Carrefour S.A. ADR's (CRRFY) CEO Alexandre Bompard on Q4 2017 Results - Earnings Call Transcript
Carrefour S.A. ADR (OTCPK:CRRFY) Q4 2017 Earnings Conference Call February 28, 2018 12:15 PM ET
Alexandre Bompard - Chairman and Chief Executive Officer
Matthieu Malige - Chief Financial Officer
Arnaud Joly - Societe Generale
Cedric Lecasble - Raymond James
Maxime Mallet - Deutsche Bank
Fabienne Caron - Kepler Cheuvreux
Bruno Monteyne - Bernstein
Andrew Gwynn - Exane
Xavier Le Mene - Bank of America Merrill Lynch
Ladies and gentlemen, welcome to the Carrefour 2017 Full-Year Results Conference Call. And I’ll hand over to Mr. Alexandre Bompard, Chairman and Chief Executive Officer. Sir, please go ahead.
Good evening, everyone. I’m very pleased to be with you today. I’ll share a few thoughts as an introduction to this call and then will let Matthieu Malige present the group’s 2017 numbers.
Let me start with a brief overview of this past year. 2017 saw like-for-like sales increasing by 1.6% versus 3% in 2016, reflecting a slowdown of food sales due to a number of factors, including food deflation in Brazil and tough competition, notably in France and Southern Europe. As announced in January, recurring operating income is down 14.7% at current exchange rates. Overall, 2017 operating performance has been penalized by pressure on gross margin, increasing operating costs and higher depreciation expenses.
Lastly, free cash flow from continuing operations, excluding exceptional items is down €90 million year-on-year. These results reflect the group situation I shared with you on January the 23rd. It confirms the urgent need to implement a broad and powerful Transformation Plan to lower our cost base and improve our competitiveness in order to respond to the disruptions affecting our industry.
This is the aim of our Carrefour 2022 plan. After the announcement of the plan on January 23, we have gone on the road for a two-week roadshow. I’m very satisfied by the quality of the dialogue we have engaged in with investors and analysts. We discussed very openly the group situation, the main levers of our plan and the execution of this plan.
Let me say again how important it is for us to keep this free dialogue with you throughout the implementation of the plan so as to make sure we answer all of your questions. 2018 is the first year of our five-year plan and the pivotal year in the transformation we are initiating. My attention is now 100% devoted to executing our Transformation Plan.
As you know, since we had the opportunity to share our plan, I’m focused on delivering our ambition The execution will be measured, monitored and will follow a precise timeline. I’m well aware that you will assess our ability to deliver. That’s why over the past months, the teams have already been hard at work implementing the first steps of the Transformation Plan in each of its pillars.
On our first pillar, a simplified and open organization, the plan has been deployed and is being tailored to each individual country. We aim to finalize by the end of the year the departure plans that have been announced. Concerning the 273 ex-DIA stores that the group plans to divest, the search for buyers has been initiated. We aim to have removed these stores from our scope by year-end.
This requires, of course, pedagogy and dialogue, and our discussions with trade unions have been thorough and constructive since and constructive since January the 23rd. We will maintain an open and regular interaction to transform the company responsibly. This is key to the success of the Transformation Plan.
Productivity and competitiveness gains are our second pillar. I want to stress that our €2 billion cost savings, our strong commitment for the team and that I’m very confident in our capacity to deliver this objective. We have already started the rationalization of indirect purchasing, strict management of expenditure and the renegotiation of historical contracts. A new approach to CapEx control is now in place As for direct purchasing, the negotiations for 2018 that are ending in France are just the first step that reconfirms Carrefour’s attractiveness including for suppliers.
Our third pillar creating an omni-channel universe of reference has been launched. We have been working on our store formats. We now have a clear view on how we are going to better adapt our hypermarket to the catchment area, including by reducing sales area by at least 100,000 square meters by 2020.
Our cash and carry format, Atacadao, is expanding at a fast pace in Brazil with 20 openings this year as well as Maxi in Argentina with 16 openings in 2018. In order to create an omni-channel universe of reference, we need to catch up on Drive openings in France, and that’s what we are doing with the coming openings of 170 Drives this year.
