Financial Analysis of Carrefour

Chapter 5 product S. A. Teaching visor Version frame in 2007 Introduction The crossbreeding case is a pecuniary analytic thinking case. everywherelap S. A. is one of the worlds giantst retailers. During the beginning half of the 2000s, the keep segmentnerships sh be footings steadily declined, despite the fact that the keep caller reported above- amount returns on law. Students be asked to analyze crosss financial contentions and segment data to find explanations for the keep companys pathetic shargon worth act and to enlighten recomm lay offations for the future. The backchat of the financial abbreviation is preceded by a discussion of crossings schema and accounting.Both the accounting analysis and the financial analysis argon affected by hybridisations commute from cut generally received accounting principles reporting to IFRS reporting in 2005 but specialist companionship of cut generally accepted accounting principles and IFRS (and first-time ad survival) is non indispensable. dubiousnesss for students 1. 2. consider hybridizings combative and corporate dodging. What are the attain risks of the companys strategy? Analyze crossbreedings accounting (including the topics of crossroads switch to IFRS-based financial reporting). Are any positionments to crossbreedings financial statements requisite?Analyze point of intersections operational trouble, financial management and investment funds management during the days 2001 to 2005, making use of both financial statement data and segment data. What are the primary drivers of the companys poor manage price performance? Summarize the key findings of the financial analysis and provide recommendations for improvement to overlaps management. What actions could management bespeak to convalesce the confidence of Chrystelle Moreau and her fel down(p) investors? 3. 4. Case analysis Question 1 severalise characteristics of intersection points strategy and the a ssociated risks are the spare-time activity Competing on price and product. interbreeding follows a strategy that combines some elements of a polariation strategy with elements of a be drawship strategy, especially in its hypermarkets. Specifically, the hypermarkets differentiate themselves from competitor supermarkets (1) by offering a overmuch broader assortment ( more product categories (food and non-food) as fountainhead as a wider choice of spots within one product stratum (including its own brands)) and (2) investing in customer loyalty programs (e. g. , the Pass card). This strategy is backed up by a powerful marketing campaign.At the homogeneous weight time, however, cross room realizes thatespecially during economic raventurnsits customers switch low switching be and are relatively price sensitive. The company thusly wishes to keep the prices in its hypermarkets at economic levels. The centering in which the company can give this is by o Keeping a close eye on what consumers want ( through and through customer surveys and building a customer behavior database utilise data gathered through, for example, the companys customer loyalty card) and by timely adjusting its assortment and pricing to reassigns in consumers preferences. Having a well create logistics sackwork. This keeps employee disturbance high and helps to control costs. o Benefiting from economies of scale, not only in logistics but also in purchasing of supplies (aggregation of purchasing international negotiations with suppliers). o Selling low-priced products under hybridizations own brand name. An of the essence(predicate) risk of following a combination of strategies is that crossovers hypermarkets ferment stuck in the middle. The plan multifariousnesss that Jose Luis Duranthe unseasoned CEOannounced later replacing Daniel Bernard give notice that this happened during the first half of the 2000s.While many of crossbreedings competitors, such as Lecl erc, Auchan, Aldi, and Lidl, were able to aggressively depress their prices during the economic downwardlyturn, consort to Duran interbreeding had poreed too much on differentiation and up its boundary lines per feather cadence of store lay (which mixes portionage margins and asset turnover). Consequently, the company lost its competitive edge to price discounters (by losing its reputation for low prices), which slowed down point of intersections developing and harmed its domestic market handle. International development.When large companies such as hybridisation start to obtain a preponderating position in their domestic markets, they whitethorn be forced to exposit overseas or enter former(a) industries. convergences corporate strategy is to expand overseas rather than diversify. More importantly, as indicated above, achieving growth is an essential part of fords strategy because (international) growth helps the company to obtain economies of scale in purchasing, logistics and the development of convergence mark products. For example, Carrefour merchandises its own branded products in the same packaging worldwide (of course printed in different languages).The companys overseas sell ope balancens are, however, more wild than its domestic operations. First, to some extent retailing remains a local anaesthetic business because consumers tastes differ considerably across countries. wampumable expansion alfresco Carrefours domestic market is only possible if the company has good knowledge about 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 reach to be paying, which can also drive down sugar.Second, many of Carrefours intercontinental hypermarkets are located in countries where the economic environment is risky consumers in economically little(prenominal) actual countries are possi ble to be more price sensitive eastbound Asian and South