance of Carrefours stores outside France o In 2005, sales per square meter was 10. 6 thousand in France versus 5. 90 thousand, 3. 13 thousand, and 3. 55 thousand in the lie in of Europe, South America, and Asia, respectively. o In 2005, obstinate asset turnover was 4. 51 in France versus 2. 18, 2. 62, and 2. 59 in the substitute of Europ e, South America, and Asia, respectively. EBIT margins were also much lower in Carrefours contrary markets than in its domestic market. However, like turnover, Carrefours profit margins declined in its domestic market after 2003. There has been a strong decline in sales per square meter in France after 2002.This decline can possibly be attributed to Carrefours loss of market share in its domestic market. During the first half of the 2000s, Carrefour primarily invested outside France. It is befuddle that sales per square meter is substantially lower in hard discount stores (where one would expect low margins and high turnover) than in hypermarkets. Analysis of Carrefours change feed performance Exhibit TN-5 displays Carrefours standardized change in work statements. Between 2002 and 2005, Carrefours operating funds execute before working capital investments ranged from 3. 6 billion (in 2005) to 3. 9 billion (in 2003).In 2006, Carrefour will have (at least) the following uses of its hard cash flows Carrefours management announced in the companys 2005 financial report that capital expenditures in the years 2006-2008 would be close to 3. 3 billion per year (on average). Dividend payments equaled 758 million in 2005. Given the mold of dividend increases over time, dividend payments in 2006 are likely to exceed 800 million. If in 2006 operating cash flow before working capital investments will be similar to historical values, Carrefour will need spare sources of cash to finance its investments and dividends.The question therefore arises as to what sources of cash flow might be available to the company Carrefours management is likely stand firm cutting dividends or raising new equity as this may put further pressure on the companys share prices. Like in previous years, the amount of net investments in non-current assets will be less than the amount of capital expenditures. This is so because Carrefour will divest stores that are underperforming. However, as restructuring progresses cash inflows from divestments can be expected to decrease. This illustrates the want for Carrefour to improve its cash flow from operations.As argued above, possible ways to do this is by improving margins outside France or by regaining market share in France. In addition, the company may reduce its investments in inventories either by improving logistics or by improving knowledge of customer preferences. Question 4 psychoanalyst Chrystelle Moreau could use the following summary of key issues (and potential recommendations) arising from the analysis of Carrefours (and Tescos) financial statements 1. The analysis suggest that Carrefours management should take actions to improve operations management.In particular a. Carrefours low inventory turnover (relative to Tescos) suggests that the company needs to improve logistics. This would improve asset turnover, improve cash flow from operations and help the company to more effectively compete on pric e. b. Carrefour could also make better use of vendor financing. The companys trade payables turnover is relatively high compared to Tescos. Vendor financing may help the company in lowering its net debt (and interest expense). 