We are implementing for our Drives an industrialized preparation platform in order to finally offer a high quality of service to our customers. This has already delivered very promising results. In order to lead the battle of home delivery, we will deploy our +1 delivery to 10 new cities and D+1 delivery to 14 new cities by the end of 2018 in France.
In addition to this massive expansion of our delivery services, we are working hard to implement an attractive value proposition for our customers in Paris. Thanks to our network of warehouses around Paris and our strong store density within the city.
Still on the creation of an omni-channel universe of reference, we are also taking the lead by developing high-return partnerships with specialists and sector leaders upstream, such as Sapient for our online architecture and downstream, such as Showroomprive for the fashion offer and La Poste for our delivery services.
Lastly, regarding our fourth pillar aiming to overhaul the offer to promote food quality, I’m convinced that pushing this objective is not about communication, it’s about evidence. Laurent Vallee, Group Secretary General, is in charge of the implementation of this ambition, reporting directly to me.
He is working on it with our merchandising, quality, marketing and private label teams in order to identify how to quickly improve our product quality and traceability. It is a long-term ambition that needs to grow through frequent actions. Our decision to suspend wild bass sales in February and March during the breeding period in order to replenish stocks is just one example of our renewed mindset. I can guarantee that many more commitments will be implemented in 2018.
To conclude, I would say that the group is in motion and the teams are very committed to this transformation. I’m impressed by the high level of energy and engagement, which reinforces my confidence in our collective ability to successfully deliver on this plan.
I thank you for your attention. I will now leave the floor to Matthieu Malige, who will walk you through the 2018 figures.
Thank you, Alexandre. Good afternoon to all of you. Let me begin on Page 5 of the presentation with the key figures for 2017. Our net sales at about €78.9 billion were up 1.6% like-for-like compared to 3% in 2016. This reflected a slowdown in food sales, notably due to sharp food deflation in Brazil.
EBITDA stood at €3.6 billion, down 6.4% versus 2016. Recurring operating income at €2.006 billion is in line with our expectation communicated during our Q4 sales announcement, down 14.7% year-on-year. Our adjusted net income group share fell by 25% to €773 million.
Free cash flow, excluding exceptional items at €950 million was down €90 million year-on-year. Net debts improved by €788 million and stood at €3.7 billion at year-end. We’ll take more detailed look at these different aggregates in the coming slide, starting on Slide 6 with our sales performance. Carrefour posted net sales of €78.9 billion in the period, up 2.9% in total and up 2.6% at constant exchange rates.
On the like-for-like basis, sales were up 1.6%, marketing slowing sales momentum, particularly on food, which was impacted by a slowdown in inflation notably in Brazil. Adding in 0.6% of sales resulting from expansion, our organic growth ex-petrol and ex-calendar was 2.2% in the year. Acquisitions added another 0.8%. Positive petrol and foreign exchange impacts of respectively 0.2% and 0.3% were offset by an unfavorable 0.5% calendar effect.
Moving on to Slide 7. We focus on our gross margin from recurring operations, which was down 38 basis point to 23.1%. This reflects a tough competitive environment, notably in France and in Europe. It also reflects a relative underperformance of our purchasing conditions. At the same time, our operating costs were up €575 million to 20.5% of net sales, a 15 basis point increase versus 2016.
This is due in part to cost increases, notably in Latin America, where wage increases reflected past or general inflations, but were well above food inflation levels. Our depreciation and amortization increased by €95 million in 2017. This is due to the above average level of investments over the past few years.
On Slide 8, we look at the currency impact for the year, which was a positive €58 million on recurring operating income. This impact is mainly due to the Brazilian real. As you can see on the graph, on the right-hand side of the slide, the average rate for the real in 2017 was 3.61 versus the average rate for 2016 of 3.86, leading to a ForEx variation of around plus 6.5% in 2017.
This resulted in €44 million positive impact on recurring operating income, which is spread between a highly positive impact in H1 and negative impact in H2. As you can also see on the chart, the spot rate on February 27, 2018 stood at 3.98, whereas the average rate for 2017 was 3.61, which illustrates that so far in 2018, we have a significant negative ForEx effect with the real.