the Statesn countries tend to have more bureaucratism and stronger government protection of local firms. Third, in several countries, Carrefour has to contend with other multinationals such as Tesco and Wal Mart, who are trying to sack up a strong market position ( nighly through backbreaking price competition).In sum, Carrefours 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 Carrefour generated 10 part of its mo webary 2005 advances ( ahead chase and taxes) in South America and East Asia, although the company generated close to 15 percentage of its fiscal 2005 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 stat ements and, consequently, could affect the analysis of Carrefours historical performance. More specifically, to improve comparability across classs the analyst must assess how Carrefours pre-2004 performance and financial position would have been under the currently adopted accounting standards. When doing so, the following changes are important to consider Under cut GAAP, Carrefour was required to amortize free grace. IFRS does not allow good provide amortization but requires companies to on a regular basis test good will for terms.The elimination of goodwill amortization change magnitude Carrefours elucidate profit in 2005 by close to 25 percent (and ROA by 0. 8 character drumheads). Pre-2004 earnings figures might be understated because of goodwill amortization charges. However, amortization charges whitethorn have replaced/prevented impairment charges in these years. Hence, the network effect on net profits is likely to be (significantly) less than 0. 8 percent of tot al assets. cut GAAP based earnings did not include an disbursal for stock option grants to Carrefours employees.Because such a grant imposes costs on Carrefours shareholders, IFRS requires that the Black & Scholes think of (or the value from another accepted option valuation model) of these option grants is recognized as expense in the income statement during the vesting point in time. In 2005, Carrefours stock option expense had a cast out effect on net profit of 1. 4 percent (and a negligible effect on ROA). The switch from French GAAP to IFRS has resolvented in negative adjustments to both inventories and cost of sales in 2004.The reason for these adjustments (which was not explicitly mentioned in Carrefours 2005 financial report) is that under IFRS, inventories include adds for (inventory-related) serve that Carrefour billed to its suppliers. That is, instead of recognizing the amounts as revenues in the period of billing (as the company did under French GAAP), Carref our now delays the learning of these to the period in which the associated inventories are sold. This change of treatment reduced end-of-year inventories in 2004 by 10. 2 percent (and equity by 5. 7 percent).In addition, cost of sales in 2004 summationd because the amounts 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 Carrefours inventories (as well as the services that Carrefour provides to its suppliers) increase, the IFRS treatment will intimately likely result in higher cost of sales than the French GAAP treatment. In the 3 years immediately prior to 2004, inventories simplification by fairly small amounts.It is therefore unlikely that during these years the French GAAP treatment of inventories had created significant differences between reported net profits and net profits that would have been report ed under IFRS. The French GAAP treatment did, however, result in higher inventories (and equity and deferred tax liabilities) than those that would have been reported under IFRS. Assuming that during these years, the overstatement of inventories callable to the immediate recognition of revenues from services provide to suppliers has been around 500 million, the overstatement of equity has been in the range of 4-5 percent.Under IFRS Carrefour has to recognize (slightly) great employee benefit obligations and classify (slightly) more leases as finance leases (hence reported on the balance 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). support lease adjustments affected primarily non-current assets and current liabilities.In addition to the changes mandated by IFRS, Carrefour made one voluntary chan ge in its estimates of the economic useful lives of buildings the company increase the wear and tear period from 20 to 40 years. Assuming that this change was justified, depreciation of buildings prior to 2004 was mislead. In detail, Note 15 indicates that the difference between restated accumulated depreciation and blood lineal accumulated depreciation on buildings at the end of 2004 was 158 million. This elicits that depreciation in 2004 was initially overstated by 158 million, resulting in an understatement of ROA of close to 0. serving points (all under the assumption that the new policy is correct). In summary, under French GAAP, return on (total) assets whitethorn have been understated by, at maximum, 1. 2 percentage points because of overstated goodwill amortization and buildings depreciation. In addition, under French GAAP equity whitethorn have been overstated by at maximum 8 percent because of its accounting for inventories and employee benefits, but, at the same tim e, may have been understated because of (an outsideer amount of) overstated goodwill amortization.Note that the adjustments that Carrefour made to its financial statements because of the change in estimates are not the same as the adjustments that an analyst would make if he/she would assume 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 fiscal years. At the end of 2005, Gross Buildings equaled 8,031 million.Unfortunately, the carrying value of scratch Buildings is not disclosed, making it impossible to deduce the average age of Carrefours buildings and forcing the analyst to make a crude assumption. Under the assumption that the average age of Carrefours buildings is 5 years, the carrying value of assoil Buildings would have to be change magnitude by an amount of 1,004 million ((5/20 5/40)x8,031) to retrospe ctively 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 fusty depreciation rate on buildings, Carrefours noncurrent assets may be understated because the company has operational leases. At the end of 2005, Carrefour had large in operation(p) lease commitments. debunk TN-1 estimates the net present value of these commitments.The estimated NPV of Carrefours operating lease payments is approximately 3. 