2. Compared to Tescos, Carrefours sales per square meter is too low a.The decrease in France suggests that management should take action to regain market share in France (in treaty with its announced intentions). b. The observation that sales per square meter (and margins) are especially low in Carrefours foreign markets suggests that in those markets operations need to be improved. 3. It is questionable whether a focus on growth by adding stores is the most earmark strategy for the near term. Given the low level of sales per square meter, a less expensive way of exploitation might be to focus on improving sales levels in Carrefours current stores.In addition, as indicated, asset turnover could be improved by improving logistics and, consequently, increasin g inventory turnover. Finally, a substantial proportion of Carrefours net assets consists of goodwill. Adding more goodwill would in all probability have a further negative effect on the companys abnormal profitability. One way to provide a powerful positive signalize to investors about Carrefours future cash flow generating ability is to follow Tescos example in change and leasing back a substantial proportion of the companys property. (Analysts estimate Carrefours property to be worth 25 billion. The proceeds from this transaction could then be used to return cash to investors. Because future lease payments discipline managements actions and forces management to improve operating performance (see cash flow analysis), the transaction would signal managements confidence in Carrefours future performance and has the potential to put an end to the companys share price decline. Subsequent developments Carrefour continued the focus of its growth strategy under the adagio of more squa re meters in few countries. Carrefour expanded its store interlocking primarily in Europe (especially outside France).The company disposed of its stores in underperforming markets, such as Mexico, Japan, Czech Republic, Slovakia, and South Korea and increased its store space in well-performing markets such as Poland, Italy, Turkey, Romania, Brazil, China and Taiwan. For example, in declination 2006, Carrefour acquired all of Aholds round out supermarkets and hypermarkets for the amount of 375 million. In September 2006, Carrefour announced its earnings for the first half year of 2006. Both sales and net profit had increased relative to the first half of 2005. In particular, net profits had increased from 637 million to 706 million.The increase in net profits was, however, lower than analysts expected. On January 12, 2007, Carrefour announced that its fourth-quarter sales in 2006 had decreased by 1. 5 percent in comparison with fourth-quarter sales in 2005. Following this announc ement, Carrefours share price decreased by 5 percent to 44. 