Let’s now turn to our performance by region, starting with France on Slide 9. Sales in France amounted to €35.8 billion, broadly stable. On a like-for-like basis, sales were up 0.8%, reflecting tough commercial momentum throughout the year persistently challenging competitive environment.
Recurring operating income amounted to €692 million, down 32.9%. Operating margin stood at 1.9%, down 94 basis points year-on-year. This reflects both the environment I have just described and the fact that losses of €150 million from ex-DIA stores continued to weigh on profitability.
On Slide 10, we look at other European countries, where operating margin is slightly down, reflecting contrasting performances by region. Net sales stood at €21.1 billion, up 1.3% like-for-like and 5.1% at constant exchange rates. Thanks to the Eroski and Billa acquisitions.
Recurring operating income was down 4.9% on a reported basis to €677 million. This represents a margin of 3.2%, down 34 basis points, reflecting differing performance from country to country. Margins in Northern Europe held up well, while Southern Europe was notably affected by a highly competitive environment.
Let’s now turn to Latin America on Slide 11. Net sales for the year reached €16 billion, an 8.3% rise at constant exchange rates. This represents a solid performance, given the strongly deflationary environments we saw in food in Brazil in the second-half of the year, like-for-like sales were up 6.1%
Recurring operating income of €715 million rose 0.6% at current exchange rates, but was down 7% at constant rates. Recurring operating income margin was down 44 basis points to 4.5%. This performance reflects operating losses in Argentina linked to a difficult economic situation in the country.
Brazil posted a solid performance despite a strong food deflation. Its profitability growth notably reflects continued improvements at Atacadao. Atacadao’s performance this year demonstrates the strength of the format in Brazil, in particular in the challenging economic environment. As you know, we plan to accelerate the opening of Atacadão stores with 20 new openings this year.
Another important element 2017 in Brazil was the successful announce of the Atacadão credit card, whose startup cost temporarily impacted the profitability of financial services, but which is very promising with close to 1 million cards issued already.
Let’s complete our geographical roundup with Asia on Slide 12. The region returned to profitability in 2017, with H2 confirming the turnaround we started to see in the first-half. Recurring operating income was a positive €4 million versus a negative €58 million in 2016, and recurring operating income margin was up 101 basis points. This performance came despite a 3.2% drop in sales at constant exchange rates and 3.7% drop like-for-like.
This performance shows that our action plans in China are beginning to bear fruits, in particular, through significant cost reduction at a time when consumer habits are evolving rapidly. Taiwan for its part continued to perform well and improved its profitability.
Let’s now turn to our adjusted net income group share on Slide 13, which was impacted by non-recurring charges in 2017. Net income from continuing operations group share amounted to a negative €531 million. This loss is mainly attributable to €1.3 billion non-recurring charge, which I will explain in detail on the next slide.
Net financial expenses improved by €70 million, reflecting the group’s deleveraging and decreasing interest rates. Tax expenses stood at €618 million versus €494 million last year. This increase notably reflects write-offs of deferred tax assets, whose recovery is not probable notably related to the ex-DIA scope and also in Argentina. Adjusted for these exceptional items, the normative tax rate is 39%. Adjusted net income group share restated for exceptional items amounts to €773 million.
On Slide 14, we detailed the €1.3 billion nonrecurring income and expenses that I just mentioned. Restructuring cost amounted to a negative €279 million as a result of continued transformation actions announced in 2017 in several countries. Nonrecurring items this year also includes a €700 million non-cash impairments on our Italian goodwill, as well as €333 million charge, mainly reflecting the depreciation of assets related to the ex-DIA network.
This leads us to our 2017 free cash flow on Slide 15. Excluding exceptional items free cash flow stood at €950 million versus €1,039 million in 2016. Gross cash flow stood at €2.653 million, down about €300 million versus last year, reflecting lower profitability. Change in working capital requirements amounted to a positive €189 million, resulting notably from a strict inventory management. Investments stood at €2.145 billion, excluding Cargo. This represents a significant decrease versus the €2.5 billion in 2016. Investments in 2017 whereas move towards the normative level of €2 billion that we announced on January 23.
Free cash flow stood at €503 million after taking into account the other effects detailed on the slide. Adjusted for €207 million linked to Cargo and €240 million of exceptional items, free cash flow excluding exceptionals reached €950 million.
