CARREFOUR S.A. How is Carrefour financing its growth? How risky is this financial strategy? Develop a cash-flow statement for Carrefour Would you alter the mix of wholly owned stores, joint venture stores or franchise stores in the future? How? What are the financial implications of each type of growth? In the future, should Carrefour concentrate its expansion in France or move elsewhere? If it goes elsewhere, how should Carrefour alter its financing strategy? Table A Number of Small Retail Stores in Operation, 1961-1971 1961 1967 1969 1971 Grocery and dairy storesa 149,100 111,900 96,480 85,090 Chain stores and cooperativesa 35,000 31,980 29,295 26,050 Drug stores 19,500 14,280 14,280 13,710 Totals 203,600 158,160 140055 124,850 Source: Points de Vente, March 1972, p. 125. a.Stores with selling areas of less than 400 m2. ----------------------- Table B Leading French Hypermarket Chains, June 30,1972 Trade Name Owner Group Number of Stores Operated under Trade Name Total Selling Area of Stores (thousands ofm2) Carrefour Carrefour 28 250 Mammoth Paridoc 28 153 Escalea Au Printemps 13 83 Radar Docks Remois 9 44 Rond-Point - 8 27 Euromarcha G.S.R.P. 7 32 Auchan - 5 47 Record - 5 23 Gant Casino Casino 4 36 Delta - 4 24 Source: Enterprise, July 1972, p. 63; September 15, 1972, p. 78. a. In mid-1972, Au Printemps and Euromarch concluded an agreement according to which all of Au Printemps' stores would be operated under the Euromarch trade name. This consolidation was believed to represent an effort by Au Printemps to compete more effectively in the future with Carrefour. -------------------- Exhibit 1 Income Statement Data, 1965-1971 (FF millions) 1965 1966 1967 1968 1969 1970 1971 1 Revenues (all taxes included) 156 220 339 524 1,025 1,445 2,234 2 less: value added tax 3 5 7 11 147 195 298 3 Revenues (net of value added tax) 153 215 332 513 878 1,250 1,936 4 Starting inventory 6 6 14 17 34 65 72 5 plus: purchases 133 194 291 454 782 1,063 1,670 6 less: ending inventory 6 14 17 30 65 72 107 7 Cost of goods sold 133 186 288 441 751 1,056 1,635 8 Gross margin 20 29 44 72 127 194 301 9 Salaries 8 11 16 26 56 82 119 10 Depreciation and amortization 2 5 4 8 15 19 32 11 Other expenses 3 7 11 17 26 41 61 12 Operating profit 7 6 13 21 30 52 89 13 Nonoperating gains (losses) (1) 0 1 1 4 (5) 1 14 Investment provision - - - - (4) (7) (10) 15 Profit before tax 6 6 14 22 30 40 80 16 Income tax 3 3 7 12 14 17 36 17 Profit after tax 3 3 7 10 16 23 44 Allocation of Profit After Tax 18 Shareholders' equity 3 2 5 3 3 3 4 19 Employee profit sharinga - - - 4 7 10 20 20 Dividends - 1 2 3 6 10 20 Income Statement Statistics 21 Gross profit margin (%) 13.1 13.5 13.3 14 14.4 15.5 15.5 22 Profit/Sales (net of VAT) (%) 2 1.4 2.1 2 1.8 1.8 2.3 23 Profit/Equity (%) 27 22 43 26 18 23 39 24 Earnings/Share (FF) 8.6 8.6 20 22 27 39 75 25 Dividends/Share (FF) - 2 4 7 11 18 34 26 Book value/Share (FF) 33 40 48 84 151 168 191 27 Market value/Share (FF) - - - - - 1,040 1,980 28 Price/Earnings ratio - - - - - 27 27 29 Dividend yield (%) - - - - - 1.7 1.7 30 Dividend payout ratio (%) 0 33 29 30 38 43 45 a. According to French law, firms must share with employees a portion of profits after tax in excess of 5% of net worth. The amount shared