Groupe Casino has issued a statement refuting the claims made by Bernstein Research on the French retail group's relations with its franchisees, particularly relating to the cash impact of these operations.
Yesterday, Bernstein downgraded Casino to 'underperform', following a review of Casino's related party transactions, chiefly involving its French franchisees.
'These franchisees and their transactions have a material impact on the company's profitability, cash flow and therefore should be carefully considered when valuing the company,' Bernstein said in its note.
Complex Transactions
The broker claimed that the transactions between Casino and its franchisee partners tend to be 'complex', saying ' a single store may be recapitalised and sold between different companies multiple times within the same calendar year'.
It also questioned how the equity injections into some franchisees were being recorded by the company, suggesting that 'Casino might incur a material part of future losses if those equity infusions, asset contributions and sales prices create the impact of pre-funding losses'.
It did, however, add that its claims were 'not proof of anything', rather they raised questions as to 'what the nature of those franchisee sales transactions really are'.
Refuted Claims
In its response, Casino said that it 'refutes the report’s presentation of the cash impact of those operations. As acknowledged by the analyst in the report, the results of the franchise partnerships are fully disclosed and appropriately accounted for'.
Casino said that it operates a number of franchisees across its convenience formats (including Franprix, Leader Price, Casino), with stores often moving from franchise to integrated and vice versa.
'Casino has majority or minority stakes in those companies which results into different accounting treatments,' it said. 'In summary: Casino has no obligation to buy back the stores transferred to franchisees.
'In a very unlikely scenario where all the stores transferred would have to be simultaneously closed, the one-off cost for the Group would be limited to around €50 million.'
Casino added that it 'strongly believes in its franchised business model. Partnerships with franchisees have been historically at the core of the Group strategy, especially for the Franprix and Leader Price banners.'
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