As you see on Slide 16, our net debt in 2017 stood at €3.7 billion at year-end. This slide is self-explanatory as you can see the net debt improved by €788 million. In summary the Group’s financial structure at December 2017 improved and remained solid.
On Slide 17, we looked at our debt repayment schedule and credit rating. In 2017 we redeemed €1.25 billion in bonds and on June 14 we issued $500 million in non-dilutive cash-settled convertible bonds swapped in euros with a maturity of six years and a zero coupon. Our debt maturity now stands at 3.9 years and our credit rating is unchanged at BBB+.
On Slide 18 we look at our proposed dividend for 2017. We’ll propose to the general shareholders assembly that will take place on June 15 to pay a dividend of $0.46 of euro per share, down 34% versus the $0.70 paid out last year. Once again, we will offer our shoulders a choice of receiving their dividend in shares or in cash. Based on the Group’s adjusted net income, the payout ratio is 45% in line with our distribution policy.
Let’s conclude on Slide 19 with our outlook for 2018. This year is a pivotal year for transformation plan. 2018 will be marked by the first advances in each of our four pillars of the Carrefour 2022 transformation plan that Alexandre described a minutes ago.
On a more financial level, the Group’s results re-reflect two key elements. First of all the evolution of exchange rates and notably that of the Brazilian real. The real’s spot rate yesterday stood at 3.98 compared to an average rate in 2017 of 3.61 reals to the euro. Therefore Carrefour starts 2018 with a very negative Forex effect. This is a factor that must be taken into account when considering 2018 profitability. Secondly, our above-average investments of the past years will lead to a further increase in depreciation despite the financial discipline of Carrefour 2022 with CapEx at €2 billion as of 2018.
Well, I thank you very much for your attention and I’m now ready to take your questions.
[Operation Instructions] The first question comes from Arnaud Joly, Societe Generale. Please go ahead.
Yes, good evening Alexandre, Matthieu and team, I have three questions. The first question on accounting, when will you start to fully deconsolidate the EBIT losses of the ex-DIA stores? Will it be at half 2018 or more 2019 and so same question for the five hypermarkets that will be converted under lease management contracts.
The second question, can you tell us how you will monitor execution, if you have some specific incentive for store managers or for your top managers? And the last question, if you have more details to provide on your Carrefour China deal, in particular the stake you will keep in the assets? Thank you.
Thank you and good afternoon Arnaud. As far as accounting is concerned and notably on the evolution of the perimeters, we are still finalizing our analysis, but as of today it seems that there will be divestments or closure notably for the ex-DIA stores that will take place through the year, depending on our ability to find specific buyer or to move towards a closure of the stores. So we will start to account for – or to stop accounting for the losses when those stores have left our perimeter. The same will apply to the five hypermarkets that we intend to transfer to lease management contracts. Once the management contracts enter into effect then the accounting will follow that operating situation.
Your second question related to incentives and the key metrics, we see, as you saw on January 23, there are very high number of metrics, it’s very detailed and so these metrics are now being spread on a country by country basis, and there will be the basis of the incentives on the local management team depending on their role and responsibility and the ambition we have for each country. So you can be reassured there. There will be a very strong alignment of interest between the teams locally including in the stores, the local executive teams in each of our country and the teams here in France and at Group level.
Relating to your third question concerning Carrefour China and the progresses of the discussion with our partners. As we announced, we are now in the process of finalizing these discussions with our partners, so this is a still work in progress. We have nothing more specific to add or to announce, notably as you are specifically relating to the stakes of the various shareholders. This is still work in progress and we need to still give it a little more time, but things are progressing smoothly there.
Thank you very much.
Thank you. The next question comes from Cedric Lecasble, Raymond James. Please go ahead.
Yes, good evening Alexandre, Matthieu and team. I have three questions, so first one is on sort of European profitability, you gave the evolution for the total, saying that Southern Europe was a little more difficult than Northern Europe. Could you be a little more specific and maybe tell us how the situation evolved in your main markets, Spain, Italy and Belgium in terms of profitability?