1 billion, 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 operating leases is not abnormal in the retailing industry. 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 screening TN-2 displays a set of ratios for Carrefour and Tesco.The roe decomposition indicates that Carrefour has lower operating profit margins than Tesco but higher asset turnover. The net effect is that Carrefour has a moderately lower operating ROA than Tesco. Although Carrefours in operation(p) 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 comfortably greater than returns on assets. This is because both Carrefour and Tesco make much use of vendor financial support, which makes their working enceinte negative.This emphasizes the importance of recasting the financial statements and development the alternative approach to 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 also strike differences in the effectiveness of operating management, investment management and financing 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, Carrefou rs profit margins are likely to be smaller at the benefit of higher asset turnover. Tesco has a lower presence in non- europiuman markets (such as Asia and South America) than Carrefour. Especially in these markets, entering multinational retailers such as Carrefour, Tesco and Wal Mart strongly compete on price to become the dominant market player. operate management. As indicated, Carrefours net operating profit margin is lower than Tescos, possibly because Carrefour engages in price competition more than Tesco. The ratio Cost of materials/sales 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. Possibly because Carrefour competes less on product and services than Tesco, its strength expenses as a percentage of sales were 1. 2 percentage point lower than Tescos. disparagement and amortization charges as a percentage of sales are approximately equal for both co mpetitors. Investment management. The PPE/gross revenue ratio suggests that Tesco has invested a substantially larger amount in property, plant and equipment.There are various reasons for this difference o Part of the difference between Carrefour and Tesco is due to the fact that Carrefour has a slightly greater remainder of its PP&E financed under operating lease agreements. Tescos decision to sell and leaseback a substantial residuum 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 also 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 l ocations) than Carrefour. In particular, the cost price of Tescos land and buildings per comforting molar concentration 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 Sales per average square meter 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 square meters of store space are substantially less expensive, Carrefour necessitate, on average, more square meters than Tesco to generate a euro of sales. Although Carrefours PPE/Sales 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 primarily 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 (past) strategy of growth through acquisitions has a downside organic growth is typically more profitable than growth through acquisitions (see also question 2). Carrefours working majuscule turnover is substantially lower than Tescos.More specifically, it takes Carrefour approximately twice as much time as Tesco to sell its inventory. For a retailer, this is important because inventories comprise a large proportion of the companys assets. This may be due to a difference in strategies the company that sells relatively more non-food products will also have lower inventory turnover. Historically, Carrefour has been the European leader in selling a mix of food and non-food products. During the past ecstasy Tesco has added more and more nonfood products to its assortment.Although both companies are not very have about their reliance on non-food sales, there are some (older) statistics available. In 2004, about 46 percent of Carrefours hypermarket sales came from juiceless grocery, 16 percent from fresh food, 17 percent from consumer electronics, 7 percent from apparel, and 14 percent from general merchandise. In semblance, 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 contribution of non-food products to the companies total sales is fairly comparable 22 percent (0. 58 x 7% + 17% + 14%) versus 22 percent. Carrefours trade receivables turnover is also substantially lower than Tescos. An important reason for this difference is that Carrefours financing company provides consumer reliance 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-run 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. Carrefour may therefore need to offer these financial services in order to effectively compete with its French industry peers. pecuniary management. Carrefour is more leveraged than Tesco. Carrefours leg 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 execution to its shareholders. The net effect of these transactio ns will be that Tescos leverage will get closer to Carrefours. In addition, Carrefours interest coverage ratios arealthough lower than Tescossufficient, indicating that Carrefour experiences no problems to meet its interest 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 matter-of-fact 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). Exhibit TN-3 displays the year-to-year changes in various ratios. The following changes are celebrated direct 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 pri ce 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 inefficient because Carrefours spread out is still positive and its interest coverage is still 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 ca utilize 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 remnant of Europe, South America, and Asia, respectively. o In 2005, flash-frozen asset turnover was 4. 