50. On March 8, 2007, Carrefours President of the Supervisory circuit board (and protege of the companys primary shareholder, the Halley Family), Luc Vandevelde, resigned, possibly as a result of a disagreement with the Halley Family. Vandevelde was replaced by Robert Halley.On the same day, private equity investor Bernard Arnault and US Fund closure Capital acquired a 9. 8 percent stake in Carrefour. Analysts expected that they were planning to force Carrefour to sell (and lease back) its valuable property (estimated to be worth 25 billion). Exhibit TN-1 (1) Calculating the interest rate implicit in finance leases (implicit rate = 9. 6%) and (2) calculating the present value of operating lease payment using the implicit rate of 9. 6% Year Reported honorarium finance leases 52 196 in 5 y. 196 in 5 y. 196 in 5 y. 196 in 5 y.PV faux PV PV Reported Assumed Payment factor finance Payment Payment operating finance lease s operating operating leases leases leases leases 52 0. 9552 49. 7 751 751 717. 4 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 39. 2 8. 2 0. 8715 0. 7952 0. 7255 0. 6620 0. 6040 0. 5511 0. 5028 0. 4588 0. 4186 0. 3819 0. 3485 0. 3180 0. 2901 0. 2647 0. 2415 0. 2204 0. 2011 0. 1834 0. 1674 0. 1527 34. 2 1780 in 5 y. 31. 2 1780 in 5 y. 28. 4 1780 in 5 y. 26. 0 1780 in 5 y. 23. 7 1780 in 5 y. 21. 6 2670 in 7. 5 y. 19. 7 2670 in 7. 5 y. 18. 0 2670 in 7. 5 y. 6. 4 2670 15. 0 2670 13. 7 2670 12. 5 2670 11. 4 2670 10. 4 9. 5 8. 6 7. 9 7. 2 6. 6 1. 3 372. 6 in in in in in 7. 5 7. 5 7. 5 7. 5 7. 5 y. y. y. y. y. 356 356 356 356 356 356 356 356 356 356 356 356 178 310. 3 283. 1 258. 3 235. 7 215. 0 196. 2 179. 0 163. 3 149. 0 136. 0 124. 1 113. 2 51. 6 2006 2007 2008 2009 2010 2011 196 in 5 y. 2012 and 557 in 14. 2 y. subsequent (557/39. 2) 557 in 14. 2 y. 557 in 14. 2 y. 557 557 557 557 557 557 557 557 557 557 557 557 in in in in in in in in in in in in 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 14. 2 y. y. y. y. y. y. y. y. y. y. y. y. 3,132. 1Exhibit TN-2 Carrefour versus Tesco 2005 IFRS Traditional guff of roe Net profit margin (ROS) Asset turnover =Return on assets xFinancial leverage =Return on equity (ROE) 1. 9% 1. 61 3. 1% 5. 52 17. 1% 2004 IFRS 2. 2% 1. 73 3. 8% 6. 06 22. 9% Carrefour 2004 2003 French French GAAP GAAP 1. 9% 1. 86 3. 6% 5. 16 18. 4% 2. 3% 1. 80 4. 2% 5. 51 23. 0% Tesco 2002 French GAAP 2. 0% 1. 77 3. 5% 5. 88 20. 7% 2001 French GAAP 1. 8% 1. 60 2. 9% 5. 89 17. 2% 2005 IFRS 4. 0% 1. 75 7. 0% 2. 41 16. 7% 2004 IFRS 4. 0% 1. 68 6. 7% 2. 34 15. 6% Distinguishing in operation(p) and Financing Components in ROE chemical decomposition reaction Net operating profit margin 2. % 2. 6% 2. 3% xNet operating asset turnover 3. 55 3. 91 4. 65 =Operating ROA 8. 1% 10. 1% 10. 9% Spread 6. 0% 7. 7% 7. 0% xFinancial leverage 1. 50 1. 67 1. 07 =Financial leverage gain 9. 0% 12 . 8% 7. 5% ROE = Operating ROA + Financial leverage gain 17. 1% 22. 9% 18. 4% Asset solicitude Ratios Operating working capital/ gross sales Net non-current assets/ gross sales PP&E/Sales Operating working capital turnover Net non-current asset turnover PP&E turnover Accounts receivable turnover breed turnover Accounts payable turnover Days accounts receivable Days inventory Days accounts payable . 