Carrefour has revealed it is having difficulty tracing the source of accounting issues at its operations in Brazil, which have led to the world’s second-largest retailer to cut its profit target for 2010.
Speaking to analysts yesterday (30 November) after Carrefour admitted it would incur higher costs in Brazil than first thought, CEO Lars Olofsson said it was “hard to chase back [the] original accounting issues”, which, he added had been accumulating for “possibly more than five years”.
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The company announced that following a series of audits, the company will record EUR550m in one-off charges from its Brazilian business, against the EUR180m previously estimated in mid-October when it first shaved its 2010 profit goal.
Carrefour CFO Pierre Bouchut said the EUR550m of charges included a EUR110m inventory write-down, EUR280m for provisions for potential labour and tax litigation, EUR35m in supplier rebates, EUR75m in asset depreciation, and EUR50m of other accounting adjustments, including supplier credit of EUR22m.
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The issues in Brazil have been a central factor behind the retailer cutting its operating profit target by EUR130m to EUR3bn for 2010.
Olofsson said there has been a “malfunction in management” and the company is determined to get to the bottom of the causes, and has launched a forensic investigation into issues.
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By GlobalDataWhile Olofsson said he “[saw] no reason to extrapolate these issues to other markets”. The company has put in place a new management team in Brazil as well as improving internal accountability globally to prevent such issues happening again.
Olofsson said Carrefour has strengthened its core global finance function and will implement a new set of ethics rules from May next year as well as setting up a series of new rules around growth while beefing up its internal audit team.
The issues in Brazil were not the only driver behind the lower forecast. Carrefour cited a EUR50m charge relating to its discontinued Thai operations and a persistently challenging trading environment in Europe.
On the issues plaguing its European operations, Carrefour attributed the fall to the adverse economic environment in Greece, Italy and Spain. Describing slow or even negative sales growth in these markets, Olofsson said “food prices are coming down in Spain due to deflation” and that supermarkets and discount stores were performing better than its hypermarkets. He added that Carrefour has been able to “more or less” maintain profitability in the country due to cost-cutting measures.
Olofsson also highlighted the intensifying competitive landscape in Spain, saying that competition has heated up since September. According to Kantar Worldpanel data, Carrefour has lost market share in Spain but Olofsson said the losses were down due to its competitors opening more space.
However, he added that when taken on a like-for-like basis using Nielsen data, Carrefour’s market share in Spain had actually improved.
Shares in the company are down 6.8% at 15:22 CET to EUR32.47.