is earned by employees in one year (line 19 above), becomes a tax-deductible expense to the firm in the second year (included in line 9 above), and becomes the basis for a duplicate tax deduction (line 14 above) in the second year if the firm continues to make fixed asset investments equal to the charge. This legislation makes it possible for a firm to share profits with employees, yet incur no real after-tax cost (except for a potential one-year lag between profit-sharing payments and tax recovery) since the burden falls entirely on the government via a reduction in corporate income taxes. ------------------- Exhibit 2 Balance Sheet Data, 1965-1971 (FF millions) 1965 1966 1967 1968 1969 1970 1971 1 Intangible assets - - - - 4 1 1 2 Land 5 8 8 14 20 25 28 3 Building and equipment 11 22 26 50 82 136 202 4 Other fixed assets 6 9 14 21 38 52 49 5 Total fixed assets 22 39 48 85 140 213 279 6 less: depreciation 5 8 12 10 22 35 63 7 Net fixed assets 17 31 36 75 118 178 216 8 Investments and advances to affiliates 2 3 4 5 10 12 19 9 Inventory 6 14 17 30 65 72 107 10 Accounts receivable - - 1 2 2 3 4 11 Other current assets 1 9 19 58 50 75 124 12 Cash 9 5 8 18 51 116 151 13 Total current assets 16 28 45 108 168 266 386 14 Total assets 35 62 85 188 300 457 622 15 Shareholders' equity 11 14 17 39 89 98 112 16 Special provisions - - - - - 1 1 17 Long-term debt 3 9 14 26 25 64 64 18 Accounts payable - - - - 48 61 77 19 Trade notes (noninterest bearing) 16 33 39 100 79 147 244 20 Other current liabilities 5 6 15 23 59 86 124 21 Total current liabilities 21 39 54 123 186 294 445 22 Total liabilities 35 62 85 188 300 457 622 Balance Sheet Statistics 23 Current ratio 0.76 0.72 0.83 0.88 0.9 0.9 0.87 24 Total debt/Shareholders' equity 2.2 3.4 4 3.8 2.4 3.7 4.6 25 Networking capital (FF millions) (5) (11) (9) (15) (18) (28) (59) 26 Number of shares outstanding (thousands)a,b 347 347 347 462 588 588 588 a.Over the course of its growth, Carrefour sold equity for the company's own account to groups outside the families of the founders on only two occasions. In early 1968 the firm sold approximately 75,000 shares at FF145 per share to 40 employees at all levels in the firm (including store floorwalkers). In late 1969 the firm privately sold approximately 120,000 shares at FF342 per share. About 50,000 of these shares were sold to the Banque Pour L'Expansion Industrielle, which later offered them to the public (along with approximately 70,000 shares supplied by the founders) when Carrefour's stock was first introduced for trading on the Paris Bourse in June 1970. At December 31, 1971, the company had granted employee stock options covering 4,880 shares to 244 employees. ------------------- Exhibit 3 New Store Opening Data, 1960-1972 Country City Affiliate Name Carrefour % Ownership Interest Opening Date Selling Surface (thousands m2) Parking Spaces (thousands) Wholly Owned Stores France Annecy 100 6/60 0.7 0.1 Annecy 100 5/63 0.8 0.1 Paris (region) 100 6/63 5.5 1.0 Lyon 100 3/64 2.5 0.2 Chalon-sur Sane 100 5/65 1.0 0.2 Lyon 100 10/66 11.5 2.0 Chartres 100 10/67 5.5 0.7 Annecy 100 4/68 4.3 0.7 Dijon 100 9/68 9.0 1.5 Paris (region) 100 10/68 9.1 2.4 Chambry 100 5/69 4.6 0.8 Grenoble 100 8/69 7.1 1.5 Paris (region) 100 3/70 