51 in France versus 2. 18, 2. 62, and 2. 59 in the Rest of Europe, South America, and Asia, respectively. EBIT margins were also much lower in Carrefours foreign markets than in its domestic market. However, like turnover, Carrefours profit margins declined in its domestic market by and by 2003. There has been a strong decline in sales per square meter in France after 2002.This decline can possibly be attributed to Carrefours exhalation of market share in its domestic market. During the first half of the 2000s, Carrefour primarily invested out side France. It is puzzling 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 interchange lam performance Exhibit TN-5 displays Carrefours standardized cash ply statements. Between 2002 and 2005, Carrefours operating cash emanate in the first place 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 cash springs 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 pattern of dividend increases over time, dividend payments in 2006 are likely to exceed 800 million. If in 2006 operating cash flow onwards working capital investments will be similar to historical values, Carrefour will need additional 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 resist cutting dividends or raising new equity as this may put come on 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 necessity 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 Analyst Ch rystelle 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 price. b. Carrefour could also make better use of vendor financing. The companys trade collectibles 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 accordance with its announced intentions). b. The observation that s ales 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 appropriate strategy for the salutary term. Given the low level of sales per square meter, a less expensive way of growing 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, increase inventory turnover. Finally, a substantial proportion of Carrefours net assets consists of goodwill. Adding more goodwill would probably have a further negative effect on the companys abnormal profitability. One way to provide a powerful positive signal to investors about Carrefours future cash flow generating ability is to follow Tescos example in selling and leasing back a substantial proportion of the companys property. (Analysts estimate Carrefours propert y 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 refocusing of its growth strategy under the adagio of more square meters in less countries. Carrefour expanded its store network 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 December 2006, Carrefour acquired all of Aholds civilization 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 announcement, Carrefours share price decreased by 5 percent to 44. 50. On March 8, 2007, Carrefours President of the Supervisory carte du jour (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 Colony Capital acquired a 9. 8 percent embark in Carrefour. Analysts expecte d 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) calculate 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 Payment finance leases 52 196 in 5 y. 196 in 5 y. 196 in 5 y. 196 in 5 y.PV Assumed PV PV Reported Assumed Payment portion finance Payment Payment operating finance leases 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 2 670 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 decomposition reaction of ROE Net profit margin (ROS) Asset turnover = lapse 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 Operating and Financing Components in ROE Decomposition 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 Management Ratios Operating working capital/Sales Net non-current assets/Sales PP&E/Sales Operating working capital turnover Net non-current asset turnover PP&E turnover Accounts receivable turnover Inventory turnover Accounts collectible 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% derogation and Amortization 0. 3% 0. 0% other Operating Income, Net of Other Operat ing Expenses -0. 4% -0. % Net Interest Expense 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 Profit -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 + Finan cial 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% Inventory 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 payable (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 constituent 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 2000 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 losses (gains) Non-current operating accruals Operating cash flow before working capital investments Net (investments in) or extinction of operating work ing capital Operating cash flow before investment in non-current assets Net (investment in) or liquidation of non-current operating assets renounce cash flow available to debt nd equity After-tax net interest expense (income) Net debt (repayment) or issuance Free 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