CARREFOUR: SYNERGIES PRODUCE STRONG RESULTS

ROBERT MURPHY

PARIS -- Synergies with Promodes helped Carrefour register a double-digit increase in first-half earnings.

A year after merging with rival retailer Promodes, French distribution giant Carrefour said earlier this month first-half net profit grew 10.7% to $271 million, compared with $245.7 million during the same period last year.

Sales increased 27.7%to $27.6 billion, calculated on a pro forma basis to reflect the inclusion of Promodes. Carrefour acquired Promodes in a friendly stock swap last Aug. 31 that valued Promodes at $16.7 billion. The merger went into effect on Jan. 1, making the new group the second largest retailer in the world behind Wal-Mart.

"We are on line with our projections, which reflect the successful inclusion of Promodes," Daniel Bernard, Carrefour chairman and chief executive officer, told reporters at a news conference.

"We have created real operational synergies [between Carrefour and Promodes] and are moving forward in a healthy direction," said Bernard.

Synergies created by the merger contributed $185.4 million to the first half result, according to Bernard, while costing $72.9 million in new investments. Bernard added the acquisition -- the largest ever of its nature in France -- would cost Carrefour $180 million, less than the $208 million initially estimated.

Dollar figures have been converted from the euro and the French franc at current exchange rates.

The merger has "completely changed the face of our business, even our nature, giving us a new personality and new potential," said Bernard of the firm, now present in 26 countries around the world.

Based on the success of the merger, Bernard projected full-year sales would increase 20-25%. He said operating profit should increase by 35-40%.

While Bernard underscored the group's increased strength in Europe following the recent acquisitions of Italian distributor GS and Greece's Marinopoulos, he said a tough economic environment in Latin America had adversely affected business in the region.

Geographically, France accounted for 53% of sales with $14.6 billion, the rest of Europe 26% with $7.11 billion, the Americas 14.8% with $4 billion and Asia 6.2% with $1.7 billion.

Going into the meeting, investors had voiced concern Carrefour had failed to provide a clear Internet strategy following an announcement at its annual shareholders meeting in March that it had earmarked $1 billion for investments in the sector.

Bernard attempted to quell those fears by describing a string of e-commerce sites the group plans to launch in the upcoming months, including a specialized wine site in this month, a gardening equipment site in October and a beauty and health products window in November. Carrefour is planning to launch a portal linking all of its existing sites sometime next year, said Bernard.

Meanwhile, he said the group had been poring over a strategy for a garment site, but said Carrefour wasn't yet ready to project a launch date.

"With each e-commerce operation, we want to maximize our expertise and create synergies with our existing distribution structure," said Bernard. "We want to proceed prudently in the sector so we can establish the best business model."

Bernard said Carrefour expects to spend $22.5 million this year on Internet development.

Looking to the future, Bernard said Carrefour will inaugurate its first store in Japan -- just outside of Tokyo -- by the end of the year, with units to follow in Tokyo and Osaka. "Japan is a very important market for growth," said Bernard.

News of that store opening follows this week's disclosure that Carrefour was shuttering its four Hong Kong units. Bernard explained the firm was prompted to close the stores for strategic reasons, and that it would now funnel its resources to other target zones in the region, including China, South Korea, Taiwan and Japan.

"We encountered difficulty finding suitable sites for expansion, so we decided to withdraw from the market to concentrate our energy on growth elsewhere in the region," explained Bernard.

Addressing an investigation into whether insider trading and fraudulent activities were undertaken in the days leading up to the Promodes acquisition, Bernard said, "There has been no investigation of wrongdoing among Carrefour employees."

The investigation by the Parquet de Paris is focusing on locating who was responsible for a leak made to the French press just before the merger. The resulting news report inflated Promodes' stock. Bernard added that investigations have concentrated on locating an outside source for the leak.