7.6 1.8 Marseille 100 9/70 21.3 4.0 Orleans 100 4/71 14.0 1.5 Melun 100 6/71 15.0 3.6 Meaux 100 10/72 11.3 3.0 Lyon 100 11/72 6.0 1.9 136.8 27.0 Joint Venture Stores France Bayonne SOGARA 49.9 3/67 3.2 0.9 Bordeaux SOGARA 49.9 10/69 16.2 1.8 Toulouse SOGARA 49.9 3/72 25.0 4.0 LeMans SOGRAMO na 6/72 7.5 1.0 Angers SOGRAMO na 6/72 8.2 1.1 Nantes SOGRAMO na 11/72 13.8 1.4 Charleville Ardennais 14.6 3/70 7.7 1.2 Belgium Mons Dit rimas 49.9 11/69 7.6 1.0 Liege Dit rimas 49.9 9/72 17.3 2.0 Switzerland Lausanne Hypermarch, S.A. 30.0 4/70 6.3 1.0 Berne Hypermarch, S.A. 30.0 3/72 9.2 1.1 United Kingdom Cardiff Hypermarket, Ltd. 10.0 9/72 5.5 1.0 Franchise Stores 127.5 17.5 France Paris (region) Bouriez 0 9/69 7.5 1.3 Strasbourg Bouriez 0 11/70 12.7 1.5 Lille Bouriez 0 5/71 9.4 1.3 Nancy Bouriez 0 10/71 8.7 1.5 Bthune Bouriez 0 5/72 8.4 1.2 Lens Bouriez 0 9/72 8.2 2.0 Colmar Bouriez 0 12/72 6.6 1.0 Caen Promodes 0 2/70 9.4 3.0 Alenon Promodes 0 8/72 3.8 0.9 Paris (region) Promodes 0 11/72 8.7 1.6 Valenciennes Promodes 0 10/72 8.6 1.4 Bourges Dock de Nevers 0 3/69 7.5 1.1 Nevers Dock de Nevers 0 10/69 7.1 1.2 106.6 19 ----------------- Exhibit 4 Store Selling Area Operated under the Carrefour Name, 19601972 Store Type 196063 1964 1965 1966 1967 1968 1969 1970 1971 1972 New Selling Area Opened Each Year (000 m2) Wholly owned 6.9 2.5 1 11.5 5.5 22.4 11.7 28.9 29 17.3 Joint venture 3.2 23.8 14 86.5 Franchise 22.1 22.1 18.1 44.3 Total 6.9 2.5 1 11.5 8.7 22.4 57.6 65 47.1 148.1 Cumulative Selling Area Operating under Carrefour Name (000 m2) Wholly owned 6.9 9.4 10.4 21.9 27.4 49.8 61.5 90.4 119.4 136.7 Joint venture 3.2 3.2 27 41 41 127.5 Franchise 22.1 44.2 62.3 106.6 Total 6.9 9.4 10.4 21.9 30.6 53 110.6 175.6 222.7 370.8 Percentage of Cumulative Selling Area under Each Form of Operation Wholly owned 100 100 100 100 90 94 56 52 54 37 Joint venture 10 6 24 23 18 34 Franchise 20 25 28 29 Total 100 100 100 100 100 100 100 100 100 100 -------------------- Exhibit 5 Ownership, Profitability, and Investment Data for Carrefour Affiliates, 1969-1971 Affiliate Name Year Carrefour Ownership (%) Revenue (FF millions) Profit After Tax (FF thousands) Dividends to Carrefour (FF thousands) Investment and Advances (FF millions)a SAMOD 1971 90 17 1,089 221 1.8 1970 92 13 607 221 1969 92 5 417 174 SOGARA 1971 49.9 304 7,710 500 5.0 1970 49.9 257 3,930 150 1969 49.9 97 219 0 Ardennais 1971 14.6 58 175 0 0.8 Ditrimasb 1971 49.9 45 19 0 2.6 1970 49.9 42 8 0 Hypermarch, S.A. 1971 30 - - 0 4.8 1970 30 - - 0 1969 30 - - 0 Itlamare 50 2.2 Hypermarket, Ltd. 10 1.3 Pelaza 68 Other Affiliates - 0.2 Total 18.7 a. At cost; did not include equity in earnings retained in affiliate. b. All values expressed in French francs at exchange rates in effect on October 17, 1972. ------------------ Exhibit 6 Number and Size of Hypermarkets Constructed in France, 19631972 Store Type 196366 1967 1968 1969 1970 1971 6 mos. 1972 Number of Hypermarkets Constructed Independent 3 3 6 16 11 7 8 Chain 1 2 8 19 21 10 14 Department stores - 2 - 7 5 4 5 Cooperatives & others - - 2 3 5 8 5 Total for year 4 8 16 45 42 29 32 Cumulative total 4 12 28 73 115 144 176 Hypermarket Selling Space Constructed (000 m2) Selling space constructed in year 19 42 77 270 258 155 207 