The second question is on the phasing of the plan. How should we look at the phasing of cost benefit, what would be the first cost benefit and how should we look at the phasing of the restructuring charge and what kind of restructuring charge or specific investments do you see to implement the plan? Well, basically I would stop there.
Thank you Cedric. On your first question relating to the performance in our European markets excluding France. We basically try to make things as simple, comment on Southern Europe which would include Spain and Italy. We have seen markets there with the competitive dynamics and competitive intensity has been particularly strong in 2017.
And I think I commented that last month as related to the trends in our sales performance in the region. You also have an effect as far as profitability is concerned on the inflation of salaries, notably in Spain where you know that some indices had been frozen for a number of years and inflation started again in 2017. As far as Northern Europe is concerned, we have more dynamic sales trends as you saw in markets which are less competitive in terms of dynamics than what we have observed in Southern Europe.
Coming to your second question on the phasing of the plan and the cost benefit. So on the cost side and the ambition to reach €2 billion on a full year basis by 2020. As Alexandre said the actions have been launched. That will spread out through the years. Well, usually there is a number of categories of cost where we can generate some savings more rapidly, notably thinking about direct costs where it’s more about negotiation, the same would apply to some extent to indirect costs.
When it’s related to organizations it obviously takes more time, notably as far as the transformation plans that we have announced for 2018, these plans have started in terms of implementation, a very intense social dialogue is taking place and it is a very important point for us that we have a very intensive social dialogue. These plans will be – the discussions will continue through the year with the objective at, by year end the transformation be implemented with the effect coming in 2019.
As far as the restructuring charges, obviously some announcements have been made in H1 2018 notably on January 23 so that will generate nonrecurring charges in H1 this year. The cash effect of that will probably be in the second half of the year on the beginning of 2019.
Thank you Matthieu.
Thank you. The next question comes from Maxime Mallet, Deutsche Bank. Please go ahead.
Yes, good evening, thanks for taking my question. I have three as well. The first one is relating to your price competitiveness, you say you want to move rapidly there, so I was wondering whether you have started already making some investment on prices and promotion and if so, if you could elaborate a bit about where and how much would be grateful.
The second one is with regard to coming back a bit to the previous question on the phasing of the gain and the costs, you mentioned a few effects that should be positive in term of cost-cutting quickly. Does that mean that you expect the margin to be stable, or even slightly up in 2018. I think the constant exchange right now is at €2.06 million EBIT for the full-year 2018. So do – are you comfortable with this level of the constant exchange?
And the last one is, with regard to tax, so the tax rate was 39% is your normative rate or 2017? Is it the rate you expect that you will have going forward? Thank you.
Thank you very much. So on your first question relating to price competitiveness, obviously, it’s a very sensitive topic. And today, we’re mainly focusing on the 2017 performance. So we’ll not answer on that point specifically, but it’s a key point off of the plan. So clearly, later through the implementation of the plan, we will share with you the type of progresses that we’re making on improving our attractivity for our customers.
On your second question, regarding the phasing of the gains and cost and more generally, what we shall expect for 2018. I’m not going to comment on the consensus. What we’re saying on 2018, we will have the first gains notably on the cost savings plan, and we also have the first investments into a price competitiveness.
As we said on January 23, the execution of the plan will be done with very strict financial discipline, meaning that we want to invest into a competitiveness, a portion, a big portion, but a portion of our cost savings. Then there are two specific technical items that will impact our profitability in 2018. I’m not going to say that again, but that includes the ForEx effect with Brazil and the increase in depreciation.
As I said in my comments, depreciation increased by €95 million in 2017 versus 2016. This is due to the high-level of investments that the group implemented over the past few years. And so it starts now to impact the D&A line, and these effects will clearly continue into 2018. So these are the items that need to be taken into account on top obviously of the dynamics of the business to have meaningful thoughts about 2018.
Then your third question relates to the tax rates. So the normative tax rate is 39% this year, it was 36% last year. We have a base effect of the CVAE in France, which is accounted as income tax, but obviously not directly calculated on the profits before tax. I think this is the area where our tax normative tax rate is standing year-after-year. So I think it’s fair to assume that’s – this is what we should see in the future.
