Dean Best

In the spotlight: Frustration at coy Carrefour CEO Plassat

By Dean Best | 31 August 2012

Plassats plans lacked detail, some analysts argued

Plassat's plans lacked detail, some analysts argued

Robust, single-minded and colourful were three words that sprung to mind as Carrefour CEO Georges Plassat discussed his plans for the French retail giant yesterday (30 August). However, some investors would like a little less gloss and a lot more meat on the bones.

Plassat joined Carrefour in May, the company's third chief executive in little over three years. Carrefour's problems have been well-documented, not least in the last year, when a series of profit warnings caused unrest among investors.

Plassat, known as The Cleaner in France for his cost-cutting at his previous companies, stood up yesterday at his first Carrefour results conference and was widely expected to provide details of how he planned to improve the performance of the world's second-largest retailer.

In his presentation and in an entertaining question-and-answer session (in which he challenged analysts and the media, including an attack on the trade press), Plassat took in everything from Carrefour's bonus structure to its merchandise and to its international footprint.

The Carrefour chief did outline some of his plans. He wanted Carrefour to be "alert with regards to cost" and "banish waste". He said the company would "work on" its debts, which were "bearable" but had "no more leeway". The retailer, he confirmed, would cut 500-600 administrative jobs.

Carrefour will "rationalise" the range of products it sells, with Plassat questioning the retailer's strategies on own-label, particularly its entry-price products.

Plassat indicated Carrefour would reconsider its position in certain markets, including Indonesia and Turkey. "What we have to do is adjust the various areas in which we want to stay strong because we can't spread ourselves too thin," he said.

The much-maligned Carrefour Planet hypermarkets, devised by his predecessor Lars Olofsson, would be renamed, with the retailer keeping "the very good things" about the format. When asked to extrapolate, he declined. "We are going to disclose less in the future."

That last line is, perhaps, the key to understanding the new Carrefour, the Carrefour under Plassat. He provided little financial details or targets on his "action plan" for Carrefour. He did not, for example, issue a figure for the amount Carrefour would look to cut costs. 

Plassat said Carrefour would look to increase its capital expenditure. He said capex would be EUR1.6bn this year, which he described as "way below the structural needs of a developing retailer". Nevertheless, he would not provide a specific figure for capital expenditure in the years ahead.

The Carrefour chief said the retailer should focus on implementing plans instead of providing public guidance or targets. "I'm convinced this company should work and focus on its business," he said.

Plassat appeared to promise much - something to assuage everyone's concerns - but without really saying how, or how quickly, much of it could be achieved.

Looking at the way Carrefour's share price reacted yesterday, the market welcomed Plassat's general stance as a breath of fresh air. Shares in Carrefour closed up 6.75% at EUR16.81. During the day, they reached a high of EUR17.67.

However, there were some dissenting voices. ING analyst John David Roeg said the jump in Carrefour's stock suggested "French investors" welcomed Plassat's position but added: "For the Anglo-Saxon investors, it's something different that they have to get used to."

More pointedly, Roeg questioned the lack of publicly-stated targets. He acknowledged Plassat's ideas were "logical" but argued it would be difficult to judge if Plassat's plans work without publicly-stated targets.

"The company will provide very little disclosure and no longer any meaningful targets," Roeg told just-food. "He sounds very chauvinistic. The jury is out. He has given himself a very long time to improve things and it's difficult to judge his achievements if there are no targets to compare with. Hopefully they will be a little bit more open when it comes to the full-year results next year but in the meantime it remains a black box."

At Natixis, analyst Pierre-Edouard Boudot said Plassat had outlined the "main ideas" of what he planned to do. "It's a kind of grey box," he said.

However, Boudot agreed the way Plassat had made it clear how he planned to communicate with investors meant it would be difficult to decide if his strategies have been successful.

"He said several times: 'I don't want you to tell what I'm going to do. I want you to judge me on what I have done. Wait for me to make things happen and then you can judge.' It's tough for analysts or journalists to comment on that," Boudot said.

"If you read any report from analysts before today, I guess everybody was saying we should have figures and a disposal plan. Nobody was expecting guidance on EBIT in three years time but small guidance on cost-cutting and things like that, sure."

Boudot added: "I'm not satisfied. It is a fact he is the guy in-charge and he has decided that the way they are going to communicate is very close communication. The tricky thing is going to be in one year time, if he has not delivered, if traffic is still down 5% and margins in France are still at 2%, but trust me it's going to be better than that in two years time, he is going to have some troubles with investors and analysts. Let's see if he has the same kind of communication in a year if he has not delivered."

Plassat has given himself three years to turn Carrefour around. "I think it will take three years, otherwise we won't do things properly," he said yesterday.

He does have a lot on his plate. Tightening up Carrefour's expenditure, while ensuring the retailer has enough funds available to bolster operations in what it perceives are its key markets - France, Spain, Brazil and China. Disposals of assets in markets like Turkey and Indonesia should help that but it will be a challenge.

Revamping Carrefour's merchandise and ensuring its price positioning is right are two elements Plassat has identified as crucial. However, doing this in a tough economic environment, particularly in Europe, will be tough, especially when competition is, to some extent, as fierce as it has ever been.

"I'm sure he's a good guy for the job. The question is how tough is the job?," Boudot said.

When asked how difficult Plassat's task was, Boudot said "for sure" it was a challenging task and added: "I hope Plassat also realises it is a tough job."

Sectors: Financials, Private label, Retail

Companies: Carrefour

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In the spotlight: Frustration at coy Carrefour CEO Plassat

There is currently 1 comment on this article

Pierre-Eduoard Boudot is dead right about the lack of quantitative targets being an issue.

The stock market needs some help to understand where the journey is taking them. The absence of any milestones whatsoever creates future potential for share price volatility, in both directions.

Mr. Plassat displays a fundamental misunderstanding of how the stock market functions and how it values companies. He wants to be judged on his achievements but these will become clear only in three years, if all goes to plan. And when we get there, his historic achievements will be irrelevant per se as share prices are the present value of future cash flows. Past achievements serve only to build credibility/track record and to set the basis for future forecasts.

This is why the setting and the communication of (long-term rather than short-term) expectations in a quantitative sense is so vital for valuations.

 

TheFoodAnalyst.com said at 6:30 pm, August 31, 2012

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