Cumulative selling space constructed 19 61 138 408 666 821 1028 Carrefour Hypermarket Selling Space Constructed (000m2) Wholly owned 17 8 22 12 29 29 0 Joint Venture - 3 0 16 8 0 41 Franchise - - - 22 22 18 8 Total for year 17 11 22 50 59 47 49 Cumulative total 17 28 50 100 159 206 255 (Carrefour/Industry) Cumulative 0.87 0.46 0.37 0.25 0.24 0.24 0.24 Source: Enterprise, March 6, 1971, p. 10; September 15, 1972, p. 75; and Carrefours annual report, 1971, p. 21. Note: Data in Exhibit 6 differ somewhat from data in Exhibit 4 because (1) not all stores operating under the Carrefour name were located in France, and (2) Carrefour constructed three stores prior to 1966 that were not large enough to be classified as hypermarkets. --------------------- Exhibit 7 Financial Data for Large Retail Firms in Europe, 1967-1971 Country Firm 1967-68 1968-69 1969-70 1970-71 Sales (FF millions)a France Au Printempsb 5,151 5,480 6,120 6,719 Carrefour 524 1,025 1,445 2,234 Casino 1,245 1,380 1,589 1,868 Docks Remois 586 627 683 732 Galeries Lafayette 556 484 545 582 Belgium G.B. Enterprises 664 812 1,343 1,719 S.A. Innovation 419 381 853 971 Germany Karstadt 4,888 5,281 5,745 6,644 Kaufhof 4,459 4,929 5,218 5,928 Nechermann 2,048 2,190 2,348 2,697 United Kingdom Great Universal 4,084 4,370 4,856 5,079 Marks and Spencer 3,226 3,626 4,129 4,766 Italy La Rinascente 1,366 1,426 1,564 1,744 NetWorth(FF millions)a France Au Printempsb 372 373 378 372 Carrefour 39 89 98 112 Casino 79 110 118 141 Docks Remois 85 89 92 95 Galeries Lafayette 275 267 243 160 Belgium G.B. Enterprises 138 145 225 247 S.A. Innovation 145 152 262 260 Germany Karstadt 1,029 1,102 1,190 1,272 Kaufhof 759 816 858 931 Nechermann 210 216 209 222 United Kingdom Great Universal 1,971 2,002 2,154 2,364 Marks and Spencer 1,328 1,371 1,424 1,858 Italy La Rinascente 298 306 324 314 Net Profit/Net Worth (in percents) France Au Printempsb 4.7 4.9 1.9 0.5 Carrefour 26 18 23 39 Casino 21 14 14 16 Docks Remois 5.3 5.3 5.9 6.9 Galeries Lafayette (1.9) (1.5) (9.9) (52) Belgium G.B. Enterprises 9.9 11 11 15 S.A. Innovation 6.8 4.5 6 4.8 Germany Karstadt 13 13 13 13 Kaufhof 13 14 15 14 Nechermann 10 11 5 7 United Kingdom Great Universal 15 15 15 15 Marks and Spencer 18 18 20 24 Italy La Rinascente 8.2 8.1 7.8 8.3 Current Ratio France Au Printempsb 1.0 1.0 1.2 0.9 Carrefour 0.9 0.9 0.9 0.9 Casino 1.1 1.1 1.2 1.0 Docks Remois 1.2 1.3 1.2 1.4 Galeries Lafayette 1.2 1.0 1.1 1.0 Belgium G.B. Enterprises 1.7 1.6 1.6 1.4 S.A. Innovation 2.6 3.1 1.5 1.1 Germany Karstadt 4.1 3.4 2.6 2.0 Kaufhof 1.7 1.9 2.7 2.1 Nechermann 1.6 2.0 2.0 1.6 United Kingdom Great Universal 2.8 2.6 2.6 2.8 Marks and Spencer 1.1 1.1 1.0 1.1 Italy La Rinascente 0.9 0.8 0.8 0.7 Total Debt/Shareholders' Equity France Au Printempsb 0.9 1.1 1.2 1.4 Carrefour 3.8 2.4 3.7 4.6 Casino 3.5 2.8 3.6 4 Docks Remois 1.3 1.7 2.0 2.1 Galeries Lafayette 0.8 1.0 1.2 1.6 Belgium G.B. Enterprises 1.0 1.3 1.1 1.9 S.A. Innovation 0.8 0.8 1.3 1.4 Germany Karstadt 0.8 0.8 0.9 0.9 Kaufhof 1.5 1.4 1.5 1.6 Nechermann 2.2 2.6 2.8 3.3 United Kingdom Great Universal 0.5 0.7 0.7 0.7 Marks and Spencer 0.6 0.7 0.8 0.8 Italy La Rinascente 1.5 1.6 1.8 2.0 a. At exchange rates as of October 17,1972. b. Includes sales of affiliated stores