Thank you. And if you allow me, I would just have a very quick follow-up. You mentioned the D&A being up €95 million in 2017 and expect it will go up further in 2018. Is it by the same order of magnitude that what you’ve seen in 2017?
Well, I’m not making any forecast on that specific point. I’m just pointing out to you then what was the historical investment policy of the company that you have lagging effects there. And so this trend of increasing D&A will continue in 2018.
Okay. Thank you.
Thank you. The next question comes from Fabienne Caron, Kepler Cheuvreux. Please go ahead.
Yes, good morning, everyone. I’ve got three questions. The first one on the goodwill impairment on Italy. I was a bit surprised, because I thought Italy had made some progress over the last few years. So I was wondering why you said to be more cautious on Italy going forward, if you could give us some color? And on this point how confident are you with your goodwill position in France?
My second question is regarding as well the restructuring cost. Did I understand you clearly that the €279 million that you passed in 2017, you will have more to pass in 2018, or is it the word it wasn’t appear to me exactly what will come regardless of plans that you set over the next three years?
And the last question would be, can you give us your view on how the loss in China and in Argentina should develop over 2018 please.
So first question on the impairment of the Italian goodwill. So as you know, as part of the accounting processes for the computation of the accounts each year, we run a test on our goodwills in all our geographies, and you mentioned the French goodwill that also applies to the French goodwill.
Resulting from this test it’s made clear that given the evolution of the markets in 2017, and notably the more competitive dynamics that occurred in the markets in 2017, another set of assumption had to be retained, and that’s resulted into the goodwill impairment.
I really want to stress out that this is a pure accounting issue, it’s non-cash and it has no relation to or feeling about our business in Italy. We are satisfied with our business in Italy. As you said Fabienne, number of progresses has been made over the past few years. We are, as we speak, deploying Carrefour 2022 in Italy and the teams are very enthusiastic into implementing that. As far as the French goodwill, specifically it’s been tested and we are comfortable with our current situation there.
As far as the – your second question relating to the restructuring charges that I mentioned in the non-current income for 2017, these charges relate to announcements that were made into the course of 2017, that includes a number of reorganizations in a number of countries. That includes also some transformation in France, on the logistics that were announced earlier in 2017. It does not include the announcements, which were made in 2018, and notably on January 23. These announcements will have to be accounted for during the first-half of the year as provided by the accounting rules.
Your third question relates to the situation of all business in China and Argentina. Let’s start with China. So as you understood, our performance is improving there in 2017, due to a number of actions, notably on the cost and transformation of our footprint there. So this goes into right direction.
Clearly, that was the sense of entering into a partnership with Tencent and Yonghui. We have strong expectations for these partnership. We think that it will allow us to transform Carrefour in China and therefore, have more attractive model for our customers, which should create value in China.
Coming to Argentina, the situation, which is a little different, because the macro environment in 2017 in Argentina has been difficult since improved by the end of the year. We have announced that a new manager would join China – Argentina, sorry, starting February 1. We also have announced a quite ambitious plan notably on the Maxi format, which is our cash and carry format with the transfer of 16 hypermarkets to that Maxi format. So we have an ambitious plan there and a more stable macro situation, so we are quite comfortable that all these actions will take our business unit into the right direction.
Okay. Thank you.
Thank you. The next question comes from Bruno Monteyne, Bernstein. Please go ahead.
Good evening. Two questions for me, please. You’ve talked a lot about the cost savings, the financial disciplines. But I assume, as in any good food retail recovery, the volumes growth in France has to be one of the key lead indicators to make the turnaround work. How long should we expect it to take before we get some meaningful improvement in the volume growth in France? What would be a realistic expectation?
My second question is if you look at the ROI in global functions has deteriorated in the second-half as well, can you explain why? And is that a new level that we’ve seen in 2017 for going forward in the recurring operating income in global?
And my last question is regarding your investments in e-commerce in food in France. It’s a materially big investment, but Leclerc also made a very large announcement for accelerating its investments in e-commerce. Is the amount of investment you’re doing really able to catch up with Leclerc, or are you just about able to keep pace with the investments they are making? Thank you.