8% 4. 37 12. 4% 8. 3% 1. 28 10. 6% 23. 0% 2. 7% 4. 09 10. 9% 6. 4% 1. 54 9. 9% 20. 7% 2. 6% 4. 00 10. 5% 4. 9% 1. 35 6. 7% 17. 2% 4. 2% 2. 69 11. 3% 9. 6% 0. 56 5. 4% 16. 7% 4. 2% 2. 56 10. 9% 8. 8% 0. 54 4. 8% 15. 6% -9. 2% 37. 3% 18. 6% -10. 9 2. 7 5. 4 12. 8 9. 6 7. 0 28. 1 37. 5 51. 5 -10. 1% 35. 7% 18. 0% -9. 9 2. 8 5. 5 15. 2 10. 1 8. 2 23. 7 35. 5 43. 8 -11. 7% 33. 2% 17. 7% -8. 5 3. 0 5. 6 23. 8 9. 1 7. 5 15. 2 39. 7 48. 1 -10. 0% 32. 9% 17. 4% -10. 0 3. 0 5. 8 22. 2 9. 6 7. 7 16. 3 37. 5 46. 7 -9. 5% 33. 9% 18. 0% -10. 5 2. 9 5. 5 21. 8 9. 3 8. 0 16. 38. 7 44. 8 -10. 3% 35. 3% 19. 6% -9. 7 2. 8 5. 1 23. 6 9. 1 7. 3 15. 3 39. 5 49. 3 -8. 3% 45. 5% 40. 3% -12. 0 2. 2 2. 5 44. 2 20. 2 3. 2 8. 1 17. 8 113. 9 -9. 2% 48. 3% 42. 9% -10. 9 2. 1 2. 3 44. 0 19. 3 2. 9 8. 2 18. 6 122. 6 Exhibit TN-3 Carrefours performance over time 2003 to 2004 2004 to French 2005 GAAP IFRS Common-sized Income Statement percentage point changes in Sales 0. 0% 0. 0% Cost of Sales -0. 2% -0. 3% SG -0. 1% 0. 1% Depreciation and Amortization 0. 3% 0. 0% otherwise Operating Income, Net of Other Operating expenses -0. 4% -0. % Net engross outlay or Income 0. 0% 0. 1% Investment Income 0. 0% 0. 0% Tax Expense 0. 0% 0. 0% Minority Interest 0. 0% 0. 0% Net make headway -0. 3% -0. 4% Pro forma income statement items percentage point changes in Cost of Materials (nature) -0. 2% -0. 3% Personnel Expenses (nature) -0. 5% -0. 2% Depreciation and Amortization 0. 3% 0. 0% 2002 to 2003 French GAAP 0. 0% -0. 1% 0. 3% 0. 1% -0. 1% 0. 2% -0. 1% -0. 1% 0. 1% 0. 3% 2001 to 2002 French GAAP 0. 0% 0. 2% 0. 3% 0. 1% -0. 2% 0. 1% 0. 0% -0. 2% 0. 0% 0. 2% -0. 1% -0. 1% 0. 1% 0. 2% 0. 1% 0. 1%Distinguishing Operating and Financing Components in ROE Decomposition percentage (point) changes in Net operating profit margin -0. 3% -0. 5% 0. 2% 0. 0% xNet operating asset turnover -9. 1% 6. 6% 6. 7% 2. 2% =Operating ROA -2. 0% -1. 5% 1. 5% 0. 4% Spread -1. 7% -1. 3% 1. 9% 1. 5% xFinancial leverage -10. 4% -16. 4% -16. 9% 13. 5% =Financial leverage gain -3. 8% -3. 2% 0. 7% 3. 2% ROE = Operating ROA + Financial leverage gain -5. 8% -4. 6% 2. 2% 3. 6% Asset Management Ratios percentage (point) changes in Operating working capital/Sales 0. 9% Net non-current assets/Sales 1. 6% PP/Sales 0. % Operating working capital turnover 10. 1% Net non-current asset turnover -4. 4% PP turnover -3. 1% Accounts receivable turnover -15. 7% blood line turnover -5. 5% Accounts payable turnover -14. 9% Days accounts receivable (change in days) -1. 2 Days inventory (change in days) 4. 4 Days accounts p ayable (change in days) 2. 1 -1. 8% 0. 4% 0. 4% -15. 2% -1. 1% -2. 0% 7. 2% -5. 6% -2. 8% -1. 1 2. 2 1. 3 -0. 5% -1. 1% -0. 6% -4. 8% 3. 2% 3. 6% 1. 7% 3. 3% -4. 0% -0. 3 -1. 2 1. 9 0. 9% -1. 4% -1. 6% 9. 1% 4. 1% 8. 9% -7. 6% 1. 9% 10. 0% 1. 3 -0. 7 -4. 5 Exhibit TN-4 divide analysis France 4. 1% 5. 50% 6. 00% 5. 88% 5. 55% 5. 16% 3. 62% 4. 51 5. 09 5. 23 5. 17 4. 95 4. 57 4. 11 2. 22% 2. 45% 2. 29% 1. 73% 2. 26% 2. 00% 4. 04% Rest of Europe 4. 22% 3. 94% 3. 73% 3. 37% 3. 31% 3. 69% 2. 15% 2. 18 2. 31 2. 19 2. 01 1. 93 1. 55 1. 88 4. 40% 3. 72% 4. 58% 5. 18% 6. 49% 6. 