Thank you. Your first question relating to volume growth, I think we agree that this is really the ambition of Carrefour 2022. Carrefour 2022 is a growth plan with a strong ambition. In order to increase the volumes into our business, it means transforming our model on a number of aspects that are included into the plan, and notably on two of them, one is improving the competitiveness of our offer and then is about building an omni-channel model of reference as we are absolutely convinced that customers will be seeking more and more a retailer that offers full and integrated omni-channel offer.
I think we’ve been quite precise as to how – at what pace we want to invest on competitiveness and on implementing this – the various pillars of this omni-channel model. How will it impact the behaviors of the customers is something that we will follow very closely and we’re not making any specific forecast there? But clearly, this is an objective that we are looking at very closely.
Then your second question is about the recurring operating income in the second-half of the year and whether this is the right level. Just a technical comment as an introduction to my answer make sure that, as you know, there was Tascom changes last year between H1 and H2 for a significant amount. Let’s make sure you have the right reading there.
Then I think overall, we’re not satisfied with the current performance and the current level of our operating income. This is why Carrefour 2022, this is why we want to implement it as fast as we can with clearly some ambitions through the plan. As far as e-commerce in France, well, no supplies. E-commerce, the French market is a competitive market. I’m very happy to see that a number of our competitors see as we do that the future of our business is on e-commerce.
We are multiplying our investments by six times, as we said on January 23. The ambition is to invest €2.9 billion over the course of the five-year on the digital transformation of the plan. We think it is very significant. We think it is going to profoundly change the customer proposal that we can make into the French market. Obviously, we’ll be monitoring very closely what competitors offer and we will adapt. But we think that we have substantial resources and clear determination to make a real change there.
Thank you. The next question comes from Andrew Gwynn, Exane. Please go ahead.
Hi, evening. Most of my questions have been covered off. But actually, I just wanted to come back to the tax rates. You said it will stay around about 39%, which is a bit surprising. You have obviously lower statutory tax rate coming in, in France. You are getting rid of some of those loss-making assets and as well actually the Brazilian businesses are increasingly important part of earnings, so obviously carries a lower rate. So why does the tax rate stay so high, or is it just a question of timing 2018, maybe 2019, 2020, it will come down a bit further.
And then second one, I think it’s fairly clear here that we should expect a further step-down in EBIT in the first-half of 2018, so year-on-year step-down in EBIT. Is that right? Thanks.
Thank you. Well, regarding the tax rate, again, there’s a number of deferred tax assets that have been written off due to the evolution of the performance in a number of countries. I mentioned earlier that we have the CVAE in France, which is somehow a fixed number more related to the volume of our business than to the actual profitability.
So clearly, when you have a drop in profit deferred tax, that weighs on your tax rate. Nothing specific to report on the tax rate and nothing that really surprised us. As far as the H1 EBIT side, I will not comment as we are constantly doing.
Maybe we have time for our last question.
The next question comes from Xavier Le Mene, Bank of America Merrill Lynch. Please go ahead.
Xavier Le Mene
Yes, good evening. Actually, thank you for taking my question. Two if I may. The first one just back to the phasing of the cost savings, as well as the price investment. How does it work actually? Are you waiting to get the cost savings first before you start to invest in prices, or are you willing to take potentially the pain before the cost savings come to fruition? That’s the first question.
The second one, can you give us a bit more color on the French operating profit? I know you don’t disclose hypermarket, supermarket or convenience. But where is the pain mainly coming from? So can you give us a bit more details on the potential margin trajectory for the different phases?
So as far as the cost savings and the phasing and how that relates to the investments into price competitiveness and digital transformation of the group, I think indeed, we want to implement that with very strict financial discipline, meaning that we want to invest what we save as part of the cost savings plan. So it means that there is really a coherence as far as timing is concerned between the cost savings and the investments that we make.
As far as your second question relating to the French operating profit, I’m not going to break it down. But I think you understand from the trajectory that we’ve been disappointed with the performance of sales in 2017 that are attributable notably to a very competitive environment generally. So I’d say across all formats, which weighed on the margins. And that really drove the impact on the profitability and the recurring operating income for 2017.
Xavier Le Mene
Okay. Thank you.
Well, let me all thank you for your questions and for taking part in this call. We look forward to further exchanges with you through the year. And for today, I wish you a very good evening. Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
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