10% 14. 00% Latin America 2. 62% 1. 06% 0. 28% 0. 43% 0. 63% 2. 47% 3. 48% 2. 62 2. 33 2. 26 2. 48 2. 16 1. 73 1. 44 4. 89% 4. 89% 6. 39% 5. 13% 4. 38% 5. 19% 19. 25% Asia 3. 22% 2. 92% 3. 08% 3. 04% 2. 93% 2. 49% 1. 54% 2. 59 2. 56 2. 44 2. 37 2. 20 2. 19 1. 50 6. 63% 6. 59% 9. 40% 7. 65% 6. 96% 9. 02% 23. 10%EBIT margin 2005 2004 2003 2002 2001 2000 1999 2005 2004 2003 2002 2001 2000 1999 2005 2004 2003 2002 2001 2 000 1999 Fixed asset turnover CAPX to sales Exhibit TN-4 Segment analysis (continued) France Sales per sq. m. 2005 2004 2003 2002 2001 2000 1999 10. 96 11. 69 12. 23 12. 62 12. 64 12. 62 NA Rest of Europe 5. 90 6. 36 6. 39 5. 70 5. 90 5. 84 NA NA Latin America 3. 13 2. 55 2. 43 3. 00 4. 73 5. 58 NA Asia 3. 55 3. 41 3. 78 4. 41 5. 08 5. 21 Hypermarket 6. 18 6. 12 6. 39 6. 56 7. 23 7. 40 7. 49 Supermarket 5. 71 5. 64 5. 57 5. 80 6. 38 6. 59 5. 65 Hard discount 3. 85 3. 97 3. 93 5. 03 4. 8 5. 01 4. 58 Sales per store 2005 2004 2003 2002 2001 2000 1999 21. 38 23. 41 24. 66 26. 49 26. 41 19. 80 20. 50 6. 61 7. 09 7. 08 6. 94 6. 95 5. 64 4. 83 6. 21 5. 52 5. 67 7. 72 12. 98 16. 72 18. 98 13. 55 15. 00 23. 30 37. 72 43. 50 43. 99 32. 47 52. 21 53. 08 55. 45 57. 60 62. 40 67. 04 66. 83 8. 73 8. 75 8. 63 8. 63 10. 29 10. 26 10. 20 1. 49 1. 35 1. 41 1. 74 1. 66 1. 67 1. 46 Sq. m. per store 2005 2004 2003 2002 2001 2000 1999 1. 95 2. 00 2. 02 2. 10 2. 09 1. 57 NA NA 1. 12 1. 12 1. 11 1. 22 1. 18 0. 96 NA 1. 98 2. 17 2. 34 2. 57 2. 74 3. 00 NA 3. 82 4. 40 6. 17 8. 54 8. 56 8. 45 . 45 8. 67 8. 68 8. 78 8. 64 9. 06 8. 93 1. 53 1. 55 1. 55 1. 49 1. 61 1. 56 1. 81 0. 39 0. 38 0. 36 0. 35 0. 34 0. 33 0. 32 Exhibit TN-5 cash flow analysis 2005 IFRS Net profit Profit before taxes minus Taxes paid After-tax net interest expense (income) Non-operating losings (gains) Non-current operating accruals Operating cash flow before working capital investments Net (investments in) or liquidation of operating working capital Operating cash flow before investment in non-current assets Net (investment in) or liquidation of non-current operating assets bounteous cash flow available to debt nd equity After-tax net interest expense (income) Net debt (repayment) or offspring uncaring cash flow available to equity Dividend (payments) Net share (repurchase) or issuance Net increase (decrease) in cash balance 2004 IFRS 2004 French GAAP 1,509. 1 2003 French GAAP 1,737. 6 2002 French GAAP 1,539. 4 2001 French GAAP 1,438. 5 1,943. 0 263. 6 (206. 0) 1,564. 0 3,564. 6 175. 0 3,739. 6 (2,617. 0) 1,122. 6 (263. 6) 428. 0 1,287. 0 (758. 0) 88. 0 617. 0 1,723. 0 279. 7 (103. 0) 1,939. 0 3,838. 7 875. 0 4,713. 7 (2,148. 0) 2,565. 7 (279. ) (1,723. 0) 563. 0 (677. 0) (368. 0) (482. 0) 317. 7 (117. 9) 2,102. 2 3,811. 1 841. 2 4,652. 3 (2,146. 6) 2,505. 7 (317. 7) (1,675. 0) 513. 0 (608. 9) (367. 6) (463. 5) 368. 9 (253. 7) 2,066. 0 3,918. 8 323. 0 4,241. 8 (1,966. 2) 2,275. 6 (368. 9) (855. 4) 1,051. 3 (522. 5) 17. 3 546. 1 453. 4 (344. 6) 1,950. 0 3,598. 2 (149. 0) 3,449. 2 (3,163. 7) 285. 5 (453. 4) (1,541. 1) (1,709. 0) (475. 5) 300. 4 (1,884. 1) 550. 3 (1,193. 9) 2,537. 8 3,332. 7 837. 9 4,170. 6 (1,005. 6) 3,165. 0 (550. 3) (559. 4) 2,055. 3 (424. 6) 183. 7 1,814. 4